2010 (8) TMI 980 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty order for addition to returned income.
2. Determination of whether the claim for terminal allowance was bona fide or false.
3. Applicability of provisions of Section 50(2) and Section 32(1)(iii) of the Income Tax Act.
4. Assessment of whether the block of assets ceased to exist.
5. Evaluation of whether the assessee furnished inaccurate particulars or concealed income.

Detailed Analysis:

1. Confirmation of Penalty Order for Addition to Returned Income:
The assessee's appeal was directed against the CIT(A)'s order confirming the penalty for an addition of Rs. 51,11,136 made to the returned income. The penalty was imposed because the claim for terminal allowance in respect of Gurgaon office premises was disallowed while computing the assessable income. The CIT(A) upheld the penalty, stating that the claim was not bona fide and amounted to furnishing inaccurate particulars of income.

2. Determination of Whether the Claim for Terminal Allowance Was Bona Fide or False:
The assessee argued that the claim for terminal allowance was debatable and bona fide, citing the difference in opinion regarding the applicability of Section 32(1)(iii) and the definition of block of assets under Section 2(11). The AO and CIT(A) disagreed, stating that the law regarding block of assets and terminal allowance was well settled, and the claim was ex-facie inadmissible. The CIT(A) emphasized that the claim was not supported by any reasonable interpretation of law and was a clear case of a false claim.

3. Applicability of Provisions of Section 50(2) and Section 32(1)(iii) of the Income Tax Act:
The AO and CIT(A) held that the provisions of Section 50(2) were not applicable because the block of assets under the head 'Office Premises/Building' had not ceased to exist. The ITAT upheld this view, stating that the shortfall between the individual written down value of the Gurgaon office structure and the amount realized should be reduced from the opening aggregate written down value of the block of assets. The claim for terminal allowance under Section 32(1)(iii) was disallowed, and the AO's action in adjusting the depreciation was justified.

4. Assessment of Whether the Block of Assets Ceased to Exist:
The AO observed that the block of assets, including the Gurgaon office premises, continued to exist, and the same rate of depreciation (10%) was applicable. The ITAT confirmed that the Gurgaon office structure was part of the same block of assets as other office premises/buildings, and the provisions of Section 50(2) were not applicable. The AO's disallowance of the write-off amount and adjustment of depreciation was upheld.

5. Evaluation of Whether the Assessee Furnished Inaccurate Particulars or Concealed Income:
The AO, CIT(A), and ITAT concluded that the assessee furnished inaccurate particulars of income by claiming the write-off amount as a terminal allowance. The CIT(A) noted that the disclosure in the profit and loss account did not amount to a full disclosure and articulation of a claim. The ITAT emphasized that the claim was ex-facie inadmissible and not supported by any credible interpretation of law. The penalty under Section 271(1)(c) was upheld, as the assessee's claim was found to be false and not a bona fide error.

Conclusion:
The appeal filed by the assessee was dismissed, and the penalty imposed by the AO for furnishing inaccurate particulars and concealing income was confirmed. The ITAT upheld the CIT(A)'s order, concluding that the assessee's claim for terminal allowance was not bona fide and amounted to furnishing inaccurate particulars of income.