2019 (8) TMI 343 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of carry forward and set-off of brought forward losses by holding that there is no provision under the Income Tax Act as per which the loss at the time of splitting the society can be carried forward to the newly formed society - disallowance of excess depreciation( full rates) had been claimed in case of assets put to use for less than 180 days during the year - defective notice - HELD THAT - The assessee explained that claim of set-off of brought forward losses pertaining to earlier year of parent company were claimed as per the legal advice and that when assessee realized it is a mistake that depreciation is allowable only to the extent of 50% for use of the assets for half of the year then assessee surrendered the amount for taxation therefore in such circumstances it cannot be believed that the assessee-society has concealed the particulars of income or furnished inaccurate particulars of income. The assessee-society bonafidely made a claim of set-off of the brought forward losses and excessive depreciation because of the legal advice. Therefore the circumstances explained clearly show that penalty need not be imposed in the facts and circumstances of the case. Further AO in the penalty proceedings noted that notice dated 28th November 2008 was issued to the assessee before levy of the penalty in which the AO has mentioned as under (iii) have concealed the particulars of your income or furnished inaccurate particulars of such income. AO in this notice was thus not sure or definite whether assessee has concealed the particulars of income or furnished inaccurate particulars of income. Therefore on such issue no penalty is leviable against the assessee-society. The show cause notice issued before levy of the penalty is invalid because it did not contain under which limb of Section 271(1)(c) penalty was to be imposed against the assessee-society. Therefore penalty proceedings itself are vitiated. - Decided in favour of assessee.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of carry forward and set-off of brought forward losses.
3. Disallowance of excess depreciation claimed by the assessee.

Issue 1: Levy of Penalty under Section 271(1)(c):
The assessee challenged the penalty under section 271(1)(c) by arguing that making a claim, even if not sustainable in law, does not amount to furnishing inaccurate particulars regarding income. The assessee relied on the decision of the Supreme Court in the case of CIT vs Reliance Petro Products Private Limited. The Assessing Officer imposed the penalty as the quantum was upheld by the Ld. CIT(A). The assessee contended that the provisions of Section 72A and Section 72AA, dealing with carry forward and set-off of losses in mergers and demergers, should also apply to Cooperative-Societies. The Ld. CIT(A) dismissed the appeal, stating that such provisions are applicable only to Companies, not other entities like Cooperative-Societies.

Issue 2: Disallowance of Carry Forward and Set-off of Brought Forward Losses:
The Assessing Officer disallowed the carry forward and set-off of brought forward losses claimed by the assessee. The Ld. CIT(A) upheld this action, stating that such provisions in the Income Tax Act apply only to Companies, not Cooperative-Societies. The assessee argued that the losses incurred by the parent cooperative-society were shared by the newly formed societies after a reorganization, and thus, the losses were legitimately claimed by the assessee-society. The genuineness of the claim was not doubted, and it was contended that no attempt was made to conceal information.

Issue 3: Disallowance of Excess Depreciation:
The Assessing Officer disallowed excess depreciation claimed by the assessee, as full depreciation was claimed on assets used for less than 180 days. The Ld. CIT(A) upheld this disallowance. The assessee argued that the claim was made inadvertently and rectified upon realization. It was contended that there was no intention to conceal income or furnish inaccurate particulars. The penalty was challenged on the grounds that the show cause notice did not specify the exact grounds under which the penalty was imposed, rendering the penalty proceedings invalid.

In the judgment, the Appellate Tribunal ITAT DELHI allowed the appeal of the assessee, canceling the penalty. The Tribunal noted that the assessee had disclosed all material facts, and there was no attempt to withhold or conceal information. The Tribunal emphasized that the penalty proceedings were distinct from the assessment proceedings. It was highlighted that the show cause notice issued before the penalty did not definitively establish that the assessee had concealed income or furnished inaccurate particulars. Citing legal precedents, the Tribunal concluded that the penalty need not be imposed in the circumstances of the case. The orders of the authorities below were set aside, and the penalty was canceled.