2022 (7) TMI 1347 - AT - Income Tax

Penalty u/s 271(1)(c) - mere wrong/inadmissible claim - disallowance of certain expenditure on estimated basis on some notional basis - disallowance of higher rate of depreciation - HELD THAT - To invoke Section 271(1)(c), the entirety of circumstances must reasonable point to the conclusion that the disputed amount represents income and the assessee has concealed the particulars or furnished inaccurate particulars thereof. As noted, the quantum addition has been confirmed on the premise that the assessee is not eligible for higher rate of depreciation in the facts of the case. It is not the case of the Revenue authorities that the assessee has, in fact, concealed the fact relating to claim of depreciation allowance beyond any doubt. The Revenue Authorities have determined the lower claim of depreciation eligible to assessee on the basis of reappreciation of existing facts. In order to attract penalty under Section 271(1)(c) of the Act, it is necessary that there must be concealment by the assessee of particulars of his income or furnishing of inaccurate particulars thereof. The disallowance of certain expenditure on estimated basis on some notional basis is neither the concealment of income particulars of income nor furnishing of inaccurate particulars as such. While the claim towards expenditure may not be found acceptable in quantum proceedings, such disallowance per se cannot invite rigors of penalty. Where all material facts relevant to the issue were placed on record, mitigating circumstances to disprove any culpability of any sort against the assessee is established by implication. The claim of depreciation allowance, at best, can be taken as erroneous claim by the assessee. In the case of CIT (International Taxation) vs. Gracemac Corporation 2022 (3) TMI 904 - DELHI HIGH COURT held that penalty under Section 271(1)(c) is not leviable as a matter of course in the absence of any element of falsity per se. Mere making of claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee. A variance in depreciation claim made in the return does not thus tantamount to furnishing inaccurate particulars per se. See Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty imposition on grounds of disallowance of depreciation and Section 14A expenses.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the imposition of a penalty on the assessee. The penalty was imposed due to the disallowance of an alleged incorrect claim for excess depreciation on Furnace, pollution equipments, and under Section 14A of the Income Tax Act. The assessee argued that all relevant facts were disclosed in the audited financial statements and tax return, and there was no concealment or furnishing of inaccurate particulars. The assessee contended that a wrong claim does not amount to concealment. Reference was made to the decision of the Hon'ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd.

To attract penalty under Section 271(1)(c) of the Act, there must be concealment or furnishing of inaccurate particulars of income. The disallowance on an estimated basis does not constitute concealment or furnishing inaccurate particulars. The Revenue authorities did not establish that the assessee concealed facts regarding the depreciation claim. The lower claim of depreciation was determined based on reappreciation of existing facts.

Explanation-1 to Section 271(1)(c) clarifies the distinction between assessment and penalty proceedings. The claim of depreciation allowance was considered an erroneous claim, not amounting to concealment. The Hon'ble Delhi High Court and the Hon'ble Apex Court held that penalty is not leviable for ad hoc disallowance made on an estimated basis in the absence of falsity. Merely making an unsustainable claim does not amount to furnishing inaccurate particulars.

Considering the above, the impugned order was set aside, and the Assessing Officer was directed to delete the penalty. The appeal of the assessee was allowed ex parte.