2014 (7) TMI 764 - AT - Income Tax

Claim of depreciation Concept of block assets - Held that - AO and FAA had disallowed the claim of the assessee on the ground that assessee had not used the assets for business during the year the decision in Dineshkumar Gulabchand Agarwal Versus Commissioner Of Income-Tax And Another 2003 (1) TMI 19 - BOMBAY High Court followed - the assessee had argued that assets were ready for use and therefore depreciation was rightly claimed by him, even though he had not used the asset - the assessee was not entitled to claim depreciation if the asset was not used - for claiming depreciation, assessee must prove use of asset and in the case under consideration AO and the FAA had given a categorical finding that the assessee had not used the assets during the year under appeal - depreciation was allowed it must have been proved by the assessee that it had used the assets - there is no evidence of use of assets assessee has not brought to our notice any judgment of the jurisdictional high court which had reversed the judgment of Dineshkumar Gulabchand Agrawal Decided against Assessee. Penalty proceedings u/s 271(1)(c) of the Act Held that - The deduction/exemption was claimed u/s. 80IB and 10(38)of the Act - the assessee had not paid not STT tax and non-payment of said tax was within the knowledge of the assessee. Even then the assessee made a claim u/s. 10(38)of the Act - Such a claim cannot be termed an inadvertent mistake. Assessees are required to file return showing the correct taxable income and not to claim a deduction/exemption/rebate that is not due to them - If two views are possible for such a claim assessee can have benefit of existence of two possible views - It is a simple case of concealment of income and filing of inaccurate particular - the auditors had expressly made a note in notes to the accounts and determined the quantum of eligible 80IB deduction - AO had rightly levied penalty for the two amounts u/s. 271(1)(c)of the Act and the FAA was justified in confirming the same. In respect of penalty levied for claim of depreciation two views were possible about the claim at the time of filing of return of income - if the assets are ready for use depreciation can be claimed. FAA was justified in following the judgment of the jurisdictional high court while deciding the appeal filed by the assessee against the disallowance - the assessee had not produced any evidence of use of the assets - addition or disallowance of any amount should not result in automatic levy of penalty u/s 271(1)(c)of the Act - explanation of the assessee was bonafide and two views were possible about the claim - penalty levied for 80IB deduction and 10(38) exemption is confirmed, whereas penalty for disallowance of depreciation is set aside Decided partly in favour of Assessee.

Issues Involved:
1. Validity of notice under Section 143(2).
2. Interpretation of Section 10(38) related to exemption from tax on long-term capital gains.
3. Disallowance of the claim of depreciation.
4. Suppression of taxable income and levy of penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 143(2):
The appellant initially raised the issue that no valid notice under Section 143(2) was issued and served. However, during the hearing, the Authorized Representative (AR) did not press this ground. Consequently, this ground was dismissed as not pressed.

2. Interpretation of Section 10(38) Related to Exemption from Tax on Long-Term Capital Gains:
The appellant claimed exemption under Section 10(38) for long-term capital gains (LTCG) amounting to Rs. 49,829. The Assessing Officer (AO) disallowed this exemption on the basis that the appellant had not paid the Securities Transaction Tax (STT) on the transaction, which is a prerequisite for claiming the exemption. The First Appellate Authority (FAA) upheld the AO's decision, stating that the appellant knowingly claimed the exemption despite not fulfilling the conditions. The tribunal confirmed that this was a case of concealment of income and filing of inaccurate particulars, thus justifying the penalty under Section 271(1)(c).

3. Disallowance of the Claim of Depreciation:
The AO disallowed the depreciation claim of Rs. 3.57 lakhs for the factory building and Rs. 10,272 for plant and machinery, as the assets were not used during the year. The FAA upheld this decision, referencing the jurisdictional High Court's ruling in the case of Dineshkumar Gulabchand Agrawal, which stated that assets must be "actually used" for business to claim depreciation. The tribunal agreed with this interpretation, noting that the appellant failed to provide evidence of asset usage during the year. However, regarding the penalty, the tribunal found that two views were possible at the time of filing the return, making the appellant's explanation bona fide. Consequently, the penalty for the depreciation claim was deleted.

4. Suppression of Taxable Income and Levy of Penalty under Section 271(1)(c):
The AO initiated penalty proceedings under Section 271(1)(c) for the following additions:
- Disallowance of depreciation (Rs. 3.67 lakhs)
- Disallowance of exemption under Section 10(38) (Rs. 49,829)
- Disallowance of deduction under Section 80IB (Rs. 2,62,323)
- Disallowance of miscellaneous expenditure (Rs. 50,000)

The FAA held that the appellant intentionally claimed depreciation and other deductions despite knowing they were not allowable, thus concealing taxable income. The tribunal upheld the penalties for the disallowance of Section 10(38) and Section 80IB deductions, agreeing that these were not simple disallowances but intentional claims of wrong deductions. However, it reversed the penalty for the depreciation claim, acknowledging that the appellant's belief in the claim's validity was bona fide.

Conclusion:
The appeal regarding the disallowance of depreciation was dismissed, and the penalties for the disallowance of Section 10(38) and Section 80IB deductions were confirmed. However, the penalty for the depreciation claim was deleted. Appeal no. 3348 was dismissed, and appeal no. 3349 was partly allowed. The order was pronounced in open court on June 11, 2014.

← Previous Next →