2013 (7) TMI 379 - AT - Income Tax

Penalty u/s 271 - disallowance of depreciation claimed on plant and machinery - CIT(A) deleted penalty - Held that - Assessee was engaged in manufacturing and selling of food items & during the year, no manufacturing activity was carried out which was clear from the audited accounts where opening stock was nil and quantity manufactured during the year was also shown as nil. The assessee has stopped manufacturing activity in the year 2000. Assessee has not started manufacturing activity till date. Only the trading activity was resumed in the financial year ended on 31.03.2005 relevant to Assessment Year 2005-06. As per the Form 3CD attached with the return of income for the year under consideration, the Annexure 2 for Clause 14 of the Form the written down value of building other than residential building was of Rs.3,53,80,368/- as on 31.03.2002. Thus, this was opening WDV of building. However, as on 31.03.2003, the written down value of building is nil. This fact shows that building was sold out during the year. Assessee was not having factory, godown or office at the end of the year. In respect of plant and machinery, the written down value as on 31.03.2002 was Rs.2,76,38,427/-. As on 31.03.2003, the WDV was Rs.1,07,70,855/-. As per clause 32 of Form No.3CD, there has been no production during the year. The stock-in-trade at the end of the year was nil. All these facts clearly establish that stopping of manufacturing activity in the year 2000 was not on account of temporary lull in the business. The facts show that assessee was intended to close the manufacturing activities. These facts make the claim of depreciation on the plant and machinery was a prima facie inadmissible claim made in the return of income. Since the assessee has failed to make a satisfactory explanation for makings such patently false claim in the return of income, the CIT (A) was not at all justified in deleting the penalty. There is nothing on record which could establish that claim was due to varying legal interpretation. Therefore, restore the order of AO for levying the penalty u/s 271(1)(c) - appeal of the revenue allowed.

Summary

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Determination of whether the claim of depreciation on plant and machinery was a false claim.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed under Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue in the appeal was the deletion of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, amounting to Rs.13,95,014/-. The penalty was initially levied by the Assessing Officer (AO) on the grounds that the assessee had claimed depreciation on plant and machinery despite having ceased manufacturing activities since the year 2000. The AO considered this as furnishing inaccurate particulars of income.

The CIT (A) granted relief to the assessee by holding that there was no concealment of income or filing of inaccurate particulars. The CIT (A) observed that the issue was whether claiming depreciation, in the given circumstances, amounted to filing inaccurate particulars, especially when all relevant facts were disclosed in the return of income. The CIT (A) relied on judicial precedents, including the case of Reliance Petroproducts Pvt. Ltd. (322 ITR 158), which held that merely making an incorrect claim does not attract penalty if all material facts are disclosed.

The CIT (A) further noted that there were judicial precedents supporting the assessee's claim for depreciation under similar circumstances, and thus, the claim was bona fide and based on a difference of opinion on the interpretation of facts and law.

2. Determination of Whether the Claim of Depreciation on Plant and Machinery was a False Claim:
The revenue argued that the assessee had stopped manufacturing activities and sold most of its fixed assets, indicating no intention to restart manufacturing. Therefore, claiming depreciation on the written-down value (WDV) of plant and machinery was considered a false claim. The revenue relied on the case of Zoom Communications Pvt. Ltd. (327 ITR 510), where the court did not accept the plea of inadvertence in making a deduction claim.

The assessee contended that the manufacturing activity was temporarily suspended due to labor problems and intended to resume manufacturing. The trading activities resumed in the financial year 2005-06, indicating no discontinuation of business. The assessee argued that the claim for depreciation was based on a bona fide belief and supported by judicial precedents.

The Tribunal considered the pleadings and reviewed the case laws cited by both parties. It noted that the assessee had stopped manufacturing activities in 2000 and had not resumed them. The audited accounts showed no manufacturing activity during the year, and the majority of fixed assets were sold, indicating an intention to close manufacturing activities. The Tribunal concluded that the claim for depreciation was a prima facie inadmissible claim and that the assessee had furnished inaccurate particulars of income.

The Tribunal found that the CIT (A) was not justified in deleting the penalty, as the claim for depreciation was not due to varying legal interpretations but was a false claim. Therefore, the Tribunal set aside the order of the CIT (A) and restored the penalty order of the Assessing Officer.

Conclusion:
The appeal of the revenue was allowed, and the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, amounting to Rs.13,95,014/-, was upheld. The Tribunal concluded that the assessee had made a false claim for depreciation, and the CIT (A) was not justified in deleting the penalty.