2014 (6) TMI 745 - AT - Income Tax

ITAT cancels penalty for excess depreciation claim, citing good faith disclosure.

Agarwal Polyfibres Pvt. Ltd. Versus The ITO, Ward-1(1), Surat

The ITAT ruled in favor of the Assessee, canceling the penalty imposed under section 271(1)(c) for the disallowed excess depreciation claim. The ... Levy of penalty u/s 271(1)(c) of the Act - Claim of depreciation on plant and machinery - Held that:- The assessee had disclosed the material facts before the AO - when the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars - Relying upon CIT vs. Reliance Petro Products Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT] - a mere making of claim which is not sustainable in law, by itself, would not amount to furnishing of inaccurate particulars regarding income of the assessee - such a claim made in return is not amounting to furnishing of inaccurate particulars – thus, making of addition while framing assessment does not call for levy of penalty u/s 271(l)(c) – thus, the order of the CIT(A) is set aside – Decided in favour of Assessee. Issues:Claim of excess depreciation disallowed by AO leading to penalty under section 271(1)(c).Analysis:The appeal was filed by the Assessee against the order of CIT(A)-I, Surat for A.Y. 2007-08. The Assessee, engaged in texturizing of yarn and trading of embroidered fabrics, had electronically filed its return of income declaring total income of Rs. 3,54,283/-. However, the AO determined the total income at Rs. 24,73,270/- and disallowed the claim of depreciation on the plant and machinery. The AO found that the Assessee had claimed depreciation at 35% instead of the eligible 15%, resulting in excess depreciation of Rs. 9,39,469/-, leading to a penalty under section 271(1)(c) of Rs. 3,16,225/-.The Assessee contended that the excess depreciation claim was due to inadvertent error and oversight, not intentional. The Assessee cited relevant case laws to support the argument that the penalty should be deleted. The Revenue, however, relied on the orders of AO and CIT(A) and referred to a decision in another case. The ITAT considered the submissions and material on record. It noted that the Assessee had accepted the mistake of claiming depreciation at 35% instead of 15% when it was brought to notice during assessment proceedings. The ITAT observed that the mistake was unintentional and not controverted by the Revenue with contrary material.The ITAT analyzed the provisions of Expln. 1 to section 271(1)(c) which require the failure to offer a valid explanation or offering a false explanation to attract penalty. It emphasized that if the Assessee discloses all material facts and the claim made was bona fide, then concealment penalty should not be imposed. Referring to case laws, including the Supreme Court's decision in Price Waterhouse Coopers Pvt. Ltd. case, the ITAT highlighted that inadvertent errors due to human mistakes do not constitute concealment of income.Additionally, the ITAT cited the case of CIT vs. Brahamputra Consortium Ltd. where excess depreciation claimed inadvertently was accepted by the Assessee upon confrontation, leading to the conclusion that penalty under section 271(1)(c) was not warranted. Based on the totality of facts and legal precedents, the ITAT concluded that the addition made during assessment did not justify the levy of penalty under section 271(1)(c). Consequently, the ITAT canceled the penalty levied by the AO, allowing the Assessee's appeal.In conclusion, the ITAT's judgment favored the Assessee, emphasizing that inadvertent errors made in good faith do not amount to concealment of income, especially when all material facts are disclosed. The decision was based on a thorough analysis of legal provisions and relevant case laws, ultimately leading to the cancellation of the penalty imposed by the AO.