Penalty u/s 271(1)(c) for inaccurate furnishing of particualrs

Facts of the Case:

The Assessee claimed depreciation on a biogas plant and that was disallowed by the Assessing Officer on the ground that the plant had not started giving the end product, that is, biogas during the relevant previous year but only from the subsequent accounting year. According to the Assessing Officer, by claiming depreciation in the assessment year 1990-91, the Assessee had furnished inaccurate particulars for reducing its tax liability and was, therefore, liable to be penalized.

Observation and Judgment of Delhi High Court:

The claim of depreciation by the Assessee was in terms of Section 32(1) of the Act and as pointed out by learned counsel for the Assessee, what is of importance is that the plant or machinery should be owned by the Assessee and used for the purposes of its business. According to the Assessee, both conditions were satisfied by the Assessee but, unfortunately, the Assessing Officer took a different view.

This Court was of the view that passive user of machinery such as by keeping it in good working condition so that it could be used at any moment would be the correct approach to adopt for interpreting the expression 'used for the purposes of the business' occurring in Section 32 of the Act.

This is precisely what the Assessee did and the view taken by the Assessee was certainly a plausible view, it just so happens that the Assessing Officer did not agree with the Assessee. But that by itself would not mean that the Assessee had furnished inaccurate particulars for the purposes of reducing its tax liability.

No penalty should be levied.

The appeal is dismissed with costs. We assess counsel's fee at Rs.10,000/- which will be paid by the Revenue by depositing the amount by way of a cheque in the name of the Registrar General of this Court within four weeks from today. 

(For full text of Judgment - visit 2008 -TMI - 2608 - HIGH COURT OF DELHI )

Penalty for inaccurate particulars not supportable when a reasonably arguable depreciation claim exists and machinery was passively used. A disagreement by the Assessing Officer over a depreciation claim does not, by itself, establish furnishing of inaccurate particulars for penalty purposes. Depreciation is allowable where the asset is owned and used for the purposes of the business, and passive maintenance so the plant is ready for use qualifies as such. If the assessee's position is a plausible statutory interpretation taken in good faith, penalty under the inaccurate-particulars provision is not warranted.