2004 (4) TMI 28 - HC - Income Tax

Penalty u/s 271(1)(c) - Tribunal holding that the penalty imposed upon the assessee by the Assessing Officer u/s 271(1)(c) was not proper - it was a case of a bona fide mistake rather than a deliberate mistake on the part of the assessee while calculating depreciation on the assets of the assessee. It was found that the assessee is a new businessman and he could only claim depreciation for a fraction of the year and not for the full year-that being the first year of starting the production as claimed by the assessee. We do not find that such can be a good ground for imposition of a penalty by the taxing authorities. - We thus concur with the view so recorded by the Tribunal and hold that this does not involve any substantial question of law.

Summary

Issues involved:
Whether the Tribunal was justified in holding that the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, was not proper.

Analysis:
The High Court of Madhya Pradesh, in this judgment delivered by A.M. Sapre J., and Ashok Kumar Tiwari J., considered a second appeal filed by the Revenue (Income-tax Department) under section 260A of the Income-tax Act, 1961. The appeal challenged an order passed by the Income-tax Appellate Tribunal regarding the imposition of a penalty on the assessee under section 271(1)(c) of the Act. The primary issue in this case was whether the Tribunal's decision to hold the penalty as improper was justified.

The Court noted that the Tribunal and, in their opinion, rightly so, found that the penalty was not warranted in this case. It was observed that the mistake made by the assessee in calculating depreciation on assets was a bona fide error rather than a deliberate one. The assessee, being a new businessman, had mistakenly claimed depreciation for only a fraction of the year, considering it as the first year of production. The Court emphasized that such an error, especially in the initial stages of business, should not lead to the imposition of a penalty by tax authorities.

Referring to the precedent set by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, the Court highlighted that the power to impose penalties under taxing provisions does not authorize authorities to penalize every breach, regardless of its nature. Imposition of a penalty requires evidence of deliberate intention on the part of the assessee to conceal true income. In the absence of such evidence, the Court concurred with the Tribunal's decision that no substantial question of law was involved in this case.

Consequently, the High Court dismissed the appeal, stating that it lacked merit and substance. The judgment underscores the importance of considering the circumstances and intent behind alleged errors before imposing penalties under tax laws, especially in cases involving new businesses or genuine mistakes.