Excess depreciation claim due to insurance adjustment deemed bona fide mistake, penalty under section 270A deleted

ITAT Mumbai upheld CIT(A)'s deletion of penalty u/s 270A for under-reporting income. Assessee failed to reduce insurance claim from block of assets, resulting in excess depreciation claim. However, assessee declared huge loss and was not in advantageous position to claim higher depreciation. Following SC precedent in Reliance Petro Products and Bombay HC decision in Somany Evergreen Knits, tribunal held excess depreciation claim was bona fide mistake, not concealment of income warranting penalty.

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Issues Involved:
The judgment involves the challenge by the Revenue against the order of the Commissioner of Income Tax (Appeals) and the cross objection filed by the assessee. The main issue revolves around the deletion of penalty levied under section 270A of the Income Tax Act, 1961, due to an excess claim of depreciation considered to be a bona fide mistake by the assessee.

Details of the Judgment:

Issue 1: Challenge to Deletion of Penalty by CIT(A)
The Revenue contested the order of the CIT(A) directing the Assessing Officer to delete the penalty imposed under section 270A. The Revenue argued that the excess claim of depreciation was not disclosed until the scrutiny proceedings, indicating malafide intention. The CIT(A) based the deletion on the absence of mens rea to evade tax, citing the decision in CIT vs. Reliance Petro Product Ltd. The Revenue's appeal was against this deletion.

Issue 2: Background and Assessment Proceedings
The assessee, engaged in solar power generation, initially declared a substantial loss in the return of income. During scrutiny, it was found that the assessee had claimed excess depreciation due to not reducing an insurance claim from the block of assets. The Assessing Officer disallowed the excess claim, leading to penalty proceedings under section 270A for underreporting income.

Issue 3: Arguments of the Parties
The Revenue contended that the assessee failed to provide a valid reason for the underreported income and only disclosed the error during assessment, suggesting malafide intent. In contrast, the assessee argued that the error was inadvertent and not beneficial, as it did not reduce tax liability given the declared loss. The assessee relied on the CIT(A)'s decision and legal precedents to support the claim of a bona fide mistake.

Issue 4: Decision of the Tribunal
After considering the submissions and the provisions of section 270A, the Tribunal found that the penalty was imposed for underreported income due to the depreciation error. The Tribunal noted that the CIT(A) had correctly deemed the mistake as bona fide, aligning with legal precedents and the absence of tax evasion intent. Relying on established case law, including CIT vs. Reliance Petro Products Pvt. Ltd., the Tribunal upheld the deletion of the penalty.

Conclusion:
The Tribunal dismissed the appeal by the Revenue and the cross objection by the assessee, affirming the CIT(A)'s decision to delete the penalty. By following legal precedents and considering the nature of the error, the Tribunal found no grounds to overturn the CIT(A)'s ruling. The judgment was pronounced on 22.12.2023.

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