2013 (11) TMI 1319 - AT - Income Tax

Depreciation Disallowance on account of depreciation claimed at Rs.1.07 Crores of factory building which had not been used for business Held that - Ownership of building is not an essential precondition for claiming/allowing depreciation, but carrying on of business or profession is a mandatory condition - For claiming depreciation for a building it should be put to use for business or profession . Burden of proof is on assessee to prove that buildings was put to use for the business or profession - There is no doubt that keeping plant or machinery ready for use has been considered passive use of the asset and depreciation has been allowed for such assets. But, in such cases condition of using the asset for the business or profession has never been waived In the present case, it is found that the asset in question was vacant for part period and not put to use by the assessee company for the purpose of carrying on its business and earning profits there from. Further, after the said asset was leased out from 07.11.2003 onwards, the income derived from it was offered under the head income from house property and not business income. The case under consideration is not a case of a small trader or a retailer carrying on a business at base level. Asssessee company is part of a Group that is advised by well qualified professionals Considering the facts, disallowance of depreciation is confirmed Decided against the Assessee. Penalty under section 271(1)(c) of the Income Tax Act Held that - In view of Explanation1 to section 271(1) (c), penalty for concealment of income or furnishing inaccurate particulars can be imposed if an assessee offers an explanation which is found by the AO / FAA to be false, or if the assessee offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide. In such matters the onus is on the assessee to offer an explanation in respect of the claims made by him in the return of income - Enactment of Section 271(1)(c) read with the Explanations is to provide for a remedy for loss of revenue. In other words, Section 271(1)(c) has to be strictly applied in the larger interest of discipline in filing correct returns by the assessees. Secondly, as per the established principles of tax-jurisprudence assessee should file some positive evidences whenever he makes a claim for deductions u/s. 30-37 of the Act. Therefore, if any claim, resulting in loss to Revenue, is made by an assessee without supporting evidences, he exposes himself to penalty u/s. 271(1)(c) In the present case, assessee company had claimed depreciation u/s. 32 of the Act that was not allowable under the provisions of the Act, proves that the assessee company had claimed excess depredation and thereby evaded payment of taxes to that extent Penalty u/s 271(1)(c) imposable Decided against the assessee.

Summary

Issues Involved:
1. Levy of penalty for claiming depreciation on a factory building.
2. Furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Levy of Penalty for Claiming Depreciation on a Factory Building:
The appellant, engaged in investment and finance, filed its return of income declaring Rs.1.54 Crores. The Assessing Officer (AO) finalized the assessment determining the income at Rs.2.05 Crores, disallowing depreciation on a factory building not used for business and disallowing an amount under section 14A of the Act. Penalty proceedings under section 271(1)(c) were initiated for furnishing inaccurate particulars of income.

The First Appellate Authority (FAA) confirmed the AO's disallowance of depreciation and the ITAT upheld this decision. The AO issued a show-cause notice for penalty, concluding that the appellant knowingly made a wrong claim under section 32 to reduce its income, as the factory building was not used for business but was leased out, with income offered under 'Income from House Property'. The AO held that the appellant willfully claimed excess depreciation and evaded taxes, thus liable for penalty under section 271(1)(c).

2. Furnishing Inaccurate Particulars of Income:
The FAA held that depreciation could only be claimed if the asset was used for business, which was not the case here. The appellant's claim of passive use was unsupported by evidence, and the property was let out with income shown under 'Income from House Property'. The FAA concluded that the appellant furnished inaccurate particulars of income.

Before the Tribunal, the appellant argued that the claim was made in good faith under the belief that passive use qualified for depreciation, supported by the tax auditor's report. The Departmental Representative countered that the appellant, engaged in financing and investing, was fully aware that the claim was not allowable.

The Tribunal analyzed Section 32(1) and emphasized that for claiming depreciation, the asset must be used for business. The appellant failed to prove the business use of the factory building, which was leased out with income shown as 'Income from House Property'. The Tribunal noted that the appellant, part of a well-advised group, knowingly made a wrong claim.

The Tribunal distinguished the appellant's case from Geotech Construction Corporation, where the asset was purchased and kept ready for use, qualifying for depreciation under passive use. In contrast, the appellant's factory building was not used for business but leased out, with income shown under 'Income from House Property'.

Regarding Reliance Petroproducts Pvt. Ltd., the Tribunal noted that the facts were different as the appellant in that case had provided a bona fide explanation for its claim, which was not found false. In the present case, the appellant's explanation was found to be inaccurate and not bona fide.

The Tribunal upheld the penalty under section 271(1)(c), concluding that the appellant failed to justify the incorrect particulars of income, resulting in a loss of revenue. The appeal was dismissed, and the penalty confirmed.

Conclusion:
The Tribunal dismissed the appeal, confirming the penalty under section 271(1)(c) for furnishing inaccurate particulars of income and making a wrongful claim of depreciation on a factory building not used for business purposes. The appellant's arguments of passive use and reliance on previous case laws were found inapplicable.