Depreciation allowed for plant kept ready but unused; not inaccurate particulars under section 271(1)(c); penalty deleted

ITAT held that claiming depreciation on plant and machinery installed and kept ready for use, though not actively employed during the year due to lack of working capital, was a bona fide legal position and did not amount to furnishing inaccurate particulars under section 271(1)(c); the tribunal adopted a wider construction of "used for the purposes of the business" to include assets kept ready for use. The tribunal also found that the assessee's decision not to appeal the disallowance was a legitimate commercial choice and did not indicate mala fides, and accordingly deleted the penalty and allowed the appeal.

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ISSUES PRESENTED AND CONSIDERED

1. Whether claiming depreciation on plant and machinery that was installed and kept ready for use but not put to commercial production during the relevant year amounts to furnishing inaccurate particulars of income attracting penalty under section 271(1)(c).

2. Whether the legal test for "used for the purposes of the business" in relation to depreciation requires actual active employment of assets throughout the year or permits a wider interpretation including passive or ready-for-use status.

3. Whether appellate conduct (not agitating the disallowance of depreciation in assessment proceedings) is by itself indicative of mala fides or a furnishing of inaccurate particulars for the purpose of imposing penalty.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Whether claiming depreciation for assets ready for use but not actively employed constitutes furnishing inaccurate particulars attracting penalty under section 271(1)(c)

Legal framework: Penalty under section 271(1)(c) can be levied where the assessee is found to have furnished inaccurate particulars of income. The test is whether the claim amounted to inaccurate, incorrect or false particulars beyond a bona fide legal or factual claim.

Precedent Treatment: The decision follows the Supreme Court principle that a mere legal claim, whether ultimately allowed or disallowed, does not ipso facto amount to furnishing inaccurate particulars. It also relies on tribunal and High Court precedents that adopt a liberal interpretation of "used for the purposes of the business" when allowing depreciation where assets are kept ready for business use.

Interpretation and reasoning: The Tribunal found that the plant and machinery were installed in an earlier year, depreciation had been allowed in prior assessments, and material showed past production and turnover. The Court accepted the assessee's explanation that operations were suspended due to lack of working capital/business, not because the assets were incapable of use. Citing authorities that "used" embraces passive user - assets kept ready for use and employed for the business when need arises - the Tribunal concluded the claim was a bona fide legal claim. The Tribunal held that legal inadmissibility, if any, does not equate to the making of inaccurate particulars; the claim was not shown to be false or dishonest on the facts.

Ratio vs. Obiter: Ratio - A claim for depreciation on assets installed and kept ready for use, though not actively employed in the relevant year due to non-availability of business or working capital, does not necessarily constitute furnishing inaccurate particulars for penalty purposes. Obiter - Observations on the assessee's past allowances and detailed factual matrix were applied to the present facts but are case-specific.

Conclusions: The penalty under section 271(1)(c) for furnishing inaccurate particulars in respect of the depreciation claim was deleted because the claim amounted to a bona fide legal position rather than a false or dishonest particular.

Issue 2 - Proper interpretation of "used for the purposes of the business" for allowance of depreciation

Legal framework: Statutory language governing depreciation requires assets to be "used for the purposes of the business." Rules may refer to periods of use, but the statutory term must be construed in light of the statutory purpose and diverse factual contexts.

Precedent Treatment: The Tribunal accepted and applied a line of authority (including High Court jurisprudence) adopting a liberal/wider interpretation of "used," permitting depreciation where assets are kept ready for business and not used actively due to lack of opportunity or business, provided the assets are not unfit or unavailable for use.

Interpretation and reasoning: The wider interpretation recognizes passive depreciation (including due to non-use) and avoids anomalous results that would deny depreciation where assets are maintained ready for business use. The Tribunal relied on the principle that the rules' references to minimum periods or shifts do not negate a broader statutory construction that accommodates readiness for use as sufficient for "use" in many circumstances.

Ratio vs. Obiter: Ratio - The expression "used" in the statute permits a wider construction including assets kept ready for use; absence of active operation due to lack of business/working capital does not automatically negate entitlement to depreciation. Obiter - Discussion of rules on shifts and minimum use as not inconsistent with the wider view (applied to explain reasoning).

Conclusions: The Tribunal applied the wider interpretation and found the assets in question were properly regarded as used (in the larger sense) for business purposes, supporting the conclusion that a depreciation claim could be legally tenable even when active commercial production did not occur in the year.

Issue 3 - Effect of not contesting disallowance of depreciation before the appellate authority on penalty liability

Legal framework: Conduct in assessment proceedings is relevant but not determinative of penalty liability; penalty requires independent satisfaction that particulars furnished were inaccurate or false, not merely that the assessee failed to pursue an appeal on a disallowance.

Precedent Treatment: The Tribunal applied the principle from higher authorities that non-pursuit of an appeal or strategic litigation choices (e.g., to protect carried-forward losses) do not amount to admission of falsity or mala fide furnishing of particulars.

Interpretation and reasoning: The Tribunal accepted the assessee's explanation that non-appeal against disallowance was a commercial decision influenced by significant carried-forward losses, not an admission of falsity. The Court held that prosecutorial or commercial choices in litigation cannot be equated with making inaccurate particulars; therefore absence of appeal did not justify penalty.

Ratio vs. Obiter: Ratio - Failure to appeal an adverse assessment outcome, where explained by legitimate commercial strategy, does not by itself establish furnishing of inaccurate particulars for imposition of penalty. Obiter - Factual observations about the assessee's carried-forward losses and reasoning for non-appeal are specific to the case.

Conclusions: The Tribunal found that non-pursuit of the depreciation grievance in appeal did not convert a bona fide legal claim into a false particular warranting penalty; on the facts, penalty was not sustainable.

Cross-references and Overarching Conclusion

Interrelation: Issues 1 and 2 are interlinked - the acceptability of the depreciation claim (issue 2) directly informs whether the claim could be characterized as furnishing inaccurate particulars (issue 1). Issue 3 addresses procedural consequences of appellate strategy on penalty assessment and is supplemental to the substantive conclusion.

Overall conclusion: On the facts and applying the wider interpretation of "used for the purposes of the business," the claim for depreciation was a bona fide legal position and not a false or inaccurate particular; consequently, penalty under section 271(1)(c) was deleted. The Tribunal thus allowed the appeal.

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