2022 (7) TMI 114 - AT - Income Tax

Penalty u/s. 271(1)(c) - penalty imposed for filing of inaccurate particulars of income in Income Tax Return - excess depreciation claimed by the assessee - HELD THAT - Clearly all the years when the assessee had claimed excess depreciation on the land and plant and machinery component of the properties purchased in 2011 and 2012 Revenue had failed to detect the same. Even in the impugned year it was not the AO who discovered the same, but it was the CIT(A) who became aware of this excess claim of depreciation that too on the suo moto submission of the assessee. The letter filed by the assessee to the CIT(A) reveals that the admission was made not on account of a patently incorrect claim made earlier by the assessee. But on the contrary excess depreciation on the land component of the properties had been claimed based on a legal opinion, and when it sought to align its books in accordance with MCA notification, it reversed what according to it was excess depreciation claimed and offered the same to tax - It is not the case that the Revenue has categorically found the assesses claim of depreciation to be patently not in accordance with law. In fact whatever was surrendered by the assessee has been accepted by the Revenue without even examining the same. Thus the addition made in the impugned case on account of excess depreciation claimed, having been surrendered by the assessee itself without any prior detection by the Revenue, the excess claim having been demonstrated to have been made for bonafide reasons, it is surely not a case for levy of penalty at all. All particulars, relating to the properties on which depreciation was claimed, was duly disclosed by the assessee. And the assessee itself, to align its books of accounts with an MCA notification, disclosed all particulars relating to the excess claim also. We therefore hold that the assessee cannot be charged with having concealed/furnished any inaccurate particulars of income in the present case. On the contrary we agree with the ld. Counsel for the assessee that the assessee had on its own come clean before the Department when it rectified its Books of accounts. Appeal of assessee allowed.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for filing inaccurate particulars of income.
2. Bona fide belief and subsequent suo moto reversal of excess depreciation claimed by the assessee.

Detailed Analysis:

Issue 1: Imposition of Penalty under Section 271(1)(c)
The primary issue revolves around the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961, for allegedly filing inaccurate particulars of income. The Commissioner of Income Tax (Appeals) [CIT(A)] had confirmed the penalty for the Assessment Year (A.Y) 2015-16. The penalty was levied on the grounds that the assessee had claimed excess depreciation on land and plant & machinery (P&M) components of two properties, one in Mumbai and the other in Bangalore. The assessee had initially capitalized the entire amount of these properties as buildings and claimed depreciation accordingly. Later, the assessee suo moto reversed the excess depreciation claimed, aligning its tax books with its account books following a Ministry of Corporate Affairs (MCA) notification.

Issue 2: Bona Fide Belief and Suo Moto Reversal
The assessee contended that the penalty was unjustified as the excess depreciation was reversed suo moto before detection by the Revenue. The assessee argued that the initial depreciation claim was based on a legal opinion and was bona fide. The reversal was done in compliance with the MCA notification mandating component accounting for tangible fixed assets. The assessee had obtained valuation reports from independent valuers and made necessary adjustments prospectively from the financial year 2018-19. During appellate proceedings, the assessee requested the reversal of excess depreciation claimed on the land component of the properties, amounting to Rs. 6.78 crores.

Tribunal's Findings:
The Tribunal noted that the excess depreciation claim was bona fide and based on a legal opinion. The reversal of the claim was initiated by the assessee itself to align with the MCA notification, and there was no prior detection by the Revenue. The Tribunal emphasized that the assessee had disclosed all particulars relating to the properties and the excess claim. It was observed that the Revenue had not contested the assessee's explanation and had accepted the surrender without further examination.

The Tribunal referred to the decision of the ITAT Delhi Bench in the case of Namaste Voyages Pvt. Ltd. vs. ITO and Hardeep Sachdeva vs. ACIT, which supported the view that penalty should not be levied when the assessee makes a suo moto admission before detection by the Revenue.

The Tribunal further highlighted that the CIT(A) had noted the assessee's suo moto submission during appellate proceedings. The Tribunal disagreed with the CIT(A)'s view that the assessee's explanation was not bona fide and that the penalty was justified. The Tribunal concluded that the assessee could not be charged with concealing or furnishing inaccurate particulars of income, as the excess depreciation claim was made in good faith and reversed voluntarily.

Conclusion:
The Tribunal held that the imposition of penalty under Section 271(1)(c) was not justified in this case. The assessee had acted in good faith and made a voluntary disclosure before any detection by the Revenue. The Tribunal directed the deletion of the penalty and allowed the appeal in favor of the assessee. The order was pronounced in the open court on 29-06-2022.