2005 (11) TMI 185 - AT - Income Tax

Penalty levied u/s 271(1)(c) - inaccurate particulars of income or concealing particulars of income - HELD THAT - In the absence of any centrary material brought on record by the revenue against the finding of the ld. CIT(A) and keeping in view that the assessee was under the bona fide belief that depreciation pond filling expenses and traveling expenses are allowable and such bona fide belief of the assessee was not found to be false at any stage we are of the view that the assessee has not concealed the particulars of his income or furnished inaccurate particulars of such income. No dispute that the assessee had filed its return of income showing loss and the assessing authority has finally assessed the assessee s income at nil therefore following the decision of Hon ble Supreme Court in Prithipal Singh Co. 2000 (7) TMI 75 - SC ORDER the penalty is not leviable. This view also finds support from the recent decision of CIT v. Zam Zam Tanners 2005 (7) TMI 84 - ALLAHABAD HIGH COURT in which it has been held that clause (iii) of Explanation 4 to section 271(1)(c) as amended by Finance Act 2002 are applicable prospectively and do not apply the relevant assessment year 1985-86 and therefore in the absence of positive assessed income penalty u/s 271(1)(c) was not leviable. Even otherwise it is settled law that one has to adopt that interpretation which favours the assessee as held by the Hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT . Therefore on this ground also penalty is not sustainable. Assessing Officer has merely stated that penalty u/s 271(1)(c) is initiated for furnishing inaccurate particulars . A similar note recorded by the Assessing Officer was held to be insufficient to indicate the satisfaction of the Assessing Officer by the Hon ble Delhi High Court in the case of Diwan Enterprises v. CIT 1998 (11) TMI 27 - DELHI HIGH COURT . In CIT v. Ram Commercial Enterprises Ltd. 1998 (10) TMI 13 - DELHI HIGH COURT the Hon ble Delhi High Court held that merely because penalty proceedings have been initiated it cannot be assumed that the requisite satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Though section 271(1)(c) does not prescribe any particular form or language in which the requisite satisfaction is to be recorded the bare minimum is that the language must clearly spelt out the reasons as to why the Assessing Officer feels satisfied about the guilt of the assessee. Thus we are of the view that the penalty imposed by the Assessing Officer u/s 271(1)(c) is not sustainable in law and accordingly we are inclined to uphold the finding of the ld. CIT(A) in deleting the penalty imposed u/s 271(1)(c) and accordingly the grounds taken by the revenue are rejected. In the result the appeal stands dismissed.

Summary

Issues Involved:
1. Penalty for claim of depreciation allowance.
2. Penalty for claim of revenue expenditure considered capital in nature.
3. Penalty for claim of travelling expenses exceeding permissible limits.

Issue-Wise Detailed Analysis:

1. Penalty for Claim of Depreciation Allowance:
The core issue is whether the penalty levied for the claim of depreciation allowance on plant and machinery, despite the mill being under suspension, was justified. The assessee argued that the plant and machinery were kept ready for use, thus constituting passive use, which should qualify for depreciation. The reliance was placed on judicial precedents such as *CIT v. India Tea & Timber Trading Co.* and *Capital Bus Services (P.) Ltd. v. CIT*. However, the Assessing Officer disallowed the depreciation, citing that the assets were not used for business purposes due to the suspension of operations, referencing decisions like *CIT v. Oriental Coal Co. Ltd.*. The CIT(A) deleted the penalty, noting that the claim for depreciation was made under a bona fide belief, supported by relevant judicial precedents, and thus did not constitute furnishing inaccurate particulars of income or concealment. The Tribunal upheld this view, emphasizing the bona fide belief and the disclosure of all relevant facts in the financial statements.

2. Penalty for Claim of Revenue Expenditure Considered Capital in Nature:
The second issue pertains to the penalty for claiming pond filling and land leveling expenses as revenue expenditure, which the Assessing Officer deemed capital in nature. The assessee cited the *Teksons (P.) Ltd. v. CIT* decision, which allowed similar expenses as revenue expenditure. The CIT(A) and Tribunal found that the claim was made in good faith based on existing judicial decisions and did not amount to inaccurate particulars or concealment of income.

3. Penalty for Claim of Travelling Expenses Exceeding Permissible Limits:
The third issue involves the penalty for claiming travelling expenses exceeding the limits prescribed under Rule 6D. The assessee argued that the expenses were genuinely incurred and disclosed in the audit report. The CIT(A) accepted this explanation, concluding that the claim was made in good faith and did not constitute concealment or inaccurate particulars. The Tribunal agreed, noting that the bona fide belief and full disclosure negated the grounds for penalty.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalties, emphasizing the bona fide belief under which the claims were made, the full disclosure of all relevant details, and the absence of any material evidence of concealment or inaccurate particulars. The Tribunal also noted that the final assessed income was nil, aligning with the Supreme Court's decision in *Prithipal Singh & Co.*, which supports the non-leviability of penalties in such scenarios. The Tribunal's decision reflects a consistent application of legal principles favoring the assessee in cases of bona fide claims and full disclosure.