2024 (11) TMI 159 - AT - Income Tax

Penalty levied u/s 274 r.w. 270A - assessee has mis-reported income by computing the tax on the amount disallowed as depreciation and subjected it to the maximum marginal rate and levied the penalty 200% on the amount of tax payable - HELD THAT - AO has contradicted himself by levying penalty whereas while framing the assessment accepted Rs. Nil as income even after disallowance of depreciation. AO has resorted to compute notional tax on the disallowance on which no tax is payable by the assessee. Further as argued by the Ld.AR, the assessee has not under-reported his income as per section 270A sub-section (2) clause (a) to clause (g). Further sub-section (7) of section 270A refers to penalty leviable on the amount of tax on the under-reported income. In the instant case there is no tax payable by the assessee as the assessee has spent more than 85% of the revenue collected during the year. This fact is not disputed by the revenue. We are therefore of the considered view that Ld.CIT(A) has rightly deleted the penalty and hence we find no infirmity in the order of the Ld. CIT(A) thereby dismissing the appeal filled by the revenue. Revision u/s 263 - as per CIT AO has not disallowed the claim of depreciation on assets, thereby amounting to claim of double deduction of the same amount - HELD THAT - AO while framing the assessment has disallowed the depreciation u/s 11(6) of the Act and has assessed the income at Rs. NIL as the assessee has applied more than 85% of the income as per section 11. We find merit in the argument of the Ld.AR that since the Assessing Officer has already disallowed the depreciation the order passed under section 263 of the Act by the Ld.CIT(E) directing the AO has no merits. We therefore quash the order passed by the Ld. CIT(E) u/s 263 - Decided in favour of assessee.

Summary

Issues Involved:

1. Penalty under Section 270A for misreporting of income due to depreciation claim.
2. Validity of the order under Section 263 for disallowance of depreciation.

Issue-Wise Detailed Analysis:

1. Penalty under Section 270A for Misreporting of Income:

The primary issue in the revenue's appeal was the imposition of a penalty under Section 270A of the Income Tax Act for allegedly misreporting income by claiming depreciation, which was considered a double deduction. The Assessing Officer had initially accepted the assessee's income at NIL after disallowing the depreciation claim. However, the Officer imposed a penalty of Rs. 4,91,64,956/- for misreporting, asserting that the depreciation claim led to under-reporting of income. The assessee contended that it had fulfilled the obligation of spending 85% of its total receipts, even after the disallowance of depreciation, and therefore, there was no under-reporting of income. The Ld. CIT(A) accepted the assessee's argument and deleted the penalty, which the revenue challenged. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the Assessing Officer had accepted the income at NIL and that there was no tax payable, thus no under-reporting occurred as per Section 270A. Therefore, the penalty was rightly deleted.

2. Validity of the Order under Section 263 for Disallowance of Depreciation:

The assessee's appeal challenged the order passed by the Ld. CIT(E) under Section 263 of the Act, which deemed the assessment order erroneous and prejudicial to the revenue's interest. The Ld. CIT(E) argued that the Assessing Officer failed to disallow the claim of depreciation, resulting in a double deduction. However, the Tribunal found that the Assessing Officer had indeed disallowed the depreciation amount of Rs. 7,95,54,942/- during the original assessment, which was not erroneous. The Tribunal agreed with the assessee that since the disallowance was already made, the order under Section 263 lacked merit and was quashed.

Conclusion:

The Tribunal dismissed the revenue's appeal regarding the penalty under Section 270A, supporting the Ld. CIT(A)'s decision to delete the penalty. Additionally, the Tribunal allowed the assessee's appeal, quashing the Ld. CIT(E)'s order under Section 263, as the original assessment had correctly disallowed the depreciation claim. The cross-objection filed by the assessee was dismissed as infructuous following the dismissal of the revenue's appeal.