1986 (3) TMI 335 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Claim for depreciation on land.
3. Claim for excess depreciation on enhanced cost of various assets.
4. Applicability of Explanation to Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The appeal relates to the assessee's challenge against the order of the CIT (A) upholding the levy of penalty of Rs. 1,60,000 imposed by the ITO under Section 271(1)(c) for furnishing inaccurate particulars of income. The ITO initiated proceedings under Section 271(1)(c) after disallowing the assessee's claim for depreciation and determining that the assessee had revalued its assets to claim higher depreciation. The ITO concluded that the assessee's actions were motivated by an ulterior motive to benefit the retiring partners and claim higher depreciation, thus furnishing inaccurate particulars of income.

2. Claim for Depreciation on Land:
The assessee claimed depreciation on assets acquired from a firm, including land and building, based on a valuer's report. The ITO disallowed depreciation on the land, citing the Supreme Court decision in CIT vs. Alps Theatres, which states that no depreciation is admissible on land. The CIT (A) and the Tribunal upheld the ITO's decision. The Tribunal noted that while the claim for depreciation on land was not tenable in law, it did not per se establish the guilt of furnishing inaccurate particulars of income as the assessee had disclosed the valuation report and the break-up of the amount under the head building.

3. Claim for Excess Depreciation on Enhanced Cost of Various Assets:
The assessee revalued movable assets at the time of retirement of partners and claimed depreciation based on the revalued prices. The ITO substituted the actual cost with written down value, reducing the depreciation claim. The Tribunal observed that Section 43(1) defines "actual cost" and allows the ITO to substitute this cost if the main purpose of the transfer was to reduce tax liability by claiming higher depreciation. The Tribunal held that the assessee's claim for depreciation based on actual cost did not amount to furnishing inaccurate particulars of income, as the assessee was required to furnish the actual cost in the return of income.

4. Applicability of Explanation to Section 271(1)(c) of the Income Tax Act:
The Explanation to Section 271(1)(c) enacts a rule of evidence, creating a rebuttable presumption that if the total income returned is less than 80% of the assessed income, the assessee is deemed to have concealed particulars of income or furnished inaccurate particulars unless proven otherwise. The Tribunal noted that the correct income for the purpose of the Explanation would result in a loss, and there was no tax liability involved. Therefore, the burden placed on the assessee to prove the absence of fraud or gross/wilful neglect was discharged. The Tribunal concluded that the Explanation did not apply to the facts of the case.

Conclusion:
The Tribunal held that neither under the Explanation nor the main provision of Section 271(1)(c) could the assessee be said to have furnished inaccurate particulars of income. The levy of penalty was deemed unjustified, and the orders of the authorities below were quashed, allowing the appeal.