2018 (9) TMI 623 - AT - Income Tax

Penalty u/s 271(1)(c) - provisions of the section 43(1) applicability - Held that - There is no infirmity on the plank of the ld. CIT(A) under which he has deleted this penalty. It is settled law that the assessment proceedings and penalty proceedings are distinct. Sustenance of the additions by the CIT(A) and assessee s not contesting the same before ITAT cannot be said to be adversely affecting the assessee s plea that penalty u/s. 271(1)(c) is not leviable. All the details of depreciation claim was duly made and disclosed in the computation of income. So there is no question of concealment of income or furnishing of inaccurate particulars of income. The authorities below have only denied the claim on merits on the basis that term subsidy or grant or reimbursement (by whatever name called) would include capital contribution. Hence, the assessee s claim has been denied. The assessee s plea that it was under a bonafide belief that asset acquired out of capital contribution cannot be said to be in violation of the Act is absolutely bonafide. It will be not out of place to mention that the authorities below opinion, that the said term would include capital contribution also, prima facie itself has no basis. The principal of ejusdem generis would also not support such an extension of the term subsidy or grant or reimbursement (by whatever name called) . The assessee s belief that assessee was entitled for depreciation out of purchase made from capital contribution received from Government was bonafide. Hence, no case is there for furnishing of inaccurate particulars of income or concealment of income - Decided against revenue.

Summary

Issues Involved:
1. Applicability of Section 43(1) of the Income Tax Act, 1961.
2. Nature of government contributions - whether they are capital contributions or subsidies/grants.
3. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 43(1) of the Income Tax Act, 1961:
The core issue revolves around the interpretation of Section 43(1) and its Explanation 10, which states that "the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority." The Assessing Officer (A.O.) argued that since the assessee received funds from the Government of Maharashtra, these should be deducted from the actual cost of the assets for depreciation purposes. The assessee contended that these funds were capital contributions under Section 31 of the Konkan Irrigation Development Corporation Act, and thus, Section 43(1) was not applicable.

2. Nature of Government Contributions:
The assessee argued that the funds received from the Government of Maharashtra were capital contributions and not grants, subsidies, or reimbursements. This was supported by covering letters from the government stating that the funds were capital contributions ("Anshdaan"). The A.O. disagreed, stating that any amount received from the government should be reduced from the asset's cost, as per Section 43(1) and its Explanation 10. The CIT(A) noted that the assessee did not claim depreciation in the books of accounts but only for income tax purposes. The CIT(A) concluded that the contributions were indeed capital contributions, thus supporting the assessee's claim.

3. Legitimacy of the Penalty Levied under Section 271(1)(c):
The A.O. initiated penalty proceedings under Section 271(1)(c) for the alleged excess claim of depreciation. The CIT(A) found that the assessee's error in not applying Section 43(1) r.w. Explanation 10 was bona fide and inadvertent. The CIT(A) emphasized that the assessee, being a government undertaking, had no profit motive and thus no intent to willfully claim excess depreciation. The CIT(A) relied on the Supreme Court's decision in Reliance Petroproducts (P.) Ltd., which held that merely making a non-accepted claim does not attract penalty under Section 271(1)(c). The CIT(A) concluded that there was no concealment of income or furnishing of inaccurate particulars, leading to the deletion of the penalty.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeals. It emphasized that the assessee's belief in claiming depreciation on assets acquired through capital contributions was bona fide. The Tribunal reiterated that penalty under Section 271(1)(c) is not warranted merely because a claim is rejected, aligning with the Supreme Court's stance in Reliance Petroproducts (P.) Ltd. The Tribunal found no concealment of income or furnishing of inaccurate particulars by the assessee, affirming the deletion of the penalty. The Revenue's appeals were dismissed, and the order was pronounced in the open court on 07.09.2018.