Tribunal upholds penalty on false depreciation claim but deletes penalty on disallowed deduction

The Tribunal upheld the penalty under Section 271(1)(c) for the disallowed depreciation claim on the hardening and tempering furnace due to lack of factual basis and false nature of the claim. However, the penalty for the disallowed deduction under Section 80-IB was deleted as the claim was based on a plausible interpretation of the law with full disclosure by the assessee. The assessee's appeal was dismissed, and the Revenue's appeal was partly allowed.

---

---

Issues Involved:
1. Maintainability of penalty under section 271(1)(c) of the Income Tax Act, 1961, for disallowance of depreciation on hardening and tempering furnace.
2. Disallowance of deduction under section 80-IB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Maintainability of Penalty under Section 271(1)(c) for Disallowance of Depreciation:

The assessee claimed depreciation on a hardening and tempering furnace, initially classifying it as air pollution control equipment eligible for 100% depreciation. Later, the assessee admitted to misclassification and revised the claim to 80% depreciation, and finally to 25% applicable to general plant and machinery. The Assessing Officer (AO) disallowed the entire claim, as the furnace was not proven to be commissioned by 31.03.2004. The penalty was levied for furnishing inaccurate particulars of income.

The Tribunal found that the assessee failed to provide evidence of the furnace being received, installed, or commissioned by the year-end, making the claim factually unsupported. The argument that the machinery was ready-to-use at the supplier's premises was rejected, as it did not equate to commissioning at the assessee’s site. The Tribunal upheld the penalty, stating that the claim was not merely erroneous but false, and the withdrawal of the claim was not voluntary but prompted by the AO's inquiry.

2. Disallowance of Deduction under Section 80-IB:

The assessee claimed deduction under section 80-IB for profits from two units without setting off losses from other two units. The AO disallowed the claim, as the cumulative income from all eligible units was a loss. The Tribunal confirmed the disallowance in quantum proceedings. However, the CIT(A) deleted the penalty, noting that the assessee had furnished all relevant details and the claim was based on interpretation of law, not concealment or furnishing inaccurate particulars.

The Tribunal agreed with the CIT(A), observing that the assessee had a reasonable basis for its claim, supported by the decision in CIT v. Sona Koyo Steering Systems Ltd. The Tribunal held that there was no ground for penalty as the claim was made based on a plausible interpretation of the law.

Conclusion:

The Tribunal upheld the penalty for the disallowed depreciation claim, emphasizing the lack of factual basis and false nature of the claim. However, it deleted the penalty for the disallowed section 80-IB deduction, recognizing the reasonable basis and full disclosure by the assessee. The assessee's appeal was dismissed, and the Revenue's appeal was partly allowed.

---