2006 (8) TMI 241 - AT - Income Tax

ITAT upholds deletion of penalty for depreciation claim in assessment year 1990-91

The ITAT upheld the CIT(A)'s decision to delete a penalty imposed under s. 271(1)(c) for the assessment year 1990-91. The penalty was related to the ... Addition To Income Issues:Appeal against penalty imposition under s. 271(1)(c) for asst. yr. 1990-91.Analysis:1. The Revenue appealed against the CIT(A)'s deletion of a penalty imposed under s. 271(1)(c) amounting to Rs. 88,40,715. The penalty was related to the disallowance of depreciation claimed by the assessee on a biogas plant. The AO disallowed the depreciation as the plant had not started producing biogas during the year in question, but allowed it in the subsequent year when production commenced.2. The CIT(A) deleted the penalty, stating that the assessee's claim for depreciation was bona fide and not made with any mala fide intention. The CIT(A) observed that there was no concealment or filing of inaccurate particulars of income by the assessee. The CIT(A) noted that the explanation offered by the assessee was not false or made with any intention to deceive.3. The ITAT considered the factual matrix of the case, highlighting that the plant in question had a dual purpose of treating effluent and producing biogas. The plant was operational from March 1990, but the commercial production of biogas only began in the subsequent year. The ITAT emphasized that penalty proceedings are distinct from assessment proceedings and that the burden of proof lies on the assessee to establish the facts relevant to the penalty imposition.4. The ITAT analyzed the legal position regarding penalty imposition under s. 271(1)(c). It emphasized that the Explanation to the section does not automatically lead to penalty imposition and that the circumstances must demonstrate conscious concealment or furnishing of inaccurate particulars by the assessee. The ITAT found that the assessee had substantiated its explanation with evidence and had not fallen under the provisions of the Explanation to s. 271(1)(c).5. Ultimately, the ITAT agreed with the CIT(A) that the assessee's explanation for the depreciation claim was not false or untrue. The ITAT concluded that there was no basis for penalty imposition, as the assessee's conduct did not indicate any intention to conceal income or provide inaccurate particulars. Therefore, the appeal of the Revenue was dismissed, upholding the deletion of the penalty amount.