2004 (9) TMI 320 - AT - Income Tax

Tax Tribunal affirms deletion of penalty under Section 271(1)(c) for valid explanation

The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271(1)(c) of the Income Tax Act, finding that the assessee's explanation for ... - Issues Involved:1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Bona fide nature of the assessee's explanation for claiming depreciation and investment allowance.3. Applicability of Explanation 1 to Section 271(1)(c) post-amendment.4. Relevance of the Tribunal's and High Court's previous decisions.5. Validity of the documents and evidence provided by the assessee.Detailed Analysis:Issue 1: Deletion of Penalty under Section 271(1)(c)The Revenue appealed against the deletion of a penalty amounting to Rs. 58,08,600 imposed under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was initially imposed for the alleged concealment of income or furnishing inaccurate particulars concerning a claim for depreciation and investment allowance on a 1150 KVA DG set.Issue 2: Bona fide Nature of Assessee's ExplanationThe assessee claimed that the DG set was installed and trial-run on 30th and 31st March 1990, supported by various documents, including a handing-over report, internal reports, and log books. The CIT(A) found that the explanation provided by the assessee was bona fide and supported by substantial evidence, including permissions from the Orissa State Electricity Board (OSEB), approval of drawings, and testing of the meter. The CIT(A) concluded that the explanation was neither false nor bogus, and thus, the penalty was not sustainable.Issue 3: Applicability of Explanation 1 to Section 271(1)(c) Post-AmendmentThe Revenue argued that the CIT(A) erroneously relied on pre-amendment law and failed to consider the amended Explanation 1 to Section 271(1)(c). The Tribunal noted that the initial burden of proof lies on the assessee to prove the bona fide nature of their explanation and to disclose all material facts. The Tribunal found that the assessee had discharged this burden by providing sufficient documentary evidence, which was not found to be false by the AO.Issue 4: Relevance of Tribunal's and High Court's Previous DecisionsThe CIT(A) relied on the decision of the Orissa High Court in the case of CIT vs. Indian Metals & Ferro Alloys Ltd., where it was held that a mere claim for depreciation and development rebate, even if disallowed, does not amount to concealment of income if the claim was made bona fide. The Tribunal agreed with this precedent, noting that the assessee's case was similar and that the explanation provided was bona fide.Issue 5: Validity of the Documents and Evidence Provided by the AssesseeThe Tribunal examined the documents, including permissions from OSEB, approval of installation drawings, testing reports, and internal logs, and found them to be credible. The Tribunal also noted that the formal permission for commercial operation granted on 8th October 1990 did not negate the bona fide nature of the trial run conducted on 30th and 31st March 1990. The Tribunal concluded that the explanation provided by the assessee was substantiated and bona fide, thereby not attracting the penalty under Explanation 1 to Section 271(1)(c).ConclusionThe Tribunal upheld the CIT(A)'s decision to delete the penalty, finding that the assessee had provided a bona fide explanation supported by substantial evidence, and thus, did not conceal income or furnish inaccurate particulars. The Revenue's appeal was dismissed, and the cross-objection filed by the assessee was also dismissed as it was already addressed in the main appeal.