2018 (9) TMI 1176 - HC - Income Tax

Penalty u/s.271(1)(c) - Assessee in its return of income claimed depreciation @ 40% on plant and machinery when the applicable rate of depreciation was only 25% for the subject Assessment Year - Held that - The fact that the assessee was eligible to claim higher rate of depreciation @ 40% in the immediately preceding year was not disputed. It is also quiet natural in this computer era to prepare Depreciation chart by downloading the relevant figures from the chart of the immediately preceding year. Viewed from this angle, we are of the view that the explanation of the assessee appears to be bonafide one. It is quite possible that the depreciation rate may escape the attention while preparing the Depreciation Chart, since the basic depreciation rate has not been changed in the Statute during the year under consideration. Hence, we are of the view that the explanation given by the assessee should be considered as bonafide one and hence Explanation 1 to sec.271(1)(c) shall apply to the same.- Decided in favour of assessee

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding penalty under Section 271(1)(c) for Assessment Year 2004-05.

Analysis:
The case involved a challenge to the order of the Income Tax Appellate Tribunal (the Tribunal) dated 18.2.2015 regarding the deletion of penalty under Section 271(1)(c) for Assessment Year 2004-05. The issue revolved around whether the explanation provided by the Respondent-Assessee for claiming excess depreciation was bona fide or not. The Respondent had claimed depreciation at 40% on plant and machinery, whereas the applicable rate was 25%. The Assessing Officer disallowed the excess claim and initiated penalty proceedings. The Respondent explained that the depreciation chart for the current year was prepared using figures from the preceding year when additional machinery was added, justifying the higher depreciation claim inadvertently. However, the Assessing Officer and CIT (A) did not accept this explanation.

The Tribunal, in its order, focused on determining the bonafide nature of the explanation provided by the Respondent. It noted that the Respondent was eligible for a higher depreciation rate in the preceding year, and in the computer era, it was common to prepare depreciation charts by referring to previous figures. The Tribunal found the explanation to be bonafide, considering the possibility of the depreciation rate being overlooked during chart preparation, especially when the basic rate had not changed in the relevant year. Consequently, the Tribunal set aside the penalty levied by the CIT (A) and directed the Assessing Officer to delete the penalty on the disallowed depreciation claim for plant and machinery.

The High Court, in its judgment, upheld the Tribunal's decision, emphasizing that the Tribunal's view was plausible based on the facts of the case. It concluded that no substantial question of law arose from the Tribunal's decision. Therefore, the High Court dismissed the appeal challenging the Tribunal's order regarding the penalty under Section 271(1)(c) for Assessment Year 2004-05.