2008 (12) TMI 775 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the cancellation of penalty u/s 271(1)(c) of the Income Tax Act on two grounds: (1) disallowance of excess depreciation claimed on leased motor cars, and (2) reversal of provisions for non-performing assets (NPAs).

Excess Depreciation Claimed on Leased Motor Cars:
The Appellate Tribunal considered the appeal filed by the revenue against the order of the CIT(A) cancelling the penalty for the assessment year 2001-02. The assessing officer had levied a penalty on the assessee for claiming higher depreciation on leased motor cars and for provision of doubtful debts. The first appellate authority noted that the assessee had claimed higher depreciation at 25% based on established judicial pronouncements. The assessee believed that leasing a motor car equated to hiring, justifying the higher rate of depreciation. The authority found the claim to be made in good faith with full disclosure, leading to the cancellation of the penalty. The authority cited the case of Electrical Agencies Corporation vs CIT to support its decision.

Provision for Doubtful Debts:
Regarding the penalty on the reversal of provisions for NPAs, the first appellate authority observed that the assessee had consistently followed prudential norms issued by the RBI for NPAs. The assessing officer had allowed these claims in previous assessment years. However, due to a retrospective amendment to section 36(1)(vii), the assessee reversed its NPA provisions and offered them for taxation. The authority found that the initial claims were based on judicial pronouncements and the retrospective amendment was unforeseeable. Therefore, the penalty on this issue was also cancelled. The authority referenced the case of New India Industries Ltd vs ACIT to support its decision.

Conclusion:
The Appellate Tribunal, after hearing the departmental representative, upheld the cancellation of the penalty by the first appellate authority. It noted that the issues were debatable, and the assessee had acted in good faith based on legal interpretations. Citing various legal precedents, including CIT vs Suresh Chandra Mittal and T. Ashok Pai vs CIT, the Tribunal dismissed the revenue's appeal, affirming the first appellate authority's decision.

Separate Judgment:
No separate judgment was delivered by the judges in this case.