Case Law Details
Axis Bank Ltd. Vs CIT (ITAT Ahmedabad)
Held that the addition made on account of excess depreciation claimed, having been surrendered by the assessee itself without any prior detection by the Revenue, the excess claim having been demonstrated to have been made for bonafide reasons, it is surely not a case for levy of penalty at all.
Facts-
The assessee contended that as they have suo moto reversed excess depreciation claim on land and hence penalty should not be levied under section 271(1)(c) of the Act.
Conclusion-
Held that the addition made in the impugned case on account of excess depreciation claimed, having been surrendered by the assessee itself without any prior detection by the Revenue, the excess claim having been demonstrated to have been made for bonafide reasons, it is surely not a case for levy of penalty at all. All particulars, relating to the properties on which depreciation was claimed, was duly disclosed by the assessee. And the assesse itself, to align its books of accounts with an MCA notification, disclosed all particulars relating to the excess claim also. We therefore hold that the assessee cannot be charged with having concealed/furnished any inaccurate particulars of income in the present case.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad, (in short referred to as CIT(A)), dated 11-09-2019, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2015-16, confirming the levying of penalty u/s. 271(1)(c) of the Act.
2. Ground raised by the assessee reads as under:
1. The learned CIT(A) erred in imposing penalty for filing of inaccurate particulars of income in Income Tax Return. The Bank was under a bona fide belief that depreciation under the Income-tax Act, 1961 (‘the Act’) was computed in accordance with the provisions of the Act. On review, when the Bank decided to componentize the assets into respective class of assets in its books of accounts and provide for depreciation following the component accounting principles, it was also decided to align the tax books with books of accounts and revised tax depreciation on land and P&M component was calculated for earlier years. The Bank has suo moto reversed excess depreciation claim on land and hence penalty should not be levied under section 271 ( 1 )(c) of the Act.
2.1 Before us, Ld. Counsel for the assessee contended that the order levying penalty was highly unjustified and unsustainable in law since it had been levied on addition made to the income of the assessee on suo moto admission of the same by the assessee even before the same was detected by the Revenue.
3. Drawing our attention to the facts of the case, Ld.Counsel for the assessee stated that during appellate proceedings for the impugned assessment year before the ld. CIT(A),the assessee had suo moto requested reversal of excess depreciation claimed on two properties owned by the assessee bank, one in Mumbai and other in Bangalore, to the extent claimed on the land component included in the cost of the same. He pointed out that it was clarified to the Ld.CIT(A) that the properties purchased included elevators, power back ups, chillers etc and no separate consideration had been paid for the land ,building or the other components therein. It was also clarified that the Mumbai property the assessee had no ownership rights but only exclusive, perpetual right to use, occupy and enjoy the land. It was also pointed out that at the time of purchase of these properties the assessee had sought legal opinion whether or not it was required to separate the land and building component in the cost of purchase and based on the legal opinion had capitalized the entire amount of property. But subsequently, on reviewing the Ministry of Corporate Affairs mandate, vide notification dated 29.08.2014,requiring companies to apply component accounting to tangible fixed assets existing on or after 01.04.2015,the assessee bank, in accordance with best practices, decided to componentize these assets in its books of accounts and claim depreciation accordingly . That it obtained valuation report from independent valuers and made the necessary componentisation in its books of account prospectively from financial year 2018-19. And in order to align the tax books with the account books it was proposed to reverse the depreciation claimed on the land portion on the componentized assets in the respective years. That accordingly revised tax depreciation on the same was worked out and the excess depreciation claimed of Rs.6.78 Crs offered to tax during appellate proceedings for the impugned year. Our attention was drawn to the submission so made to the Ld. CIT(A) placed at paper book page no. 1 to 3 are as under:
To,
Commissioner of Income-tax (Appeals)-1,
Pratyaksh Kar Bhavan, A-Eing,
Room No. 307, Third Floor,
Ambawadi,
Ahmedabad-380015
Sir,
Re: Axis Bank Ltd.
PAN: AAACU2414K
Sub: Additonal submission for hearing of appeal under section 250 of the Income-tax Act, 1961 (‘the Act’) for A.Y. 2015-16
With reference to the captioned matter, the Bank wishes to inform your Honour that in case of two premises held by the Bank, the details of which are mentioned hereunder, the Bank had claimed depreciation in the accounts as well as in the return of income on the entire amount of acquisition cost at the rate of depreciation applicable to building (part of which is reclassified as land and plant & machinery (P&M) during FY 2018-19).
In this regard, our submission is as under:
1. The details of the aforementioned two properties ore mentioned as under:
2. In case of Axis House. Mumbai, the properly was purchased by the Bank as a single unit with no separate consideration being paid for land. The Bank does not have any ownership right in the underlying land. The Bank has only been granted an exclusive and perpetual irrevocable right to use, occupy and enjoy the land. Such a right to use the land tantamounts to license as no title or interest has been created conveyed passed in favour of the Bonk in respect of such land. At the time of acquisition in May 2011, the Bonk had obtained a legal opinion whereby it was opined that the Bank is not required to separately capitalize the land and building components in it’s books of accounts. Accordingly, the properly was capitalized as building under the head premises and the entire amount of consideration was subjected to depreciation over the useful life of 60 years. Further, along with the building, the Bank has also procured following items of P&M –
(i) Elevators
(ii) Power Backup DG Sets
(iii) Chillers
(iv) Fire Protection System
However, the entire amount of consideration (including the amount in respect of right to use land and P&M) has been considered as building in the books and return of income as the property was purchased as a single unit.
3. In case of premises at Bangalore, the property was initially acquired on lease for a term of three years. On expiry of lease term, the building was purchased and capitalized in the books in 2012. The Bank also acquired ownership rights in the underlying land. The entire amount of consideration paid towards single unit with no separate consideration towards land as well as P&M (elevators and water tank in this case).
4. Thus, in both the above cases, the entire amount of consideration was capitalized as building and depreciation was claimed on the enlire amount under building tax black
5. Ministry of Corporate Affairs |MCA) vide its notification dated 29 August 2014 hos made it mandatory for the companies to apply component accounting to tangible fixed assets existing on or after April 1, 2015. Under component accounting, if cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the parent asset, then such significant part is to be depreciated separately based on its identified useful life.
6. The Bank has reviewed MCA notification and best practices .On review, it has been decided to componentize the assets into respective class of assets in its books of accounts and depreciate fallowing the component accounting principles.
7. To implement the above. Bank has obtained valuation reports from independent valuers to determine the value of land component and value of P&M in the respective property cost at the time of acquisition. Basis the same, necessary component has been done in the books of accounts prospectively from FY 201R-I9.
8. In Older lo align the tax books with the account books, it is proposed Depreciation claimed in respective years on the portion of assets which are reclassified as land and P&M. Hence, depreciation claim on the land component is proposed to be reversed in the respective years as depreciation on land is not available under the Act. Suitable depreciation adjustments are also to be mode on the Plant & machinery component.
9. Accordingly, revised tax depreciation on land and P&M component is calculated for earlier years and is enclosed as Annexure.
10. Subject to the disclosures in the above paragraph the Bank wishes to submit that it had treated the assets in it’s tax Books in the manner it was disclosed in it’s account books. Now given that the treatment of the components are changing in it’s account books, the Bank is suo rnoto making the same changes in it’s tax books. Accordingly the Bank is going ahead and making consequential adjustments in fixed as.se f reporting and depreciation.
11. Section 251 of the Act provides power to CIT(A) to confirm, reduce, enhance or annul the assessment. We request your Honour to kindly enhance the income for AY 2015-16 by Rs.6.78 crores (Rs. 6.59 + 0.39 – 0.19 – 0.002 crores) pertaining to the excess depreciation claimed on the value of land component as reduced by lower depreciation claimed on plant and machinery as provided in annexure.
12. For all the remaining assessment years, the Bank is making an application to the relevant appellate/assessment authorities for the addition of income.
4. That accordingly addition of the excess depreciation claimed by the assessee, as admitted by it during appellate proceedings was made amounting to Rs. 6.78 crores and penalty u/s 271(1)© of the Act ,for concealing/furnishing inaccurate particulars of income, initiated on the same. Ld. Counsel for the assessee contended that this fact of suo moto reversal of depreciation of the impugned year by the assessee was noted by the ld. CIT(A) also in the order as reproduced at Para 5 of the Penalty Order as under:
5. In view of the facts mentioned above during the appeal proceedings in Appeal No. CIT(A)-6/311/2018-19 & Appeal No.CIT(A)-6/312/2018-19 dated 29.03.2019 it was stated as under:-
“8.1. The above submission has been gone through thoroughly. After going through the submission filed by the bank as above, it is seen that the appellant bank had claimed depreciation on land as well as elevators and water tank in the case of premises at Bengaluru. In the case of Axis House, Mumbai, it has been submitted that the property was purchased by the bank at a single unit with no separate consideration being paid for the land. The bank does not have any ownership right in the land. The bank has kept the building underlying under the head ‘premises’ and the entire amount of consideration was subject to depreciation along with elevators, DG sets, chillers, fire protection system. The bank has further stated that the bank wishes to treat the assets in its tax books in the manner it is disclosed in the account books where in the tax books the bank has separated the land and building components and treated the land as not liable to depreciation under the Income Tax Act. In view of the suo moto submission and the above facts, the excess depreciation under the year under appeal is coming to Rs.6.78 Crores pertaining to excess depreciation claimed on the land component which has been submitted by the bank in the annexure (annexure is being made in the part of order). In view of the above, and as per the submission of the appellant bank, the AO is directed to enhance the income during the year by Rs.6.78 Crores.
These facts have not been brought to the department’s notice leading to the filing of inaccurate particulars which leads to concealment of income. Penalty proceedings u/s.271(1)(c) of the Act is initiated on the above income for filing inaccurate particulars.
5. Ld. Counsel for the assessee stated that despite the assessee having suo moto come clean before the Ld.CIT(A) on this aspect during appellate proceedings and there was no detection of this extra depreciation claimed by the assessee till then either by the AO or the Ld.CIT(A),that despite the same the assessee was charged with having concealed/furnished inaccurate particulars of income and penalty levied amounting to Rs.2,30,74,971/-,to the extent of 100% of tax sought to be evaded on the same.
6. Counsel for the assessee contended that the assessee in all honestness and truthfulness had made this suo moto admission to the Ld. CIT(A) of excess depreciation claimed and had given reasons for the same also, as having been bonafidely claimed excess earlier on the basis of legal opinion given to it and it was reversed subsequently on account of the MCA notification requiring it to do so. He contended that this honest act of the assessee had been punished by the Ld. CIT(A) by charging him with having concealed/inaccurate particulars of income and levying penalty there on. Ld. Counsel for the assessee contended that there was no case for levy of penalty in view of the suo moto admission of the assessee, even before detection by the Revenue and more particularly on the issue of componentisation of land and building of units purchased. In this regard he relied on the decision of the ITAT Delhi Bench in the case of Namaste Voyages Pvt. Ltd. vs. ITO reported in (2010) 5 ITR 90 (Delhi) and in the case of Hardeep Sachdeva vs. ACIT in ITA No. 5948/Delhi/2014 dated 26.12.2018.
7. Ld. D.R. on the other hand relied on the order of the Ld. CIT(A) stating that the assessee had neither provided any bonafide explanation for non-disclosure of such income in the return of income filed and therefore the penalty has been rightly levied. Our attention was drawn to Para 9 of his order as under:
9. As stated herein above, as appellant has not provided any bonafide explanation regarding non-disclosure of such income in return of income and offer was in appellate proceedings. It was only an attempt to pre-empt the Revenue finding out the appellant had furnished inaccurate particulars. The bank has submitted that on review, when the Bank decided to componentized the assets into respective class of assets in its books of accounts and provide for depreciation following the component accounting principles, it was also decided to align the tax books with account books and reverse excess depreciation claimed on land component in earlier years. Thus, there was no deliberate attempt by the Bank to claim higher depreciation, and accordingly the same was rectified by the bank. The excess depreciation under the year under appeal of Rs.6.78 Crores pertaining to excess depreciation claimed on the land component which has been submitted by the bank after providing various opportunities to explain its contention. The contention of the appellant bank is not finding satisfactory explanation as why the excess depreciation was claimed when it was not to be claimed as per the provisions of the Act. Therefore, it cannot be said that it was voluntary disclosure. In fact, the Apex Court in MAK Data (P.) Ltd. 358 ITR 593 has observed that ” The Assessing Officer, in our view, shall not be carried away by the plea of the Assessee like “voluntary disclosure”, “buy peace”, “avoid litigation” “amicable settlement” etc. to explain its conduct.” The Apex Court has a/so further observed that “It is trite law that the voluntary disclosure does not release appellant-assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.” In the peculiar fact of the present case, the so-called voluntary disclosure was made at the time of appellate proceedings. Thus, it was not a voluntary disclosure. Further, the appellant-assessee besides stating it is a mistake, has not offered any explanation. Therefore, the explanation under Section 271(l)(c) of the Act was not found to be satisfactory and penalty imposed by AO is required to be sustained. Reliance is also placed on decision of Hon’ble Bombay High court in the case ofSamson Maritime Ltd. Vs CIT[2017] 88 taxmann.com 671 wherein it is held as under:
“Section 271(1)(c) of the Income-tax Act, 1961 – Penalty – For concealment of income (Disallowance of claim, effect of) – Assessment year 2007-08 – Where assessee debited foreign exchange loss to its determined non-tonnage income, when in fact, no foreign exchange loss was involved in respect of its non-tonnage business and explanation of such mistake was found not satisfactory by authorities, penalty was rightly levied under section 271(1)(c) [In favour of revenue]!”
The Hon’ble Madras High court in the case of Khandelwal Steel & Tube Traders Vs ITO [2018] 95 taxmann.com 15 has held that “explanation as to why there was an omission or wrong statement in original return must be due to bona fide inadvertence or bona fide mistake on part of assessee and even if assessee agreed to addition with a condition that penalty could not be imposed, department is not precluded from initiating penalty proceedings”. Hon’ble Punjab & Haryana High court in the case of Sandeep Kumar Garg & Co. Vs ITO [2008] 298 ITR 106 has held as under:
“Section 271(1)(c) of the Income-tax Act, 1961 – Penalty – For concealment of income – Where it was clear that mistake, as was sought to be explained by assessee in not-declaring receipt of amount from Man/ana State Agricultural Marketing Board, was not a bona fide mistake and on consideration of the entire material on record, all authorities below had come to conclusion that showing of less receipt of amount by the assessee itself proved concealment, levy of penalty – on assessee was justified”
in view of the above discussion, I am satisfied that the assessee has filed inaccurate particulars of income of Rs.6.78 crores and is liable for penalty u/s 271(1)(c) of the Act. Thus, penalty u/s 271(1)(c) of the Act is leviable on Rs. 6.78 crores. As per provisions of section 271(1)(c) of the Act, minimum penalty leviable @100% of tax sought to be evaded on Rs. 6.78 crores and maximum penalty leviable @ 300% of tax sought to be evaded. I consider it reasonable to impose penalty @ 100% of tax sought to be evaded. The AO is directed to calculate penalty u/s 271(1)(c) on the same as discussed above.
8. We have heard the rival contentions. Penalty u/s. 271(1)(c) of the Act in the present case has been levied by the Ld.CIT(A) for furnishing inaccurate particulars of income/concealment of income relating to excess depreciation claimed of Rs.6.78 Crs by the assessee on asset in the nature of Land and Plant and Building, which was a component of the property/Premises purchased by the assessee. The addition of the same was made by the Ld.CIT(A) who accordingly initiated and thereafter levied penalty on the same amounting to Rs.2,30,74,971/-
9. Considering all the facts on record as also the contention and explanation of the assessee relating to the reversal of excess depreciation claimed, which has not been controverted by the Revenue , what is obvious and glaring is that the claim of excess depreciation was bonafide, based on a legal opinion taken and the reversal of the same in the impugned year was at the instance of the assessee itself to align its books with an MCA notification, and was at no point detected by the Revenue.
10. The letter of the assessee addressed to the Ld.CIT(A),dated 22-03-2019 P.B 1-3,during appellate proceedings for the impugned year in quantum proceedings, surrendering the excess depreciation, reveals that the properties/premises on which excess depreciation was claimed, one in Mumbai and the other in Bangalore, were purchased in January 2011 and February 2012 resp. and depreciation claimed on entire assets since then ,including the land and Plant and Machinery component therein. The consideration paid for purchasing the property did not bifurcate between the different assets purchased, i.e land, building and Plant and Machinery. One consolidated amount was paid. Further in the case of the Mumbai property the assessee did not acquire any ownership rights in the underlying land but only exclusive and irrevocable right to use occupy and enjoy the land. In the case of the Bangalore property the assessee had initially acquired it on lease for three years and then subsequently it was purchased. The assessee has contended in the said letter that depreciation was so claimed based on a legal opinion taken.
11. That subsequently in FY 2018-19, taking cognizance of a circular issued by MCA ,it bifurcated the value of these properties into its different components having different useful life, as in land, building and plant and machinery and reworked its claim of depreciation vis a vis these assets. The reworking of depreciation was done prospectively in the Books of accounts from FY 2018-19. And to align the tax records with the Books of accounts ,excess depreciation claimed in earlier years was sought to be reversed ,one such year being that before us, i.e A.Y 2015-16.Since the reworking was done in the Books of accounts in FY 2018-19, when the appeal of the assessee before the Ld.CIT(A) for the impugned year in quantum proceedings, i.e AY 2015-16, was pending , accordingly the assessee surrendered before him the excess depreciation so worked out on the land and Plant and Machinery component of the assets purchased, amounting to Rs.6.78 crs .
12. All the above contentions of the assessee made to the Ld.CIT(A) both in quantum proceedings and the penalty proceedings have remained uncontroverted.
13. Clearly all the years when the assessee had claimed excess depreciation on the land and plant and machinery component of the properties purchased in 2011 and 2012,the Revenue had failed to detect the same. Even in the impugned year it was not the Assessing Officer who discovered the same, but it was the Ld.CIT(A) who became aware of this excess claim of depreciation that too on the suo moto submission of the assessee Further the letter filed by the assessee to the ld. CIT(A) reveals that the admission was made not on account of a patently incorrect claim made earlier by the assessee . But on the contrary excess depreciation on the land component of the properties had been claimed based on a legal opinion, and when it sought to align its books in accordance with MCA notification, it reversed what according to it was excess depreciation claimed and offered the same to tax .It is not the case that the Revenue has categorically found the assesses claim of depreciation to be patently not in accordance with law. In fact whatever was surrendered by the assessee has been accepted by the Revenue without even examining the same.
14. Thus the addition made in the impugned case on account of excess depreciation claimed, having been surrendered by the assessee itself without any prior detection by the Revenue, the excess claim having been demonstrated to have been made for bonafide reasons, it is surely not a case for levy of penalty at all. All particulars, relating to the properties on which depreciation was claimed, was duly disclosed by the assessee. And the assesse itself, to align its books of accounts with an MCA notification, disclosed all particulars relating to the excess claim also. We therefore hold that the assessee cannot be charged with having concealed/furnished any inaccurate particulars of income in the present case.
15. On the contrary we agree with the ld. Counsel for the assessee that the assessee had on its own come clean before the Department when it rectified its Books of accounts.
16. We therefore hold that it is not a fit case for levy of penalty at all and direct deletion of the same.
17. In effect, appeal of the assessee is allowed.
Order pronounced in the open court on 29 -06-2022
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