2014 (4) TMI 562 - HC - Income Tax

Levy of penalty for claim of excess depreciation - Minimum alternate tax - Change in method of charging depreciation - Straight line to written down value method - Held that - The decision in Apollo Tyres Vs. CIT 2002 (5) TMI 5 - SUPREME Court followed - the AO while computing the income u/s 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act - The AO has the limited power of making increases and reductions as provided for in the Explanation to the section - the AO does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J - under the Companies Act, 1956, both straight line method and written down value method are recognized - once the amount of depreciation actually debited to the profit and loss account is certified by the auditors then the decision would go in favour of Assessee. Penalty u/s 271(1)(c) of the Act - Excess depreciation claimed Computation of profits u/s 115J of the Act Held that - The decision in Commissioner of Income Tax Noida Vs Aleo Manali Hydro Power P Ltd. 2013 (9) TMI 751 - ALLAHABAD HIGH COURT followed - when the computation was made u/s 115JB, the concealment had no role to play and was totally irrelevant - the concealment did not lead to tax evasion at all - The book profit disclosed by the assessee for the purpose of the liability of tax u/s 115 J is relevant and not the Income determined under the provisions of Income Tax Act - The Tribunal on the facts and circumstances of the case has further recorded the finding that on the facts and circumstances of the case and on the bonafide of the explanation given by the assessee and the disclosure made in the accounts accompanying the return, no penalty is leviable - The finding of the Tribunal is a finding of fact Decided against Revenue.

Issues Involved:

1. Justification of the Income Tax Appellate Tribunal (ITAT) in canceling the penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Justification of the ITAT in canceling the penalty despite the assessee not furnishing any explanation for claiming excess depreciation.

Detailed Analysis:

The case involves the respondent, a company manufacturing steel pipes, synthetic filament yarn, and polyester clips, which filed its return for the assessment year 1998-1999. The return disclosed a total loss of Rs. 1,75,91,003 and a taxable liability under Section 115J of Rs. 37,42,640. The Assessing Authority computed the book profit for tax purposes under Section 115J at Rs. 5,58,33,750, alleging that the assessee claimed extra depreciation in the Profit and Loss Account.

The matter went to the Tribunal, which accepted the book profit disclosed by the assessee for tax under Section 115J. The Assessing Authority levied a penalty under Section 271(1)(c) at Rs. one crore, later reduced to Rs. 74,17,870 by the Commissioner of Income Tax (Appeals). The Tribunal deleted the penalty, concluding that the income returned by the assessee was accepted as the final taxable income, and thus, the bona fides of the assessee could not be doubted.

The Tribunal noted that the assessee did not make a mistake in calculating income under normal provisions, which were required only for comparison. The calculation error was considered bona fide, and the income under normal provisions had to be ignored because the income under Section 115J was higher. All facts relating to depreciation were fully disclosed in the notes accompanying the return, and the computation of depreciation as per the Income Tax Act was filed by the assessee. The Tribunal held that the calculation under normal provisions could not be the basis for levying a penalty under Section 271(1)(c) since the income was not assessed under normal provisions.

The Tribunal relied on the decision of the Punjab and Haryana High Court in Prithipal Singh and Co (183 ITR 69), affirmed by the Supreme Court. The appellant's counsel argued that the assessee wrongly claimed excessive depreciation but admitted that the book profit disclosed by the assessee was accepted by the Tribunal for tax purposes under Section 115J. The counsel also mentioned that the calculation of depreciation for book profit computation was under consideration by the Supreme Court in Dynamic Orthopedics P. Limited Vs. Commissioner of Income Tax (2010) 301 ITR 300.

The respondent's counsel argued that the book profit disclosed by the assessee for tax under Section 115J was accepted by the Tribunal, and the Tribunal's order had become final as the appeal by the Commissioner of Income Tax was dismissed by the Court. The counsel contended that for penalty purposes, the book profit under Section 115J is relevant, not the income as per the Income Tax Act, and since the book profit was accepted, the Tribunal rightly deleted the penalty, citing no concealment. Reliance was placed on the Division Bench decision in Commissioner of Income Tax Vs. Noida Vs. Aleo Manali Hydro Power P Ltd (2013) and the Delhi High Court's decision in Commissioner of Income Tax Vs. Nalwa Sons Investments Ltd (2010) 327 ITR 543, affirmed by the Supreme Court.

The Court considered the rival submissions and noted that the Tribunal's acceptance of the book profit disclosed by the assessee was affirmed by the Court in the appeal. The Court referred to its earlier decision dealing with the penalty under Section 271(1)(c) in Commissioner of Income Tax Vs. Aleo Manali Hydro Power P Limited, which held that for a MAT company, the assessment under Section 115JB, not the normal provisions, is relevant for penalty purposes. The Court concluded that the issue was covered by the Division Bench decision in Commissioner of Income Tax Noida Vs. Aleo Manali Hydro Power P Ltd.

The Court held that the book profit disclosed by the assessee for tax liability under Section 115J is relevant, not the income determined under the Income Tax Act. The Tribunal's finding that no penalty is leviable based on the bona fide explanation and disclosure in the accounts was upheld as a finding of fact. Both questions were answered in favor of the assessee, and the appeal was dismissed.

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