Penalty for disallowed depreciation & expenses not upheld, court rules in favor of assessee

The penalty imposed on the assessee for disallowance of depreciation and Section 14A expenses was challenged. The court held that the disallowance based on an estimated basis did not amount to concealment or furnishing inaccurate particulars. The claim for excess depreciation was considered erroneous but not intentional concealment. Citing relevant case law, the court set aside the penalty, ruling in favor of the assessee due to the absence of falsity in the claim. The Assessing Officer was directed to delete the penalty, and the appeal was allowed ex parte.

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Issues:
Challenge to penalty imposition on grounds of disallowance of depreciation and Section 14A expenses.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the imposition of a penalty on the assessee. The penalty was imposed due to the disallowance of an alleged incorrect claim for excess depreciation on Furnace, pollution equipments, and under Section 14A of the Income Tax Act. The assessee argued that all relevant facts were disclosed in the audited financial statements and tax return, and there was no concealment or furnishing of inaccurate particulars. The assessee contended that a wrong claim does not amount to concealment. Reference was made to the decision of the Hon'ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd.

To attract penalty under Section 271(1)(c) of the Act, there must be concealment or furnishing of inaccurate particulars of income. The disallowance on an estimated basis does not constitute concealment or furnishing inaccurate particulars. The Revenue authorities did not establish that the assessee concealed facts regarding the depreciation claim. The lower claim of depreciation was determined based on reappreciation of existing facts.

Explanation-1 to Section 271(1)(c) clarifies the distinction between assessment and penalty proceedings. The claim of depreciation allowance was considered an erroneous claim, not amounting to concealment. The Hon'ble Delhi High Court and the Hon'ble Apex Court held that penalty is not leviable for ad hoc disallowance made on an estimated basis in the absence of falsity. Merely making an unsustainable claim does not amount to furnishing inaccurate particulars.

Considering the above, the impugned order was set aside, and the Assessing Officer was directed to delete the penalty. The appeal of the assessee was allowed ex parte.

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