2017 (1) TMI 390 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of depreciation of show room building - Held that - From going through the judgment of Price Waterhouse Coopers Pvt. Ltd. vs. CIT 2012 (9) TMI 775 - SUPREME COURT we find that it is squarely covered in favour of assessee by the above judgment as the assessee which is a limited company declaring total income of ₹ 11.43 crores (approx.) and having no mens rea of claiming excess depreciation of just ₹ 7,80,826/- rather it was claimed in the regular course and with the firm belief that it is legally allowable which was further supported by the statutory audit report. It was only the Revenue s contention that the depreciation cannot be allowed on the show room building as it could not be deemed to be put to use on 5.3.2007 as claimed by the assessee but was put to use on 31.5.2007 after the completion of Bath Studio. Certainly in such circumstances it will be unjustified to impose penalty u/s 271(1)(c) of the Act as the assessee had only committed an undoubtful bona fide error and it certainly had no intention of concealing any income or furnishing inaccurate particulars of income. We are, therefore, of the view that assessee should not be visited with penalty u/s 271(1)(c) - Decided in favour of assessee

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act for disallowance of depreciation.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act for disallowance of depreciation:

The assessee, a limited company engaged in the manufacturing and trading of ceramics, filed its income return for the Assessment Year (AY) 2007-08 declaring a total income of ?11,43,52,419/-. The case was selected for scrutiny, and the total income was assessed at ?11,91,42,258/- which included a disallowance of depreciation on a showroom building amounting to ?7,80,826/-. The primary issue in this appeal was the levy of penalty under Section 271(1)(c) on the disallowance of this depreciation.

The facts reveal that the assessee purchased a showroom building in Mumbai on 5.3.2007 for ?1,51,18,160/- and started constructing a "Bath Studio" which was completed and put to use on 31.05.2007. The assessee claimed depreciation for AY 2007-08, but the Assessing Officer (AO) disallowed it, stating that the building was put to use only after the completion of the Bath Studio on 31.05.2007, and not before 31.03.2007. This disallowance was upheld by both the CIT(A) and the Tribunal in the quantum appeal.

Penalty proceedings were initiated under Section 271(1)(c) for furnishing inaccurate particulars of income by making a wrong claim of depreciation. The CIT(A) confirmed the penalty, stating that the claim was not a bona fide omission or mistake, and thus fell under the category of furnishing inaccurate particulars of income. The CIT(A) referenced the Supreme Court’s decision in the case of Dharmendra Textile, emphasizing that such tendencies need to be strongly discouraged to act as a deterrent for other taxpayers.

The assessee appealed to the Tribunal, arguing that the claim was bona fide, supported by the auditor's report, and that there was no concealment of income or furnishing of inaccurate particulars. The Tribunal observed that the assessee had provided all necessary particulars, and the issue revolved around the allowability of the claim, not the accuracy of the particulars furnished.

The Tribunal referenced the Supreme Court’s judgment in Price Waterhouse Coopers Pvt. Ltd. vs. CIT, which held that inadvertent and bona fide errors do not constitute furnishing inaccurate particulars or attempting to conceal income. The Tribunal concluded that the assessee’s claim, although disallowed, was made with a bona fide belief and supported by the auditor’s report. Therefore, imposing a penalty under Section 271(1)(c) was unjustified as there was no intention to conceal income or furnish inaccurate particulars.

Conclusion:

The Tribunal allowed the assessee's appeal, setting aside the CIT(A)’s order and ruling that the penalty under Section 271(1)(c) was not warranted in this case. The appeal of the assessee was thus allowed, and the order was pronounced in the open court on 4th January 2017.