2012 (7) TMI 289 - AT - Income Tax

ITAT Upholds Deletion of Penalty for Additional Depreciation Claim

The ITAT dismissed the Revenue's appeal against the deletion of penalty under section 271(1)(c) by the CIT (A) in a case involving the addition of ... Penalty under section 271(1)(c) for concealment and furnishing of inaccurate particulars - bonafide belief in entitlement to deduction - debatable question of law or fact - reliance on auditor/chartered accountant's certificate - mere making of a claim not amounting to furnishing inaccurate particularsPenalty under section 271(1)(c) for concealment and furnishing of inaccurate particulars - bonafide belief in entitlement to deduction - debatable question of law or fact - reliance on auditor/chartered accountant's certificate - mere making of a claim not amounting to furnishing inaccurate particulars - Validity of levy of penalty under section 271(1)(c) on the disallowance of claimed additional depreciation - HELD THAT: - The Tribunal examined whether the assessee's claim of additional depreciation attracted penalty for concealment or furnishing inaccurate particulars. The assessee had claimed additional depreciation based on purchase of new plant and machinery and on the certificate of the auditor certifying an increase in installed capacity. The question was held to be debatable because a coordinate bench in Madhu Industries had allowed a similar claim on the basis of a Chartered Accountant's certificate, indicating there were two plausible views. The assessee was under a bona fide belief regarding entitlement to the deduction and had placed necessary facts in the financial statements. Reliance was placed on the principle that merely making a claim unsustainable in law does not, by itself, constitute furnishing inaccurate particulars of income (CIT v. Reliance Petroproducts). The Tribunal distinguished Zoom Communication on its facts where the claim was not debatable and there was no bona fide belief. Given the debatable nature of the claim and the auditor's certificate, the Tribunal found that penalty could not be sustained and therefore deleted it.Penalty imposed under section 271(1)(c) on the claim of additional depreciation is deleted.Final Conclusion: The Revenue's appeal is dismissed and the penalty under section 271(1)(c) levied on the claim of additional depreciation for assessment year 2005-06 is deleted. Issues:Penalty under section 271(1)(c) for deletion of additional depreciation.Analysis:The appeal was filed by the Revenue against the order of the CIT (A)- VI, Ahmedabad for the assessment year 2005-06. The Revenue's sole ground of appeal was the deletion of penalty under section 271(1)(c) by the CIT (A) on the addition of additional depreciation. The case involved the assessment of total income, including disallowance of additional depreciation and interest expenses, which were contested by the assessee before the CIT (A) and the Tribunal.The Tribunal, in the quantum appeal, had deleted the addition on account of interest expenses but sustained the addition on account of additional depreciation as the assessee failed to prove an increase in installed capacity. Subsequently, the AO levied a penalty under section 271(1)(c) for concealment of income. The CIT (A) deleted the penalty, considering the issue of additional depreciation as debatable, citing a precedent where a similar claim was allowed by the ITAT based on the auditor's certificate.During the appeal before the ITAT, the Revenue argued that the assessee's claim was willful and intended to reduce tax liability, citing discrepancies in the director's report regarding installed capacity. On the other hand, the assessee contended that the claim was made in good faith based on the auditor's certificate and financial statements. The ITAT noted that the claim was based on a valid certificate, and the issue was debatable, following the principle that a mere unsustainable claim does not constitute inaccurate particulars of income.Referring to the decision in the case of CIT vs. Reliance Petroproducts Ltd., the ITAT concluded that the addition of income does not automatically imply concealment. The ITAT distinguished the present case from the Zoom Communication case, where the claim was not debatable, and the assessee lacked a bonafide belief in the claim. Ultimately, the ITAT upheld the deletion of the penalty, emphasizing that the claim for additional depreciation was based on a valid certificate, and there was no evidence of furnishing inaccurate particulars of income.In light of the above analysis and legal principles, the ITAT dismissed the Revenue's appeal and pronounced the order on May 31, 2012.