2014 (5) TMI 110 - AT - Income Tax

Disallowance of claim of 100% depreciation Temporary constructions - Restriction of depreciation @10% on boundry wall - Addition u/s 2(24)(x) r.w.s. 36(1)(va) of the Act - Payment of PF/ESI beyond the time-limit - Penalty u/s 271(1)(c) of the Act Held that - The assessee is a concern of a big industrial group which has team of tax expert and auditors at its disposal - Very few cases are selected for scrutiny, others are accepted as these are filed by the assessee - Had there been no scrutiny of the assessment, this claim which was ex-facie not tenable could have been allowed on these items and assessee could have got the benefit of 100% depreciation for the year where it does not deserve - the finding of the CIT (A) cannot be accepted that the assessee has disclosed all material facts - The assessee has rather claimed depreciation on these structures which are not covered by the table of rates at which the depreciation is admissible @ 100% under Income-tax Rules where only purely temporary structures, such as, wooden structures deserve for 100% depreciation - The second finding of the CIT (A) is that it was a legal claim and even if it is ultimately found to be legally unacceptable, it cannot amount to furnishing of inaccurate particulars. It was not a legal claim - Claim of depreciation @ 100% is purely based on facts as it depends on type of structure - It is purely a case of ex-facie untenable claim of depreciation @ 100% which cannot be said to be a legal claim - the CIT (A) s findings with regard to the claim on temporary buildings were not correct thus, there was no merits in the CIT (A) for deleting the penalty on the issue of depreciation of temporary buildings in both the Assessment Years 2002-03 and 2003-04 - with regard to the claim of depreciation on boundry wall and disallowance of PF/ESI u/s 36(1)(va) read with section 2(24)(x) of Income-tax Act, 1961 in Assessment Year 2002- 03 - no penalty u/s 271(1)(c) of the Act can be levied on the assessee Decided partly in favour of Assessee.

Issues Involved:
1. Disallowance of 100% depreciation on temporary constructions.
2. Disallowance of 20% depreciation on boundary wall.
3. Disallowance of PF/ESI payments made beyond the prescribed time limit.
4. Levy of penalty under Section 271(1)(c) for furnishing inaccurate particulars of income.

Issue-wise Analysis:

1. Disallowance of 100% Depreciation on Temporary Constructions:
The assessee claimed 100% depreciation on various constructions by treating them as temporary structures. The Assessing Officer (AO) disallowed this claim and restricted depreciation to 10%, considering these constructions as permanent. The constructions included administrative offices, guest houses, staff mess, workshops, meter rooms, sub-stations, stores, dhobi ghat, labor colonies, security barracks, and security posts. The CIT (A) upheld the AO's decision, and the ITAT confirmed the addition. The CIT (A) noted that the penalty proceedings are distinct from assessment proceedings and that the burden of proof lies on the assessee to establish the presumption of bona fide claims. The CIT (A) found that the assessee's explanation was bona fide and that all material facts were disclosed. Therefore, it held that there was no conscious or intentional act of concealment or furnishing inaccurate particulars by the assessee. The ITAT, however, found that the assessee, being a part of a large industrial group with access to tax experts, made an ex-facie untenable claim. The ITAT disagreed with the CIT (A)'s finding that the assessee disclosed all material facts and held that the claim of 100% depreciation was not a legal claim but a factual one. Consequently, the ITAT set aside the CIT (A)'s order on this issue and upheld the penalty for Assessment Years 2002-03 and 2003-04.

2. Disallowance of 20% Depreciation on Boundary Wall:
The AO restricted the depreciation on the boundary wall to 10% instead of the claimed 20%. The CIT (A) deleted the penalty on this disallowance, stating that the assessee disclosed all material facts and that the claim was made under a bona fide belief. The ITAT agreed with the CIT (A) and held that no penalty under Section 271(1)(c) could be levied on this issue.

3. Disallowance of PF/ESI Payments Made Beyond the Prescribed Time Limit:
The AO disallowed the PF/ESI payments made beyond the prescribed time limit under Section 36(1)(va) read with Section 2(24)(x). The CIT (A) deleted the penalty, stating that the assessee disclosed all material facts and that the claim was made under a bona fide belief. The ITAT agreed with the CIT (A) and held that no penalty under Section 271(1)(c) could be levied on this issue.

4. Levy of Penalty Under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income:
The AO levied penalties under Section 271(1)(c) for furnishing inaccurate particulars of income concerning the disallowances mentioned above. The CIT (A) deleted the penalties, holding that the assessee disclosed all material facts and that the claims were made under a bona fide belief. The ITAT, however, found that the claim of 100% depreciation on temporary constructions was ex-facie untenable and that the assessee, being part of a large industrial group, should have known better. Therefore, the ITAT set aside the CIT (A)'s order concerning the penalty on temporary constructions for both assessment years but upheld the deletion of penalties on the boundary wall depreciation and PF/ESI disallowances.

Conclusion:
The ITAT set aside the CIT (A)'s order for Assessment Year 2003-04 and partly sustained the order for Assessment Year 2002-03, allowing the revenue's appeal for the former and partly allowing it for the latter. The penalties related to the disallowance of 100% depreciation on temporary constructions were upheld, while those related to the boundary wall depreciation and PF/ESI disallowances were deleted.

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