2017 (8) TMI 565 - AT - Income Tax

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 ... Levy of penalty on depreciation disallowed on non-existing assets - Held that:- The disallowance of depreciation on non-existing fixed assets has been deleted by the Coordinate Bench in all the three years under consideration are concerned, the very basis for levy of penalty doesn’t stand. Accordingly, the levy of penalty under section 271(1)(c) is deleted in respect of all the three years under consideration.Decided in favour of assessee. Levy of penalty on depreciation disallowed u/s 32(1)(iii) read with 43 (1) and explanation 10 thereto - Held that:- The observations of the auditor are in relation to noncompliance with the various accounting standards as prescribed by the ICAI which have to be followed while preparing the financial statements. At the same time, the assessee’s explanation is that being a 100% owned undertaking of Rajasthan Government, it is governed by the instructions approved by Government for Rajasthan State Electricity Board's, The Electricity (Supply) Annual Accounts Rules, 1995 and Accounting Instructions which cannot be lost sight off. In our view, these are plausible explanation relating to variation in the accounting policies followed by the assessee company given the nature of business the assessee company is engaged in and related electricity regulations which it must comply with. These are statutory requirements which the assessee company is required to follow while preparing its financial statements. However, the fact remains that there is complete disclosure of all material facts in the financial statements so far as issue relating to determination of actual cost of the assets are concerned. The material facts so disclosed in the financial statements have infact been considered by the AO while recalculating the depreciation claim of the assessee company. Thus respectfully following the decision of the Hon’ble Supreme Court in case of Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) wherein held a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee, we hereby delete the levy of penalty under section 271(1)(c) in respect of disallowance of depreciation under section 32(1)(iii) read with section 43(1) and explanation 10 thereto in respect of all three years under consideration. - Decided in favour of assessee. 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.