2022 (8) TMI 1277 - HC - Income Tax

Penalty u/s 271(1)(c) - allegation that assessee made false claim of depreciation and deliberately furnished wrong particulars of income before the AO - HELD THAT - This court is of the opinion that when the assessee succeeded in their appeals filed against the orders of assessment relating to the assessment years in question, which formed the basis for imposing penalty under section 271(1)(c) Tribunal is justified in holding that the question of imposition of penalty does not arise, as the assessment orders itself were set aside. There is no doubt that the questions of law involved in these cases are necessarily to be held against the Revenue, since there is no quantum of tax available for the purpose of levying penalty. - Decided against revenue.

Summary

Issues:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for false claim of depreciation on windmills.
2. Validity of penalty cancellation by the Commissioner of Income Tax (Appeals) and the Tribunal.

Issue 1: Imposition of Penalty for False Claim of Depreciation on Windmills:

The Tax Case Appeals were filed by the Revenue challenging the Tribunal's order canceling penalties of Rs.7,87,50,000 and Rs.7,60,00,000 imposed under section 271(1)(c) of the Income Tax Act, 1961. The appellant argued that the assessee made a false claim of depreciation on windmills, which substantially reduced taxable income. The Assessing Officer found that the assessee was not the owner of the assets but claimed depreciation based on financial agreements, leading to the penalty imposition. However, the Tribunal deleted the penalties, which the appellant contended was contrary to law.

Issue 2: Validity of Penalty Cancellation by Commissioner of Income Tax (Appeals) and Tribunal:

The Commissioner of Income Tax (Appeals) allowed the appeals by the assessee, deleting the penalties levied by the Assessing Officer. The Tribunal affirmed these decisions, leading to the Revenue filing further appeals. The appellant argued that since the assessee succeeded in appeals against the assessment orders forming the basis for the penalties, the question of penalty imposition did not arise. Citing various legal precedents, including the decision of the Hon'ble Supreme Court, the Court held that penalties could not stand independently of the assessment orders. Therefore, the Tribunal's decision to cancel the penalties was justified, and the Tax Case Appeals filed by the Revenue were dismissed.

This detailed analysis of the legal judgment highlights the issues of penalty imposition for false depreciation claims on windmills and the validity of penalty cancellation by the Commissioner of Income Tax (Appeals) and the Tribunal. The Court's decision was based on legal precedents and the principle that penalties cannot stand alone without valid assessment orders, resulting in the dismissal of the Revenue's appeals.