2014 (2) TMI 236 - HC - Income Tax

Depreciation allowance u/s 158B(b) of the Act - Interpretation of the words undisclosed income Held that - The words or any expense, deduction or allowance claimed under the Act which is found to be false was inserted by the Finance Act, 2002 with retrospective effect from 1.7.1995 Relying upon TCV Engineering Ltd. v. Assistant Commissioner of Income Tax 2006 (3) TMI 86 - MADRAS High Court - the expenditure claimed by the assessee was found by the Assessing Officer to be unreasonable and there was no finding that it was false - unless and until the Revenue gives a categorical finding that the whole expenditure of deduction is totally false, the disallowance could not be considered for making the block assessment - It is not a case where the expenditure was found to be unreasonable, which involves an element of estimation and that - the assessee could not have claimed depreciation when the asset was being let out and not being used for the purpose of the business - the Assessing Officer did not use the words that the claim is false - the appellant was regularly claiming depreciation on buildings occupied by the tenants - the building has not been used for the assessee s business and no depreciation could be allowed. Significance of the Word False Held that - The meaning of the word false cannot be divorced from the context in which the word occurs and the statutory setting - A penalty provision in a taxing statute is distinguished from a provision creating an offence and the former does not involve the concept of mens rea. The claim for depreciation was made quite without any basis - In view of the amended definition of undisclosed income such claim would render it undisclosed income - Merely because it is not in so many words mentioned that the claim is made falsely in the facts of this case it does not mean it is not made falsely - The word false in this context need be given only the wide meaning as the direct impact is that amount included will be assessed as undisclosed income -where there can be no explanation from the assessee for illegaly claiming depreciation, there is no need for relegating the matter for regular assessment - The possibility of penalty cannot be a reason to require that it can be treated as undisclosed income only when the claim is found to be made deliberately - the claim is made as it is clear from the facts without any foundation as the claim was made when the building was let out in which circumstances, there is absolutely no scope for claiming depreciation Decided against Assessee.

Summary

Issues Involved:

1. Whether the Tribunal erred in overlooking the evidence provided by the assessee regarding the cost of construction and accepting the Valuation Officer's valuation.
2. Whether the Tribunal could base the construction value solely on the assessee's statement under Section 132(4) despite evidence of lower prevailing costs.
3. Whether the Tribunal erred in disallowing depreciation claimed on the building as business assets in block assessment proceedings.
4. Whether the Tribunal erred in holding that depreciation claimed under Section 32 should be assessed under Section 158BB.
5. Whether the Tribunal could assess the building reflected in the Balance Sheet and depreciation claimed in regular assessment under Section 158BB.
6. Whether the Tribunal's order was erroneous, illegal, and improperly appreciated the facts and law.

Detailed Analysis:

1. Evidence Overlooked by Tribunal:

The Tribunal was questioned on whether it erred in overlooking the evidence provided by the assessee on the cost of construction and instead accepting the valuation by the Valuation Officer. The court found that the Tribunal's decision was supported by the voluntary statement given under Section 132(4) and corroborated by the DVO's report. The Tribunal limited the addition towards unexplained investment to Rs. 4,00,000 as declared by the assessee, rather than the higher amount suggested by the DVO. The court upheld this approach, finding no merit in the appellant's complaint.

2. Basis for Construction Value:

The Tribunal was also questioned on whether it could base the construction value solely on the statement under Section 132(4) when the assessee had provided evidence of lower prevailing construction costs. The court noted that the statement under Section 132(4) was not retracted and was supported by the DVO's report. The Tribunal's decision to restrict the addition to Rs. 4,00,000 based on the assessee's statement was found to be justifiable.

3. Disallowance of Depreciation in Block Assessment:

The Tribunal's decision to disallow depreciation claimed on the building as business assets in block assessment proceedings was challenged. The court noted that the building was rented out and not used for business purposes, making the depreciation claim invalid. The Tribunal relied on the definition of "undisclosed income" which includes any false expense, deduction, or allowance. The court upheld the Tribunal's decision, stating that the claim for depreciation was made without any basis and should be treated as undisclosed income.

4. Depreciation Claimed Under Section 32:

The Tribunal's holding that depreciation claimed under Section 32 should be subject to assessment under Section 158BB was questioned. The court found that the depreciation was claimed falsely as the building was let out and not used for business purposes. The Tribunal's reliance on the amended definition of "undisclosed income" was deemed appropriate, and the court upheld the decision.

5. Assessment of Building in Balance Sheet:

The Tribunal's decision to assess the building reflected in the Balance Sheet and depreciation claimed in regular assessment under Section 158BB was challenged. The court noted that the claim for depreciation was made falsely, as the building was rented out. The Tribunal's decision to treat the depreciation claim as undisclosed income was upheld.

6. Tribunal's Order:

The Tribunal's order was questioned for being erroneous, illegal, and based on improper appreciation of facts and law. The court found that the Tribunal's decisions were supported by evidence and legal provisions. The claim for depreciation was made without any foundation, and the Tribunal's decision to treat it as undisclosed income was justified. The court dismissed the appeal as meritless.

Conclusion:

The court upheld the Tribunal's decisions on all issues, finding that the Tribunal acted correctly in accepting the valuation by the Valuation Officer, disallowing the depreciation claimed on the building, and treating the depreciation claim as undisclosed income. The appeal was dismissed as meritless.