2019 (12) TMI 1152 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of additional depreciation by the assessee on account of reclassification of certain assets resulting in change of rate of depreciation disclosed in the return of income filed u/s 153A of the Act vis- -vis the return filed u/s 139(1) - HELD THAT - the assessee while filing the return of income u/s 153A of the Act for AY 2004-05 to AY 2009-10 had regrouped/reclassified its assets to the rate of depreciation which had resulted in the excess depreciation claim of ₹ 1,23,51,251/- for AYs 2004-05 to 2006-07. In the instant case, we are concerned with AYs 2004-05 and 2005-06. The application filed by the assessee has since been rejected by the ITSC u/s 245D(2C) of the Act, treating it as invalid. During the course of assessment proceedings, the AO asked the assessee to file full details in respect of the above excess claim of depreciation. But the assessee failed to furnish the relevant documents on the above. In a situation like the present one, the assessee had to file the relevant documents/evidence from which the AO could have drawn correct inference. The assessee failed to do so. As a logical corollary, the burden cannot be shifted to the Department. The burden of proof rests with the assessee. We are of the considered view that the Ld. CIT(A) has overlooked the above facts while passing the order dated 02.03.2017. A fortiori, he has not considered the fact that consequent to withdrawal of appeal before ITAT for AYs 2004-05 and AY 2005-06, the assessee re-worked its claim of depreciation for AY 2007-08 to AY 2014-15 before the Settlement Commission and as a result, the revised claim of depreciation on the basis of re-grouping of assets stood withdrawn. Therefore, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a de novo order after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence regarding the claim of additional depreciation of ₹ 75,80,338.16/- on account of reclassification of certain assets during the year under consideration. As the matter has been restored to the file of the AO, we are not adverting to the case laws relied on by both sides. Appeals are allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of penalty levied on account of the disallowance of additional depreciation claimed in the return filed under section 153A vis-à-vis the original return filed under section 139(1).
2. Withdrawal of the claim of depreciation based on regrouping of assets in the Statement of Facts filed before the Settlement Commission for AY 2007-08 and AY 2008-09.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied on Account of Disallowance of Additional Depreciation:

The Revenue appealed against the CIT(A)'s decision to delete the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The basis of the penalty was the disallowance of additional depreciation claimed by the assessee in the return filed under section 153A, which was not claimed in the original return filed under section 139(1).

The assessee had filed its return of income for AY 2004-05 declaring a total income of ?5,45,17,923/-. The assessment was completed under section 143(3) at ?5,74,26,842/-, later revised to ?5,67,92,399/-. A search under section 132(1) led to the assessee filing a revised return under section 153A, resulting in a total income of ?6,85,90,913/-. The AO initiated penalty proceedings under section 271(1)(c) for the higher depreciation claimed due to regrouping of assets.

The CIT(A) deleted the penalty, stating that the revised depreciation claim was not found to be wrong per se, but was disallowed on technical grounds. The CIT(A) noted that the claim was bona fide as it was neither absurd nor without basis. The AO's reliance on the case of Zoom Communication Pvt. Ltd. was found inapplicable since the assessee's return was necessarily scrutinized under section 153A, unlike the low scrutiny chance in Zoom Communication.

The CIT(A) also emphasized that a mere difference between returned and assessed income does not automatically infer concealment. The assessee's inability to substantiate the claim does not attract penalty if the claim was bona fide.

2. Withdrawal of Claim of Depreciation Before the Settlement Commission:

The Revenue argued that the assessee's claim of depreciation was incorrect since it was withdrawn before the Settlement Commission for AYs 2007-08 and 2008-09. The assessee had failed to furnish documentary evidence supporting the revised depreciation claim during assessment proceedings.

The assessee's counsel submitted that the fresh claim of depreciation was fully disclosed in the return filed under section 153A and was based on regrouping of assets as per Appendix I read with Rule 5 of the IT Rules and section 32 of the Act. The counsel argued that the issue was debatable, and the claim was bona fide, with consistent depreciation claims in subsequent years.

The Tribunal noted that the Settlement Commission had rejected the assessee's application for lack of true and full disclosure. The Tribunal highlighted that the assessee failed to provide relevant documents to substantiate the additional depreciation claim during assessment proceedings, thus not shifting the burden of proof to the Department.

Conclusion:

The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for a de novo order, directing the assessee to file relevant documents/evidence regarding the additional depreciation claim. The Tribunal did not address the case laws cited by both parties due to the remand. The decision for AY 2004-05 was applied mutatis mutandis to AY 2005-06, and the appeals were allowed for statistical purposes.