2017 (9) TMI 1286 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance of depreciation on Bentley Car - Disallowance of loss on fixed assets - Held that - There is no documentary evidence which could support the fact that the assessee owned the car since May, 2009 as the registration of the car in his name was completed in November, 2009 for which part payment was made in May, 2009 after the full payment was made and on completion of custom requirements. Moreover, the claim for depreciation only gets deferred to subsequent Years by claiming it for half year. In our view the deferral of depreciation allowance does not result into any concealment of income or furnishing of furnishing of any inaccurate particulars. However, it was a sheer accounting error in debiting loss incurred on sale of a fixed asset to profit and loss account instead of reducing the sale consideration from wdv of the block under block concept of depreciation. There was a sheer accounting error in debiting loss incurred on sale of a fixed asset to profit & loss account instead of reducing the sale consideration from wdv of the block under block concept of depreciation. There was a separate line item indicated loss on fixed asset of ₹ 1,69,429/- in the Income & Expenditure Account which was omitted to be added back in the computation. The error went un-noticed by the tax auditor as well as the same was overlooked while certifying the Income & Expenditure Account and by the tax consultant while preparing the computation of income. Hence, there was no intention to avoid payment of taxes. The quantum of assessee tax payments clearly indicates the assessee intention to be tax compliant. Moreover, the assessee with a returned income of 34.94 crores and tax payment of more than ₹ 10.85 crores which does not show any mala fide intention to conceal an income of ₹ 13.09 lacs (not even 0.4% of returned income) with an intention of evading tax of ₹ 4 lacs (not even 0.4% of taxes paid). Therefore, the allegation that assessee was having any mala fide intention to conceal his income or for furnishing inaccurate particulars of income is not correct, hence, the penalty in dispute needs to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act for allegedly furnishing inaccurate particulars of income and concealing income.
2. Confirmation of penalty due to disallowance of depreciation on a car and not adding back a loss on fixed assets.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):

The assessee filed an appeal against the order dated 07.10.2014, wherein the CIT(A) confirmed the AO's imposition of a penalty of ?4,04,635 under section 271(1)(c) of the Income Tax Act. The AO alleged that the assessee furnished inaccurate particulars of income, resulting in the concealment of income. The penalty was imposed due to disallowance of depreciation on a Bentley car and an inadvertent error of not adding back a loss on fixed assets, which was disclosed in the Tax Audit Report.

2. Confirmation of Penalty Due to Disallowance of Depreciation and Loss on Fixed Assets:

- Depreciation on Bentley Car:
The assessee claimed depreciation on a Bentley car, which the AO disallowed, asserting that the car was not used for professional purposes for the entire year. The assessee contended that the car was used for professional purposes and provided supporting documents, including an affidavit and bank statements, to prove that part payment for the car was made in May 2009, with full payment and registration completed in November 2009. The assessee argued that the claim for depreciation was a bona fide mistake and not an attempt to conceal income.

- Loss on Fixed Assets:
The assessee inadvertently did not add back a sum of ?1,69,498 towards the loss on fixed assets in the computation of income. This error was also disclosed in the Tax Audit Report. The assessee argued that this was an accounting error without any intention to evade taxes, supported by the fact that the returned income was ?34.94 crores with a tax payment of more than ?10.85 crores, making the alleged concealment negligible in comparison.

Tribunal's Findings:

The Tribunal examined the facts and evidence presented, including the affidavit and documentary proof provided by the assessee. It noted that the AO did not bring any material evidence to prove that the assessee had concealed income or furnished inaccurate particulars. The Tribunal found that the disallowance of depreciation and the error in accounting for the loss on fixed assets were bona fide mistakes without any mala fide intention.

The Tribunal referred to the decision in the case of CIT vs. Royal Metal Printers (P) Ltd., where it was held that penalty under section 271(1)(c) could not be levied simply because the assessee had withdrawn the claim for depreciation after a survey operation. The Tribunal concluded that the assessee's conduct was not contumacious and did not warrant the levy of penalty.

Conclusion:

The Tribunal set aside the orders of the authorities below and deleted the penalty of ?4,04,635 imposed under section 271(1)(c) of the Income Tax Act. The appeal filed by the assessee was allowed, and the Tribunal pronounced the order on 21/09/2017.