Case Law Details

Case Name : Dr. Prem Hospital (P) Ltd. Vs. ITO, Ward 39(3), (ITAT Delhi)
Appeal Number : ITA No.5023/Del./2011
Date of Judgement/Order : 13/04/2012
Related Assessment Year : 2005-06
Courts : All ITAT (4418) ITAT Delhi (980)

Mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especially when there is nothing on record to show that the explanation offered by the assessee was not bona fide or any material particulars were concealed or furnished inaccurate .

In these circumstances, we have no hesitation in observing that no penalty is exigible in relation to claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete. Therefore, we hold that penalty is not imposable in this case and action of authorities below in imposing/confirming the penalty u/s 271(1)(c) of the Act is neither proper nor justified.

INCOME TAX APPELLATE TRIBUNAL, DELHI

ITA No.5023/Del./2011 – (Assessment Year: 2005-06)

M/s Lala Harbhagwan Dass Memorial &

Dr. Prem Hospital (P) Ltd.,

Vs.

ITO, Ward 39(3),

ORDER

PER U.B.S. BEDI, J.M.

This appeal of the assessee is directed against the order passed by the CIT(A), Karnal, dated 16.8.11 whereby confirmation of penalty of Rs.4,68,865/- imposed u/s 271(1)(c) has been challenged.

2. The facts are that during the assessment proceedings, the A.O. noted that the assessee claimed depreciation @ 4O% on the block of assets of life saving equipment which included on addition of Rs.55 lakhs. The assessee furnished two bills in respect of addition of R.55 lakhs, viz., a bill of purchase of CT Scanner System for Rs.51,07,704/-and another bill in lieu of lead glass/UPS/stabilizer for Rs. 3,92, 296/-. Both the bills were dated 29.3.2005 and of M/s VIPRO GE Medical System Ltd., Hosur, Karnatka totaling to Rs.55 lakhs. On perusal of the depreciation table relevant to the assessment year 2005-06 provided in the appendix of Income Tax Rules 1962, it was noted that in the block of plant and machinery at S.No. 3(xia), among the list of life savings medical equipment eligible for depreciation @ 40%, the name of CT .Scan Machine is not mentioned. The AO, therefore, held that CT Scanner machine purchased during the year is not eligible for depreciation @ 40% under the block of life saving medical equipment. The assessee did not offer any explanation in this regard and submitted that depreciation @ 40% was claimed under the bonafide belief that it is covered under ‘lifesaving medical equipment’ just like Magnetic Resonance Imagine System on which it has been claiming depreciation @ 40% since A.Y. 2003-04. The A.0., however, noted that the assessee reduced the amount of Rs.5 lakh on account of sale of old CT scan machine from the WDV of the block of assets under the head ‘plant & machinery’ eligible for depreciation @ 4.0% and not from the WDV of block of assets under the head ‘life saving medical equipment’ eligible for depreciation @ 40%. The A.O. further stated that the assessee could not establish that the CT scan machine purchased was put to use for the purpose of business during the year itself and hence held that the same is not eligible for depreciation in the year under consideration and disallowed CT scan machine of Rs.55 lakh by the assessee.

2.1 The assessee claimed payment of interest of Rs.5,93,815/-on building loan taken for construction of building which was not used for the purposes of business and profession during the year under consideration. The same was, therefore. disallowed as expenditure by the A.O. The A.O. also initiated penalty proceedings u/s 271(1)(c) of the Act w.r.t. disallowance of depreciation and of interest.

3. The assessee challenged the order of the A.O before the CIT(A). The CIT(A) confirmed the action of the A.O. that depreciation on the CT scan machine would be allowed at normal rates i.e. 25% as against claimed by the appellant at 40% but partly allowed the claim of the appellant and held that depreciation on this machine would be allowed for six months being the same was used for two days during the previous year. The CIT(A) also confirmed the action of the AO regarding disallowance of interest on building loan taken for construction of building which was not used by the assessee for the purpose of business and profession.

4. The A.O., on receipt of the order of the CIT(A), took up the penalty proceedings u/s 271(1)(c) of the Act, initiated vide the assessment order. During the penalty proceedings, the appellant submitted that the wrong and excess charging of depreciation was unintentional and there was no malafide motive on their part, regarding the claim of interest on the building loan, the appellant submitted that the building was constructed by a contractor and advances were given to ‘him from time to time which were shown as ‘advances to contractor’ in the balance sheet as the contractor did not submit the bills before finalization of the balance-sheet. The assessee further claimed that the building was put to use during the year. It is further submitted that no depreciation was claimed since the cost of construction of the building was not transferred to the ‘building account’ during the year under consideration. The appellant also submitted that penalty u/s 271(1)(c) is not leviable since it has offered an explanation and has substantiated it and proved that its explanation was bonafide and all the facts relating to the same and material to the computation of the total income have been disclosed by it and referred to some decisions.

5. The submissions of the assessee were considered by the A.O. but was not found tenable for the reasons discussed in para.4 and 4.1of his order, which are reproduced below in which the Assessing Officer held the assessee is liable for penalty u/s 271(1)(c) of the Act for concealment of income and for furnishing inaccurate particulars of its income.

“The submissions of the assessee have been duly considered but not found tenable as the assessee has claimed depreciation of New Scan machine@ 4O% on the block of assets of life saving medical equipment’ whereas the assessee itself when sold the old CT scan machine. The assessee has reduced this amount from the written down value of the block of assets under the head ‘Plant & Machinery’ eligible for depreciation @25%. Secondly, the name of CT Scan machine is not mentioned among the list of life saving medical equipment eligible for depreciation @40%. Therefore, it is clear that the assessee has well aware about the claim of depreciation on CT Scan Machine. Thus the contention of the assessee that the wrong & excess charging of depreciation was unintentional was not correct. The facts of the case laws as stated by the assessee are also different from the facts of the case of the assessee. The submissions of the assessee regarding interest on building loan has also duly been considered and found not tenable as the assessee has failed to produce any evidence of any electricity, telephone or water available for use or being used in the building during the previous year. Since the assessee failed to prove that the building was wholly/partly put to use during the financial year 2004-045 for business purposes, therefore, interest paid on building loan of Rs.593815/- is disallowed us expenditure not related to the business. The facts of the case laws as stated by the assessee are also different from the facts of the case of the assessee.

Keeping in view the above! facts, penalty u/s 271(l)(c) of the Income tax Act, 1961 is imposed on account of concealment of income by furnishing inaccurate particulars of income.”

6. Assessee took up the matter in appeal and during the appeal proceedings, the counsel of the assessee filed written submissions. The relevant extracts thereof are extracted below:-

“In pursuance to our rectification u/ s 154 by Assessee, Ld. Assessing Officer has passed Order dt. 08.02.2011 u/s 271 (1)(c)/ 154 and reduced the Penalty amount to Rs. 3,68,236/-, copy of Demand Notice and AO rectification order us 154 dt. 08.02.2011 are at Pg. 1-3. Your goodself, is therefore, requested to amend the Ground No. 1 of Appeal wherein amount of Rs.4,68,865/ – has been mentioned it is now Rs.3,68,236/-

a) The Appellant is a Multi Specialty Hospital and Nursing Institute wherein the Return of Income was filed on 27.10.2005 declaring Income of R. 22,79,121. The assessee has claimed depreciation @ 40% on the block of assets of Life Saving Medical Equipments which include Purchase of CT Scanner System (HI Speed FX/I) amounting Rs.51,01,704 and Purchase of Lead Glass/ UPS/ Stabilizer for Rs.3,92,296/ -. In Quantum Proceedings, AD made the addition for charging higher rate of Depreciation @ 40% instead of 25% being the above said items are not ‘under the list of Life Saving Medical Equipments copy of AO quantum Order dt: 31.8.2007 is. at :Pg.29·37 where as per assessee the depreciation @ 40%was charged for the reason that Life Saving Medical Equipments include at Point (i) Magnetic Resonance imaging system (MRI) on which 40% Depreciation. has to be charged as per Income Tax Act. Both MRI and CT Scanner are Diagnostic Tools to Non-Invasively (non-surgically) look inside the body. Both have same functions but are used for and for different purposes. The Depredation Chart as per Income Tax Act and Note on CT Scan & MRI functions at Pg.49-56.Being purely Medico-technical terms and considering the same functions, assessee treated the CT Scanner as Life Savings Medical,  Equipment like MRI and charged depreciation rate @ 40% whereas 14. AO has gone by exact phraseology in Depreciation Chart.

b) As regard charging of Depreciation @ 25% on old CT Scan Machine, the assessee was under the impression that they were charging less depreciation earlier, actually the depreciation @ 40% has to be charged. Due to said reason, Assessee has changed the depreciation rate from 25% to 40% on the basis as mentioned in para (a).

c) The Depreciation on CT Scanner @ 40% was charged on bonafide belief – that CT Scanner and MRI are of same category. Assessee has provided all the Material Particulars before the AO. There will not be any revenue loss to the Department as total depreciation amount cannot be exceed by the cost of machinery over a period of time and there is not much difference in Income tax rates from {A. Y. 2005-06 till date).

(d) Moreover, there is no finding in the order that which particulars have been furnished inaccurate by the assessee. Merely .the Ld. AO has not accepted the contention of the assessee that depreciation @ 40% has to, be charged on CT Scan instead of 25% as provided by Assessing Officer does not attract penalty u/s 271(1)(c)…….

(e) Further the reason for excess charging of depreciation has ‘been mentioned above which is by mistake and not a deliberate default…….

(f) Further Accounts of the Assessee are audited u/ s 44AB of the Income tax Act as well as under the Companies Act, 1956. The Auditor has not objected in his Audit Report in Form No. 3CD Para 4 regarding excess charging of depreciation on CT Scan, copy of Audit Report u/ s 44AB &. Audited Balance Sheet as on 31.3.2005 are at Pg.5-28. That the assessee has acted upon the audit report and, on bonafide belief charged Depreciation @ 40% on C. T. Scan, where the assessee acted upon advise of auditor/ expert then no penalty can be levied.

4. (a) As regard Interest on building Loan amounting to Rs. 5,93,815/ – was claimed. The building Loan was used to construct building of Nursing Institute. The building was constructed by contractor and advance were given to him from time to time which was shown as advance to contractor in the Balance, Sheet as contractor, had not submitted -the :bills before finalization of Balance Sheet. The ‘building was put to use during the year. As the cost of construction of building was not transferred to building Account, no depreciation was claimed and amount of Rs. 1,17,11,3401- was shown; as advance to contractor, copy of Balance Sheet for the impugned year is at Pg.19-.28. In next assessment year the said advance to contractor has been transferred to Building A/c and Depreciation has been charged.

(b) Further as submitted in quantum proceedings that the said building was complete and used for the purpose of business during the year only. Classes were held in the said building and survey party conducted survey of the said building on 29.11.2004 for 8 long hours and found the user of the building themselves in person. statement of the reasons present at the said school building were recorded. The facts can be verified from the survey [older of the revenue department and Affidavit of Director is at Pg. 58. The user of the building is evident by this fact that the earlier building being used for classes was on rent for Rs. 6,500/- per month till Sept. 2004 which was discontinued when own building was ready for use. The said fact confirms that old building was no longer in use and new building was used for business purposes. Even the bus was purchased for the purpose of transporting and ferrying the students to the new building, copy of receipt for purchase of Bus is at Pg. 57. The user of the said building is further established by the copy of the ledger account of the electricity to show that classes started from Nov. 2004 and the electricity charges jumped substantially since then, copy of ledger A/c of Electricity is at Pg. 59; However the Ld. AO and Ld. CIT(A) did not accept the contention of the assessee during quantum proceedings and disallowed Interest: paid during the year’ on. loan taken for construction of building; copy of order is at Pg. 29-37 relevant Page 34-36 Para.3 and CIT(A)order is at Pg. 38-45 relevant page 44-45. Whereas assessee has provided all relevant material during Quantum Proceedings before AO and CIT(A) as welt as in Penalty Proceedings.

(c) The assessee has claimed Interest on Loan taken for construction of building as it was put to use during the year. However, the AO’ denied” Interest under consideration on the ground that there was no use of building during the year. Survey report wherein it was mentioned that 75% of the work was completed as on dt. 29.11.2004 and there were still 4 months left for year ending as on 31.3.2005 to complete the building, the discontinuance of old building, New Bus purchased purpose of Transporting and ferrying the students to the new building for classes and substantial increase in electricity payment clearly establishes that appellant has started using new building for classes of students which is the business of the appellant and there was no furnishing of inaccurate particulars on the part of the assessee to merit imposition of a penalty. At best it was the case of rejection of the assessee’s explanation offered for a claim of Interest and a rejection of appellant’s claim under a bonafide impression. It could not, be said that the assessee had consciously concealed particulars of its income or facts, it is only a case of difference of opinion and not of concealment or filing of inaccurate particulars of income.”

7. CIT(A) while considering the submissions of the assessee and discussing various case laws on both the items of depreciation as well as charge of interest on capital for incomplete building and concluded to confirm the action of the Assessing Officer as per para.3.15 of his order as under:

“In view of the factual and legal position discussed above, it is held that the appellant furnished inaccurate particulars of its income by claiming higher depreciation on the CT scan machine and by claiming interest on building loan taken for the building which was under construction and was not put to use during the year under consideration and hence, is liable for penalty u/s 271(1)(c) of the Act. The penalty levied by the Assessing Officer is, therefore, confirmed.” 

8. Still aggrieved, assessee has come up in further appeal and while reiterating the submissions as made before lower authorities, it was pleaded for deletion of the impugned penalty as imposed by the Assessing Officer and confirmed by the CIT(A). Since the claim of depreciation at higher rate was bona fide action on the part of the assessee because CT scan is also in a way ‘Life Savings Equipment’ and so far as interest on capital investment in incomplete building which has been used as class rooms. So, claim of the assessee with respect to both the items is bona fide one, hence, penalty is not attracted. Reliance was heavily placed on decision of Gujarat High Court in the case of National Textiles vs. CIT, 249 I.T.R. 125, the Hon’ble Supreme Court judgement in the case of CIT vs. Reliance Petroproducts Pvt. Ltd., 322 I.T.R. 158 and Hon’ble Punjab & Haryana High Court in the case of CIT vs. Siddhartha Enterprises, 322 I.T.R. 80 and Bombay High Court decision in the case of CIT vs. Upender dated 5.8.2009.

9. Ld.Counsel for the assessee also placed reliance on various documents furnished in the paper book and particular reference has been made to page 14, 28-30, 31, 34, 54 and 55-70 to lay stress on the plea that all relevant facts were already there with the Assessing Officer. In this case, Assessing Officer has not established that assessee has furnished only inaccurate particulars of income and, moreover, neither any concealment has been detected nor any new fact was found and in view of authoritative pronouncements as relied upon, penalty in this is not exigible which should be deleted.

10. Ld.DR. while relying upon the basis and reasoning as given by the Assessing Officer as well as by CIT(A), has pleaded for confirmation of the impugned order. It was further submitted that assessee has not been able to prove the bona fide, and moreover entries in the books of account dispel the contention of the assessee though depreciation was claimed at 40%. Further reliance was placed on the decision in the case of Kuttookaran Machine Tools vs. ACIT, 313 I.T.R. 413(Ker.), CIT vs. Harparshad & Co. Ltd., 328 I.T.R. 53(Del.), CIT vs. Harsh, 07 I.T.R.(Trib.) 711 (Mad.), CIT vs. ECS Ltd., reported in 36 I.T.R. 162 (Del.) and ACIT vs. VBS Investment,(2010-TIOL-422-ITATDel.) and Anand & Anand vs. ACIT (2010-TIOL-592-ITAT-Del.). Reference was also made to Assessing Officer’s order at page 6 of para.3. Books of account gives different version referring to CIT(A) order at page 13, para.2.08 on page 17 and pages , 40, 54, 55 & 56 of paper book to plead for confirmation of the order as assessee has made a totally wrong claim with respect to both the items. Therefore, penalty is attracted, which has been rightly imposed by the Assessing Officer and CIT(A) is justified in confirming the action of the Assessing Officer. It was prayed for conformation of the impugned order.

11. Ld.Counsel for the assessee in order to counter the submission of the Ld.DR has submitted that the decision in the case of Reliance Petro (supra) is in support of the plea of the assessee. So far as use of building is concerned, one should see de facto utilization and not simple book entries because such building was being used for class rooms and assessee has discontinued with the old rented premises, has also purchased one bus in order to ferry the students to their class rooms and these all factors do support the case of the assessee, under the bona fide impression, the claim with respect to both the items was made in the return of income. Therefore, there is no occasion for imposing the penalty. It was also submitted that CIT(A) has confirmed the penalty at old amount whereas assessee has categorically submitted in writing that penalty imposed has been partially reduced by the Assessing Officer himself on the basis of relief allowed and it clearly shows that CIT(A) has not applied his mind properly. Since penalty is not exigible in this case, therefore, same should be deleted which may be deleted.

12. We have heard both the sides and gone through the facts of the case, relevant material and the decisions relied upon on behalf of the assessee as well as by the department, as regards penalty levied in respect of amount of excess depreciation and interest on amount borrowed for building which was incomplete and find that not even a whisper has been made in the penalty order as to which specific particulars were furnished inaccurate or were concealed. The expression ‘has concealed the particulars of income’ and ‘has furnished inaccurate particulars of income’ have not been defined either in sect ion 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping of f a certain port ion of the income from the return. According to Law Lexicon, the word “conceal” means:

“To hide or keep secret . The word ‘conceal ‘ is con+celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight ; to prevent the discovery of ; to withhold knowledge of . The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities.” 

In Webster’s Dictionary, “inaccurate” has been defined as:

“Not accurate, not exact or correct ; not according to truth; erroneous; as an inaccurate statement , copy or transcript .”.  

13. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is settled position that assessment proceedings and penalty proceedings are separate and distinct and as held by Hon’ble Supreme Court in the case of Ananthraman Veerasinghaiah & Co. Vs. CIT, 123 ITR 457, the findings in the assessment proceedings cannot be regarded as conclusive for the purposes of the penal ty proceedings. I t is also well settled that the criterion and yardsticks for the purpose of imposing penalty u/s 271(1) (c) of the Act are different than those applied for making or confirming the additions. It is, therefore, necessary to re-appreciate and reconsider the matter so as to find out as to whether the addition or disallowance made in the quantum proceedings actual ly represents the concealment on the part of the assessee as envisaged in sec. 271(1)(c) of the Act, and whether it is a fit case to impose the penalty by invoking the said provisions. The provisions of sect ion 271(1)(c) of the Act stipulate that if the Assessing Officer or the CIT(Appeals) or the Commissioner, in the course of proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars thereof , he may direct that such person shall pay by way of penalty a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by a reason of the concealment of particulars of his income. Explanation 1 to section 271(1)(c) of the Act mentions that where in respect of any facts material to the computation of the total income of any person under the Act , such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT (Appeals) or the Commissioner to be false, or such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that al l the facts relating to the same and material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall for the purpose of clause (c) of section 271(1), be deemed to represent the income in respect of which particulars have been concealed. In other words, the necessary ingredients for attracting Explanation 1 to sect ion 271(1) (c) are that (i) the person fails to offer the explanation, or (ii) he offers the explanation which is found by the AO or the CIT (Appeals) or the Commissioner to be false, or (iii) the person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that al l the facts relating to the same have been disclosed by him.

14. If the case of any assessee falls in any of these three categories, then the deeming provision provided in Explanation 1 to section 271(1) (c) come into play, and the amount added or disallowed in computing the total income shall be considered as the income in respect of which particulars have been concealed, for the purposes of clause (c) of section 271(1), and the penalty follows. On the other hand, if the assessee is able to offer an explanation, which is not found by the authorities to be false, and assessee has been able to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him, the assessee shall be out of the clutches of explanation ion 1 to sect ion 271(1) (c) of the Act , and in that case, the penalty shall not be imposed. In the instant case, the assessee discharged the onus cast on it in terms of explanation 1 to sec. 271(1)(c) of the Act . Hon’ble Supreme Court in the case of Dilip N. Shroff v. Jt . CIT [2007] 210 CTR (SC) 228 : [2007] 291 ITR 519 (SC) while considering the scope of these provisions u/s 271(1) ( c) of the Act observed in the following terms:

“The legal history of sect ion 271(1) (c) of the Act t raced from the 1922 Act prima facie shows that the Explanations were applicable to both the parts. However, each case must be considered on its own facts. The role of the Explanation having regard to the principle of statutory interpretation must be borne in mind before interpreting the aforementioned provisions. Clause (c) of sub-sect ion (1) of section 271 categorically states that the penalty would be leviable if the assessee conceals the particulars of his income or furnishes inaccurate particulars thereof. By reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been not iced in some of the decisions of this court , inheres on the face of the statutory provisions. Penalty proceedings are not to be initiated, as has been noticed by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective.

……………………………………………………………………………

The term “inaccurate particulars” is not defined. Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even, if the Explanations are taken recourse to, a finding has to be arrived at having regard to clause (A) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income. ”

15. In the light of aforesaid observations of the Hon’ble Apex Court, what is to be seen in the instant case, is whether the claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete, made by the assessee was bona-fide and whether at all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty u/s 271(l )(c) of the Act . The Assessing Officer has not been able to establish that the claim of the assessee for deduction of excess depreciation and interest on amount borrowed for building which was incomplete was not bona fide or that any specific particulars were concealed or furnished inaccurate. A mere reject ion of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars thereof by the assessee. Hon’ble Apex Court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158, after considering various decisions including Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/ 161 Taxman 218 (SC) and Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC) concluded that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. In the case under consideration, there is nothing to suggest that the assessee furnished any inaccurate particulars or concealed the particulars. Admittedly, the claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete was there in the documents forwarded with the return. In this view of the matter, no fault can be found with the claim of the assessee that it had claimed the deduct ion in a bona fide manner.

16. In the case under consideration, as pointed out by the ld. AR of the assessee had given all the particulars of income and had disclosed all facts to the AO in relation to claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete. Mere disallowance of a claim will not amount to filing of inaccurate particulars of income. It can at best be a “wrong claim” not “a false claim”. In such circumstances, Hon’ble Delhi High Court held in the case of Commissioner of Income-Tax vs Bacardi Martini India Limited.,288 ITR 585(Del) that no penalty was leviable. In CIT vs. Harshvardhan Chemicals & Minerals Ltd. (259 ITR 212) (Raj), Hon’ble Rajasthan High Court upheld the finding of the Tribunal that when the assessee has claimed some amount though that is debatable, in such cases, it cannot be said that the assessee has concealed any income or furnished inaccurate particulars for evasion of the tax. Recently, Hon’ble Apex Court in Reliance Petro Products(supra) held that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Thus, merely because the assessee had claimed the expenditure in relation to exempt income, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, attract the penalty u/s 271(1)(c) of the Act. In the present case, we are of the opinion that the disallowance of claim for deductions of excess depreciation and interest on amount borrowed for building which was incomplete, cannot be considered as concealment of income or furnishing inaccurate particulars thereof, especially when all the relevant particulars were disclosed before the AO. The following observations made by the Hon’ble Apex Court in the aforesaid case of M/s Reliance Petro Products(supra) are relevant:

“10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an aggregated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had  urnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of very Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.

11. In this behalf the observations of this Court made in Sree Krishna Electrical v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed:

“So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant’s account books. Where certain items which are not included in the turnover are disclosed in the dealer’s own account books and the assessing authorities include these items in the dealer’s turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside.”

The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return. “

17. In view of the foregoing, we are of the opinion that mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especially when there is nothing on record to show that the explanation offered by the assessee was not bona fide or any material particulars were concealed or furnished inaccurate . In these circumstances, we have no hesitation in observing that no penalty is exigible in relation to claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete. Therefore, we hold that penalty is not imposable in this case and action of authorities below in imposing/confirming the penalty u/s 271(1)(c) of the Act is neither proper nor justified. As such, while accepting the plea of the assessee, we direct to delete the impugned penalty imposed/confirmed.

18. In view of discussion as held above and in the light of facts and circumstances of the case, we direct and hold accordingly.

19. As a result, the appeal of the assessee gets accepted.

Order pronounced in open court on 13/04/2012.

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Category : Income Tax (25484)
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Tags : ITAT Judgments (4598) section 271(1)(c) (314)

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