2025 (1) TMI 280 - AT - Income Tax

Tribunal Rules Penalties u/s 271(1)(c) of Income Tax Act Unjustified Due to Honest Miscalculation, Not Concealment.

Sahajanand Medical Technologies Ltd. Versus Deputy Commissioner of Income-tax, Circle-2 (1) (2), Surat

The Tribunal concluded that the penalties imposed under Section 271(1)(c) of the Income Tax Act, 1961, were not justified. The assessee had disclosed all ... Penalty u/s 271(1)(c) - disallowance of additional depreciation claimed by the assessee on plant and machinery and leasehold improvements - AO noted that assessee claimed depreciation on cost of machinery after September, 2005 (i.e., in second half of the year) and claimed additional depreciation @20% on machinery - HELD THAT:- We find that both the disallowances were made on the basis of details furnished by assessee. Admittedly all details were available on record. Merely the assessee could not substantiate its claim would not lead to a conclusion that the assessee furnished inaccurate particulars of income. Even otherwise, it is a debatable issue and no penalty is leviable on debatable issue. Apex Court in the case of Reliance Petro Products Ltd [2010 (3) TMI 80 - SUPREME COURT] held that the words used u/s 271(1)(c) are plain and simple, and unless the case of the assessee is strictly covered by words in this provision, no penalty can be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing in accurate particulars. Merely because the assessee claimed deduction of interest expenditure has not been accepted by the revenue, penalty under section 271(1)(c) is not attracted. If the contention of the revenue is accepted, the assessee would be liable to penalty under section 271(1)(c) in every case where the claim made by the assessee is not accepted by the AO for any reason. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, for furnishing inaccurate particulars of income by the assessee is justified.Whether the disallowance of additional depreciation claimed by the assessee on plant and machinery and leasehold improvements constitutes concealment of income or inaccurate particulars justifying the penalty.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification of Penalty under Section 271(1)(c)Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act, 1961, pertains to penalties for concealment of income or furnishing inaccurate particulars. The precedent set by the Supreme Court in CIT vs. Reliance Petro Products Ltd establishes that merely making an unsustainable claim does not attract a penalty if there is no inaccuracy in the particulars of income furnished.Court's Interpretation and Reasoning: The Tribunal interpreted that the penalty under Section 271(1)(c) requires a clear case of concealment or furnishing inaccurate particulars. The Tribunal emphasized that the mere disallowance of a claim does not automatically lead to a penalty.Key Evidence and Findings: The Tribunal found that the assessee had disclosed all relevant facts in the tax return. The disallowance was based on the details provided by the assessee, which were available on record. The Tribunal noted that the mistake was due to a miscalculation rather than an intent to conceal income.Application of Law to Facts: The Tribunal applied the principle that an incorrect claim in law does not amount to furnishing inaccurate particulars. The Tribunal concluded that the assessee's actions did not meet the threshold for imposing a penalty under Section 271(1)(c).Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the disallowance justified a penalty. However, it found the assessee's reliance on the Supreme Court's decision in Reliance Petro Products Ltd persuasive, concluding that the penalty was not warranted.Conclusions: The Tribunal concluded that the penalty under Section 271(1)(c) was not justified as the assessee had not concealed income or furnished inaccurate particulars. The appeal was allowed, and the penalty was directed to be deleted.Issue 2: Disallowance of Additional DepreciationRelevant Legal Framework and Precedents: The claim for additional depreciation is governed by the provisions of the Income Tax Act concerning depreciation allowances. The Tribunal considered past decisions where penalties were not imposed for claims made in good faith.Court's Interpretation and Reasoning: The Tribunal reasoned that the disallowance of additional depreciation was based on a genuine mistake in calculation, not an intent to evade taxes. The Tribunal highlighted that the full facts were disclosed in the tax return.Key Evidence and Findings: The Tribunal noted that the assessee had claimed additional depreciation based on the incorrect application of the rate but had disclosed all relevant information. The Tribunal found no evidence of intentional concealment.Application of Law to Facts: Applying the principle that penalties require a clear case of concealment or inaccurate particulars, the Tribunal found that the disallowance did not meet this standard.Treatment of Competing Arguments: The Tribunal considered the Revenue's position that the disallowance justified a penalty but found the assessee's arguments, supported by precedent, more compelling.Conclusions: The Tribunal concluded that the disallowance of additional depreciation did not justify a penalty, as the mistake was unintentional and all facts were disclosed. The appeal was allowed, and the penalty was directed to be deleted.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'Merely because the assessee claimed deduction of interest expenditure has not been accepted by the revenue, penalty under section 271(1)(c) is not attracted.'Core Principles Established: The judgment reinforces the principle that penalties under Section 271(1)(c) require clear evidence of concealment or furnishing of inaccurate particulars. A mere incorrect claim, if made in good faith and with full disclosure, does not attract a penalty.Final Determinations on Each Issue: The Tribunal determined that the penalties imposed under Section 271(1)(c) were not justified in this case. The appeal was allowed, and the penalties were directed to be deleted.