2018 (4) TMI 509 - AT - Income Tax

Penalty u/s 271(1)(c) - excess claim of depreciation - capital subsidy received under the TUFS scheme - bonafide claim - Held that - As the assessee during the year under consideration had duly disclosed the complete details in respect of the capital subsidy received under the TUFS scheme along with the calculation of the depreciation on the fixed assets, therefore, though the treatment given by the assessee to the capital subsidy received under the TUFS scheme, may not have found favour with the Assessing Officer, therein leading to a consequential reworking of the depreciation on his part, but however, in the backdrop of the fact that a complete disclosure of the facts pertaining to the capital subsidy and computation of the deprecation on the said fixed assets was furnished by the assessee as part of the enclosures forming part of its return of income, therefore, no penalty under Sec. 271(1)(c) for the said reason also was liable to be imposed on it. The issue that an excess claim of depreciation by an assessee for bonafide reasons would not justify imposition of penalty under section 271(1)(c) had also been deliberated upon by the Hon ble High Court of Bombay in the case of CIT vs. Somany Evergreen Knits Ltd. (2013 (4) TMI 154 - BOMBAY HIGH COURT) No penalty under section 271(1)(c) in respect of excess claim of depreciation by the assessee under the aforesaid set of circumstances was liable to be imposed in its hands. We, thus, not finding any infirmity in the order passed by the CIT(A) deleting the penalty - Decided in favour of assessee.

Issues Involved:
1. Deletion of penalty for inaccurate particulars of income due to incorrect depreciation claim.
2. Multiple opinions on the treatment of capital subsidy.
3. Settled law on treating capital subsidy in books of account.
4. Penalty in set-aside proceedings versus original appellate proceedings.

Issue-Wise Detailed Analysis:

1. Deletion of Penalty for Inaccurate Particulars of Income Due to Incorrect Depreciation Claim:
The Revenue challenged the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was initially imposed because the assessee claimed depreciation on the actual value of plant and machinery without deducting the TUFF subsidy, which the Assessing Officer (AO) deemed as furnishing inaccurate particulars of income. The CIT(A) deleted the penalty, holding that the assessee's claim was based on a bonafide belief and that the complete details were disclosed in the return of income.

2. Multiple Opinions on the Treatment of Capital Subsidy:
The Revenue argued that the CIT(A) erred in deleting the penalty by holding that multiple opinions were involved in the issue. The AO had accepted the assessee's treatment of the subsidy in the previous year, which led the assessee to believe that its method was correct. The Tribunal noted that the AO's acceptance of the same treatment in the preceding year (A.Y. 2008-09) indicated that there were indeed two plausible views regarding the treatment of the capital subsidy.

3. Settled Law on Treating Capital Subsidy in Books of Account:
The Revenue contended that there is settled law for treating capital subsidy in the books of account, and thus, there could not be two views on the issue. However, the Tribunal found that the assessee's method of reflecting the subsidy as a liability in the balance sheet, rather than reducing it from the cost of fixed assets, was based on a bonafide belief due to the conditional nature of the subsidy under the TUFS scheme. This belief was further supported by the AO's acceptance of the same treatment in the previous year.

4. Penalty in Set-Aside Proceedings versus Original Appellate Proceedings:
The Revenue also argued that the CIT(A) erred in deleting the penalty during the set-aside proceedings, as the penalty was confirmed during the original appellate proceedings. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had disclosed all relevant details and that the issue was debatable, thus no penalty under Section 271(1)(c) was warranted.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order to delete the penalty of ?11,09,932/- imposed under Section 271(1)(c). The Tribunal concluded that the assessee had a bonafide belief regarding the treatment of the capital subsidy, disclosed all relevant details, and that the issue was debatable. Therefore, no penalty for furnishing inaccurate particulars of income was justified.

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