2016 (3) TMI 1294 - AT - Income Tax

Penalty u/s 271(1)(c) - depreciation claim on income from house property - Held that - Admittedly when the assessee was confronted with the depreciation being claimed on the property the income from which had been returned under the head income from house property it immediately realized its mistake of computation of total income and agreed for the addition to its total income. The mistake was inadvertent is evident from the fact that assessee had furnished return of income of 3, 27, 79, 273/- and therefore there was no reason to make a false claim of a petty sum of 7, 87, 734/-. The property was appearing in the fixed assets schedule along with other properties therefore for all practical purposes it was treated as a business asset and the depreciation was accordingly claimed in the books of account. This aspect is not disputed. It was only at the time of computation of income that the assessee should have made the addition to the profits as per P&L A/c because the income from this property was returned under the head income from house property. Under such circumstances it cannot be disputed that human error could have crept into while making the computation. Thus it is evident that assessee did not misrepresent the facts at any stage of proceeding. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 for claiming depreciation inadvertently.

Analysis:
The appellant, in this case, appealed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (AO) noticed that the appellant had claimed depreciation inadvertently on a property, which was shown as rental income under the head income from house property. The appellant, upon realization of the error, voluntarily offered to add the amount to the returned income. The AO, however, imposed a penalty of Rs. 2,67,751, which was the minimum imposable penalty. The appellant contended that the error was inadvertent and no penalty should be levied. The Commissioner of Income Tax (Appeals) upheld the penalty.

Upon considering the submissions, the Tribunal found that the mistake was inadvertent as the appellant immediately acknowledged the error and agreed to add the amount to the total income. The property in question was listed as a fixed asset, and depreciation was claimed accordingly. The Tribunal noted that the appellant did not misrepresent any facts during the proceedings. Citing the decision in Price Waterhouse Coopers (P) Ltd. Vs. CIT, the Tribunal emphasized that a bona fide and inadvertent error does not warrant a penalty under section 271(1)(c). The Supreme Court's observation in a similar case highlighted that human errors are common and do not amount to concealing income or furnishing inaccurate particulars.

Based on the above analysis, the Tribunal concluded that the penalty imposed under section 271(1)(c) was unjustified, considering the inadvertent nature of the error. Therefore, the penalty was deleted, and the appellant's appeal was allowed.