2010 (2) TMI 1149 - AT - Income Tax

Tribunal Cancels Penalty for Tax Assessment Year 2005-06

The Tribunal canceled the penalty imposed under section 271(1)(c) of the Income-tax Act for the assessment year 2005-06, ruling in favor of the assessee. ... - Issues involved: Appeal against penalty order u/s 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2005-06.Issue 1: Whether penalty under u/s 271(1)(c) is justified for alleged concealment of income and wrong disclosure of particulars.The assessee contended that no concealment or wrong disclosure occurred, as the return was based on audited accounts and the claim of deduction was made in good faith. The AO found that the property in question was not used for business activities, leading to disallowance of depreciation. However, the Tribunal held that the explanation provided was bona fide, and the penalty was not warranted based on precedents such as Addl. CIT vs. Delhi Cloth & General Mills Co. and CIT vs. Ajaib Singh & Co. The penalty was canceled, and the appeal was allowed.Issue 2: Whether the property purchased by the assessee was eligible for depreciation.The AO disallowed depreciation on the property, citing non-use for business purposes. The assessee argued that the property was intended for business activities but was later found unsuitable, leading to its sale. The Tribunal noted specific clauses in the agreement to sell, indicating the property was not sold during the relevant year. It was also highlighted that the property was reflected as a fixed asset in the balance sheet. The Tribunal concluded that the disallowance of depreciation in the assessment did not warrant a penalty u/s 271(1)(c), as the explanation provided was satisfactory and bona fide.Separate Judgement: None.