1998 (4) TMI 543 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of depreciation on assets.
2. Disallowance of investment allowance on the new unit.
3. Disallowance of investment allowance on additions to the old unit.
4. Imposition of penalty under section 271(1)(c) for making false claims.

Detailed Analysis:

1. Disallowance of Depreciation on Assets:

The assessee, a limited company running a Steel Mill, undertook a large-scale expansion and filed a return declaring a total income of Rs. 1,19,65,385, claiming depreciation on various assets amounting to Rs. 2,08,45,093. The Assessing Officer (AO) disallowed the entire depreciation claim, leading to a series of appeals and rectifications. The Tribunal, in its orders dated 10-8-1993 and 22-11-1995, allowed the entire depreciation claim except for the UHP Furnace. The final disallowance was limited to the depreciation on the UHP Furnace.

2. Disallowance of Investment Allowance on the New Unit:

The assessee claimed an investment allowance of Rs. 1,08,79,252 on the new unit's plant and machinery. The AO disallowed this claim, but the Tribunal, in its second order, allowed the entire investment allowance, including on the UHP Furnace.

3. Disallowance of Investment Allowance on Additions to the Old Unit:

The AO also disallowed the investment allowance of Rs. 4,65,036 on additions to the old unit. However, the Tribunal's final orders allowed the entire investment allowance claimed by the assessee.

4. Imposition of Penalty under Section 271(1)(c):

The AO initiated penalty proceedings under section 271(1)(c) for making false claims, focusing on the disallowed depreciation and investment allowance. The CIT(A) confirmed the penalty, but the Tribunal found that the penalty could not be sustained. The Tribunal emphasized that the assessee's claims were bona fide and that the disallowance of depreciation on the UHP Furnace was due to insufficient evidence, not falsity. The Tribunal noted that the AO did not conclusively prove that the UHP Furnace was not used and that the evidence provided by the assessee, including certificates from the Excise Department and the M.P. Electricity Board, was not adequately refuted by the AO. The Tribunal concluded that the penalty under section 271(1)(c) could not be imposed based on doubts and that the benefit of doubt should be given to the assessee.

The Tribunal also highlighted that the penalty notice did not specify whether the proceedings were for "concealment" or "filing inaccurate particulars" of income, which further weakened the AO's case for imposing the penalty.

Conclusion:

The Tribunal canceled the penalty under section 271(1)(c), holding that the assessee's claims were bona fide and that the disallowance of depreciation on the UHP Furnace did not justify the imposition of penalty. The appeal filed by the assessee was allowed, and the penalty was canceled.