2010 (9) TMI 586 - AT - Income Tax

Penalty Disallowance of depreciation in respect of lased assets Revenue contended that the depreciation so claimed is not admissible inasmuch as the transaction between the assessee and its customer is a financing transaction and not a genuine leasing transaction - The onus is entirely on the assessee to demonstrate the bonafides of its claim of depreciation - The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income - Supreme Court s judgment in the case of CIT Vs Reliance Petroproducts Pvt Ltd (2010 -TMI - 7570) - In the light of the settled legal position it was indeed not a fit case for confirmation of impugned penalty Appeals are allowed

Issues Involved:
1. Justification of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Admissibility of the claim of depreciation on assets given on lease.
3. Interpretation of legal provisions related to concealment of income and furnishing inaccurate particulars of income.

Detailed Analysis:

1. Justification of penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The core issue in these appeals was whether the Commissioner (Appeals) was justified in upholding the penalty imposed on the assessee under Section 271(1)(c) of the Income Tax Act, 1961, concerning the disallowance of the claim of depreciation on assets given on lease. The assessment years in question were 1998-99, 1999-00, and 2000-01. The assessee, a public sector undertaking, had obtained the requisite clearance from the Committee on Disputes (Cabinet Secretariat) as per the requirements of the Hon'ble Supreme Court's judgment in the case of ONGC Vs Collector of Central Excise (104 CTR 31).

2. Admissibility of the claim of depreciation on assets given on lease:

The learned counsel for the appellant argued that the issue was covered by the Hon'ble Supreme Court's judgment in the case of CIT Vs Reliance Petroproducts Pvt Ltd (322 ITR 158), asserting that the rejection of the depreciation claim did not amount to concealment of income. The counsel highlighted that the assessee had disclosed all facts without concealing any income and that the dispute was purely a matter of legal interpretation. The revenue, on the other hand, contended that the depreciation claim was not admissible as the transaction was a financing transaction, not a genuine leasing transaction.

3. Interpretation of legal provisions related to concealment of income and furnishing inaccurate particulars of income:

The Tribunal noted that there was no dispute about the facts of the case, and the disagreement was solely on the legal implications of those facts. The Tribunal referred to the assessment order, which indicated that the disallowance was based on a legal interpretation of the lease agreement terms. The Tribunal emphasized that making a legal claim, even if found unsustainable, did not amount to furnishing inaccurate particulars of income. It cited the judgment in the case of Kanbay Software Vs DCIT (31 SOT 153), which held that an incorrect legal claim does not equate to furnishing inaccurate particulars of income.

The Tribunal further referenced the Hon'ble Supreme Court judgment in the case of Reliance Petroproducts, which stated that a mere claim, not sustainable in law, does not amount to furnishing inaccurate particulars of income. The Tribunal concluded that the assessee's explanation for the depreciation claim was reasonable and bonafide, and the claim was based on possible legal interpretations and supported by judicial precedents.

Conclusion:

The Tribunal held that the penalty under Section 271(1)(c) was not justified as the assessee had made a bonafide legal claim, disclosed all relevant facts, and the disagreement was purely on legal interpretation. The Tribunal directed the Assessing Officer to delete the impugned penalties in respect of depreciation on leased assets. The appeals were allowed, and the judgment was pronounced in the open court on 30th September 2010.

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