2017 (8) TMI 1694 - AT - Income Tax

Levy penalty u/s. 271 (1)(c) - admitting the rental income under the head income from 'house property' has claimed deduction of 30% of the rentals u/s.24(a) - claim of depreciation on let-out buildings - HELD THAT - There is a double deduction claim, which is not permitted in the Act. The fact of claiming depreciation on the let-out buildings has come to the notice of the Assessing Officer only during the course of assessment proceedings. Thus, there is a clear concealment of taxable income, by furnishing inaccurate particulars, on account of claiming depreciation on the let-out buildings. Therefore, the assessee s explanation is found to be false within the scope of Explanation1 r.w.s. 271(1)( c). On such facts and circumstances, the Assessing Officer and the CIT(A) have rightly concluded that the claim of depreciation on let-out buildings is a concealment of income by furnishing inaccurate particulars and hence the levy penalty u/s. 271 (1)(c) on this issue is confirmed. AO disallowed assessee's claims of 'provisions for warranties debited in P L account holding that they are unascertained liabilities - The assessee has admitted the income for the period for which the ITAT has decided the appeals ie for ays 1997 1998 in its revised return. It s explanation that its appeals for ays, 1999-00 and 2000-01 was pending before the ITAT as on the date of filing the revised return for ay 2003-04 and hence it did not admit the income related to those ays is a fact, as per the chronological events extracted, supra. Neither the AO nor the CIT (A) found that this explanation of the assessee to be false. Hence, on this issue, there is no ground to levying penalty u/s 271(1) (c) read with Explnation1. In view of that the penalty levied on this issue is directed to be deleted. All the grounds of appeal on this issue is allowed. Assessee s appeal is allowed partly.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) regarding depreciation claimed on let-out properties.
2. Penalty under Section 271(1)(c) regarding reversal of warranty provisions of earlier years.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) regarding depreciation claimed on let-out properties:

The assessee, engaged in the design and supply of automation systems, owned a factory building at Arakkonam, which was let out and the rental income was declared under the head 'house property'. However, the assessee claimed depreciation on these let-out buildings as if they were used for business purposes. The Assessing Officer (AO) disallowed this claim, stating that since the rental income was offered under 'house property', depreciation could not be claimed. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, leading to the AO initiating penalty proceedings under Section 271(1)(c) for concealment of income by furnishing inaccurate particulars.

The assessee argued that it had the option to offer the rental income under 'income from other sources' and claim depreciation under Section 57(ii) of the Act. However, the Departmental Representative (DR) countered that the rental income was correctly assessed under 'house property' and that claiming depreciation in addition to the standard deduction of 30% under Section 24(a) amounted to a double deduction, which is not permitted by the Act. The Tribunal found that the assessee's explanation was false and upheld the penalty, confirming that the claim of depreciation on let-out buildings constituted concealment of income by furnishing inaccurate particulars.

2. Penalty under Section 271(1)(c) regarding reversal of warranty provisions of earlier years:

The assessee, as a contractor, created provisions for warranties in its accounts and recognized these provisions as income when the warranty period expired without claims. For the assessment year (AY) 2003-04, the assessee reduced the amounts of "warranty provisions no longer required - written back" in the computation of taxable income, arguing that corresponding provisions for AYs 1999-2000 and 2000-01 were disallowed by the AO. The ITAT had later allowed the assessee's appeals on 'provision for warranty claims'. The AO added the warranty provision written back of Rs. 87,74,691/- to the taxable income, which was upheld by the CIT(A), leading to the imposition of penalty.

The assessee contended that at the time of filing the original return for AY 2003-04, it had lost appeals up to the ITAT level and thus did not offer the reversal of provisions as income. Upon the ITAT's favorable decision for AYs 1997-98 and 1998-99, the assessee filed a revised return, including the reversal of provisions for these years but not for AYs 1999-2000 and 2000-01, as appeals were still pending. The DR argued that given the favorable ITAT decision for earlier years, the assessee should have included all reversals in its taxable income.

The Tribunal found that the assessee's explanation regarding the pending appeals for AYs 1999-2000 and 2000-01 was factual and not false. Thus, there was no ground for levying penalty under Section 271(1)(c) for this issue, and the penalty was directed to be deleted.

Conclusion:

The appeal was partly allowed. The penalty regarding the depreciation claim on let-out properties was upheld, while the penalty related to the reversal of warranty provisions was deleted. The order was pronounced on 18th August 2017 at Chennai.