1994 (10) TMI 97 - AT - Income Tax

Assessing Officer, Bona Fide, Cash System, Furnishing Inaccurate Particulars Of Income, Penalty For Concealment, Previous Year

Summary

Issues:
- Appeal against the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for disallowed depreciation claim on a new machinery imported from Japan.
- Bonafide mistake in claiming depreciation and subsequent penalty imposition.
- Ignorance of law as a defense in tax matters.
- Assessment of penalty based on the claim for depreciation on the new machinery.

Analysis:
The judgment involves an appeal against the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, concerning the disallowed depreciation claim on a new machinery imported from Japan. The Assessing Officer disallowed the depreciation claim, leading to the initiation of penalty proceedings. The assessee contended that the claim was a bonafide mistake due to the cash system of accounting and a young Chartered Accountant's handling. The penalty was initially reduced by the Assessing Officer after excluding certain amounts but was still upheld. The assessee argued that the marginal income and subsequent losses indicated no motive for tax advantage through the depreciation claim.

The key argument revolved around whether the claim for depreciation was made in good faith or with the intent to gain an undue tax advantage. The departmental representative contended that claiming depreciation to which the assessee was not entitled showed an attempt to gain a tax advantage, even if not immediately. The Tribunal considered the cash system of accounting, the timing of the machinery purchase entry, and the subsequent realization of the mistake. The Tribunal emphasized that ignorance of the law is not a valid excuse but also considered the principle that a bona fide mistake should be weighed against the maxim ignorantia legis neminem excusat. The Tribunal noted that the assessee had corrected the mistake by not pursuing the depreciation claim further and focusing only on the disallowance of depreciation on old machinery in the quantum appeal.

Ultimately, the Tribunal canceled the levy of penalty, concluding that while the claim for depreciation on the uninstalled new machinery was legally untenable, there was no mens rea or motive to gain undue tax advantage. The Tribunal highlighted the negligible tax demand, the subsequent losses in the following years, and the assessee's acceptance of the correct legal position as factors in canceling the penalty. The judgment emphasized the importance of acting in good faith and honesty, even in cases of negligence, and ruled in favor of the assessee, allowing the appeal against the penalty.