This appeal by assessee is directed against order of learned Commissioner of Income-tax (Appeals)-IV, Bangalore, dated 4-6-2004, in appeal against levy of penalty under section 271(1)(c) of Income-tax Act, 1961 (the Act). only issue in appeal is regarding levy of penalty under section 271(1)(c) of Act in respect of disallowance of depreciation on assets in form of special grade cst iron rolls (SGCI rolls) leased to Bellary Steel and Alloys Ltd. (BSAL). 2. assessee-company is carrying on business of finance and leasing of equipment. During financial year relevant to assessment year 1997-98 BSAL was planning expansion of its steel business. For said purpose, they approached Kotak Mahindra Finance for preparation of necessary project report and avail of finance for same. Kotak Mahindra group approached various financiers including appellant-company for same. On appraisal of report and on strength of profitability as well as management of BSAL like Mr. C.S. Pani, former IAS officer as chairman, Mr. K.C. Kondaiah, Member of Parliament and Mr. S. Madhava, managing director, assessee agreed to lease equipment in form of SGCI rolls. value of such rolls was approximately Rs. 100 lakhs. BSAL was to place order as per its requirement. Accordingly, BSAL procured same from one M/s. B.M. Steel Pvt. Ltd. (BMSL), Chennai. On strength of following documents, lease was granted. copy of these documents was filed by assessee during assessment proceedings: (1)Certified copy of board resolution by BSAL dated 25-7-1996. (2)Lease deed dated 25-9-1996, which is signed by Mr. S. Madhava, managing director. (3)Pro forma Invoice No. 127/96-97, dated 14-9-1996, and final Invoice No. 318/96-97 dated 24-9-1996. (4)Certificate of installation signed by. Mr. C. Sasikanth, director finance, on letter-head of BSAL. (5)Receipt issued by M/s. B.M. Steel Pvt. Ltd. (6)Delivery challan issued by M/s. BMSL duly acknowledged by BSAL. (7)Copies of goods consignment note issued by Sri Balaji Roadways Nos. 2254, 2255 and 2256 with rubber stamp of BSAL for payment of freight charges and also signed at back of consignment note by said BSAL for acknowledging receipt of rolls at their factory premises. (8)Certificates from bank attesting signature of Mr. S. Madhava, managing director, and K.C. Kondaiah, whole-time director. (9)Copy of our leased finance letter dated 25-9-1996. (10)Copy of BSAL letter dated 26-9-1996, enclosing various documents. (11)Copy of profile of BSAL and (12)Twelfth annual accounts. 3. lease rent was payable in 12 equal quarterly instalments of Rs. 10,74,732 each. post dated cheques in this regard were handed over to appellant by BSAL on signing of lease deed. It is also to be noted that 9 instalments towards lease rent were paid and same was offered as income o f relevant years. first default towards lease rental occurred when cheque dated 25-12-1998, presented on 15-4-1999, was not cleared due to insufficiency of funds. Apart from ownership of SGCI rolls, lease was further secured by pleading of 6,10,500 equity shares of Rs. 10 each of BSAL belonging to Mr. K.C. Kondaiah or his group company. shares were quoted at Rs. 17 per share on stock exchange at relevant time. It was further guaranteed by personal guarantee of Mr. S. Madhava, managing director. On 1-10-1996, following documents were furnished by BSAL to assessee: (1)Invoice No. 318/96-97 dated 24-9-1996, for Rs. 99,12,800 towards 32 Nos. of rollers. (2)Delivery of challan on D-318 dated 24-9-1996, duly acknowledged for receipt of material on 27-9-1996. (3)LR Nos. 2254, 2255 and 2256 dated 25-9-1996. (4)Certificate of installation and put to use dated 27-9-1996. (5)Stamped receipt from suppliers M/s. B.M. Steels Pvt. Ltd., Madras, for amount of Rs. 99,12,800. (6)Blank transfer Form No. 642375 signed by Mr. K.C. Kondaiah, for pleading his personal shares and blank transfer form No. 642376 signed by M/s. Kodiganti Investment Limited for pleading their shares. 4. survey was conducted at premises of BSAL on 1-5-2000. On 12-6- 2000, physical verification of SGCI rolls was made. As per physical inventory, 361 SGCI rolls were found. This includes rolls purchased as well as obtained on lease. Assessing Officer during survey found that total number of rolls leased and purchased should have been 3702, but only 361 rolls were found. It was also found that BSAL was not maintaining any stock register for SGCI rolls leased. Enquiries were also conducted with BMSL. It was noticed that said BMSL had two directors, out of whom Mr. Mukundlal Bagree passed away. Smt. Asha Bagree, wife of late Mukundlal Bagree was examined by DDIT (Inv.), Chennai. M/s. BMSL was unable to produce any books of account or records for production and sale of SGCI rolls. bank account details of BMSL were called for. Assessing Officer noticed that BMSL received large amount from various finance companies and BMSL diverted all sums to BSAL, lessee, on same day or next day. Assessing Officer therefore concluded that BMSL is non-entity to produce rolls. funds were utilized by BSAL. transporter M/s. Balaji Roadways, who is said to have transported rolls, was also examined. transporter said that they have not supplied any material other than transporting scraps to BSAL. transporter also disowned photocopy of invoices of M/s. Balaji Roadways and stated that it is belonging to some other concern of his relative. On basis of enquiry during survey BSAL, enquiry with BMSL, Chennai and transporter, Assessing Officer concluded that lease transaction is bogus and sham transaction only to avail of depreciation benefits on non existing assets. When these facts were confronted to appellant, appellant by its letter dated 8-3- 2002, submitted as under: "During financial year ended 31-3-1997, Kotak Mahindra group of companies approached our company suggesting that BSAL group require certain assets costing several crores and requested us to finance for lease of some of assets which are eligible for 100 per cent depreciation. They informed us that several other leasing companies and financial institutions are also joining to finance BSAL for 100 per cent lease. They also informed us that these assets are required for purpose of on going expansion programme of BSAL and relative project report was also given. They informed us certain/steel rolls costing about Rs. 1 crore has already been ordered by BSAL on one B.M. Steels Pvt. Ltd., Chennai, and pro forma invoice dated 14-9-1996, for Rs. 99.12 lakhs was also given to us. Further intermediary financiers also agreed to get us all connected documents, personal guarantee of Mr. S. Madhava, managing director and security of Mr. K.C. Kondaiah by pledge of share certificate of BSAL, which was also company quoted on Bombay Stock Exchange. In belief that this transaction is purely lease transaction and since we will be eligible for 100 per cent depreciation on assets leased on good faith; we agreed to lease steel rollers. We concluded that BSAL was very sound company as former IAS officer, Mr. G.S. Pani was its chairman. lessee had also given advance cheques along with lease transaction. We believed that entire transaction was bona fide transaction and further few other leading leasing company have also participated in lease and at no point of time we had any doubt in transaction. To support purchase of assets, lessee had furnished all necessary documents like sale bill, lorry receipt installation certificate, board resolution, project report, personal guarantee of MD securities in form of shares etc. Subsequently lease rent were also being paid by them regularly. advance cheques issued by them started bouncing after seventh instalment, then only we realised that BSAL were in serious financial difficulties. It is apparent from financial results of company that there are huge outstanding dues from assessees debtors and recovery from these debtors is very remote. In view of facts that there being no reason to disbelieve existence of plant and machinery on basis of documents already furnished, it would be appropriate for us to reserve right of cross-examination of persons who have given statements recently, as which basis assessment is reopened. Without admitting statements of concerned persons and non- existence of assets on basis of materials available and in alternative, to buy peace, we have considered disallowance of 100 per cent depreciation as earlier claimed with humble request not to levy penalty in view of peculiar facts. For your kind information, lease rent received by us have been offered to income-tax in subsequent years. We would request you to kindly consider to reduce principal portion of return of capital by BSAL out of lease rent offered for taxation." 5. authorised representative agreed for revenues proposal of disallowance of depreciation. On consideration of reply of appellant dated 8-3-2002, and on basis of personal appearance of authorised representative, Assessing Officer disallowed depreciation wherein he observed as under: "As assessee has opted not to reply to specific issues of assets not being in existence ever and instead offered to accept proposed disallowance of depreciation, same is accepted. 100 per cent depreciation claimed of Rs. 1,01,11,056 is hereby disallowed on claimed ownership of SGCI rolls and claimed lease transaction." 6. After computing total income and tax payable, Assessing Officer recorded "penalty proceedings under section 271(1)(c) initiated. Issue DN and challan". 7. During course of penalty proceedings, by letter dated 8-4-2002, appellant replied to Assessing Officer as under: "Kindly refer to your abovesaid notice requiring assessee to show "Kindly refer to your abovesaid notice requiring assessee to show cause why penalty should not be levied for false claim of 100 per cent depreciation on assets leased to M/s. Bellary Steel and Alloys limited (BSAL) has been forwarded to us with instructions to write to you as under: As already stated in assessees letter dated 8-3-2002, multinational finance company Kotak Mahindra group of companies approached assessee-company to finance some steel rollers to BSAL and had informed assessee-company that these rollers are required for ongoing expansion programme and these rollers are eligible for 100 per cent depreciation. assessee-company being one of non-banking finance company (NBFC) agreed t o finance assets which was eligible for 100 per cent depreciation, with bona fide understanding that this was clear transaction, because BSAL is listed company, with Mr. C.S. Pani, former IAS officer as chairman of company. Further Kotak Mahindra had given all documents including personal security of managing director as well as some of shares held in company, then Member of Parliament Mr. K.C. Kondaiah. Lease rent cheques were also given in advance, therefore this transaction was done with bona fide belief that this is good lease. fact that assets was not in existence was came to knowledge of assessee only when assessee was informed by Income-tax Department giving various copies of letters and statements given by BSAL managing directors and suppliers, etc. cheques issued for some of lease rent were also honoured by BSAL. It was made known to your goodself by assessees letter dated 8-3-2002, that they were accept ing disallowance of depreciation with clear understanding that no penalty will levied and further in order to buy peace from Department, assessee-company accepted for disallowances of depreciation." 8. further reply was filed by letter dated 16-9-2002, extracted herein: "Kindly refer to your abovecited notice requiring us to produce documents relating to claim of 100 per cent. depreciation on certain assets leased to M/s. Bellary Steels and Alloys Ltd. In this connection, we write to submit that all relevant documents like order copy, invoice for supply for rollers, lorry receipt duly acknowledged by Bellary Steel and Alloys Ltd. (BSAL), invoice for transportation of rollers, installation certificate for installation of rolls in factory, lease agreement, etc., have already been filed before your good self at time of assessment proceedings itself. In this connection, we write to submit that, our companys business has been leasing and hire-purchase ever since company was started. Even in earlier years, we have claimed depreciation on assets eligible for 100 per cent depreciation, which has also been allowed at time of regular assessment. Further, on all leasing transactions income generated on leased assets has been subjected to tax in year in which lease rentals are received. Therefore, it is not true that depreciation is being claimed to avoid taxation. If it had not been bona fide business transaction, after claiming benefit of depreciation in one year we would have not subjected same to income-tax on income arising from that very transaction. In present transaction, fact that assets were not existing, could not be gathered earlier because as in any other lease transactions connected documents were produced by M/s. BSAL and lessee being manufacturing concern, who was regularly using steel rollers for their manufacturing process, left us to think that this transaction of purchase of steel rollers was genuine and it was for bona fide use at their factory. Further, we never thought that company having former IAS officer as chairman, would give false certificate about installation of machinery which is required for their regular manufacturing activities without which company cannot manufacture their products. Further M/s. BSAL was introduced to us by very leading finance company Kotak Mahindra group. We were also informed that said M/s. BSAL had also taken several other assets on lease through Kotak Mahindra Finance. Kotak Mahindra group had arranged several good lease transaction through our company, therefore, at time of entering into lease transaction with M/s. Bellary Steels, we had gone with same thinking that lease of steel rollers is genuine one. lease rent cheques were also given in advance like any other lease and hire-purchase transaction. lease rent cheques issued were also honoured by lessees till 9th instalment. Therefore, we did not get any doubt. fact that lease transaction was not genuine was found out only when Income-tax Department reopened assessment. Looking into various correspondence shown to us by Department which brought out fact that lease transaction entered by M/s. Bellary Steels was not genuine. Therefore, in order to buy peace from Department, we accepted disallowance of depreciation. Further, company is also taking criminal action against M/s. Bellary Steels for making wrong claim as well as for creating fictitious documents relating supply of steel rollers and also putting company into unnecessary complications with Income-tax Department." 9. further reply was also filed on 21-9-2002, during course of penalty proceedings as extracted herein: "As mentioned by us on several occasions, lease transaction with M/s. Bellary Steels and Alloys Ltd. (BSAL) was introduced by M/s. Kotak Mahindra, one of leading finance consultants in India. They informed us that this lease transaction is bona fide one and same is required for expansion project of BSAL. said consultant also informed that steel rolls were already ordered by BSAL and it is ready for delivery. They also gave us to understand that finance to be given by us is only part of lease transaction and other parts have been taken by companies like TATA, IDBI, etc. When we heard that several other big finance companies have also entered into lease transaction with BSAL, we accepted lease transaction to be genuine one. Even in earlier stages M/s. Kotak Mahindra had routed some of lease transaction through our company and we had received lease rent properly and therefore, we had no doubt about transaction with BSAL, which was routed to us by M/s. Kotak Mahindra. Further, BSAL had also given lorry receipt for transporting steel rollers from Chennai to Bellary and also certificate of installation of rolls were also given by one of directors. With above documents, we felt transaction to be bona fide and even iota of doubt was not in our mind. said BSAL had given lease rents by advance cheques for entire lease period and we were depositing cheques month after month and cheques were being honoured only last three months cheques were dishonoured. Against depreciation claimed on assets, lease rents received were shown as income i n year under consideration as well as subsequent years. Therefore, claim of depreciation gets set off in form of lease rent shown as income. Therefore, there is no loss to Revenue in lease transaction. When assessment was reopened and statement of Mr. S. Madhava, managing director of BSAL was produced before us by learned Assessing Officer, then only we realized that this lease was not genuine transaction. Only after knowing this, in order to buy peace and with clear understanding that penalty under section 271(1)(c) would not be levied, we accepted disallowances of depreciation. We would like to further submit that for misleading our company by furnishing wrong information and also misrepresenting to our company about entire lease transaction and making wrong representation about asset to us, we are filing criminal complaint against directors of BSAL and company, we shall forward copy of criminal complaint in due course for your records." 10. Assessing Officer levied penalty by concluding in paragraphs (ix) and (x) as under: "(ix)The stand taken-by assessee disclaiming any deliberateness or, mens rea on its part to claim bogus depreciation is countered as below: (a)The reasons cited of lessee company having former IAS officer as i t s chairman, being manufacturing concern and lessee company being introduced by some other finance company is not relevant to issue on hand. assessee has only pointed fingers at reputations (or otherwise) of others to defend its own innocence but has failed to submit any evidence to suggest that any other person has vouched for genuineness of lease transaction intended to be entered into by it. (b)The receipt of lease rentals and subsequent admittance of same as revenue in return filed does not permit assessee to claim depreciation on assets not existing. fact that transaction amounted to finance transaction is not doubted but what is objected to is claim of 100 per cent depreciation on bogus assets. (c)The lessee company has defaulted on payment of instalments and (c)The lessee company has defaulted on payment of instalments and t h e cheques issued by it have also bounced. assessee-company is expected to make efforts for receipt and realization of its instalments due. assessee has not filed any criminal complaint against lessee as claimed by it even after lapse of four years of default of instalments due and fraud allegedly committed on it. (d)The crucial test for deciding whether these were any deliberateness in claiming bogus depreciation is to verify whether assessee-company was aware of non-genuine nature of lease transaction entered by it. Right up to issuance of notices under section 142(1) dated 7-2-2002, and 13-2-2002, assessee-company had steadfastly maintained that lease transaction entered by it was genuine one. Only when substantive proof of assets never having been existed and proof of moneys paid to BM Steels Ltd., having been diverted to lessee was brought to notice, assessee did come forward with its offer of disallowance of depreciation claimed. To this extent, acceptance of bogus nature of transactions by assessee is quite involuntary and intended to accept inevitable to prevent any further damage of levy of penalty. As such, offer of acceptance in no way exonerates assessee from its complicity in bogus transaction. ... (g)The assessee-company has had system of verification of assets leased by it to lessees. This was found to have been scrupulously followed in case of vehicles leased by it. Details of dates and vouchers of purchase, registration certificate books and other documents had been maintained. Whereas in this case, assessee-company has not followed any procedure of inspection of assets purchased by it, inspection of assets being put to use and regular and periodical inspection of assets owned by it. (h)The assessee-company has been public limited company with its accounts and operations being audited by chartered accountants. In fact auditors have certified that assessee-company has had adequate internal audit system. auditors have also certified that company has maintained proper records showing full particulars including quantitative details and situation o f fixed assets; that physical verification of all assets is reported to have been carried out by management during year; and that auditors were informed that there were no material discrepancies between physical assets and assets records. This places direct onus on assessee to have wrongly certified to auditors that physical verification of all assets is carried out when assets in question had never existed. (i)A chronology of events further seals any iota of doubt whether assessee had been willing accomplice in fraudulent transaction entered. above were documents submitted by assessee-company, prior to 7-2-2002, in support of its claim that lease transaction entered by it was bona fide and genuine one. entire transaction of agreement of lease, payment to manufacturer and dispatches of 32 nos. of SGCI rolls is said to have happened on only one day. rolls are said to have reached Beillary on third day and were also reportedly installed and put to use. undue haste in paperwork disregarding impossibility of happening of events is in itself proof of direct complicity of assessee to fraudulent nature of transaction entered. It would be offensively naive and crossly incorrect to presume that assessee was not aware of what is going on or that assessee was not willing party to sham paper transactions entered. (x)From above, it is clear that facts and circumstances lead us to undeniable conclusion that assessee was voluntary participant in bogus transaction entered to claim 100 per cent depreciation in non-existent assets. It would be stretching ones imagination much too far for comfort to aver that assessee was not aware of non-genuine nature of lease transaction o r that anybody has mislead assessee. admission of incorrect depreciation claimed is totally involuntary and only after revenue made out perfect case for disallowance. assessee is found to have furnished inaccurate particulars of its income as well as concealed particulars of its income considering that taxable income sought to be evaded is amount of R s . 1,01,11,056, penalty of Rs. 43,47,753 being 100 per cent of tax + surcharge thereon, is levied under section 271(1)(c) of Income-tax Act." 11. Before learned Commissioner of Income-tax (Appeals), it was argued that Explanation 1 to section 271(1)(c) is not attracted. assessee had offered explanation and has also been able to substantiate same. claim when made at time of filing return of income was bona fide. There is no conscious concealment. Since BSAL has misled appellant-company, present situation has arisen. However, so far as assessee is concerned, he is acting bona fide on basis of various undertakings and reputation of BSAL and its management. learned Commissioner of Income-tax (Appeals) held that appellant is involved in bogus transaction of leasing. appellant was prime mover of proposed transaction. presence of eminent persons on board and other parties also joining lease transaction is irrelevant. action of appellant is not as of prudent business consideration. appellant has not exercised prudence before placing orders with suppliers BMS. capability of suppliers is also not checked. Thus, assessee acted in highly imprudent manner in placing orders with BMS and issuing cheques without verifying bona fide of supplier. transaction was done at much undesire speed. invoice dated 25-9-1996, and on same day lease agreement is entered and in two days time, even delivery was taken and installed. Since payment was made on 26-9-1996, till that date, assessee was not owner but lease agreement is dated 25-9-1996, describing appellant as full and absolute owner. Thus, there are certain loose ends, which are left behind while creating paper evidence to give legality to sham transaction. supplier before receiving payment, dispatched rolls on 25-9-1996, to BSAL. Thus, supplier acted as willing accomplice to sham transaction. BMS diverted entire fund to BSAL. Thus not only assessee but BMS and BSAL were also hand in glove in respect of such sham transaction of purchase and leasing same, just to claim 100 per cent depreciation. explanation of assessee that it was being misled to believe that transaction is genuine, is pathetic and clearly afterthought Various terms of lease deeds are not complied like identification of lease asset, verification of said asset, insurance, verification of certification of installation, undue haste in executing transaction. Though nine instalments were paid, even when last three instalments were not paid and cheques bounced back, appellant has not taken any action for default. After end of lease period, assets are not recovered but are allowed to be held in possession of lessee. All these defects are for obvious reason that assessee merely wanted to finance transaction and claim 100 per cent depreciation without actual either purchasing assets or allow it to be used by lessee. learned Commissioner of Income-tax (Appeals) for above reason, confirmed penalty. assessee is now in further appeal before us. 12. Learned counsel, for assessee Shri Parthasarathi filed paper book containing 77 pages. He took us through original assessment order, t h e penalty order by Assessing Officer as well as by Commissioner (Appeals). Shri Parthasarathi vehemently submitted that levy of penalty is invalid in this case as assessing authority had not recorded any satisfaction for levy of penalty which is condition precedent. Though there was exhaustive discussion in assessment order with regard to validity of claim of depreciation, ultimately disallowance as such was made by assessing authority and it was appellant who offered same by withdrawing claim of depreciation to buy peace. Even in assessment order nowhere assessing authority had suggested,that there was furnishing of inaccurate particulars by appellant to justify invoking of penalty proceedings. No satisfaction in this regard had been recorded before completion of assessment to justify levy of penalty under section 271(1)(c) of Act. In fact, mere noting of initiation of penalty under section 271(1)(c) of Act in assessment order without recording any satisfaction is insufficient to justify levy of penalty. Reliance has been placed on judgment of Income-tax Appellate Tribunal, Bangalore Bench, Bangalore, in case of Sri Jeevan Saldanha in I.T.A. Nos. 131 to 133/B/2004 and I.T.A. Nos. 2324 to 2327/B/2004 dated 28-2-2005, and also judgment of Delhi High Court in CIT v. Ram Commercial Enterprises Ltd. [2000] . 13. Shri Parthasarathy then, submitted that when appellant offered income by withdrawing claim for depreciation only to buy peace, no concealment is established to leyy penalty under section 271(1)(c) of Act as held by Honble Supreme Court in CIT v. Suresh Chandra Mittal [2001] 9 may support Revenues, case, it is distinguishable in respect of appellants case since appellant had discharged onus of proving claim for depreciation by adducing all evidences, and only thereafter appellant had offered same for taxation, to buy peace since, MD of lessee had offered same for taxation, to buy peace since, MD of lessee had given statement to suggest that transaction was bogus. Even though appellant could have proved that statement of MD was on incorrect statement appellant had desired to avoid protracted litigation, on account of which income was offered for taxation. It was also submitted that when depreciation was claimed, appellant was able to prove that claim was valid as appellant had all evidences for purchase and also there was valid lease agreement and receipt of goods had also been acknowledged by lessee who had also honoured lease by paying lease rents up to ninth instalment covering substantial portion of lease amount and it was only i n 2000 for reason best known to lessee it had tried to claim that transactions were financial transactions and only in that circumstances appellant had chosen to withdraw claim to buy peace. In fact, appellant established that (1) There was actual purchase from M/s. B.M. Steels Ltd., for which there was supporting voucher. payment for purchase had been fully made by account payee cheques which was also acknowledged by supplier and it had also gone into its bank account. (2) There was transport of goods from supplier to lessee, directly for which there were freight vouchers. receipt of goods in factory of lessee had been acknowledged. (3) lessee had also started paying lease rents. There is confirmation from lessees finance director as to receipt of goods and installation thereof. 14. Thus, appellant had established genuineness of lease for having proved purchase and also having proved lease transaction. In fact, statements taken from supplier and transporter on which heavy reliance has been placed by Revenue had controverted claim of appellant with, proper evidence. When supplier was examined, main director was not alive and his widow could alone be examined. She did not give any details with regard to transaction and she said that she was not aware of anything being new and had taken over business after her husbands demise. She could neither produce any account books and she was pleading ignorance. There was no categorical denial of transaction. assessing authority was of view that supplier was small time supplier and could not have transacted business of this magnitude. This is again disproved by fact that supplier had declared Rs. 50 lakhs under VDIS. Thus, there was no conclusion that supplier could not have made supply and in fact they were regular customer to lessee and it was the. lessee who suggested to have supply made to them. payment made by appellant had also gone into bank account of supplier, which had been, established. fact that supplier had made some payment to lessee was of no consequence. There was no evidence to suggest that amount paid by appellant had reverted back to appellant. In circumstances, appellant had discharged onus of proving genuineness of. purchase. 15. With regard to transport of goods, assessing authority has tried to submit that there was no transport of goods and transporters statement would vouch for it. However, on perusal of statement it is found that nowhere person who had been examined could show that there could be no transport of goods. All that he said was that his vehicle did not transport goods. But then, he has also categorically said that vehicle number found in transport voucher was belonging to his relatives and with regard to movement of lorry as on particular date he could give details by Friday. Reference can be made to question No. 10 of transporters statement found in departmental paper book at page 2. Subsequently, no attempt was made by Revenue to find out as to whether said lorry was shown in voucher had plied during relevant time. Also, Department was not able to prove as to tonnage carried by lorry was possible. In fact, lessee had acknowledged receipt of goods. It is also not conclusively proved that goods remained with lessee or not. In fact, there was sport examination by Revenue authorities and there were rolls found with lessee which was much more than rolls supplied by appellant in lease transaction. Thus, there was no conclusive proof that appellants rolls were not lying with lessee. Thus, surmise of Department is without substance and had they been put to test, appellant could have established that allegations were false. However, as stated earlier appellant had chosen to withdraw claim only to buy peace since Revenue impact is less when overall situation is taken into account like when disallowance of depreciation was acceptable in this year, no part of lease rent was required to be offered for taxation in relevant year and also in subsequent years. Thus, overall tax burden would be not excessive and that is how appellant had surrendered claim to by peace. In circumstances, it cannot be held that appellant had consciously concealed income for furnished inaccurate particulars to justify levy of-penalty under section 271(1)(c) of Act. 16. He further submitted that lessee had similar transactions with other parties and in all cases MD of lessee had given similar statements and was not available for further examination by any of lessors. Even as on today MD is absconding and not available for examination which would go to show that statement given by him was motivated and no reliance could be placed upon that. 17. It was vehemently argued by Shri Parthasarathy that Explanation to section 271(1)(c) also would not apply in case of appellant since transaction was transparent and all evidence in this regard had been furnished by appellant and all facts and explanation given by appellant could not be proved to be false. In circumstances, reliance is placed on following judgments: (a)Balaji Vegetable Products (P.) Ltd. v. CIT [2007] (Kar.)in ITRC No. 4 of 1997 dated 15-2-2005 (Kar.); (b)CIT v. M. M. Gujamgadi [2007] (Kar.)in ITRC No. 148 of 1998 dated 8-2- 2005 (Kar.); (c)Dy. CIT v. Rajan H. Shinde [2005] 93 ITR 1 (Pune); (d)National Textiles v. CIT [2001] (Guj.); and (e)Shiv Lal Tak v. CIT [2001] (Raj.). 18. Accordingly, on mere disallowance of depreciation, penalty under section 271(1)(c) of Act was not exigible. Thus, penalty levied under section 271(1)(c) of Act is liable to be cancelled. 19. Learned Departmental Representative Shri Ajit Korde on other hand kly supported penalty order as well as appellate order impugned before us. Detailed argument was made by Shri Korde. learned Departmental Representative also filed paper book containing 36 pages. Shri Korde submitted following propositions for consideration of Honble Bench: (a)The facts show that assessee knew all along that lease finance given to BSAL was bogus transaction and not operational lease. assessee-company had purchased SGCL rolls from B.M. Steels (P.) Ltd., Chennai, who was not manufacturing company. It is unbelievable that, company purchasing goods worth Rs. 1 crore could not verify capacity of vendor to manufacture and supply. As recorded by Commissioner of Income- tax (Appeals) in third paragraph on page 27 of appellate order: "...had it done so. appellant-company would have certainly found out as was revealed in course of survey and post survey enquiries, that said supplier company was never manufacturing company far from having capabilities of manufacturing SGCI rolls." clear meaning of assessees conduct is that, assessee was aware of bogus nature of transaction. (b)In this connection, statement of Smt. Asha Bagree, director of B.M. Steel (P.) Ltd., may be perused. This statement is at pages Nos. 3 and 4 of Departments paper book. Assessing Officer vide paragraph 3 of his letter dated 13-2-2002, (the Assessing Officer has reproduced this letter at page 12 of assessment order), confronted assessee with this statement by providing its copy to assessee. Assessing Officer asked assessees explanation on statement of Asha Bagree that B.M. Steel (P.) Ltd., was running only commission agency and had not maintained books of account properly. Assessing Officer further stated that, company also did not maintain any purchase or sale invoices of SGCL rolls. Smt. Asha Bagree could not give details of purchase and sale of machinery in absence of books of account. It may be mentioned that subsequently B.M. Steel (P.) Ltd., declared Rs. 50 lakhs under VDIS, 1997, and paid taxes of Rs. 17.50 lakhs on it. copy of VDIS certificate is at page 14 of Departments paper book. copies of profit and loss account and balance-sheet of B.M. Steel Ltd., of assessment year 1994-95 are at pages Nos. 5 to 30 of Departments paper book. perusal of these accounts show that company declared income from sale commission, etc. company was not in position to execute orders worth Rs. 1 crore: (c)The Assessing Officer also drew that assessees attention on nature of bank account of B.M. Steel (P.) Ltd. Assessing Officer has mentioned about it in paragraph 4 of his letter dated 13-2-2002, which is reproduced by Assessing Officer in paragraph 13 on page 12 of assessment order. Photocopy of bank account CD 753 of B.M. Steels (P.) Ltd., is from pages Nos. 1 5 to 24 of Departments paper book. Its bank account analysis show us typical pattern of receipts and withdrawal. It is seen that large amounts were received from various finance companies and same amounts were sent favouring BSAL either on same day or on next day. B.M. Steels (P.) Ltd., only retained approximately 0.002 per cent of amount before sending it to BSAL. retained amount is clearly commission of B.M. Steels (P.) Ltd. receipt and withdrawal pattern show that B.M. Steels (P.) Ltd., was not real manufacture of SGCI rolls but commission agent giving entries. When confronted with this evidence, assessee did not reply to this query but offered depreciation amount was for taxation. (d)The assessee cannot take argument as to transactions between B.M. Steels (P.) Ltd., and BSAL is not his concern as analysis of bank statement proves that assessees supplierB.M. Steelsneither manufacturer nor was genuine supplier of SGCI rolls worth Rs. 1 crore. Further, assessee itself accepted transaction to be bogus and accepted depreciation disallowance. Secondly, assessee-company already received lease rental of 9 instalments totalling Rs. 96,72,588 for non-existing asset. Therefore argument of Department not proving money coming back to assessee is not relevant. not relevant. (e)The assessee entered into lease agreement with BSAL on 25-9- 1996, (agreement on page 1 of assessees paper book) para graph 2 on page 3 of agreement and assessees letter to B.M. Steels (P.) Ltd., Chennai dated 26-9-1996, (pages Nos. 30, 31 of assessees paper book) show that it was assessee who was owner of asset. assessee claimed depreciation without verifying existence of asset. Therefore, assessees depreciation claim is not bona fide claim. assessee being owner of asset cannot shirk its responsibility of bogus claim of depreciation by passing blame on lessee. How can assessee claim depreciation solely relying on certificate of lessee without verifying existence of asset? In this connection following paragraph of headnote of jurisdictional High Courts judgment may be perused: "An assessee who claims depreciation has to satisfy Revenue, that he is entitled for grant of depreciation on items claimed by it. burden of proof is on assessee." Avasarala Automation Ltd. v. Joint CIT [2004] (Kar.). (f)According to normal business practice of lease finance industry, physical verification of asset is must by lessor to ensure that asset delivered is of agreed specifications and quality. In case if it is not so, lessors safety of finance is compromised. Assessing Officer in paragraph (g) on page 28 of penalty order has noted that in fact, assessee-company had system of physical verification of assets leased by it. This was scrupulously followed by assessee for vehicles leased by it. Details of dates, vouchers of purchase, registration certificate books and other documents were maintained. In this connection, Assessing Officer has reproduced statement given on oath by Mr. R. Balthandayudam, then vice-president (operations) of assessee-company. extracted portions of statement are at pages 27 and 28 of penalty order. statement proves that assessee-company followed practice of physical verification of assets at time of purchase. Whereas, in this lease, assessee did not physically verify asset, which is unbelievable considering that assessee owned asset of Rs. 1 crore. reason is obvious. assessee knew that asset did not exist hence it did not physically verify asset. (g)The Assessing Officer in paragraph (h) of penalty order has mentioned that assessee being public limited company, got its accounts n d operations audited by chartered accountant who certified that company has adequate internal audit system. auditors have certified that company has maintained proper records showing full particulars of quantitative details and location of fixed assets. It has further certified that physical verification of all assets is reported to have been carried out by management during year. This clearly shows that assessee wrongly certified to auditors that physical verification of all assets was carried out when assets never existed. (h)The speed with which lease transaction was entered into and was executed goes on to show that assessee-company not only was aware of bogus transaction but was also part of it. lease agreement was entered on 25-9-1996. However, on 26-9-1996, payment for rolls were made by assessee-company to supplier company, B.M. Steels (P.) Ltd., Chennai (refer pages Nos. 30, 31 of asses-sees paper book). 32 numbers of SGCI rolls were dispatched on 25-9-1996, itself which were delivered, installed and put to use on 27-9-1996, as certified by lessee-company, BSAL.The assessee- company chose to make payment of Rs. 1 crore even before delivery of asset to lessee. Further, assessee-company on basis of documents submitted and installation certificate given by lessee believed that 32 SGCI rolls could be loaded, transported from Chennai to Bellary, unloaded, installed and put to use on 27-9-1996. This was possible only because assessee-company knew that transaction was not genuine. (i)The BSAL submitted delivery challans and other documents. However, there are no markings of check posts of Tamil Nadu, Andhra Pradesh and Karnataka nor entry tax is paid on goods transported to Bellary.This makes transaction legally irregular. Despite that assessee-company accepted this position of non-payment of entry tax, etc., only because it knew that transaction was not genuine. This fact was confronted to assessee along with notice dated 7-2-2002, as mentioned by Assessing Officer in internal paragraph (13) on page 12 of assessment order dated 15-3-2002. Similarly vide paragraph 12 on page 11 of assessment order, Assessing Officer has questioned genuineness of transport based on weight of rolls. Assessing Officer had asked for details of type of lorry and its tonnage capacity to prove its genuineness. However, assessee did not furnish any details. Dy. Director of Income-tax (Inv.), Chennai, recorded statement of Mr. Subbaraju, proprietor of Balaji Roadways, Chennai, on 24-5-2000. copy of this statement is at pages Nos. 1 and 2 of Departments paper book. According to assessee, M/s. Balaji Roadways transported SGCI rolls from Chennai to Bellary. In his statement, in response to question No. 4 and in response to questions Nos. 6 to 11, he denied of having transported rolls from Chennai to Bellary. He has also stated that invoices shown by Department in name of Balaji Roadways were not his invoices. (j)After questioning genuineness of delivery with denial statement of transporter, onus was shifted on assessee to prove that goods were indeed delivered. assessee has not discharged its onus. Therefore, it is immaterial as to whether Department investigated further on statement of Mr. Subbaraju that lorry belonged to his relative. (k)The Assessing Officer confronted assessee with statement of Mr. S. Madhava, managing director of BSAL that all lease transactions were not operational lease transactions and were bogus lease transactions. In this connection, reliance is placed on decision of Mid East Portfolio Management Ltd. v. Dy. CIT [2004] 271 ITR (A.T.) 87 (Mum.) [SB] for discussion on operation lease and financial lease. vide paragraph 4 of Assessing Officers letter dated 7-2-2002, (page 10 of assessment order). His statement was made available to assessee-company. Even after confronting with statement of Mr. S. Madhava, assessee-company had maintained transaction was genuine. Assessing Officer also had confronted to assessee that assessee-company was regularly going through annual accounts of lessee company. Perusal of these accounts clearly shows that there was no quantum jump in amount of raw material consumed or production made between assessment years 1994-95, 1995-96 and 1997-98. This made between assessment years 1994-95, 1995-96 and 1997-98. This question was raised by Assessing Officer in paragraph 2(a) of its letter dated 13-2-2002, which is reproduced at page 12 of assessment order. It is not believable that assessee-company did not notice this very basic fact related with lease transaction. (l)The Assessing Officer also confronted assessee vide paragraph 3(b) o f his letter dated 13-2-2002, (page 12 of assessment order), that after considering total numbers of rolls leased and purchased, there should have been 3702 SGCI rolls as on date of survey on 1-6-2000, at premises of BSAL o n date of survey. However, only 361 SGCI rolls were found to be inventorised. Assessing Officer noted that BSAL has failed to explain discrepancy in this regard. It is worth mentioning that according to article 8(a) of lease agreement (page 7 of assessees paper book), BSAL was supposed to maintain asset with insignia or identification of marks identifying sole and exclusive ownership of assessee-company. However, during survey no such SGCL rolls were found by survey party. (m)It is seen that even after coming to know about bogus claim of depreciation, assessee-company has not filed any criminal complaint on BSAL, despite availing finance of Rs. 1 crore and not purchasing asset against it. complaints filed by assessee-company on BSAL (copies at pages Nos. 43 and 47 of assessees paper book) are regarding non- realisations of lease rental cheques issued by BSAL on assessee- company. (n)The assessee-company has also not initiated any recovery proceedings against directors of BSAL, which means that guarantee offered by directors (page 29 of assessees paper book) was not of real value. It is common knowledge that, in case of genuine financing transaction, shares is not preferred security because of its market price fluctuations. Sometimes, shares of only blue chip companies are accepted as security. However, no finance company would accept security equivalent to 100 per cent. of prevailing market price of shares of unknown unlisted company and grant loan equivalent to 100 per cent value of security. fact that assessee-company accepted such worthless guarantee for financing this lease transaction shows that assessee was aware of bogus nature of transaction. assessee-company has also not taken any legal action against B.M. (P.) Ltd., Chennai, for not supplying SGCI rolls. (o)Even for arguments sake, if it is to be believed that assessee- company was not aware of non-existence of asset. Even than consider this fact: perusal of article 2 of lease deed show that lease period was from 25-9- 1996, to 24-9-1999. According to article 22 of agreement on termination of agreement, lessee was to deliver asset at place specified by lessor. It is seen that assessee-company has not renewed its lease of SGCI rolls to BSAL nor it has leased it out to any other company. This means that, assessee-company should have taken control of assets belonging to it on 25-9-1999. Therefore, assessee-company knew about its non-existence of assets on 25-9-1996, itself. However, assessee did not choose to withdraw its depreciation claim even during original assessment proceedings. It may be noted that original scrutiny assessment was concluded on 13-3-2000, much later than 25-9-1999. It may be mentioned that, assessee knew reason of issuing notice under section 148 after survey on BSAL, however maintained that, its depreciation claim was genuine. (p)Why assessee did not take possession of leased asset after default of rentals paid vide cheque dated 25-11-1998 and 15-4-1999 and even after serving legal notice on lease rental default on BSAL on 3-5-1999. This shows that, assessee knew that asset is not existing to take possession. assessees possible argument of not taking delivery of SGCI rolls after expiry of lease because value of rolls became worthless cannot be accepted on following grounds: (a)As pointed out in paragraph 24 of this submission, there was no jump in production of BSAL. Therefore, even if rolls were existing, rolls could not have been used for production. Therefore, rolls did not have scrap value on expiry of lease period. (b)Neither during assessment proceeding nor in appellate proceedings, assessee gave certificate or evidence that it did not take delivery by mentioning reasons of not taking delivery. (c)The assessee has not explained as to if asset was to become worthless on expiry of lease, why have clause on delivery of asset on expiry of lease in lease agreement? (d)If asset became scrap on expiry of lease, on basis which article of lease agreement, benefit of scrap sale value was passed on to lessee? Assuming that assessee did not take possession of asset on 25-9- 1999, on expiry of lease and was not aware of non-existence of assets and it also renewed lease with same lessee though its lease rental cheques were bounced (no renewed lease agreement furnished). However, when Department asked explanation of assessee on statement of lessee Mr. Madhava, managing director of BSAL, who confessed about non-existing of assets, assessee did not get alerted over non-existence of asset of Rs. 1 crore. According to article 24 of lease agreement (page 14 of assessees paper book), assessee-company had right to enter into assessees premises to inspect view and examine state and condition of assets. It is unbelievable that when assessee who had relied on documents submitted by BSAL for claiming depreciation and but when same BSAL denied existence of asset making purchase documents unreliable. However, assessee continued to believe in documents submitted by BSAL. assessee was not worried about existence of asset despite being its owner. (q)According to article 13 of lease agreement (page 10 of assessees paper book), BSAL was to insure leased asset at its own cost and deliver assessee-company insurance policy and premium receipts. No such record of insurance of asset is furnished by assessee. It is commercially imprudent for any owner to sit quietly when its asset worth one crore is not insured. However, assessee did not raise any objection on non- insurance of asset as it knew that non-existent assets cannot be insured. (r)Further, in statement of Sri. M.A. Uppal, managing director of assessee-company (reproduced by Assessing Officer on page 27 of penalty order), he pleaded ignorance of this particular transaction. According to him, this transaction was handled by board of directors headed by Mr. T.P.G. Nambiar. This shows that this was not regular normal lease transaction. Had it been regular and normal lease transaction, managing director of assessee-company would know about it. (s)The assessee in its grounds of appeal No. 4 has urged that appellant could establish genuineness of transaction with documentary proof, but since lessee failed to co-operate, assessee withdrew its claim o f depreciation to buy peace. This statement is factually incorrect and contradictory to assessees own submissions. assessee itself has accepted transaction was not genuine. In this connection, assessees letter dated 16-9-2002, may kindly be perused (page 72 of assessees paper book). assessee in second paragraph, in seventh line from bottom has mentioned as under: "In present transaction, fact that assets were not existing, could not be gathered earlier because as in any other lease transactions, connected documents were produced by M/s. Bellary Steels and Alloys Ltd., and lessee being manufacturing concern, who was regularly using steel rolls from their manufacturing process, left us to think that this transaction of purchase of steei rolls were genuine and it was for bona fide use at their factory. Further, we never thought that company having former IAS officer as chair man would give false certificate about, installation of machineries which is required for regular manufacturing activities without which company cannot manufacture their products." Further, in same letter on page 2, assessee in ninth line from top writes as under: "the lease rents cheques were also honoured by lessee till ninth installment. Therefore, we did not get any doubt. fact that lease transactions were not genuine was found out only when Income-tax Department reopened assessment. Looking into various correspondence shown to us by Department which brought out fact that lease transactions entered by M/s. Bellary Steels was not genuine, therefore, in order to buy peace from Department, we accepted disallowance of depreciation." Also in letter dated 21-9-2002, assessee writes as under (second paragraph, page 75 of assessees paper book): "Where assessment was reopened and statement of Mr. S. Madhava, managing director of BSAL was produced before us by learned Assessing Officer, then only we realised that this lease was not genuine transaction." In written submissions before Commissioner of Income-tax (Appeals) (sixth line from top of second paragraph on page 78 of assessees paper book), assessee has mentioned as under: "Therefore, even when appellant-company was asked about transaction, with bona fide belief, appellant informed learned Assessing Officer that transaction is real, duly supported by all connected documents. bogus invoice, lorry receipts, etc., came to knowledge of appellant only when statement recorded from transport contractor and B.M. Steels (P.) Ltd., was produced before appellant-company with notice under section 142(1) dated 13-2-2002. Only at that time appellant- company realised that transaction was not genuine." In page 23 of penalty order in ninth line from bottom of page, assessee in its letter dated 16-9-2002, mentioned as under: "In present transaction, fact that asset were not existing could not be gathered earlier because as in any other lease transaction connected documents were produced by M/s. Bellary Steels and Alloys Ltd., and lessee being manufacturing concern, who was regularly using steel rolls for their manufacturing process, left us to think that this transaction of purchase of steel rolls were genuine and it was for bona fide use at their factory." (t)After accepting that lease transaction is not genuine during assessment proceedings and appellate proceedings, assessee was assessment proceedings and appellate proceedings, assessee was benefited by suspension of Departments investigation on this issue and conclusion of its assessment. In these circumstances, assessee cannot be permitted to go back from its position on question of fact in proceedings before Tribunal. "If assessee has obtained benefit by making certain representation t o taxing authorities, he cannot be permitted to deny truth of representation before authorities at later stage." CIT v. Army & Navy Stores Ltd. [1957] (Bom.). Kanshi Ram Wadhwa v. CIT[1982] (Punj. & Har.). (u)The assessee vide ground No. 5 has raised objection that Assessing Officer carried investigations behind its back and cross- examination of witnesses were not made available to it. contention of assessee is not correct. Accordingly to paragraph 6 of Assessing Officers letter dated 15-10-2001, addressed to assessee (page 9 of assessment order), Assessing Office writes as under: "An opportunity to cross-examine Mr. Madhava and Mr. Sasikanth could be made available to you, if same are reasonable and possible at short notice. You may kindly prepare for cross- examination to be arranged." However, assessee did not ask for cross-examination neither in assessment proceedings for five months nor during appellate proceedings. Even without prejudice to same, it may be mentioned that matter relied by Assessing Officer from statements of concerned persons was confronted to assessee on various occasions and assessees explanation was called by Assessing Officer on it. assessee has contended that since it surrendered amount, penalty cannot be levied. In this connection, attention may be drawn to case of CIT v. D.K.B. and Co. [2000] (Ker.). In this case, honble court held as under (headnote): "that it is settled position in law that there cannot be estoppel against statute. It is for Department to consider explanation offered by assessee in respect of amount which was offered to be taxed. It is not automatic that whenever amount has been offered by assessee, penalty is not to be levied." (v)The attention is drawn to judgment of jurisdictional High Court in similar case of bogus,, sale and lease back transactions. honble High Court in case of Avasarala Automation Ltd. (supra) on page 190 has held as under: "As noticed by us earlier, taxing authority is entitled and is indeed bound to determine true legal relation resulting from transaction. If assessee has chosen to conceal by device legal relation, it is open to taxing authorities to unravel device and determine true character of relationship. However, only restriction is that legal effect of transaction should not be displaced by probing into substance of transaction. Therefore, while every person is entitled to so arrange his affairs as to avoid taxation, arrangement must be real and genuine and not sham or make believe one." Further, on page 191(c) in same case, honble High Court has held as under: "Therefore, Tribunal and subordinate authorities were fully justified, taking into account several circumstances referred to by them in orders impugned, to determine nature of new and sophisticated acumen adopted to avoid payment of tax legitimately due to State. In matter like this, we consider that it is duty of this court not to give judicial vindication to such act of avoidance of payment of tax in guise of sophisticated use of language as tax planning." It may be mentioned that Income-tax Appellate Tribunal, Ban galore in cases of Maharashtra Apex Ltd. and in case of Avasarala Automation Ltd. (supra) have held similar transactions of depreciation claim on non-existing asset as sham and colorable transaction. Special Bench (Mum.) has decided case of Mid East Portfolio Management Ltd. (supra). decision is authored by honorable Member Sri. R. V. Easwar first paragraph of headnote is reproduced under: "The observations relating to questions of tax evasion or avoidance made by Supreme Court in McDowell and Co. Ltd. v. CTO [1985] have to be followed as guiding principles while, deciding whether there was tax evasion or not on facts and circumstances of given case. approach in such cases must be to take entire transaction or arrangement as whole and see if it makes any economic or commercial sense without attaching weight to steps that go to make up scheme, each of which may be legally, valid. genuineness of arrangement has to be viewed not in relation to every, step taken to achieve result but in relation to final result. McDowells case (supra), therefore, did not depart from what has already been laid down by Supreme Court earlier except, that law regarding tax evasion was restated in much ker expressions such as dubious device, subterfuge, colorable transactions, etc. proper way to understand observations in McDowells case (supra) regarding tax evasion, read as whole and in perspective, is to hold that all commercial arrangements and documents or transactions have to be given effective, even though they result in reduction of tax liability, provided that they are genuine, bona fide and not colorable transactions." In view of above, it is dear that assessees depreciation claim without verifying existence of assets was not bona fide claim but it is sham and colorable transaction. In fact, assessee knew very well that asset did not exist. This is evident as it immediately paid purchase amount to non-capable non-manufacturer supplier, whose bank account show that supplier was merely commission agent. Further, it did not insure asset. And most importantly, it did not withdraw its depreciation claim before conclusion of original assessment proceedings on 13-3-2000, whereas, lease agreement expired on 24-9-1999, and at that time assessee could have known non- existence of asset. Again, assessee has not proved physical existence of asset. (w)The above discussion show that assessee knowingly entered into non-genuine lease transactions with BSAL. Considering ratios laid down by jurisdictional High Court in case of Avasamla Automation Ltd. (supra) and Special Bench in case of Mid East Portfolio Management Ltd. (supra) and by Bangalore Income-tax Appellate Tribunal in case of Maharashtra Apex, on bogus depreciation claim, this is fit case for levying concealment penalty. 20. As held by jurisdictional High Court, it is duty of court not to give judicial vindication to such transaction by considering it as unfit case for levying penalty. Therefore, it is prayed that assessees appeal may be dismissed. 21. As regards proposition that there is no satisfaction arrived at during assessment proceedings, learned Departmental Representative submitted that: (i)with effect from 1-4-1976, concept of deemed concealment is introduced by insertion of Explanation in section 271(1)(c). Accordingly, Department is not to establish any mens rea or that there has been conscious concealment of particulars of income. For this purpose, he relied upon decision of Honble Supreme Court in cases of CIT v. Mussadilal Ram Bharose [1987] (ker.). (ii)The burden of proof is now on assessee. Where Explanation has made difference is while deciding question presumption created by law is to be applied, it has shifted burden of proof on assessee. rule regarding burden of proof enunciated in CIT v. Anwar Ali case [1970] (Punj. & Har.). (iii)The Explanation is integral part of section 271(1)(c) and when penalty proceedings are initiated, it need not to be expressly or separately mention that Explanationis invoked, as held by Honble Supreme Court in case of K.P. Madhusudhanan (supra). (iv)It is true that Assessing Officers satisfaction in assessment order is considered as pre-condition for initiation and levy of penalty as held in S.V. Angidi Chettiar (supra); M. Manasvi (supra) and in Ram Commercial Enterprises Ltd.. judgments of Supreme Court have to be read in context when word "deliberately": was in section 28(1)(c) of 1922 Act. At that time, burden was on Assessing Officer to prove concealment. After insertion of Explanation 1, burden is now shifted to assessee and there is concept of deemed concealment. Thus, requirement of Assessing Officers satisfaction at time of assessment for initiating penalty proceedings is watered down considerably. (v)A careful reading of these judgments show that courts have not laid down general proposition that initiation of penalty proceedings at end of assessment order is not indicative of Assessing Officers satisfaction. On contrary, Supreme Court has held that direction to initiate penalty proceedings at end of order is sufficient to conclude that Assessing Officer recorded requisite satisfaction for initiating concealment penalty proceedings. In both cases, Supreme Court upheld levy of concealment penalty. At page 745 in case of S.V. Angidi Chettiar (supra), Supreme Court held as under: "The power to impose penalty under section 28 depends upon satisfaction of Income-tax Officer in course of proceedings under Act; it cannot be exercised if he is not satisfied about existence of conditions specified in clauses (a), (b) or (c) before proceedings are concluded. proceeding to levy penalty has, how ever, not to be commenced by Income- tax Officer before completion of assessment proceedings by Income- tax Officer. Satisfaction before conclusion of proceeding under Act, and not issue of notice or initiation of any step for imposing penalty is condition for exercise of jurisdiction. There is no evidence on record that Income-tax Officer was not satisfied in course of assessment proceeding that firm had concealed its income. assessment order is dated 10-11-1951 and there is endorsement at foot of assessment order by Income-tax Officer that action under section, 28 had been taken for concealment of income indicating clearly that Income-tax Officer was satisfied in course of assessment proceeding that firm had concealed its income". its income". (vi)Further, in case of D.M. Manasvi (supra), facts are recorded as under: "Clause (c) of sub-section (1) of section 271 shows that occasion for taking proceedings for payment of penalty arises if Income-tax Officer or Appellate Assistant Commissioner is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of such income. It has also to be shown that Income-tax Officer or Appellate Assistant Commissioner was so satisfied in course of proceedings under Act. In t h e present case, we find that Income-tax Officer, while making assessment orders for assessment years in question, held that Kohinoor, Mills had been wrongly shown to be partnership firm and that other alleged, partners were simply name lenders for assessee. It was further held that Kohinoor Mills was proprietary concern of assessee and income from that concern should be considered to be income of assessee. Notice was ordered to be issued for proposed penalty under section 271(1)(c) of Act to assessee in regard to concealment of and furnishing inaccurate particulars of income from Kohinoor Mills. Notices, it would appear, were thereafter issued by Income-tax Officer to assessee". (vii)Further, in above case, Supreme Court has held that nature of satisfaction to be reached is prima facie satisfaction and not final and complete satisfaction. On page 563, Supreme Court has held as under: "It may also be observed that what is contemplated by sections 271 and 274 of Act is that there should be, prima facie, satisfaction of Income-tax Officer or Appellate Assistant Commissioner in respect of matters mentioned in sub-section (1) before he hears assessee or gives him opportunity of being heard. final conclusion on point as to whether requirements of clauses (a), (b) and (c) of section 271(1) have been satisfied would be reached only after assessee has been heard or has been given reasonable opportunity of being heard." D.M. Manasvi (supra) (viii)The ratio laid down by Honble Supreme Court S.V. Angidi Chettiar (supra) and D.M. Manasvis case (supra) has been explained by Honble Delhi Court in case of CIT v. Rajinder Kumnr Somani [1980] , 68 held thus: "In our opinion, direction given by Income-tax Officer in course of his assessment order that penalty notice should be issued to assessee for concealment of particulars of income, being first step taken in that behalf, amounts to commencement of penalty proceedings and, therefore, proceedings in present case must be held to have been commenced in course of assessment proceedings". (ix)Similar issue was considered by Honble Karnataka High Court with reference to Karnataka Agricultural Income-tax Act. decision of Honble Supreme Court in S.V. Angidi Chettiars case (supra) and in D.M. Manasvi case (supra) has also been explained by Honble Karnataka High Court in Saraswathi Estate v. Commissioner of Agriculture Income-tax [2001] 251 ITR 168 wherein at pages 180 and 183 Honble Karnataka High Court observed thus: "In support of such submission, learned senior counsel has relied upon decision of Apex Court in S.V. Angidi Chettiars case (supra). In that case, Supreme Court was concerned with situation wherein penalty had been levied under section 28(1) (c) of Indian Income-tax Act, 1922, on firm, subsequent to dissolution of firm and about validity of such order of penalty which had come to be passed not in course of assessment order, but much later. debate in said case revolved around wording of section 28(1)(c) of Indian Income-tax Act, 1922, where under requirement of law was that satisfaction of , officer levying penalty was one which should have been arrived at in course of assessment proceedings, justifying levy of penalty. In that case, Assessing Officer had at foot of assessment order indicated that action under section 28 had been taken for concealment of income. However, levy of penalty was not immediately thereafter, but little later. High Court, being of view that actual initiation of penalty proceedings being not in course of assessment proceedings and as such was not permitted in law, it set aside levy of penalty. apex court, while reversing this order of High Court, held that High Court was in error in assuming that penalty under section 28(1)(c) of Act could not be imposed unless it was forming part of assessment proceedings and in continuation of same. Apex Court, pointed out that requirement of law was only that satisfaction should have been reached in course of assessment proceedings and actual levy of penalty could be initiated later also and it was one such case. It also clarified that order of penalty could be passed in respect of firm even after dissolution of firm. In this context, Sri G. Sararigan, learned senior counsel also brought to our notice another decision of Apex Court rendered in case of D. M. Manasvi (supra). In our considered view, law laid down by Apex Court in this decision, in no way furthers case of petitioner and does not advance case of petitioner. decision relied on in support of proposition canvassed by learned senior counsel, on other hand, lends support to action initiated by department in issuing show-cause notice for levy of penalty even subsequent to passing of assessment order. In fact, Apex Court had occasion to uphold levy of penalty levied under section 271(1)(c) and section 274 of Income-tax Act, 1961, in D.M. Manasvis case (supra) (SC), holding that there was no need to issue notice by Income-tax Officer to assessee indicating his satisfaction for levy of penalty so arrived at in course of assessment proceedings and that Income-tax Officer was not obliged to issue notice to assessee before arriving at such satisfaction justifying issue of proposition notice for levy of penalty as very issue of proposition notice indicates satisfaction on part of Assessing Officer." (xi)Similar view has been held by Honble Gujarat High Court in case of Rajaram and Co. v. CIT [1992] , wherein at page 619 court observed thus: "The Tribunal found that Income-tax Officer had brought to notice of assessee by his letter dated 28-12-1972, discrepancies which had remained unexplained and several, opportunities were given to assessee to establish genuineness of transactions in question. assessee did not, however, adduce any evidence to show as to how peculiar and strange transactions h d occurred. material on record clearly indicates that requisite satisfaction was arrived at by Income-tax Officer before initiating proceedings under section 271(1)(c) of said Act and, therefore, above decisions cited on behalf of assessee cannot come to its rescue." (xii)The Honble Allahabad High Court in case of Shyam Biri Works (P.) Ltd. v. CIT [2003] has not approved ratio laid down by Honble Delhi High Court in case of Ram Commercial case (supra), while deciding penalty under section 273. language used in both sections 271(1) and 273(1) is similar. Honble Allahabad High Court observed thus (p. 626): "With profound respect to Delhi High Court decision, we are unable to agree. It may be noted that whenever Assessing Officer has to record his satisfaction under Income-tax Act, it is specifically mentioned, e.g., in section 148(2) of Act which states that Assessing Officer before issuing any notice under section will record reason for doing so. Section 273 does not have similar provision requiring recording reason or satisfaction. Hence, it has to be inferred that Parliament never intended that before initiating penalty proceedings and issuing notice under section 273, Assessing Officer must record his reasons in writing for doing so. Had that been so there would have been specific mention about it in section 273 of Act. We are, therefore, of opinion that although Assessing Officer must have satisfaction as required under section 273 of Act, it is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under section 273 of Act. We are fortified in view, we are taking by decision of Calcutta High Court in Becker Gray & Co. (1930) Ltd. v. ITO [1978] . For reasons given above this appeal has no merit and it is dismissed." (xiii)In view of various decisions cited above, proposition that emerge is: u For initiating concealment penalty, Assessing Officer has to have prima facie satisfaction of concealment. u There is no requirement to separately record prima facie satisfaction in body of assessment order. u Assessing Officers prima facie satisfaction can be gathered from facts of case material on record and assessees response to Assessing Officers questions. u If above conditions are satisfied, then direction to initiate concealment penalty as recorded at foot of order can be considered as sufficient indication of Assessing Officers satisfaction. (xiv)Applying above propositions, it can be seen that Assessing Officer was satisfied during assessment proceedings that assessee has furnished inaccurate particulars of income. This can be found from observation of Assessing Officer on pages Nos. 14 and 15 of assessment order wherein Assessing Officer has observed thus: "7. In circumstances it is viewed that whole transaction of purchasing SGCI rolls and leasing same to M/s. BSAL is bogus and sham transaction intended purely to claim depreciation on assets which never existed. You may note that under Sale of Goods Act, you cannot sell what you do not have and it is proved beyond doubt that M/s. B.M. Steels Pvt. Ltd. never had manufacturing facility and never had purchased any SGCI rolls, your claim of having purchased rolls from M/s. B.M. Steels Pvt. Ltd. It void ab initio. You may further explain why depreciation as claimed by you on SGCI rolls should not be disallowed. ... 15. As assessee has opted not to reply to specific issues of assets not being in existence ever, and instead of offered to accept proposed disallowance of depredation, same is accepted." As regards quantum of penalty levied, learned Departmental Representative Shri Ajit Korde submitted that as per amended Explanation 4 to section 271(1)(c), which clarifies that penalty can be levied even in cases of reduced losses also. Honble Karnataka High Court in case of R.R. Basavappa & Sons v. CIT [2000] and limited to facts of that case. Since decision of Honble Supreme Court in Prithipal Singh & Co. case (supra) was rendered at time when Explanation 4 was not in existence during assessment year 1970-71, said decision cannot be applied in present situation. (xv)The decision relied by learned counsel for assessee will not apply to present set of facts. All these decisions are rendered in view of particular facts of case. In present set of facts, when assessee was involved in bogus lease transaction and finding in this regard is found in assessment order, which even assessee has conceded, penalty is to be upheld. 22. In reply, learned counsel for assessee submitted that documents furnished will prove that appellant had leased rolls to BSAL in course of its business. It is not isolated transaction. 23. claim of depredation was bona fide when claim not made in return, since transaction was fully supported by necessary documents and there was no reason for appellant to disbelieve documents like sales bills, delivery notes, transport bills provided by BSAL. credibility of BSAL, has been vouched by other financial company like Kotak Mahindra. Hence, appellant had bona fide belief about genuineness of transaction when it entered into lease transaction with them. 24. statement of supplier was not conclusive to prove that there was no transaction between itself and appellant. deponent being widow of them director, had only expressed her inability to give particulars since director who dealt with transaction was no more and she was not aware of transaction. Since business itself was closed or discontinued she did not have access to earlier documents in relation to transaction. This statement was not conclusive to prove that transaction was fictitious. 25. Similarly, statement of transporter was also not conclusive. He was dealing only with BSAL. He had only said that freight bills were not given by him. When lorry number was shown, he had only said that lorry did not belong to him, but to his relative. No attempt was made to ascertain as to who was relative and what was transaction. Thus statement of lorry owner was not conclusive to show that there was no transport of rolls to BSAL. 26. On other hand, BSAL has confirmed delivery of rolls. payment has been, made by appellant to supplier which was not disputed. Even though it was claimed that supplier had paid money to BSAL there was no proof that money has come back to appellant. transaction between BSAL and supplier has no relevance as far as appellant is concerned. 27. appellant had leased material to BSAL and its confirmation is very much available. Even director of appellant had confirmed before assessing authority. allegation that appellant had not physically verified materials is again not correct. appellant had information about receipt of materials by BSAL who had also honoured lease agreement by paying instalment regularly for more than 2 years. It was only after 9th instalment they did not comply with terms. In circumstances, there could be no doubt in minds of appellant for receipt of materials by BSAL which belonged to appellant. Thus depreciation claim was rightfully made at appropriate time since appellant had leased materials in course of its leasing business and thus appellant was entitled to depreciation as claimed, as held by Honble Supreme Court in case of CIT v.Shaan Finance Ltd. [1998] . 28. fact that appellant did not claim back material later also would not prove that appellant did not act bona fide when transaction took place. rolls after substantial use would become scrap. Hence reclaiming of rolls later was not of any use to appellant. On other hand, appellant was only interested in recovery of its dues for which necessary proceedings were initiated by appellant, which would only go to prove bona fides of appellant. 29. In fact even at time of examination BSAL claimed to have held 361 rolls whereas appellant had supplied only 32 rolls and there was every possibility that appellants rolls would have been still available. 30. However appellant had conceded by withdrawing depreciation in course of assessment proceedings only to buy peace even though it had all documentary evidence to prove genuineness of transaction. 31. judgment of Karnataka High Court in Avasarala Automation case (supra) is distinguishable. In that case purchase was held to be sham since there was no transfer deed duly registered for transfer of assets embedded in land which were supposed to have been transferred. In that context Honble Court has held that purchase itself was invalid and consequently lease was not valid. In case of appellant materials involved were rolls which were transported from Chennai to Bellary. argument of learned Departmental Representative that rolls could not have been transported to Chennai to Bellary in one day was also not correct. rolls would be comfortably transported by road within one day from Chennai to Bellary and truck could easily cover distance in 24 hours and if not, not later than 36 hours. Thus receipt and installation of plant in BSAL premises before 30-9-1996, was very much possible and surmise of learned Departmental Representative is without substance. 32. Further challenge of speed at which transaction had been entered into was without substance. Undisputedly, appellant had done it before 30September to avail of 100 per cent depreciation. appellant who is in business of leasing would like to have maximum benefit on account of depreciation and naturally when parries are identified and material is located transaction would be put through at earliest to maximums benefit. 33. totality of circumstances would show that appellant has leased materials in course of its business and transaction was bona fide with regard to appellant. However, when revenues investigation created some doubts, appellant wanted to avoid protracted litigation and that is how claim was withdrawn, which is fully explained in various submissions made by appellant copies of which have already furnished in paper book of appellant. Thus penalty is not exigible. 34. Shri Parthasarathy refuted to all submission by learned Departmental Representative for proposition that satisfaction has to be arrived at during course of assessment proceedings that assessee has either concealed particulars of his income or has furnished inaccurate particulars of income. Though various case law are relied on in this regard, they all can be distinguished with facts. decision by Honble Delhi High Court in case of Ram Commercial case (supra) was rendered after considering decision of Honble Supreme Court in S.V. Angidi Chettiar case (supra) and D.M. Manasvi case (supra). What has been held by Honble Supreme Court as well as Honble High Court is that there should be satisfaction before initiation of penalty. If from assessment order it can be gathered that satisfaction was arrived at, penalty, can be initiated and in absence of such satisfaction, no penalty can be levied. In present case, what i s mentioned is only one sentence, i.e., penalty proceedings under section 271(1)(c) initiated, issue DN and challan. This does not amount to recording any satisfaction. 35. Shri Parthasarathy further submitted that it is no doubt true that onus is upon assessee to prove bona fides. appellant had furnished all documents with regard to transaction with confirmation from lessee and also details with regard to credentials of lessee. Thus when transaction was done bona fides of appellant had been established. In light of above, cases referred to by revenue are distinguishable. In fact Honble Karnataka High Court in case cited by appellant, i.e., in ITRC No. 4/1997 (Balaji Vegetable Products (P.) Ltd. case (supra) and ITRC No. 148/1998 M.M. Gujamgadi case (supra) held that when bona fides are established and penalty is not exigible. In fact Honble High Court referred to judgments of Gujarat High Court reported in National Textiles case (supra) and CIT v. Santhosh Financiers [2001] Bombay Appellate Tribunal held under similar circumstances no penalty under section 271(1)(c) was leviable. 36. In case of appellant, appellant had submitted that withdrawal of depreciation was only to buy peace. Much has been argued about appellant having agreed transaction to be bogus in various about appellant having agreed transaction to be bogus in various letters addressed to assessing authority. It is submitted that what appellant tried to explain was that revenue having drawn conclusion on basis of enquiry made by it and also on account of lessees statement that transaction was bogus, appellant desired to withdraw claim of depredation even when it had materials to prove bona fides of its claim and it was done only to avoid protracted litigation and to be peace. It did not concede that transaction was bogus. This is evident from fact that appellant had offered rental income for taxation in its entirety. In any case when depreciation was claimed in relevant assessment year appellant had no iota of doubt with regard to genuineness of transaction. Thus claim could never be said to be mala fide claim to justify levy of penalty. 37. As regards quantum of penalty, Shri Parthasarathy submitted that penalty is leviable only in regard to tax payable by assessee. Penalty is imposed in addition to tax payable and hence what is to be computed first is tax and then penalty for non-payment of such tax. Thus, when income declared by assessee was loss and same is reduced and converted into positive income, only tax payable on such income is to be considered as tax sought to be evaded. This is in effect ratio laid down by Honble Supreme Court in Prithipal Singh & Co. case (supra). decision by Honble Supreme Court is not mere rejection of special leave petition but approved decision of Honble Punjab and Haryana High Court Prithipal Singhs case (supra). To that extent, it becomes binding precedent. decision rendered by Honble Karnataka High Court in P.R. Basavappa & Sons case (supra) is prior to decision rendered by Honble Supreme Court. Thus, ratio laid down by Honble Karnataka High Court in P.R. Basavappa & Sons case (supra) is impliedly overruled. Hence penalty, even if leviable, will be only with reference to tax payable by assessee and not on tax on entire disallowances/additions. 38. We have carefully considered relevant facts and arguments advanced. We have heard both counsel at length. Written submissions filed in this regard are also considered. We have also perused various decisions cited by both counsel. At this juncture, firstly it is relevant to note certain vital and relevant facts. assessment year in appeal is assessment year 1997-98 i.e., financial year 1-4-1996, to 31-3-1997. original return was filed on 28-11-1997. Subsequently, revised return was filed on 18-1-1999. regular assessment under section 143(3) was originally completed on 13-3-2000. In said assessment, except addition of Rs. 1,69,113 toward capital loss, addition of Rs. 4,337 under section 43B and restriction of depreciation on motorcar to 20 per cent as against 40 per cent claimed by assessee no other additions were made. Thus, till 13-3-2000, i.e., when original assessment was made, claim of assessee was found acceptable and accepted as such. Subsequently, survey was conducted at premises of BSAL on 1-6- 2000. Based on information available at said survey at premises of BSAL, notice under section 148 was issued on 11-1-2001, to assessee. assessee filed return in response to said notice on 28-3-2001. Thereafter/the return was scrutinised by issue of first notice on 30-8-2001. In meantime, assessee received lease rentals up to and including ninth instalment payable on 25-9-1998. said lease rentals were offered as income of appellant. same are assessed as offered. For first time, cheque issued for lease rentals due on 25-12-1998, was dishonored when same was presented on 15-4-1999. assessee initiated criminal proceedings for dishonour of said cheque. reassessment was completed on 15-3- 2002, wherein claim of depreciation on SGCI rolls leased to BSAL was disallowed as withdrawn by assessee. present appeal is against levy of penalty on ground that depreciation was claimed on bogus lease transaction which amounts to concealment of particulars of income attracting penalty under section 271(1)(c). 39. main plank of Assessing Officers argument to hold that assessee has furnished inaccurate particulars is that: (i)the assessee is voluntary participant in bogus lease transaction to claim 100 per cent depreciation on-non-existent assets; (ii)the assessee demonstrated undue haste in entering into lease transaction without verifying capacity of manufacturer, capacity of transporter, actual installation of machinery, not ensuring insurance, not inspecting assets at regular intervals, etc. (iii)The assessee agreed for withdrawal of depreciation only after discrepancies were pointed out to it and not at any earlier occasion. Accordingly, Assessing Officer concluded that since assessee was party to all such bogus lease transaction, it amounts to concealment of particulars of income and hence penalty is leviable. 40. main plank of appellants argument is that when transaction was entered into, it was under bona fide belief that transaction is genuine. Since it is finance lease transaction, machinery are selected or manufactured to specification by lessee. Thus, appellant is not required to verify whether manufacturer has capacity to produce, whether transporter has actually transported machinery or not. When installation has been certified by lessee himself, there is no reason to doubt. In fact even lease rentals were received spanning over three years and hence assessee was never under any sort of information that said transaction is bogus. assessee was merely cheated by lessee but assessee cannot be sought to be in connivance with such improper lease transaction. 41. Honble Supreme Court in case of CIT v. Onkar Saran & Sons [1992] held that where return is filed under section 148 which involves element of concealment, law applicable for imposition of penalty would be law as enforced at time when original return was filed for assessment year in question and not law as it stood on date on which return in response to notice under section 148 was filed. It is also settled law that concealment can be with reference to return of income and not de hors same. Thus concealment if any is to be viewed when assessee has filed original return of income and circumstances prevailing at that time. When assessee filed its original return of income there was nowhere even whisper as to ungenuine nature of such lease transaction. present transaction of lease is finance lease and not operating lease. In finance lease transaction, lessee who requires certain equipment for its purpose, approaches lessor with proposal. lessee selects material and also selects specification for same. What type of equipment is required is determined by lessee. Similarly manufacturer who can produce such made to order equipment is also selected by lessee. Thus, lessor is made to order equipment is also selected by lessee. Thus, lessor is neither to verify what type of equipment is required nor to verify capacity of manufacturer. When lessee himself has produced pro forma invoice, transporter receipts, installation certificate and accepted all terms of lease, there is no reason with lessor to doubt genuineness of transaction. lessor is to ensure that his money is safe. For this purpose, lessor insisted for post dated cheques, obtained collateral security by way of shares valuing more than lease transaction, and obtained other documents like lease deed, guarantee from managing director etc. In absence of any reason to doubt transaction and in view of categorical statement by lessee, particularly when nine quarterly instalments of lease rentals were received on due dates, assessee never gets whisper about anything wrong in such lease transaction. Even if assessee was to claim 100 per cent depreciation on such assets leased, tax thereon would be merely 35 per cent. No prudent man, particularly public limited company, will enter into transaction to lose 100 per cent of capital merely to save 35 per cent thereof as tax. To add to this, assessee pays tax on entire lease rent which effectively and substantially reduces any tax advantage available by way of claim of depreciation. In net result it will still lose more than 65 per cent of its own money, which no person will ever do. Thus, there is no reason to believe that assessee was ever voluntary participant in bogus lease transaction. On contrary, assessee is duped by systematic fraud played by BSAL upon appellant. power available to Assessing Officer either to verify or summon manufacturer, to summon transporter, to summon lessee or examine managing director is not available to appellant. appellant has to carry on its business transaction in commercial way i.e.,it runs on trust and not by doubt or suspecting at every point, particularly when it has no reason to do so. It is different proposition that having been made aware by Assessing Officer regarding non-genuine nature of transaction, assessee instead of litigating further, chose to withdraw claim of depreciation. It is settled law that merely because certain additions/disallowances are made in assessment proceedings, it is not conclusive to levy penalty for concealment of particulars of income or for furnishing inaccurate particulars of income. conduct of assessee at time when it filed return of income is material, at which point assessee was always under bona fide belief that transaction is genuine and claim is admissible as per law. This belief is further strengthened as same was accepted even in scrutiny assessment made under section 143(3) on 13-3-2000. Thus, it can be concluded that assessee neither concealed particulars of income nor furnished inaccurate particulars of income. assessee is merely victim of fraud played upon it to which it was never party. Penalty under section 271(1)(c) is not attracted in such situation. 42. Much reliance was placed by Assessing Officer on finding during survey proceedings at premises of BSAL and statement of Shri S. Madhava, managing director of BSAL. Paragraph 6 of letter dated 3-10-2000, filed by Shri S. Madhava to Assessing Officer during survey proceedings is worth noting, which is extracted herein: "Therefore, I submit that all lease finance agreements entered into by company are genuine financial leases only and not operational leases. We will not be in position except in few cases to strictly to prove existence of supplier or his capacity to manufacture or otherwise produce equipment, which are supplied to us as per invoices. We will also not be in position except in few cases to prove arrival of equipment into our factory or their existence now, more so on account of fact they being 100 per cent. depreciable items, some of them might have got damaged upon even on trial use and they had to be scrapped. original invoices, lorry receipts, etc., are furnished to banks and NBFCs for their documentation work and except in case of few, we may not be having them now. If we report destruction or scrapping to financial institutions, they will pounce on us to repay funds borrowed which had gone into project and therefore, we had not reported loss of asset to them also. Anyway, finance obtained is transformed into and is in form of another asset namely, work-in-progress in our books and physically in our premises. This is in short out predicament and position to give any statement for which we sought time hoping we would get funds and settle claims of banks and financial institutions. As best judge which your honour indeed is, I request your honour to draw your own conclusion in matter after considering these facts and situation." 43. Even reading aforesaid statement by Shri S. Madhava, it cannot be conclusively proved that BSAL never obtained any SGCI rolls. There is no mention, as to which transaction is not genuine or which manufacturer is non- existing. rolls are eligible for 100 per cent depreciation which get damaged even during trial production. Thus, there is no categorical statement by said S. Madhava to suggest that lease transaction between appellant and BSAL is bogus. learned Departmental Representative has stressed that certain conduct of appellant is unbelievable like appellant not verifying capacity of vendor, appellant not verifying capacity of transporter, appellant not physically verifying installation. transaction may be unbelievable from point of view of Assessing Officer but as far as appellant is concerned, if it has no reason to doubt genuineness of transaction, appellant will not do all such activities. appellant is merely interested in ensuring its lease, earning lease rentals and securing its interest. This was done by receiving proper invoices, transport receipts, post dated cheques, entering into lease deed, obtained guarantees from directors, availing of collateral security in form of shares of listed companies, value of which is exceeding leased assets. When lease proposal was moved by Kotak Mahindra group, well renowned finance advisor in India and company is promoted by eminent personalities, appellant has no reason to doubt. Till survey was conducted at premises of BSAL and result of such enquiry was confronted to appellant on 30-8-2001, appellant was never aware that either assets are not existing or that assets are not used by lessee. We accordingly hold that conduct of asses-see was bona fide not only at time when it has filed original return of income but also when it filed return pursuant to notice under section 148. Explanation 1 to section 271(1)(c) provides that if person fails to offer explanation or if explanation offered is found to be false, penalty is leviable. In present case, assessee has neither failed to offer explanation nor explanation is found to be false. Explanation 1 also provides that if person, who offers explanation, is unable to substantiate or fails to prove that such explanation is bona fide, penalty is leviable. In present case, it is seen that not only appellant has offered explanation, which he has been, able to substantiate, and it is also proved that explanation offered is bona fide. Thus, it cannot be said that assessee has either concealed particulars of its income or has furnished inaccurate particulars. 44. Various case laws are cited by Shri Korde in support of his arguments. We have perused all case law in this regard. Whether penalty is leviable or not is based upon facts and circumstances of each case. Neither of decisions related is on identical facts. Strong reliance was placed on decision of Honble Karnataka High Court in case of Avasarala Automation Ltd. (supra). case is related to claim of depreciation on sale and lease back transaction. present case is of lease transaction per se. appeal presently to be dealt with is regarding levy of penalty and not claim of depreciation. When assessee is engaged in leasing business, assessee is entitled to depreciation on assets leased as held by Honble Supreme Court in case of Shaan Finance (P.) Ltd. (supra) affirming decision of Honble Karnataka High Court in CIT v. Shaan Finance (P.) Ltd. [1993] held that if transaction is genuine, lessor is entitled to depreciation. Even though transaction is that of financial lease, it has no implication on allowance of depreciation as opined by Central Board of Direct Taxes in its Circular No. 2 of 2001 dated 9-2-2001 (see [2001] 247 ITR (St.) 53). 45. Learned counsel for assessee has placed heavy reliance on decision of Honble Delhi High Court in case of Ram Commercial Enterprises Ltd. (supra) which has been followed by Honble Delhi High Court in case of Diwan Enterprises v. CIT [2000] (Delhi) shows that Assessing Officer was satisfied that assessee could not be held to be guilty of concealment in regard to sum of Rs. 15,50,000 offered in revised return. This was noted in office note giver below assessment order. Tribunal therefore held that when there is contrary note rather than satisfaction about concealment penalty under section 271(1) (c) is not attracted even though such additional income is offered by assessee and assessed as such. Thus, foundation of decision of Honble Delhi High Court is founded on fact as noticed by Tribunal and not laying down any general proposition that "issue penalty notice under section 271 (1)(c)" does not amount to satisfaction. On contrary, as held by Honble Delhi High Court itself in case of Rajinder Kumar Somani (supra) "a notice is issued under section 28 of 1922 Act" is held to be sufficient compliance with statutory requirement of Act" is held to be sufficient compliance with statutory requirement of recording satisfaction. This is further fortified by decision of Honble Supreme Court in case of S.V. Angidi Chettiar (supra) and that of D.M. Manasvi (supra). We accordingly hold that when Assessing Officer has discussed issue regarding disallowance of depreciation at length and initiated penalty proceedings under section 271(1)(c) during course of assessment proceedings, it amounts to demonstration of satisfaction for initiation of penalty proceedings. It is to be noted that penalty proceedings are merely to be initiated during assessment proceedings and not to be completed along with. What is required during assessment proceedings is satisfaction, which can be somehow demonstrated and as found in present case it has been demonstrated. Though there is no further discussion except noting "penalty proceedings under section 271(1)(c) initiated" and notice under section 274 was signed along with assessment order, satisfaction can be said to have been arrived at. decision of Honble Kamataka High Court in case of Samswathi Estate (supra) also lends support to our above conclusion. Thus, judgment relied on by learned counsel for assessee will not apply to present set of facts. 46. It is contention of assessee that penalty is excessive. In this regard what is to be seen is that when penalty under section 271(1)(c) is attracted no discretion lies with Assessing Officer to reduce same below minimum leviable. If ultimately it is found that penalty is leviable, same shall not be less than but which shall not exceed three times amount of tax sought to be evaded. It is to be held that only net amount will be considered for arriving at "amount of tax sought to be evaded" i.e.,net of depreciation disallowed minus lease rent offered as income. Explanation 4 defines expression "the amount of tax sought to be evaded". Clause (a) of Explanation 4 will apply in situation and hence, there is no room to reduce penalty. However, since on facts we have held that there is neither concealment of particulars of income nor furnishing inaccurate particulars, penalty under section 271(1)(c) is not leviable. 47. In result, appeal is treated as partly allowed. *** Bpl Sanyo Finance Ltd. v. Deputy Commissioner of Income-tax