2016 (12) TMI 1809 - AT - Income Tax

Penalty u/s 271(1)(c) - excess depreciation claim - assessee engaged in development of integrated Textile Park in the Special Economic Zone Visakhapatnam, installed water supply and treatment plant for the benefit of users and claimed 100% depreciation on such water treatment plant and equipments - HELD THAT - Whether the assessee is developing exclusive infrastructure facility of water treatment plants is eligible for 100% depreciation or providing in house water supply project or water treatment plant in a integrated infrastructure facility being Textile park in Special Economic Zone is a debatable issue which involves two possible views. The assessee had taken one of the possible view which was supported by sound legal contention and also certified by the tax auditor cannot be considered as furnishing of inaccurate particulars of income within the meaning explanation 1 to sec. 271(1)(c) of the Act. Moreover, even after disallowance of excess depreciation, the returned loss continued to be in loss and which does not results into taxable income, so as to claim that the assessee has claimed excess depreciation to evade payment of tax. Excess depreciation claim made by the assessee is a bonafied claim without any fraudulent intention to evade tax, which does not tantamount to furnishing inaccurate particulars of income warrants levy of penalty u/s 271(1)(c) of the Act. The CIT(A), after considering relevant facts, rightly deleted penalty levied by the A.O. We do not see any reasons to interfere with order of the CIT(A). Therefore, we upheld the CIT(A) order and dismissed appeal filed by the revenue.

Summary

Issues:
Penalty under section 271(1)(c) for claiming excess depreciation.

Analysis:

Issue 1:
The appellant, a company developing an integrated textile park, claimed 100% depreciation on water treatment plant and equipment for the assessment year 2010-11. The Assessing Officer (A.O.) disallowed the excess depreciation, resulting in a reduced loss. The A.O. initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars. The appellant contended that the claim was made in good faith, supported by expert advice and legal basis, and all material facts were disclosed.

Issue 2:
The A.O. imposed the penalty, stating that even an incorrect or excess claim of depreciation leading to lower income or higher loss constitutes furnishing inaccurate particulars under section 271(1)(c). The A.O. relied on various judgments, including the Supreme Court case of Union of India vs. Dharmendra Textile Processor, to support the penalty imposition.

Issue 3:
The appellant appealed to the CIT(A), who deleted the penalty, citing that if the explanation provided, though incorrect, was made in good faith and all material facts were disclosed, no penalty should be levied under section 271(1)(c). The Revenue challenged the CIT(A) decision before the ITAT.

Issue 4:
The ITAT analyzed the facts and contentions of both parties. It noted that the appellant's claim was based on a debatable issue regarding the eligibility for 100% depreciation, supported by legal advice and tax audit certification. The ITAT agreed that the claim was bonafide and did not indicate an intention to evade tax. It referenced relevant case laws, including Union of India vs. Rajasthan Spinning Mills Ltd., to support its decision.

Issue 5:
Ultimately, the ITAT upheld the CIT(A) decision, stating that the excess depreciation claim was made in good faith without fraudulent intent, and thus, did not constitute furnishing inaccurate particulars warranting a penalty under section 271(1)(c). The Revenue's appeal was dismissed, affirming the deletion of the penalty.

This comprehensive analysis of the judgment highlights the key legal issues, arguments, and decisions made by the authorities and the ITAT, providing a detailed overview of the case.