- (1.) All these 3 appeals are taken up for consideration together because the parties are the same. One question of law is common in all the appeals and two different question of law do arise for consideration in the two appeals. However, the impugned order is a common order, as such, all these 3 appeals are disposed of by this common order. Assessee company is engaged in manufacture of iron and steel products. It had undertaken new project consisting of power supply and integrated steel plant. For the assessment years 1997-98, 1998-99 and 1999-2000 the assessee claimed lease rentals which was debited to P and L account and deductions were claimed. During the survey conducted under section 133A of the Act in the premises of the assessee and on the basis of the materials found there and gathered, on enquires it was found that the claim of lease rentals claimed was bogus and also for the purpose of accommodating lessor companies in claiming depreciation in respect of non-existing assets. Therefore, a claim of 100% depreciation as claimed by the lessor was found to be bogus. On the other hand, enquiry relating to assessment year 1998-99 showed that the assessee had substantial creditors under the head advances against sales and sundry creditors which are reflected in the balance sheet. In fact, the Managing Director of the assessee Sri. S. Madhava filed an affidavit confirming the above facts. Therefore the Assessing Authority recorded a finding that the lease rentals paid by the assessee company and debited to P and L account need to be disallowed. Accordingly, it was disallowed. The assessee contended if the lease rentals is disallowed, the said amount is allowable as an expenditure as financial charges. During the assessment year 1998-99 the total payments of lease rentals to the tune of Rs. 23,99,48,290/- was made. Out of this, an amount of Rs. 1,63,10,230/- only is debited to P and L account and the balance amount Rs. 22,36,38,040/- has been taken as closing work in progress/integrated steel plant. Therefore, he disallowed a sum of Rs. 1,63,10,230/-. He declined to treat the said amount as financial charges and to give deductions on the ground that neither under the Income-tax Act nor in equity, a person is entitled to reap the fruits of his own misdeeds. Similarly, an amount of Rs. 1,38,65,266/- and Rs. 44,63,063/- were disallowed as being bogus lease rentals for the assessment years 1997-98 and 1999-2000.
(2.) For the assessment year 1998-99, the Assessing Authority dealing with the question of advances against sales and advances for integrated plants, found a sum of Rs. 71.73 crores increase in the amount compared to the previous year towards creditors and other advances. The assessee was called upon to furnish the list of parties with their postal addresses and confirm so as to discharge the onus under section 68 of the Act. The Assessee company furnished the particulars sought for in respect of the parties for outstanding amount exceeding Rs. 50,00,000/-. The particulars furnished did not show how much amount is standing to the credit of each party. Confirmations were not filed. In those circumstances, though the Managing Director, Sri. S. Madhava, by way of an affidavit admitted financial leases and not operation leases and after considering when no details of the parties or the amount alleged of the creditors under various heads available are forthcoming, he admittedly felt it necessary to consider 10% of the total advances rental received during the year under consideration as not having been satisfactorily explained under section 68 of the Act and therefore he brought to tax a sum of Rs. 7,16,30,000/- under section 68 of the Act as unexplained cash credit.
(3.) For the assessment year 1999-2000, the assessee had invested Rs. 45.5 crores in S.N. Project Limited, Bangalore for the purpose of generation of electricity and supply it to the assessee-company. In the course of assessment proceedings, it came to light that the said S.N. Project Limited had neither generated the electricity nor supplied it to the company. It was ascertained that the said S.N. Project Limited siphoned off Rs. 25.00 crores to S.N. Securities Limited as unsecured loans. It said M/s. S.N. Securities Limited have pumped in the money of Rs. 25.00 crores to the assessee towards purchase of shares. On the basis of the aforesaid admitted facts, the Assessing Authority held that there has been conjoint action by participating companies to siphon off the interest bearing borrowed funds for non-business purpose. The funds are routed through various associated companies for the reason therein business consideration. Therefore, the Assessing Authority held that the amount of Rs. 45.5 Crores of the borrowed funds from banks and financial institutions is diverted and invested by the assessee in various associated companies is not a genuine business transaction and therefore, the proportionate interest at the prevailing rates paid by the companies amounting to Rs. 4,91,65,609/- was disallowed and added back to the total income.;