2018 (1) TMI 889 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowing claim of depreciation on know-how, patents and trademarks - Held that - The Tribunal in assessee s own case 2018 (1) TMI 12 - ITAT PUNE as of the view that slump price had to be bifurcated over the cost of tangible assets and balance consideration has to be attributed to goodwill, know-how, patents and trademarks. The Tribunal after taking into consideration the factual and legal aspects of the case and the claim of assessee, held the assessee to be entitled to claim depreciation both on tangible and intangible assets, including depreciation on non-compete fees. The claim of assessee was allowed in entirety. Consequent thereto, enhancement made by the CIT(A) in the quantum proceedings has been reduced to Nil in the hands of assessee. Consequent thereto, there is no basis for levy of penalty under section 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Analysis:
The appeal was filed against the order of CIT(A)-I, Thane, related to the assessment year 2004-05 concerning the penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee raised grounds of appeal challenging the holding of inaccurate particulars of income, the levy of penalty, and the consideration of enhanced income for penalty calculation. The primary issue was the levy of penalty under section 271(1)(c) of the Act.

The assessee initially filed a return showing a total loss, which was later assessed at a lower loss amount after certain disallowances. The Assessing Officer did not initiate penalty proceedings for these disallowances. However, the CIT(A) not only confirmed the disallowances but also enhanced the assessment amount significantly. The CIT(A) then initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) relied on various grounds to disallow depreciation claims on intangible assets, leading to the penalty imposition.

The CIT(A) found that the assessee had furnished inaccurate particulars of income by claiming depreciation on assets based on a biased valuation report. The CIT(A) held that the assessee was not entitled to the claimed depreciation and imposed a penalty of 100% of the tax sought to be evaded. The assessee appealed against this penalty order.

The Tribunal, in the assessee's own case for other assessment years, allowed the depreciation claims on both tangible and intangible assets, including non-compete fees. The Tribunal held that there was no basis for the penalty under section 271(1)(c) due to the allowance of the assessee's claims in entirety. Consequently, the Tribunal directed the Assessing Officer to delete the penalty levied under section 271(1)(c) as there was no merit in holding the assessee liable for inaccurate particulars of income. The appeal of the assessee was allowed, and the penalty was revoked.

In conclusion, the Tribunal's decision favored the assessee by allowing the depreciation claims on assets and nullifying the penalty imposed by the CIT(A) under section 271(1)(c) of the Income-tax Act, 1961.