2016 (3) TMI 646 - AT - Income Tax

Penalty u/s 271(1)( c) - depreciation on assets claimed at a higher value - Held that - Admittedly in the case before us, the assessee was in receipt of capital subsidy which had to be adjusted against the cost of assets purchased during the year and the depreciation on such assets had to be allowed on reduced value. The assessee had declared the complete information in respect of the said transaction in the return of income. However, under bona fide impression, the depreciation on assets had been claimed at a higher value but that itself would not establish that the assessee had furnished inaccurate particulars of income. The claim made by the assessee was bona fide. Where the assessee had submitted complete information and merely because the claim of depreciation had been made on a higher figure, does not make the assessee exigible to levy of penalty under section 271(1 )(c) of the Act. - Decided in favour of assessee

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for disallowance of depreciation claimed on assets acquired from state government grant.

Analysis:
The appeal concerned the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 77,01,000, arising from the disallowance of Rs. 2,10,44,890 depreciation claimed by the assessee on assets acquired from a state government grant. The assessee, a state government corporation engaged in hydro-electricity generation, had filed its return of income for the assessment year 2005-06, declaring a net loss of Rs. 3,22,05,196, which was later assessed at Rs. 29,72,49,029. The penalty was imposed based on the disallowance of depreciation related to assets acquired from state government grants. However, the assessee withdrew the appeal ground related to this addition before the Ld. CIT(A).

The assessee argued that the grant received from the state government was utilized to create assets on which depreciation was claimed, and this fact was not known at the time of filing the return. The assessee contended that the claim of depreciation was neither mala fide nor intentional, and there were two possible views on the accounting treatment of the grant. The assessee maintained that the grant was a capital receipt, and therefore, the depreciation claimed was fully allowable. The assessee cited relevant legal precedents to support its position.

On the other hand, the Departmental Representative supported the order of the Ld. CIT(A) and argued that the penalty under section 271(1)(c) was correctly levied. The Tribunal noted that penalty under section 271(1)(c) is applicable when the assessee has concealed income or furnished inaccurate particulars of income. Mere non-acceptance of the claim does not automatically warrant a penalty.

The Tribunal referred to the decision of the Hon'ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd., emphasizing that the term "particulars" in inaccurate particulars of income refers to details supplied in the return that are not accurate or correct. The Court clarified that a mere claim not sustainable in law does not amount to furnishing inaccurate particulars. In the present case, the assessee had provided complete information, and the higher depreciation claim did not establish inaccurate particulars of income.

Considering the facts and circumstances, the Tribunal found no merit in confirming the penalty for concealment under section 271(1)(c) and directed the Assessing Officer to delete the penalty. Consequently, the appeal of the assessee was allowed, and the penalty was set aside.