2017 (6) TMI 1121 - AT - Income Tax

Depreciation on hardening and tempering furnace disallowance - penalty u/s. 271(1)(c) - Held that - In any case of the matter, that depreciation for the first year is subject to the condition of user is unexceptional, being also implicit in the assessee s contention, as made before us, i.e., of the furnace having been subject to trial production and, thus, used , and it s claim at 50%, which is only on being put to use for a period less than 180 days during the relevant year. The assessee s claim, in fact, is not a wrong or erroneous claim, much less bona fide, but a false claim. The assessee itself states the claim for depreciation on the same plant for the following year as having been made at the base rate of 25%, applicable to general plant and machinery, further underscoring the impugned claim to be without basis. The withdrawal of the claim cannot under the circumstances be regarded as voluntary. The assessee, accordingly, is liable for penalty u/s. 271(1)(c) on the entire claim for depreciation on the relevant plant and machinery, i.e., for ₹ 140.56 lacs, i.e., including the claim to the extent stated as withdrawn. - Decided against assessee. Disallowance of deduction under section 80-IB - Held that - The assessee in our view had a reasonable basis to stake a claim for deduction u/s. 80IB in the manner it does, i.e., at ₹ 277.66 lacs. No ground for levy of penalty for furnishing inaccurate particulars of income is in our view therefore made out. We decide accordingly, confirming its deletion.- Decided against revenue.

Summary

Issues Involved:
1. Maintainability of penalty under section 271(1)(c) of the Income Tax Act, 1961, for disallowance of depreciation on hardening and tempering furnace.
2. Disallowance of deduction under section 80-IB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Maintainability of Penalty under Section 271(1)(c) for Disallowance of Depreciation:

The assessee claimed depreciation on a hardening and tempering furnace, initially classifying it as air pollution control equipment eligible for 100% depreciation. Later, the assessee admitted to misclassification and revised the claim to 80% depreciation, and finally to 25% applicable to general plant and machinery. The Assessing Officer (AO) disallowed the entire claim, as the furnace was not proven to be commissioned by 31.03.2004. The penalty was levied for furnishing inaccurate particulars of income.

The Tribunal found that the assessee failed to provide evidence of the furnace being received, installed, or commissioned by the year-end, making the claim factually unsupported. The argument that the machinery was ready-to-use at the supplier's premises was rejected, as it did not equate to commissioning at the assessee’s site. The Tribunal upheld the penalty, stating that the claim was not merely erroneous but false, and the withdrawal of the claim was not voluntary but prompted by the AO's inquiry.

2. Disallowance of Deduction under Section 80-IB:

The assessee claimed deduction under section 80-IB for profits from two units without setting off losses from other two units. The AO disallowed the claim, as the cumulative income from all eligible units was a loss. The Tribunal confirmed the disallowance in quantum proceedings. However, the CIT(A) deleted the penalty, noting that the assessee had furnished all relevant details and the claim was based on interpretation of law, not concealment or furnishing inaccurate particulars.

The Tribunal agreed with the CIT(A), observing that the assessee had a reasonable basis for its claim, supported by the decision in CIT v. Sona Koyo Steering Systems Ltd. The Tribunal held that there was no ground for penalty as the claim was made based on a plausible interpretation of the law.

Conclusion:

The Tribunal upheld the penalty for the disallowed depreciation claim, emphasizing the lack of factual basis and false nature of the claim. However, it deleted the penalty for the disallowed section 80-IB deduction, recognizing the reasonable basis and full disclosure by the assessee. The assessee's appeal was dismissed, and the Revenue's appeal was partly allowed.