2018 (8) TMI 1981 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of depreciation on leased assets capitalised in preceding Assessment Year - HELD THAT - What one can understand from the discussion is that as per the AO, not only the installation, but use of the asset by the lessee was also essential so as to enable the assessee-lessor to claim depreciation. In our considered opinion, whether or not the proposition canvassed by the AO is merited is not the issue before us. Levy of penalty u/s 271(1)(c) of the Act, and for that purpose, we find that none of the particulars filed by the assessee could be said to be incorrect. Claim was made on a bona fide ground, based on the understanding of the then subsisting judgment in the case of First Leasing Co. of India 1992 (11) TMI 83 - KARNATAKA HIGH COURT as well as the judgment of Shaan Finance (P). Ltd. 1995 (9) TMI 60 - MADRAS HIGH COURT . Under these circumstances, in our view, the penalty u/s 271(1)(c) of the Act is not justifiable and, therefore, we hereby affirm this aspect of the decision of CIT(A) also, albeit on a different ground. Excess depreciation allowed in respect of vehicles - merit of depreciation claimed by the assessee @ 40% on trucks - HELD THAT - Notably, the higher rate of depreciation @ 40% was allowable in case of vehicles which were used in the business of running them on hire. Initially, in the assessment proceedings, depreciation claimed @ 40% was allowed as such, but the Commissioner vide his order dated 06.03.2003 passed u/s 263 of the Act directed the Assessing Officer to modify the depreciation allowable on vehicles and restricted the same to 20% and not at 40%, as claimed by the assessee. We are narrating these aspects only to bring home the point that the claim of depreciation made by the assessee on trucks @ 40% in return of income, and which stood accepted initially in the assessment u/s 143(3) of the Act, was not a claim which was patently inadmissible on the face of it. It is also worthwhile to note that this aspect of the controversy sprung-up only consequent to the judgment of the Hon'ble Bombay High Court in the case of Kotak Mahindra Finance Ltd. 2003 (4) TMI 30 - BOMBAY HIGH COURT and it was not a case where the claim of assessee was bona fidely wrong from the beginning itself. At this stage, we may also put on record an assertion made by the learned representative for the assessee, and which has not been controverted, which is to the effect that in the preceding as well as in the subsequent assessments, the Assessing Officer himself has allowed depreciation on trucks leased out @ 40%. Considering all these aspects, in our view, restricting the allowance of depreciation on trucks from 40% to 20% would not justify levy of penalty u/s 271(1)(c) of the Act in the facts and circumstances of the present case. Thus, on this aspect also, we find no reasons to distract from the ultimate decision of CIT(A) in deleting the penalty, albeit on a different ground.

Summary

Issues Involved:
1. Penalty on disallowance of depreciation on leased assets capitalized in A.Y. 1994-95.
2. Penalty on disallowance of depreciation on sale and leaseback assets.
3. Penalty on disallowance of depreciation on assets leased to Tata Telecom.
4. Penalty on excess depreciation allowed in respect of vehicles.

Detailed Analysis:

1. Penalty on Disallowance of Depreciation on Leased Assets Capitalized in A.Y. 1994-95:
The penalty of ?21,02,827/- was imposed due to the disallowance of depreciation amounting to ?45,71,364/-. The Tribunal had previously set aside the disallowance for A.Y. 1994-95 and restored the matter to the Assessing Officer for fresh adjudication. Consequently, the addition, which formed the basis for the penalty, no longer survived. Thus, the deletion of the penalty by the CIT(A) was upheld.

2. Penalty on Disallowance of Depreciation on Sale and Leaseback Assets:
The penalty of ?1,85,24,782/- was related to the disallowance of depreciation amounting to ?4,02,71,266/-. The Tribunal, in its order dated 03.01.2018, had deleted the disallowance and directed the Assessing Officer to allow the depreciation as claimed. Consequently, the basis for the penalty no longer existed, and the deletion of the penalty by the CIT(A) was upheld.

3. Penalty on Disallowance of Depreciation on Assets Leased to Tata Telecom:
The penalty of ?95,705/- was imposed due to the disallowance of depreciation of ?2,08,056/- on assets leased to Tata Telecom. The Assessing Officer disallowed the depreciation on the grounds that the asset was not put to use by the lessee within the stipulated period. However, the assessee argued that the claim was bona fide and based on legal precedents, asserting that the use of the asset by the lessee was not relevant for the depreciation claim. The Tribunal found that the claim was made on a bona fide basis and none of the particulars filed by the assessee were incorrect. Therefore, the penalty was not justified, and the deletion by the CIT(A) was upheld.

4. Penalty on Excess Depreciation Allowed in Respect of Vehicles:
The penalty of ?4,36,86,040/- was related to the disallowance of depreciation amounting to ?9,49,69,652/-. The dispute revolved around the depreciation rate applicable to trucks leased out by the assessee. The Commissioner had restricted the depreciation rate from 40% to 20%, and the Tribunal had directed the Assessing Officer to verify the use of the vehicles. The Tribunal noted that the claim was not patently inadmissible and was based on the legal understanding at the time. The Tribunal also noted that the depreciation claim had been allowed in preceding and subsequent assessments. Therefore, the penalty was not justified, and the deletion by the CIT(A) was upheld.

Conclusion:
The appeal of the Revenue was dismissed, and the deletion of penalties by the CIT(A) was upheld on different grounds for each issue. The Tribunal emphasized the bona fide nature of the claims and the legal precedents supporting the assessee's positions.