2019 (1) TMI 1520 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of depreciation on electric fittings - rate of depeciation - Held that - It is observed from orders of authorities below that assessee claimed depreciation at 25% on ground that these were electrical installations which are not in the nature of Electrical fittings and capital expenditure made for DG set, Transformers, switch panels and other accessories required to run a particular machinery. It is also observed that assessee was of the view that these installations comes within definition of plant under section 43 (3) of the Act. Further Ld.CIT (A) himself records that there has been differences of opinion with regard to applicability of rate of depreciation on items of Electrical installation. Merely because assessee claimed depreciation at 25% treating items to be plant, which claim was not acceptable to revenue, would not by itself attract penalty under section 271 (1) (c) of the Act. The disallowance can at best be a wrong claim but not a false claim. See COMMISSIONER OF INCOME-TAX VERSUS BACARDI MARTINI INDIA LTD. 2006 (9) TMI 104 - DELHI HIGH COURT - Decided in favour of assessee Penalty levied on account of technical assistance/know-how expenses - Nature of expenses - Held that - It is observed that assessee offered explanation which has not been found false by Ld.AO or by Ld.CIT(A). Further in our considered opinion claim of capital versus revenue expenditure itself is debatable and therefore cannot be subject matter of penalty by way of concealment or filing of inaccurate particulars.- Decided in favour of assessee

Summary

Issues:
- Penalty appeal for assessment year 2005-06 by the assessee
- Cross appeals for assessment year 2007-08 by the assessee and revenue

Assessment Year 2005-06:
1. The assessee appealed against the penalty levied under section 271(1)(c) by the AO.
2. The AO disallowed depreciation on electric installation, UPS, and capitalized know-how expenses.
3. The CIT(A) upheld the penalty, leading to the appeal before the Tribunal.
4. The AO issued a notice for furnishing inaccurate particulars, resulting in a penalty of ?18,53,080.
5. The CIT(A) partially deleted the penalty, prompting the assessee's further appeal.
6. The Tribunal noted the absence of the assessee during the hearing but proceeded due to the case's smallness.
7. Ground 1 was deemed general and required no further deliberation.
8. Ground 2 concerned the penalty on disallowed depreciation on electric fittings.
9. The Tribunal analyzed the claim of excess depreciation and the subsequent rectification by the assessee.
10. The Tribunal referred to the Hon'ble Delhi High Court's decision on the allowability of depreciation at 15%.
11. The penalty on the disallowance of depreciation was deleted by the Tribunal.
12. Ground 3 addressed the penalty on technical assistance/know-how expenses.
13. The Tribunal found the claim of capital versus revenue expenditure debatable and thus deleted the penalty.
14. The appeal for assessment year 2005-06 was allowed in favor of the assessee.

Assessment Year 2007-08:
15. The penalty was levied on disallowed depreciation on electric fittings.
16. The Tribunal applied the decision from the assessment year 2005-06 to allow the appeal for 2007-08.
17. Ground 1 was considered general and did not require further discussion.
18. The appeal for assessment year 2007-08 was allowed in favor of the assessee.

Revenue Appeal:
19. The revenue appealed against the penalty deletion by the CIT(A) concerning an erroneous claim of ?51,74,135.
20. The Tribunal noted the debatable nature of the claim and upheld the CIT(A)'s decision.
21. The Tribunal dismissed the revenue's appeal, concluding that the penalty was not sustainable.
22. The appeal filed by the revenue was ultimately dismissed.

This comprehensive analysis highlights the key issues, arguments, and decisions made in the judgment, providing a detailed overview of the legal proceedings and outcomes.