2017 (2) TMI 1238 - AT - Income Tax

Penalty u/s.271(1)(c) - inaccurate particulars of income by claiming higher depreciation i.e. 80% on the windmill than the allowable depreciation i.e. 40% - Held that - The purchase of windmill in question and depreciation claimed thereon is very much part of financial statements and return of income furnished by the appellant where date of installation is stated to be 30.9.2004 which is supported by the evidences mentioned herein above. Contention of Assessing officer that the claim was not bonafide and assessee could have claimed the depreciation in the subsequent years. This itself proves that in fact windmill is installed which is used for the purposes of the business depreciation is allowable on it. Reliance of Assessing Officer on statement prepared by officials of the Suzlon was not examined by department nor was any opportunity granted to appellant for cross examination. Even for making an addition based on statement of third parties, AO is duty bound to give cross examination of that party otherwise the addition is also not sustainable. Therefore the penalty u/s 271(1) (c) is definitely cannot be sustained in absence of cross examination. The assessee has sought to explain by way of evidences as noted in aforesaid paras that actual generation of electricity of 402 units has been shown for the month of September-2004. The invoices of the supplier of the machinery is also prior to the purported date of installation on 30/09/2004. The assessee has offered some explanation on deficit noted by the ITAT towards transportation and insurance. The explanation offered by the assessee is somewhat plausible particularly in the context of penal provisions of section 271(1)(c) of the Act. Needless to say, penalty proceedings are independent of assessment proceedings and it is well settled that concealment of income cannot be automatically inferred on the basis of additions/disallowance in the quantum assessment without being proved otherwise. In other words, imposition of penalty is not an automatic consequence of the assessment proceedings. The penalty cannot be levied as a matter of course on the ground that quantum additions have been confirmed by the superior authority. The assessee in the instant case has provided plausible evidence which are not totally bereft of merits. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the assessee's claim for higher depreciation on windmill assets.
3. Assessment of whether the assessee furnished inaccurate particulars of income or concealed income.
4. Impact of the quantum assessment findings on penalty proceedings.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied under Section 271(1)(c):
The primary issue is whether the CIT(A) was correct in deleting the penalty of ?66,05,000/- imposed by the AO under section 271(1)(c) for the alleged concealment of income or furnishing inaccurate particulars. The AO's penalty order was based on the disallowance of depreciation claimed by the assessee on a windmill, which was purportedly commissioned after 30/09/2004. The CIT(A) found merit in the assessee's case and struck down the penalty, citing the existence of substantial evidence supporting the assessee's claim and the fact that the issue was debatable. The Tribunal upheld the CIT(A)'s decision, emphasizing that the penalty cannot be automatically inferred from the quantum assessment and that the assessee's explanation was plausible.

2. Validity of the Assessee's Claim for Higher Depreciation:
The assessee claimed 80% depreciation on a windmill, asserting it was commissioned on 30/09/2004. The AO restricted the depreciation to 50%, arguing the windmill was commissioned after 30/09/2004 and thus used for less than 180 days in the financial year. The CIT(A) initially allowed the full depreciation claim, but the ITAT in quantum assessment reversed this decision, agreeing with the AO. Despite this, the CIT(A) in penalty proceedings found the claim to be bona fide and supported by substantial evidence, including commissioning certificates and energy generation reports, which were not disproven as false.

3. Assessment of Furnishing Inaccurate Particulars or Concealment of Income:
The AO contended that the assessee furnished inaccurate particulars by claiming higher depreciation. However, the CIT(A) and the Tribunal found that the assessee provided substantial evidence supporting the claim, such as commissioning certificates, energy generation reports, and transportation documents. The Tribunal noted that the discrepancy was primarily about the timing of the windmill's commissioning, not its existence or use, and that the issue was debatable. The Tribunal also highlighted that the penalty provisions require a higher threshold of proof, which was not met in this case.

4. Impact of Quantum Assessment Findings on Penalty Proceedings:
While the ITAT in quantum assessment upheld the AO's disallowance of depreciation, the Tribunal in penalty proceedings emphasized that penalty proceedings are independent and require separate consideration. The Tribunal noted that the assessee's explanation was plausible and supported by evidence, and that the penalty cannot be imposed merely because the quantum addition was confirmed. The Tribunal also pointed out that the assessee's disclosure of facts and the eventual allowance of depreciation in subsequent years indicated no intent to conceal income.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to cancel the penalty. The Tribunal emphasized that the assessee's claim was bona fide, supported by substantial evidence, and the issue was debatable. The Tribunal concluded that the penalty under section 271(1)(c) was not warranted, as the assessee did not conceal income or furnish inaccurate particulars. The order was pronounced on 23/02/2017 at Ahmedabad.