2012 (3) TMI 543 - AT - Income Tax

Summary

Issues involved: Imposition of penalty u/s. 271(1)(c) on disallowances of depreciation and legal expenses.

Summary:

Imposition of Penalty u/s. 271(1)(c) on Disallowances of Depreciation:
The appeal arose from the order of Ld. Commissioner of Income Tax for the assessment year 2005-06. The assessee, a partnership firm running an educational institution, claimed depreciation u/s 32 and deduction u/s 24 on a school building that was let out. The assessment resulted in disallowances of depreciation and legal expenses. The assessee contested the penalty u/s. 271(1)(c) by citing various case laws to support their position that there was no concealment of income. However, the penalty was confirmed by the Ld. CIT(A) based on the principle that furnishing inaccurate particulars of income attracts penalty, even if the claim made is not sustainable in law, unless the explanation offered is substantiated or found to be bona fide. The Tribunal upheld the penalty, noting that the double claim on the school building and legal expenses were not bona fide, as there was no admission by the assessee during the assessment proceedings.

Legal Expenses Disallowance and Double Claim on School Building:
The legal expenses were for a loan related to the school building, which was considered capital expenditure. The assessee made a double claim on the school building and legal expenses, which was not allowable as per law. The Tribunal found that the assessee furnished inaccurate particulars of income, leading to the imposition of the penalty u/s. 271(1)(c). The Tribunal held that the penalty proceedings are compensatory in nature, and the principle of responsibility for mistakes committed applies. The Tribunal concluded that the penalty was justified, as the double claim on the school building was not bona fide, and there was no admission by the assessee during the assessment proceedings.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the penalty imposed u/s. 271(1)(c) for the disallowances of depreciation and legal expenses. The decision was based on the finding that the assessee furnished inaccurate particulars of income, and the double claim on the school building was not bona fide.