2017 (7) TMI 1342 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee had claimed excessive depreciation on UID Kit claiming to be part of the computer - Bonafide belief - HELD THAT - There is no dispute with regard to the position, that the assessment proceedings and penalty proceedings are two different and distinct proceedings. If the assessee is having any plausible explanation with regard to the default and the Act of the assessee is bonafide. In that event the penalty cannot be levied. It is the contention of the assessee that in the present case the assessee under a bonafide belief that UID Kit being a part of computer, therefore, it claimed depreciation at 60%. CIT(A) deleted the penalty finding that the claim was bonfide in view of the judicial pronouncements as relied. In our consider view, there is not infirmity into the order of the Ld. CIT(A) when it is established that the claim was made under the bonafide belief, hence, there was no reason to impose penalty. This ground the Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Deleting penalty of ? 17,12,639/- imposed under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Deleting Penalty of ? 17,12,639/- Imposed under Section 271(1)(c) of the Act

Background:
The Revenue's appeal is against the order of the Ld. CIT (Appeals), Kota, dated 26.09.2016, which pertains to the assessment year 2012-13. The Assessing Officer (AO) initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, for concealing income, claiming that the assessee had claimed excessive depreciation on UID Kit, treating it as part of the computer. The penalty was imposed via an order dated 29/09/2015. The Ld. CIT(A) deleted the penalty after considering the submissions made by the assessee.

Revenue's Argument:
The Ld. Departmental Representative argued that the Ld. CIT(A) was not justified in deleting the penalty, asserting that the assessee claimed higher depreciation which was not available to the UID kits, thus justifying the penalty for concealing particulars of income.

Assessee's Submissions:
1. Assessment and Penalty - Separate Proceedings: The assessee contended that assessment and penalty proceedings are distinct. The AO levied the penalty solely based on findings in the assessment order. The law, as summarized in cases like Durga Kamal Rice Mills v/s CIT and CIT v/s Ishtiaq Hussain, supports this distinction.

2. Merits: The term "Computer" is not defined in the Act. However, as per Section 2(1)(i) of the Information Technology Act, 2000, a computer includes all input, output, processing, storage, and communication facilities connected to a computer system or network. The UID Kit, including peripherals like IRIS scanner and fingerprint scanner, should be considered part of the computer system for depreciation purposes. This argument is supported by judicial precedents like CIT v/s Kanodia Warehousing Corpn. and CIT v/s Karnataka Power Corporation.

3. Contrary Views: The AO rejected the decision of Container Corporation, which favored the assessee, and instead followed Federal Bank Ltd. v/s ACIT. The assessee argued that the latter decision was not applicable to the present case.

4. Debatable Issue: The issue of higher depreciation on UID Kit was debatable. The assessee acted in good faith, relying on certain decisions and chose not to appeal further to avoid litigation. Hence, there was no concealment of income or furnishing of inaccurate particulars.

5. Supporting Case Laws: Several cases, such as CIT v/s Harshvardhan Chemicals and ITO v/s Samiran Majumdar, support the view that when an issue is debatable, penalty is not warranted. Other cases like CIT v/s Reliance Petroproducts (P) Ltd. and Virtual Soft Systems Ltd. v/s CIT emphasize that making an incorrect claim does not amount to furnishing inaccurate particulars if done in good faith.

Tribunal's Findings:
The Tribunal noted that assessment and penalty proceedings are distinct. If an assessee provides a plausible explanation and acts in good faith, penalty should not be levied. The assessee believed that the UID Kit was part of the computer and claimed depreciation at 60%. The Ld. CIT(A) found the claim to be bona fide based on judicial pronouncements. The Tribunal saw no reason to impose a penalty when the claim was made under a bona fide belief.

Conclusion:
The Tribunal upheld the order of the Ld. CIT(A), finding no infirmity in the deletion of the penalty. The Revenue's appeal was dismissed.

Order:
The appeal of the Revenue in ITA No. 1078/JP/2016 is dismissed. The order was pronounced in the open court on Tuesday, the 11th day of July 2017.