7 Section 271(1)(c) – Penalty levied on account of depreciation wrongly claimed deleted.

Harish Narinder Salve vs. ACIT

Members: 
H. S. Sidhu (J. M.) and L.P. Sahu (A. M.)

I.T.A. No. 100/Del/2015

A.Y.: 2010-11.                                                                    
Date of Order: 21^st September, 2017

Counsel for Assessee / Revenue:  Sachit Jolly / Arun Kumar Yadav

Section 271(1)(c) – Penalty levied on
account of depreciation wrongly claimed deleted.

FACTS

The assessee is an Advocate by profession. During
the assessment proceedings, additions on account of, amongst others, excess
depreciation claimed in his return of income of Rs. 11.4 lakh and for claiming
as expenditure, a sum of Rs. 1.69 lakh towards loss on sale of fixed assets,
were made.  According to the AO, the
assessee furnished inaccurate particulars of income which resulted into
concealment of income. Considering the same, the penalty of Rs. 4.04 lakh u/s.
271(1)(c) was levied which was confirmed by the CIT(A).   

Before the Tribunal, the revenue justified
its action stating that the assessee had made illegal and unjustified claim of
expenses on account of depreciation on car and on account of loss on sale of
fixed assets. The assessee had understated his taxable income by claiming
higher depreciation of Rs. 11.4 lakh and loss on sale of fixed assets at Rs.
1.69 lakh. The assessee did not voluntarily surrender the claim of
depreciation, it was only when a show cause was issued by the AO as to the
basis of claim of depreciation for the entire year, the assessee offered to tax
additional income. Before issuing show cause, the assessee was sitting quietly.
This shows that it was not merely a bonafide mistake or error. The revenue
further stated that the assessee was unable to prove that he had filed the true
particulars of his income and expenses during the assessment proceedings. The
facts clearly showed that though the car was purchased and delivered in
November 2009, the assessee had wrongly claimed depreciation for the entire
year. According to it, the fact was very much in the knowledge of the assessee
and the claim of depreciation and loss on sale of assets was ex-facie bogus
which attracted penalty u/s. 271 (1) (c). In support of the above contention,
the revenue also relied upon the following cases:

 –   MAK
Data P. Ltd. vs. CIT (38 Taxmann.com 448) / (2013 358 ITR 593);

 –  CIT
vs. Escorts Finance Ltd. (183 Taxman 453);

 –   CIT
vs. Zoom Communication (P) Ltd. 191 Taxman 179 (Delhi);

 –   B.
A. Balasubramaniam and Bros. Co. vs. CIT (1999) 236 ITR 977 (SC);

 –   CIT
vs. Reliance Petroproducts (2010) 189 Taxman 322 (SC);

 –   Union
of India vs. Dharmendra Textile Processors (2007) 295 ITR 244.

 HELD

The Tribunal noted that during the
assessment proceedings, the assessee had given his explanation supported by
documentary evidences on the additions in dispute, especially relating to the
depreciation issue, that he had forgone the benefit of 50% depreciation on
account of car and offered the amount to tax vide his letter dated 20.11.2012
to avoid litigation. According to the Tribunal, the claim for depreciation only
gets deferred to subsequent years by claiming it for half year. The Tribunal
further added that the deferral of depreciation allowance does not result into any
concealment of income or furnishing of any inaccurate particulars. 

As regards wrongful claim of loss on sale of
fixed assets, the Tribunal agreed that it 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 written down value of the block
under block concept of depreciation. There was a separate line item viz., loss
on fixed asset of Rs.1.69 lakh in the Income & Expenditure Account which
was omitted to be added back in the computation sheet. The error went unnoticed
by the tax auditor as well as by the tax consultant while preparing the
computation of income. According to it, there was no intention to avoid payment
of taxes. The quantum of assessee’s tax payments clearly indicated the
assessee’s intention to be tax compliant. The assessee’s returned income of Rs.
34.94 crore and tax payment of more than Rs.10.85 crore, according to the
Tribunal, did not show any mala fide intention to conceal an income of Rs.13.09
lakh (not even 0.4% of returned income) with an intention of evading tax of Rs.
4 lakh (not even 0.4% of taxes paid). Therefore, in view of the above mentioned
facts and circumstances, the allegation that the assessee was having any mala
fide intention to conceal his income or for furnishing inaccurate particulars
of income was not correct. Hence, the penalty in dispute needs to be deleted.

According to the Tribunal, the case laws
relied upon by the revenue were distinguishable on the facts of the present
case, and hence, the same were not applicable in the present case.

Further, relying on the decision of the
ITAT, Mumbai Bench in the case of CIT vs. Royal Metal Printers (P) Ltd.
passed in ITA No. 3597/Mum/1996 AY 1991-92 dated 8.10.2003 reported in (2005)
93 TTJ (Mumbai) 119, the Tribunal set aside the orders of the authorities below
and deleted the levy of penalty.