2017 (5) TMI 1589 - HC - Income Tax

Penalty u/s 271(1)(c) - depreciation claim on expenditure in respect of mining right - Held that - The satisfaction for initiation of penalty is coupled with the findings of the assessment order would show that satisfaction existed in the course of assessment itself and deemed to constitute satisfaction. The Hon ble Supreme Court in the case of Union of India vs. Dharmendra Testile Processors 2008 (9) TMI 52 - SUPREME COURT has held that willful concealment is not an essential ingredient for attracting civil liability. The assessee intentionally claimed the capital expenditure as revenue expenditure on new project (i.e. cement), which was separate activity of the assessee company from the existing business i.e. production of fertilizers. In our considered opinion, in view of the decision of the Supreme Court where it has been held that wrong claim of depreciation will not invite penalty. - Decided in favour of assessee.

Summary

Issues:
Challenge to Tribunal's order upholding penalty under section 271(1)(c) - Perverse confirmation of penalty based on quantum proceedings - Capital expenditure treated as revenue expenditure - Concealment of income - Burden of proof on assessee - Willful concealment not essential for civil liability - Wrong claim of depreciation not inviting penalty.

Analysis:

1. The appellant challenged the Tribunal's decision upholding the penalty under section 271(1)(c) in this appeal. The court framed a question of law regarding the correctness of the Tribunal's order, which confirmed the penalty of ?67,46,313 based on the assumption that the disallowance of ?1,73,53,860 in quantum proceedings was not perverse.

2. The appellant contended that the Tribunal erred in setting aside the CIT(A)'s order, which allowed the expenditure to be treated as capital if it related to acquiring capital assets. However, the Tribunal found the expenses to be capital in nature and not related to the business but a new project, leading to the conclusion of concealment of income by claiming capital expenditure as revenue expenditure.

3. The Tribunal relied on precedents to establish that the penalty under section 271(1)(c) was justified due to the inadmissible nature of the claimed expenditure. It emphasized that the burden of proof lies on the assessee to show otherwise with cogent evidence, and the intention to conceal income need not be willful for civil liability to apply.

4. The court referenced a Supreme Court decision stating that a wrong claim of depreciation would not attract a penalty, leading to the conclusion that the penalty in this case should not be upheld due to the nature of the claimed expenditure.

5. Ultimately, the court ruled in favor of the assessee, finding that the penalty under section 271(1)(c) was not justified in this case. The appeal was allowed, overturning the Tribunal's decision and relieving the appellant from the imposed penalty.