2017 (1) TMI 994 - AT - Income Tax

Penalty u/s. 271(1)(c) - claim for depreciation on account of purchase of machinery - Held that - We find that the assessee had made claim for depreciation on account of purchase of machinery, that the AO had directed it to produce various details with regard to the purchase, including the copies of the invoices/ purchase bills, sources of funds, bank charges etc., that the scrutiny revealed that certain expenses were capital in nature. He called for further explanation from the assessee in that regard. It was only after the inquiry made by the AO,that the assessee admitted that the claim made by it were not as per the provisions of the Act,that he admitted to pay tax on disputed items. It is not a case that the assessee on its own made the offer and had accepted that by mistake it had not paid taxes on the disputed items.Had the case not been selected for scrutiny and had the AO not inquiry the return filed by it would have been processed as it was filed. The assessee himself admitted that claim made by it were disallowable. We are of the opinion that allowabiltiy of claim of depreciation in subsequent years would not justify the action of the assessee not to file a bonafide claim. It is not the duty of a taxpayer to determine the tax liability for a particular year. The AO has been assigned the role of tax administrator in the Act.The assessee has to make only bonafide claim in the returns of income.To decide the taxability or otherwise of such items is the domain of the AO.In this background,we are of the opinion, that the order of the FAA does not suffer from any legal infirmity. - Decided against assessee

Summary

Issues:
1. Challenge against penalty imposition under section 271(1)(c) of the Income Tax Act.
2. Assessment of whether the penalty was justified based on the claim made by the assessee regarding expenses being capital in nature.
3. Examination of the onus on the assessee to establish the bona fide nature of the explanation offered and disclosure of all income-related facts.
4. Analysis of whether the claim for depreciation on machinery and subsequent allowance in subsequent years justified the inaccurate particulars of income furnished by the assessee.

Issue 1: Challenge against penalty imposition under section 271(1)(c) of the Income Tax Act
The case involved the assessee challenging the penalty imposed under section 271(1)(c) of the Income Tax Act. The penalty was imposed by the Assessing Officer (AO) for furnishing inaccurate particulars of income. The assessee had claimed expenses as revenue expenditure which were later found to be capital in nature, leading to the penalty imposition.

Issue 2: Assessment of penalty justification based on claim regarding expenses being capital in nature
The AO disallowed a portion of interest and bank charges claimed as revenue expenses by the assessee. The AO initiated penalty proceedings under section 271(1)(c) based on the belief that the assessee furnished inaccurate particulars of income. The assessee argued that the disallowances were not legally sustainable, and the penalty could not be levied for a wrong claim made after full particulars were furnished.

Issue 3: Examination of onus on the assessee to establish bona fide explanation and disclosure of income-related facts
The First Appellate Authority (FAA) referred to Explanation 1 to section 271(1)(c) of the Act, emphasizing the onus on the assessee to establish that the explanation offered was bona fide and all income-related facts were disclosed. The FAA held that the assessee's admission of the mistake in claiming expenses as revenue expenditure was not voluntary and that penalty could be justified for furnishing inaccurate particulars of income.

Issue 4: Analysis of depreciation claim and subsequent allowance in subsequent years
The assessee argued that depreciation on machinery would be allowed over time, and there would be no loss to revenue. However, the FAA held that the inaccurate particulars of income furnished by the assessee for the year under consideration could not be justified by the allowance of depreciation in subsequent years. The FAA upheld the penalty imposition by the AO under section 271(1)(c) of the Act.

In conclusion, the appellate tribunal upheld the penalty imposed on the assessee for furnishing inaccurate particulars of income, emphasizing the importance of disclosing all income-related facts and establishing the bona fide nature of explanations offered. The tribunal dismissed the appeal filed by the assessee, affirming the penalty imposed under section 271(1)(c) of the Income Tax Act.