Tribunal partially allows appeals, deleting penalties for assessment years; depreciation claim debatable, made in good faith.

The Tribunal allowed the appeals in part, deleting the penalties for both assessment years, as the issue of depreciation claim was debatable and made in good faith. The Tribunal rejected the ground concerning the penalty order being barred by limitation due to lack of submissions.

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Issues Involved:
1. Confirmation of levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the penalty order is barred by limitation under section 275(1)(a) of the Act.

Issue-wise Detailed Analysis:

1. Confirmation of Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The assessee entered into a sale and leaseback agreement with the Rajasthan State Electricity Board (RSEB) for the purchase of Shunt Capacitors worth Rs. 3.95 crores. The Assessing Officer (AO) found that these assets were previously purchased by RSEB from Bharat Heavy Electricals Limited and M.B. between 1988 and 1993, and RSEB had already claimed 100% depreciation on them. The AO concluded that the transaction was not a true lease but a financial transaction aimed at claiming inflated depreciation to reduce tax liability. Consequently, the AO disallowed the depreciation claim of Rs. 1,97,50,000/- and initiated penalty proceedings under section 271(1)(c).

The Commissioner of Income Tax (Appeals) [CIT(A)] initially allowed the depreciation claim, but the Tribunal later reversed this decision, holding that the transaction was a finance lease. The AO then levied a penalty of Rs. 1,36,27,500/- for each assessment year, which was confirmed by the CIT(A) on the grounds that the lease transaction was a finance transaction, making the depreciation claim factually wrong.

The Tribunal, however, noted that the issue of whether the transaction was a lease or finance lease was debatable until the Supreme Court's decision in Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India, which clarified that in finance leases, the lessee is considered the owner for depreciation purposes. The Tribunal also observed that the agreements between the assessee and RSEB were deemed legal, and there was no colorable device to reduce tax liability. Therefore, the Tribunal held that the penalty under section 271(1)(c) was not justified, as the claim was made in good faith and was debatable at the time.

2. Whether the Penalty Order is Barred by Limitation under Section 275(1)(a) of the Act:

The assessee contended that the penalty proceedings were barred by limitation, arguing that the penalty order should have been passed by 30.9.2007, given that the Tribunal's order was dated 28.2.2007. However, the AO and CIT(A) held that the penalty order dated 30.6.2009 was within the limitation period, as the assessment order giving effect to the Tribunal's order was passed on 26.12.2008.

The Tribunal did not delve into this issue, as no submissions were made before it regarding the limitation argument. Consequently, Ground No.1 in both appeals was rejected.

Conclusion:

The Tribunal allowed the appeals in part, deleting the penalties for both assessment years, as the issue of depreciation claim was debatable and made in good faith. The Tribunal rejected the ground concerning the penalty order being barred by limitation due to lack of submissions.

The order was pronounced in the open court on 7th February, 2014.

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