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2014 (1) TMI 980 - AT - Income TaxPenalty u/s 271(1)(c) - Held that - The assessee had claimed the depreciation on the ground of temporary suspension of the business whereas the AO disallowed the claim observing that the business was suspended since December 2000 on account of losses incurred and the same was not revived as on the date of assessment order - Though the depreciation claim on assets of the assessee had been disallowed and the said disallowance had been confirmed by the higher authorities, but that itself can not be a ground for mandatory levy of penalty - The levy of penalty is a penal action against the assessee for his wrongful act of furnishing of inaccurate particulars of income or for concealment of income - Every case of confirmation of disallowance cannot be regarded as a case of furnishing of inaccurate particulars of income or concealment of income - Following COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT - Simply for the reason that the Assessing Officer did not find the claim of the assessee to be sustainable in law up to a certain extent, it can not be a case for penalty u/s.271(1)(c) - Decided in favour of assessee.
Issues:
Appeals against penalty under section 271(1)(c) of the Income Tax Act for A.Y. 2002-03 to 2004-05. Analysis: The judgment pertains to appeals filed by the assessee against penalties imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act for the assessment years 2002-03 to 2004-05. The penalties were confirmed by the CIT(A) in relation to the disallowance of depreciation claimed by the assessee due to the suspension of business operations. The Assessing Officer held that the assessee furnished inaccurate particulars of income by claiming depreciation on assets that were not utilized for business purposes during the relevant years. The CIT(A) upheld the penalty, stating that the assessee's explanation was false and not bonafide. The main issue revolved around whether the penalty was justified in these circumstances. In the case of A.Y. 2002-03, the Assessing Officer disallowed depreciation on assets amounting to Rs. 9,01,484 due to the suspension of business activities. The AO initiated penalty proceedings based on the disallowance, claiming that the assessee furnished inaccurate particulars of income. The CIT(A) upheld the penalty, stating that the assessee did not voluntarily offer the disallowance for taxation, and the explanation provided was false and not bonafide. However, the ITAT found that the levy of penalty was not justified in this case. The ITAT emphasized that every disallowance does not automatically lead to the imposition of a penalty. The ITAT referred to the Supreme Court's decision in CIT Vs. Reliance Petro Products Pvt. Ltd., stating that mere disallowance of a claim does not warrant a penalty under section 271(1)(c) if the particulars furnished by the assessee were not inaccurate. The ITAT further analyzed that the assessee's claim for depreciation during the suspension of business was made under a bonafide belief that the business would be revived, and there was no intention to conceal income. The ITAT noted that the assessee had disclosed all material particulars in the return of income, indicating no concealment of income. The ITAT concluded that the penalty was unwarranted as the claim was made in good faith, and the authorities' disagreement with the claim did not signify inaccurate particulars or concealment of income. Therefore, the ITAT set aside the penalties imposed for A.Y. 2002-03, 2003-04, and 2004-05. In summary, the ITAT held that the penalties imposed on the assessee for claiming depreciation during the suspension of business were unjustified. The ITAT emphasized that the mere disallowance of a claim does not automatically lead to the imposition of a penalty under section 271(1)(c) if the claim was made under a bonafide belief and all material particulars were disclosed. The ITAT allowed all three appeals filed by the assessee, setting aside the penalties for the respective assessment years.
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