2011 (10) TMI 45 - HC - Income Tax

Penalty u/s 271(1)(c) - Penalty levied on the ground that (i) payment made to Bombay Telephone District Staff Welfare Fund was disallowed u/s 40A(9) and (ii) AO allowed claim of depreciation @20% as against claimed by the assessee @25% - Held that - the A.O. having failed to record a finding that the assessee had furnished inaccurate particulars, the imposition of penalty under Section 271(1) (c) of the I.T. Act was a complete non-starter. This finding of fact has been affirmed by the Tribunal and we find no reason to disagree with the same. A mere erroneous claim made by an assessee, though under a bonafide belief that, it was a claim which was maintainable in law, cannot with more, lead to an imposition of penalty.

Issues Involved:
1. Tenability of the order passed by the Assessing Officer (A.O.) in levying a penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of the claim made by the assessee in respect of contributions to the Bombay Telephone District Staff Welfare Fund under Section 40A(9) of the Income Tax Act.
3. Disallowance of the excess depreciation claimed by the assessee on vehicles used in rendering services to its customers.

Detailed Analysis:

1. Tenability of the Penalty Order under Section 271(1)(c):
The primary issue before the court was whether the penalty imposed by the A.O. under Section 271(1)(c) of the Income Tax Act was justified. The A.O. had levied a penalty of Rs 21,34,200/- on the assessee for allegedly furnishing "inaccurate particulars" of income. The CIT (A) and the Tribunal had both deleted the penalty, leading to the revenue's appeal to the High Court. The court examined whether the A.O. had provided sufficient evidence to prove that the assessee had indeed furnished inaccurate particulars of income.

2. Disallowance of Contributions to the Bombay Telephone District Staff Welfare Fund:
The assessee had claimed a deduction of Rs 15,50,000/- under Section 40A(9) of the Income Tax Act for contributions made to the Bombay Telephone District Staff Welfare Fund. The A.O. disallowed the deduction, stating that only contributions to recognized provident funds, approved superannuation funds, or approved gratuity funds were eligible for deduction under this section. The assessee argued that the fund was created for the welfare of its employees and that the expenditure was incurred wholly and exclusively for business purposes. The court noted that the A.O. had not provided a clear finding that the assessee had furnished inaccurate particulars regarding this claim.

3. Disallowance of Excess Depreciation on Vehicles:
The assessee had claimed depreciation on vehicles at the rate of 25%, whereas the A.O. allowed depreciation at the rate of 20% as per the Income Tax Rules. The difference of Rs 45,47,712/- was added to the assessee's income. The assessee contended that the vehicles were used extensively for business purposes and should be considered part of plant and machinery, thus justifying the higher rate of depreciation. The court observed that the A.O. had not established that the assessee had furnished inaccurate particulars regarding the claim for higher depreciation.

Court's Observations:
- The court noted that the A.O. had failed to record any finding that the assessee had furnished inaccurate particulars of income. The explanations provided by the assessee were not found to be false or misleading.
- The court emphasized that merely because a claim made by the assessee was disallowed, it did not automatically lead to the conclusion that the assessee had furnished inaccurate particulars.
- The court referred to the Supreme Court's judgment in the case of Reliance Petroproducts Pvt. Ltd., which stated that making an incorrect claim in law does not amount to furnishing inaccurate particulars of income.
- The court also noted that the CIT (A) and the Tribunal had both found that the assessee had disclosed all material facts and that there were no grounds to impose a penalty under Section 271(1)(c).

Conclusion:
The court concluded that the A.O. had not provided sufficient evidence to justify the imposition of the penalty under Section 271(1)(c). The findings of the CIT (A) and the Tribunal were upheld, and the appeal by the revenue was dismissed. The court reiterated that a mere erroneous claim made by an assessee, under a bona fide belief that it was maintainable in law, does not warrant the imposition of a penalty for furnishing inaccurate particulars of income.

← Previous Next →