2021 (12) TMI 205 - HC - Income Tax

Penalty u/s 271(1)(c) - additional depreciation for plant and machinery u/s 32(1)(iia) which has been disallowed by them on the ground that the production has been started in the current year by the respondent, and therefore, it cannot be said to have been already engaged in the business of manufacturing - HELD THAT - Its quite clear from the detailed discussion on the issue that assessee had not been alleged of not having disclosed any particulars, which it was required to do under the law. It had made a complete disclosure of the claim, which was also certified by the Chartered Accountant. Necessary declarations as required in the prescribed form were also made, therefore, both CIT Appeals and the ITAT were absolutely right in holding that non-allowance of any claim of the assessee would not make the penalty proceedings sustainable under the law. While so holding, ITAT relied upon the decision in the case of CIT v. Reliance Petroproducts (P) Ltd 2010 (3) TMI 80 - SUPREME COURT wherein held that making of incorrect claim would not amount to concealment of particulars. Here also, in absence of any furnishing of inaccurate particulars on the part of the respondent of any concealment on his part while making a claim, no proceedings could be initiated of penalty. It fails to understand that additional depreciation was not available to it under the law if claims before the authority concerned, by disclosing all particulars which, it was require to do and if the claim is disallowed, how could it become either the concealment or furnishing of inaccurate particulars. Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT has clearly held that there has to be a concealment of particulars of the income of the assessee or matter to be covered under Section 271(1)(C). Secondly, it must have furnished inaccurate particulars of his income. In the matter before Apex Court it was an admitted position that no information given in the written was found to be incorrect or inaccurate. It was not that any statement made or any details supplied it was found to be factually incorrect. The revenue had argued that submitting an incorrect claim in law for the expenditure or interest would amount to be inaccurate particulars of such income. The Court said that such cannot be the interpretation of the concerned words, the words are clean and simple and in order to expose the assessee to the penalty, unless the case is strictly covered by the Proviso, the penalty provision cannot be invoked and by no stage of imagination the incorrect claim in law can tantamount to furnishing of inaccurate particulars.

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.
2. Applicability of Explanation 1 to Section 271(1)(c).
3. Interpretation of the Supreme Court's ratio in Union of India vs. Dharmendra Textile Processors.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue was whether the Income Tax Appellate Tribunal (ITAT) erred in deleting the penalty of ?6,13,84,278/- under Section 271(1)(c) despite the assessee making an incorrect claim for additional depreciation. The Assessing Officer (AO) had initiated penalty proceedings for furnishing inaccurate particulars of income, which eventually led to the penalty for concealment of income. The CIT Appeals and ITAT both found that the disallowance of the depreciation claim did not constitute concealment of income, as the assessee had fully disclosed the claim. The ITAT relied on the Supreme Court's decision in CIT v. Reliance Petroproducts (P) Ltd., which clarified that making an incorrect claim does not amount to concealment of particulars.

2. Applicability of Explanation 1 to Section 271(1)(c):
The revenue argued that the ITAT ignored Explanation 1 to Section 271(1)(c), which deals with the penalty for concealment of income or furnishing inaccurate particulars. The ITAT concluded that the assessee had disclosed all necessary particulars and that the claim was based on a Tax Audit Report and certifications by a Chartered Accountant. Therefore, the penalty was not justified as there was no concealment or furnishing of inaccurate particulars. The ITAT's decision was supported by the Supreme Court's ruling that incorrect claims in law do not amount to furnishing inaccurate particulars.

3. Interpretation of the Supreme Court's Ratio in Union of India vs. Dharmendra Textile Processors:
The revenue contended that the ITAT failed to appreciate the ratio laid down by the Supreme Court in Union of India vs. Dharmendra Textile Processors, which emphasized strict liability for concealment or inaccurate particulars. However, the ITAT and the High Court noted that the Supreme Court's decision in Reliance Petroproducts clarified that the penalty provisions could not be invoked unless the case strictly fell under the statutory conditions. The High Court observed that the ITAT's reliance on Reliance Petroproducts was appropriate, as the assessee had not concealed any particulars or furnished inaccurate details.

Conclusion:
The High Court dismissed the revenue's appeal, affirming that the CIT Appeals and ITAT were correct in holding that the disallowance of the depreciation claim did not justify the penalty under Section 271(1)(c). The Court clarified that the ITAT's broader principle—that disallowance of a claim does not constitute concealment—was context-specific and not a general rule. The appeal was dismissed, and the ITAT's decision was upheld, emphasizing that the penalty provisions could not be invoked without clear evidence of concealment or inaccurate particulars.