2012 (12) TMI 87 - AT - Income Tax

Tribunal Cancels Penalty under Income Tax Act for Excess Depreciation Claim

The Tribunal canceled the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act for the assessment year 2004-05. The ... Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - accelerated depreciation under Rule 5(2) of the Income Tax Rules - requirement of certificate from the Department of Scientific and Industrial Research - bona fide claim as defence to penaltyPenalty under section 271(1)(c) for furnishing inaccurate particulars of income - accelerated depreciation under Rule 5(2) of the Income Tax Rules - bona fide claim as defence to penalty - Whether penalty under section 271(1)(c) could be sustained for claim of accelerated depreciation where the assessee did not produce the prescribed certificate with the return but used technology of an institution recognised under the Rules and had a bona fide belief in entitlement - HELD THAT: - The Tribunal examined the factual matrix that the assessee claimed accelerated depreciation under Rule 5(2) but had not furnished the certificate with the return because the earlier certificate held by the assessee had a limited validity and the assessee relied upon technology developed in an institution recognised by the Secretary, Department of Scientific and Industrial Research. The AO disallowed the excess depreciation and imposed penalty for furnishing inaccurate particulars. The CIT(A) upheld the penalty but directed verification of excess claim after allowing accelerated depreciation on opening WDV. The Tribunal found that on the material placed before it the assessee's claim was made bona fide and that the facts did not establish concealment or a deliberate furnishing of inaccurate particulars. Given the assessee's continued use of technology qualifying under Rule 5(2) and the history of earlier allowance, the Tribunal concluded that imposition of penalty was not warranted and cancelled the penalty.Penalty imposed under section 271(1)(c) is cancelled; appeal allowed.Final Conclusion: The order imposing penalty under section 271(1)(c) for Assessment Year 2004-05 is quashed on the ground that the assessee's claim to accelerated depreciation under Rule 5(2) was bona fide and did not amount to concealment of income; the appeal is allowed. Issues:Challenge against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2004-05.Detailed Analysis:1. The appeal was filed against the order of CIT(A) confirming the penalty imposed by the AO under section 271(1)(c) of the Income Tax Act, 1961. The penalty was related to the disallowance of depreciation claimed by the assessee for the assessment year 2004-05.2. The AO imposed the penalty after disallowing the depreciation on moulds capitalized for a specific unit, restricting it to 25% instead of the claimed 40%. The AO held that a certificate from the competent authority was necessary under Rule 5(2) of the IT Rules for claiming depreciation at an accelerated rate of 40%, which the assessee failed to furnish.3. The assessee contended that they were entitled to claim accelerated depreciation at 40% under Rule 5(2) as they were using technology from an institution recognized by the Department of Scientific and Industrial Research, Government of India. The assessee had a certificate issued by the Government of India, which expired after three years, and thus was not filed along with the return of income.4. The CIT(A) partially allowed the appeal, stating that the assessee failed to establish bonafides as they did not apply for the required certificate. However, the CIT(A) acknowledged that accelerated depreciation could be claimed on the opening Written Down Value (WDV) of the block of assets. The excess claim of depreciation was calculated at Rs. 12,17,616.5. The Tribunal, after hearing both sides, concluded that the assessee had complied with the requirements of Rule 5(2) and had a bonafide belief in claiming the depreciation. The Tribunal held that while the addition of income was justified in the quantum proceedings, imposing a penalty was not warranted. Therefore, the penalty imposed by the AO was canceled, and the appeal of the assessee was allowed.