2019 (1) TMI 118 - HC - Income Tax

Penalty u/s 271(1)(c) - Depreciation on IPRs - assessment u/S. 153A - Held that - During the search operation, director of the assessee company reduced the claim of depreciation in his statement under Section 132(4) recorded by the Income Tax Authorities. As during such search, no incriminating material was found on the basis of which the assessment could have been framed in this respect - in the original return filed for the assessment year in question, when the claim was made by the assessee, the same was disallowed by AO but in the appeal, the CIT(A) accepted the same. Section 32 does cover certain intangible assets for depreciation. The Tribunal relied upon the decision of the Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt Ltd 2010 (3) TMI 80 - SUPREME COURT for holding that being a plausible claim, mere fact that the same was withdrawn during the search would not give rise to the penalty. Tribunal has broadly proceeded on the basis that the claim was part of the original return and therefore, there was no concealment by the assessee and further that CIT(A) had allowed such a claim for regular assessment and Section 32 of the Act also gave rise to a debatable issue in this respect. - decided against revenue

Summary

Issues:
- Interpretation of Section 153A of the Income Tax Act regarding depreciation on intellectual property rights (IPRs)
- Assessment of penalty under Section 271(1)(c) of the Income Tax Act based on the withdrawal of depreciation claim during a search operation

Analysis:
1. Interpretation of Section 153A regarding IPR depreciation:
The High Court addressed the issue of whether depreciation on IPRs could be assessed under Section 153A of the Income Tax Act. The Tribunal reversed the CIT(A)'s view and allowed the assessee's appeal, deleting the penalty imposed under Section 271(1)(c). The Tribunal noted that the assessee initially claimed depreciation on IPRs in the return but later reduced the claim during a search operation. No incriminating material was found during the search to support an assessment on this issue. The Tribunal highlighted that Section 32 of the Act covers intangible assets for depreciation and relied on a Supreme Court decision to emphasize that a withdrawn claim during a search does not automatically lead to a penalty.

2. Assessment of penalty under Section 271(1)(c):
The Tribunal's decision was based on the premise that the claim for depreciation on IPRs was part of the original return, indicating no concealment by the assessee. Moreover, the CIT(A) had accepted the claim during regular assessment, and Section 32 of the Act raised a debatable issue regarding the allowance of such depreciation. The High Court agreed with the Tribunal's reasoning, emphasizing that the claim being part of the original return and the debatable nature of the issue supported the decision. Consequently, the High Court dismissed the Income Tax Appeals, concluding that no question of law arose in this context.