Tribunal overturns penalty under Income Tax Act, ruling in favor of assessee.

The Tribunal allowed the appeal, ruling in favor of the assessee, concluding that the penalty under Section 271(1)(c) of the Income Tax Act was not justified. The Tribunal found merit in the assessee's claim that the depreciation was made in good faith, emphasizing that a bona fide claim, even if disallowed, does not attract penalty. The disallowance of depreciation was not deemed as furnishing inaccurate particulars of income. Consequently, the penalty was deleted, and the appeal was allowed.

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Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.
2. Determination of whether the rental income should be classified as "business income" or "income from house property."
3. Legitimacy of the depreciation claim on plant and machinery.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue was whether the penalty of Rs. 7,55,913/- under Section 271(1)(c) of the Income Tax Act was justified. The assessee argued that the depreciation claim was made under a bona fide belief that it was allowable since the plant and machinery were let out along with the building. The Assessing Officer (A.O.) disallowed the depreciation, asserting that no business activities were carried out and the rental income should be classified as "income from house property." The A.O. initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A)/NFAC upheld the penalty, citing the case of Sundaram Finance Ltd., where claiming depreciation on non-existent assets attracted penalty.

2. Classification of Rental Income:
The A.O. treated the rental income as "income from house property" instead of "business income," as the assessee had ceased its manufacturing operations and was only receiving rental income from letting out the premises. The assessee contended that the rental income was business income because the plant and machinery were also let out, although this was not mentioned in the lease agreements. The A.O. allowed a standard deduction of 30% on the rental income after rectifying the assessment order under Section 154.

3. Legitimacy of Depreciation Claim:
The assessee claimed depreciation on certain plant and machinery, arguing that these assets were part of a block of assets and were let out along with the building. The A.O. disallowed the depreciation, stating that the lease agreements did not mention the machinery and no business activities were conducted. The assessee maintained that the machinery was indeed let out and was later sold in AY 2018-19, with the resulting Short Term Capital Gain/Loss offered for taxation, thus proving the existence and use of the assets.

Tribunal's Findings:
The Tribunal considered the submissions and found merit in the assessee's claim that the depreciation was made in good faith. It noted that the assets existed and were later sold, with the gains/losses duly reported. The Tribunal highlighted that the mere disallowance of a claim does not automatically lead to a conclusion of furnishing inaccurate particulars. The Tribunal referred to the case of CIT vs. Reliance Petroproducts (P) Ltd., where it was held that a bona fide claim, even if disallowed, does not attract penalty under Section 271(1)(c).

Conclusion:
The Tribunal allowed the appeal, concluding that the assessee made a bona fide claim for depreciation and the penalty under Section 271(1)(c) was not warranted. It emphasized that the disallowance of depreciation did not equate to furnishing inaccurate particulars of income. The appeal was allowed, and the penalty was deleted.

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