2019 (2) TMI 517 - AT - Income Tax

Penalty u/s. 271(1)(c) - depreciation at higher rates on valuation of the office flats - assessee on realising its mistake has suo motto revised aforesaid depreciation during assessment proceedings and claimed depreciation on lower value on which the asset was transferred subsequently on 05.08.2006 - Held that - The assessee had justifiable cause for claiming higher depreciation in the return of income filed with Revenue for impugned assessment year AY 2006-07 as the said office premises was transferred in the books of account of the assessee for value recorded at ₹ 167.58 lakhs during impugned assessment which was based on valuation certificate and it could not be said that the said valuation is without any cause or justification, thus it led the assessee to claim higher depreciation but however for whatever reasons the said assets was transferred vide registered agreement entered into on 05.08.2006 at lower value of ₹ 92.29 lacs which led the assessee to revise its claim of depreciation downward for impugned assessment year by withdrawing claim of depreciation to the tune of ₹ 3,63,548/-. Thus under these circumstances in our considered view , the assessee has come out with bonafide explanation and under these circumstances no penalty is exigible on the assessee u/s 271(1)(c) of the 1961 Act as the assessee case is covered by Explanation 1 to Section 271(1)(c) of the 1961 Act. Depreciation on assets purchased in the name of M/s S.D. Construction proprietary concern of Shri. Shekhar Dadarkar who is partner in the assessee firm - Held that - The vendors had inadvertently made invoices in the name of this concern as it is well known concern in market. It is submitted that the assessee accounted for these purchases in its books of accounts and these assets were transferred to the assessee books of accounts through journal entries. It is also being averred that no depreciation was claimed by S.D. Construction on these assets. Claim of the assessee for depreciation on these assets did not found favour by the all the authorities concurrently while adjudicating quantum additions till the stage of tribunal and the appeal of the assessee was dismissed by tribunal on this ground for AY 2006-07 2012 (8) TMI 1149 - ITAT MUMBAI . So far as leviability of penalty u/s 271(1)(c) is concerned, we are of considered view that the assessee has indeed brought this asset in its books of accounts by transferring these assets to its books of accounts through journal entries. It is also claimed that the asset was used for business purposes. It could not be refuted by learned DR that the said assets were not used for business purposes of the assessee. The invoices were only drawn by vendor in the name of other concern M/s S.D.Construction and the said concern did not avail depreciation on these assets as is claimed by the assessee. Under these circumstances, we are of the considered view that no penalty u/s 271(1)(c) is exigible on the assessee - Decided in favour of assessee

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) by the Commissioner of Income Tax (Appeals) for assessment year 2006-07.
2. Disallowance of depreciation on office premises and fixed assets claimed by the assessee.

Analysis:

Issue 1: Confirmation of penalty under section 271(1)(c)
The appeal was filed against the penalty order passed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The penalty was levied for the assessment year 2006-07 on two grounds: disallowance of depreciation on office premises and fixed assets. The Commissioner of Income Tax (Appeals) confirmed the penalty. The Tribunal heard arguments from both parties. The assessee contended that the higher depreciation claimed on office premises was based on a valuation certificate and subsequently revised when a registered agreement was made for a lower value. The Tribunal found the assessee's explanation to be bona fide and covered by Explanation 1 to Section 271(1)(c) of the Act. Hence, the penalty on this ground was deleted. Regarding the disallowance of depreciation on fixed assets, the Tribunal noted that the assets were transferred to the assessee's books through journal entries, and no depreciation was claimed by the original concern. The Tribunal found no justification for imposing a penalty under section 271(1)(c) and ordered its deletion.

Issue 2: Disallowance of depreciation on office premises and fixed assets
The assessee, a partnership firm engaged in the beauty parlour business, claimed depreciation on office premises and fixed assets. The office premises' valuation was initially recorded at a higher value, which was later revised downwards based on a registered agreement for a lower amount. The Tribunal accepted the assessee's explanation for the higher initial claim and subsequent revision, leading to the deletion of the penalty. In the case of fixed assets purchased by another concern but transferred to the assessee's books, the Tribunal found that the assets were used for business purposes, and no depreciation was claimed by the original concern. The Tribunal concluded that the penalty was not justified in this scenario as well, leading to its deletion.

In conclusion, the Tribunal allowed the appeal of the assessee for the assessment year 2006-07, overturning the penalties imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961.