Partial penalty relief granted for incorrect depreciation claim; grounds for penalty remitted for further consideration.

The ITAT partially allowed the appeal, deleting the penalty for the incorrect claim of depreciation of Rs. 15,31,989 as it was based on auditors' working and considered bona fide. The penalty for the disallowed depreciation of Rs. 2,09,559 was upheld but reduced to 100% from 111.5%. The issue regarding the failure to specify grounds in the notice under section 271(1)(c) was remitted to the CIT(A) but dismissed without proper consideration. The decision was pronounced on 27.01.2023.

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Issues Involved:
1. Whether the penalty under section 271(1)(c) of the Income Tax Act, 1961, for furnishing inaccurate particulars of income was justified.
2. Whether the Assessing Officer (AO) failed to specify the grounds for issuing the notice under section 271(1)(c) of the Act.

Detailed Analysis:

Issue 1: Justification of Penalty under Section 271(1)(c)

Assessment Proceedings:
- The AO noted an increase of Rs. 2,68,12,425 in fixed assets during the financial year 2011-12. Major capital expenditures were incurred on items purchased from Pevonia Spa Care Pvt. Ltd. and other entities.
- The AO disallowed depreciation of Rs. 15,31,989 due to the incorrect claim of full-year depreciation instead of half-year, based on the date the assets were put to use.
- Additionally, depreciation of Rs. 2,09,559 was disallowed for assets worth Rs. 27,94,120 due to the inability of the assessee to produce invoices.

Penalty Proceedings:
- The AO imposed a penalty of Rs. 6,00,000, holding that the assessee furnished inaccurate particulars of income.
- The CIT(A) upheld the penalty.

ITAT Findings:
- The ITAT remitted the matter back to the CIT(A) to pass a speaking order on the additional legal ground raised by the assessee.
- The CIT(A) dismissed the appeal in toto, leading to the current appeal before the ITAT.

Arguments by Assessee:
- The assessee argued that the penalty was wrongly confirmed and that the depreciation was claimed based on the auditors' working.
- The assessee cited various judicial precedents to support the contention that the claim was bona fide and not a deliberate attempt to furnish inaccurate particulars.

Judicial Precedents Cited:
- Price Waterhouse Coopers (P) Ltd. vs. CIT: The Supreme Court held that a bona fide and inadvertent error does not amount to furnishing inaccurate particulars or attempting to conceal income.
- CIT vs. Sidhartha Enterprises: The Punjab & Haryana High Court held that penalty under section 271(1)(c) is imposed only when there is a deliberate default, not for a mere mistake.
- CIT vs. Rajiv Bhatara: The court held that no intention to furnish inaccurate particulars was evident, hence no concealment penalty was justified.
- Manoj Ahuja vs. Inspecting Assistant Commissioner: The court held that no litigant should suffer for a mistake of his counsel.
- CIT vs. Deepak Kumar: The court held that acting on the advice of counsel in good faith constitutes a bona fide mistake.
- Pawan Garg vs. ACIT: The Tribunal held that a bona fide mistake does not justify the levy of penalty under section 271(1)(c).

ITAT Decision:
- The ITAT found that the depreciation claim was based on the auditors' working and was bona fide. Hence, the penalty for the wrong claim of depreciation of Rs. 15,31,989 was deleted.
- For the disallowance of depreciation of Rs. 2,09,559 due to missing invoices, the ITAT upheld the penalty but directed it to be levied at the minimum rate of 100% instead of 111.5%.

Issue 2: Failure to Specify Grounds in Notice under Section 271(1)(c)

- The assessee raised an additional ground that the AO failed to specify whether the notice under section 271(1)(c) was for concealment of income or furnishing inaccurate particulars.
- The ITAT remitted this issue to the CIT(A) for a speaking order, but the CIT(A) dismissed the appeal without addressing this ground adequately.

Conclusion:
- The appeal was partly allowed. The penalty for the wrong claim of depreciation of Rs. 15,31,989 was deleted, and the penalty for the disallowance of depreciation of Rs. 2,09,559 was scaled down to 100%.

Order pronounced on 27.01.2023.

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