2012 (9) TMI 429 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee surrendered dis-allowance of depreciation - Held that - On careful consideration of the facts and circumstances of the case it is held that AO was factually wrong in mentioning that the assessee has wrongly claimed additions to its assets. The fact is that the claim of additions to assets was rightly made. The only issue is whether the assessee has put these additional assets to use, for enabling it to claim depreciation. The issue as to whether the assets were put to use, has not been tested in this case as the assessee has surrendered the claim. The assessee has declared a loss and surrendering part of the depreciation would only result in reduction of loss. Either way the assessee is not saddled with any tax liability. Under these circumstances, the assessee had agreed to forego part of its claim for depreciation. The fact remains that in the subsequent AY, the Revenue has allowed the claim of the assessee for depreciation on these assets. Under these circumstances, claim of the assessee was bonafide, and CIT (A) has rightly deleted the penalty u/s 271(1)(c) - Decided in favor of assessee

Summary

Issues:
Appeal against penalty u/s 271(1)(c) for assessment year 2005-06 based on disallowed depreciation claim.

Detailed Analysis:

1. Facts and Background:
The appeal was filed by the Revenue against the order of the CIT (A)-VII, New Delhi, confirming the penalty levied under section 271(1)(c) of the Income Tax Act, 1961. The assessee, a company, declared a loss of Rs.22.46 lacs in its return of income for the assessment year 2005-06. The assessing officer initiated penalty proceedings as the assessee did not furnish any explanation for disallowance of depreciation amounting to Rs.16,53,881. The CIT (A) deleted the penalty stating that the mere disallowance of a claim does not warrant penalty, as the assessee had disclosed all material facts.

2. Arguments by Revenue:
The Revenue contended that the assessee made a wrong claim for depreciation and surrendered part of it when confronted. The Department Representative argued that the criteria of 'mens rea' should not be considered for granting relief, citing relevant case laws to support the position that voluntarily surrendering a claim does not absolve an assessee from penalty.

3. Arguments by Assessee:
The counsel for the assessee opposed the Revenue's contentions, stating that the claim was correct and the only issue was whether the assets were put to use for claiming depreciation. The assessee declared a loss, and deferring the claim did not impact its tax liability. The counsel cited case laws to support the bonafide nature of the claim.

4. Judgment and Analysis:
The ITAT held that the assessing officer was incorrect in stating that the assessee wrongly claimed additions to its assets. The issue was whether the assets were put to use for depreciation, which was not tested as the assessee surrendered the claim. The ITAT found the claim to be bonafide, considering that the Revenue allowed the depreciation claim in the subsequent year. The ITAT rejected the Revenue's argument on 'mens rea' and upheld the CIT (A)'s decision based on the claim's bonafide nature. The ITAT dismissed the Revenue's appeal, emphasizing the bonafide nature of the claim and the supporting case laws cited by the CIT (A).

In conclusion, the ITAT dismissed the Revenue's appeal against the penalty u/s 271(1)(c), emphasizing the bonafide nature of the assessee's claim and the lack of justification for imposing the penalty.