2013 (11) TMI 937 - AT - Income Tax

Penalty u/s 271(1)(c) - Capitalisation of the cost of machinery - Disallowance of depreciation - Held that - The computation of total income given in the assessment order, shows that this amount was allowed as depreciation on the travelling expenses of Rs. 1,46,308/- capitalised by the A.O. and although submission to this effect was made by the assessee before the ld. CIT(A), it appears that no finding whatsoever has been given by the ld. CIT(A) on this aspect. In our opinion, there was thus no justification in imposing the penalty in respect of the amount of Rs. 36,577/- which did not represent any addition made to the total income of the assessee. - Decided in favor of assessee. Machinery was used for 182 days making the assessee entitled for depreciation at full rate. The claim of the assessee for depreciation at full rate thus was a bonafide claim and although the assessee accepted the disallowance made by the A.O. on this issue by restricting to only half, we are of the view that no penalty u/s 271(1)(c) of the Act in respect of addition of Rs. 55,375/- could be imposed. - decided in favor of assessee. Penalty due to claim of additional depreciation - Held that - Provisions of section 32(1)(iia) are very plain and clear which provide that additional depreciation is allowable in the case of any new machinery or plant which has been acquired and installed after 31st March, 2005. The proviso to section 32(1)(iia) makes it further clear that no deduction on account of additional depreciation shall be allowed in respect of any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person. In the present case, additional depreciation u/s 32(1)(iia) was claimed by the assessee on the old machinery which was already used by other person and this relevant fact was not disclosed by the assessee in any form in the return of income filed for the year under consideration. The same was revealed as a result of survey followed by scrutiny assessment done by the A.O. and when it was confronted by the A.O. to the assessee, the later had no option but to surrender its claim for additional depreciation - Therefore, penalty is confirmed on this issue to the extent additional depreciation claimed - Decided against the asssessee.

Summary

Issues Involved:
1. Capitalisation of the cost of machinery.
2. Disallowance of additional depreciation claimed u/s 32(1)(iia).
3. Disallowance of foreign and domestic travelling expenses related to the purchase of machinery.
4. Disallowance of depreciation on machinery.

Detailed Analysis:

1. Capitalisation of the Cost of Machinery:
The assessee did not actually have an addition of Rs. 36,577/- made to the total income by the A.O. Instead, this amount represented depreciation allowed on travelling expenses capitalized by the A.O. The Tribunal found no justification for imposing a penalty on this amount, as it did not constitute an addition to the total income.

2. Disallowance of Additional Depreciation Claimed u/s 32(1)(iia):
The primary issue was the disallowance of Rs. 17,52,893/- claimed as additional depreciation on machinery. The A.O. disallowed this claim on the grounds that the machinery was not new and the requisite certificate in Form 3AA was not filed. The Tribunal noted that the provisions of section 32(1)(iia) are clear that additional depreciation is allowable only on new machinery. The assessee's failure to disclose that the machinery was old and used by another person was a significant factor. The Tribunal did not accept the assessee's explanation that it was a bona fide mistake by the accountant, as there was no supporting evidence. The penalty imposed by the A.O. and confirmed by the CIT(A) for this disallowance was upheld by the Tribunal.

3. Disallowance of Foreign and Domestic Travelling Expenses:
The A.O. disallowed Rs. 1,46,308/- on the grounds that these expenses were capital in nature, related to the purchase of machinery. The Tribunal noted that the genuineness of the expenses was not disputed, and depreciation on the capitalized amount was allowed. The Tribunal held that the assessee could not be held guilty of concealment for treating these expenses as revenue expenditure, thus no penalty u/s 271(1)(c) was justified for this disallowance.

4. Disallowance of Depreciation on Machinery:
The A.O. disallowed Rs. 50,375/- on the basis that the machinery was used for less than 180 days. The assessee argued that the machinery was used for 182 days, and this was supported by a detailed working. The Tribunal found that the assessee's claim for full depreciation was bona fide. Although the assessee accepted the disallowance, the Tribunal held that no penalty u/s 271(1)(c) was warranted for this addition.

Conclusion:
The Tribunal partly allowed the appeal, sustaining the penalty for the disallowance of additional depreciation but deleting the penalties for other disallowances. The A.O. was directed to recompute the penalty accordingly. The decision underscores the importance of accurate disclosure and the conditions under which penalties for inaccurate claims can be imposed.