2025 (1) TMI 558 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of depreciation - HELD THAT - From the perusal of the facts, we notice that the assessee has not deliberately claimed the depreciation with an intention to make a inaccurate claim. This is evidenced by the fact that the assessee has voluntary conceded that the depreciation is erroneously claimed and accordingly withdrew the ground raised against the said claim before the CIT(A). As decided in CIT vs. Pricewaterhouse Coopers Pvt. Ltd. 2012 (9) TMI 775 - SUPREME COURT that there would be no s. 271(1)(c) penalty for a bona fide/ inadvertent/ human error . There is no intention on the part of the assessee to make an incorrect claim which is evidenced by assessee's subsequent actions and the fact that the assessee has not claimed depreciation in the subsequent years. Further the inadvertent error is voluntarily corrected by assessee by accepting the disallowance of depreciation before the CIT(A). AO is not correct in levying penalty u/s 271(1)(c) in assessee's case towards the disallowance of depreciation admitted by the assessee as inadvertently claimed. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions presented in this judgment include:

Whether the penalty under section 271(1)(c) of the Income Tax Act was correctly levied on the assessee for allegedly furnishing inaccurate particulars of income concerning the claim of depreciation.
Whether the Assessing Officer (AO) failed to specify the exact charge in the penalty notice under section 271(1)(c), i.e., whether the penalty was for furnishing inaccurate particulars of income or for concealment of income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Penalty under Section 271(1)(c) for Inaccurate Particulars

Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act deals with penalties for concealing income or furnishing inaccurate particulars. The Finance (No.2) Act 2014 introduced subsection (6) to section 11, which prohibits claiming depreciation on assets whose acquisition cost has already been claimed as an application of income.
Court's Interpretation and Reasoning: The tribunal examined whether the assessee's claim was a bona fide error or a deliberate attempt to furnish inaccurate particulars. The court emphasized the importance of intent and referenced the Supreme Court's decision in CIT vs. Pricewaterhouse Coopers Pvt. Ltd., which held that penalties should not be imposed for bona fide or inadvertent errors.
Key Evidence and Findings: The assessee had initially claimed depreciation, which was later withdrawn voluntarily after realizing the error. The tribunal noted that the assessee did not claim depreciation in subsequent years, indicating the absence of intent to deceive.
Application of Law to Facts: The tribunal applied the principles from Hindustan Steel Ltd. v. State of Orissa, emphasizing that penalties should not be imposed without a conscious breach of law. The tribunal found that the assessee's actions were consistent with an inadvertent error rather than a deliberate misrepresentation.
Treatment of Competing Arguments: The assessee argued the error was bona fide and corrected voluntarily, while the Revenue maintained that the claim was inadmissible and warranted a penalty. The tribunal sided with the assessee, citing the lack of intent to furnish inaccurate particulars.
Conclusions: The tribunal concluded that the penalty under section 271(1)(c) was not justified as the error was inadvertent and corrected voluntarily.

Issue 2: Specificity of Charge in Penalty Notice

Relevant Legal Framework and Precedents: The requirement for specificity in penalty notices under section 271(1)(c) is crucial to ensure the assessee understands the charge against them. Recent judgments by higher courts have emphasized this requirement.
Court's Interpretation and Reasoning: The tribunal noted that the AO's notice did specify that the penalty was for furnishing inaccurate particulars, addressing the assessee's legal ground.
Key Evidence and Findings: The tribunal found that the notice issued by the AO did specify the charge, thus dismissing the legal ground raised by the assessee.
Application of Law to Facts: The tribunal applied the requirement for specificity and found that the notice met the legal standards.
Treatment of Competing Arguments: The assessee argued the notice was vague, while the Revenue contended it was specific. The tribunal agreed with the Revenue on this point.
Conclusions: The tribunal concluded that the notice was sufficiently specific, but this issue became academic as the penalty was deleted on merits.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Penalty is not to be imposed if there is no conscious breach of law. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation."
Core Principles Established: Penalties under section 271(1)(c) should not be imposed for bona fide or inadvertent errors. The intent behind the claim is crucial in determining the applicability of penalties.
Final Determinations on Each Issue: The tribunal deleted the penalty under section 271(1)(c), concluding that the error was inadvertent and corrected voluntarily. The issue of specificity in the penalty notice was resolved in favor of the Revenue, but it became academic due to the decision on merits.

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