Tribunal rules in favor of assessee, deletes penalties for inaccurate income particulars

The Tribunal ruled in favor of the assessee, deleting the penalty under section 271(1)(c) for both issues related to the disallowance of depreciation on non-existing assets and under section 32(1)(iii) read with section 43(1) and explanation 10 thereto. The Tribunal found that the assessee had not furnished inaccurate particulars of income and had disclosed all material facts, leading to the deletion of the penalty for all three years under consideration.

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Issues Involved:
1. Levy of penalty on depreciation disallowed on non-existing assets.
2. Levy of penalty on depreciation disallowed under section 32(1)(iii) read with section 43(1) and explanation 10 thereto.

Issue-wise Detailed Analysis:

1. Levy of penalty on depreciation disallowed on non-existing assets:
The Tribunal had previously decided in favor of the assessee regarding the depreciation on non-existing assets in quantum proceedings. The relevant finding stated that the Rajasthan State Electricity Board, being a taxable entity, transferred fixed assets to the assessee, and physical verification for depreciation purposes was not required. The Tribunal concluded that the assets formed part of the block of assets transferred, and the assessee was entitled to depreciation on the written-down value of these assets. Consequently, the basis for the levy of penalty did not stand, leading to the deletion of the penalty under section 271(1)(c) for all three years under consideration.

2. Levy of penalty on depreciation disallowed under section 32(1)(iii) read with section 43(1) and explanation 10 thereto:
The Tribunal, in quantum proceedings, had decided against the assessee on this issue. The assessee argued that since the addition was made under normal provisions but the tax was determined under MAT provisions, the penalty was unjustified based on CBDT circular No. 25/2015 and the Delhi High Court decision in Nalwa Sons Investment Ltd. The Tribunal noted that the disallowance of depreciation was confirmed under normal provisions, but MAT provisions were held inapplicable. The Tribunal referred to the CBDT circular and the Delhi High Court decision, emphasizing that penalty under section 271(1)(c) is not attracted when tax is paid under MAT provisions, and no adjustments were made under MAT in the assessee’s case.

The Tribunal also considered the assessee’s arguments on merits, noting that the assessee followed the Electricity (Supply) Annual Accounts Rules, 1985, and accounting instructions, preparing accounts in good faith without hiding or concealing facts. The Tribunal found that the assessee disclosed all material facts in the financial statements, and the Assessing Officer recalculated the depreciation based on these disclosed facts. The Tribunal concluded that the assessee did not furnish inaccurate particulars of income, and following the Supreme Court decision in Reliance Petroproducts, deleted the penalty under section 271(1)(c) for all three years.

Conclusion:
The Tribunal allowed all three appeals of the assessee, deleting the penalty under section 271(1)(c) for both issues related to the disallowance of depreciation on non-existing assets and under section 32(1)(iii) read with section 43(1) and explanation 10 thereto. The order was pronounced in the open court on 09/08/2017.

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