Advocate Vinod Jilwane

The assessment u/s 143(3) made disallowing to excess claim of depreciation. Penalty proceedings u/s 271(1)(c) has been initiated on disallowance of excess depreciation claimed. The assessee confronted this fact, He is agree to disallow excess depreciation. No penalty u/s 271(1)(c) is levied upon the assessee. The Department can not presume that the assessee has concealed the income or furnished inaccurate particulars income in the return of income.

Penalty proceeding is initiated on the ground of excessive claim of depreciation. When the assessee was disclosed everything in the return of income even by making a wrong/excess claim, penalty u/s 271(1)(c) can not be imposed . Penalty u/s 271(1)(c) is made only for concealment of income or furnishing inaccurate particulars.

In this regard, the decision of Hon’ble Supreme Court in the case of M/s Flexituff International Ltd (Supra) order dated 04.05.2010 may be referred to the Department. In which the Hon’ble Court has decided that imposition penalty u/s 271(1)(C), there must be definite finding that either there must be concealment of income or furnishing inaccurate particulars.

1. The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particular of income or conceal income.

What is a correct claim and what is an incorrect claim is a matter of opinion. Raising a claim, even if it is ultimately found to be legally unacceptable, cannot amount to furnishing of inaccurate particulars of income.

Mere making of the claim, which is not sustainable in law, by itself, will not amount to conceal or furnishing inaccurate particulars regarding income of the assessee.

This thought has now been confirmed by the Hon’ble Supreme Court in the case of CIT Vs Reliance Petro Product Pvt Ltd [2010] 322 ITR 158 (SC).

Under these circumstances, the addition accepted being bona fide, there is no concealment of income and as such no penalty u/s 271(1)(C) is leviable.

2. The disallowance of depreciation will not per se amount to furnishing inaccurate particulars for which reliance is placed in CIT Vs Ajaib Singh & Com (253 ITR 630) (P&H). Where no information, given in the return, is found to be incorrect or inaccurate, the assessee can not be held guilty of furnishing inaccurate particulars.

3. Hon’ble Apex Court in the case of Dilip N. Shroff Vs JCIT (291 ITR 519)(SC) and Union of India Vs Dharmendra Textiles Processors (306 ITR 277)(SC) clearly held that merely because assessee claimed expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract penalty u/s 271(1)(c).

4. In the decision of Hon’ble ITAT, Indore Bench-Indore in the case of M/s Kalani Industries Pvt Ltd Vs DCIT-1(1) Indore (ITA No. 29/Ind/2009) dated 21/04/2011. In which Hon’ble ITAT has described the word “Conceal” as under:

“ The expression “has concealed the particulars of income” and “has furnished inaccurate particulars of income” have not been defined either in sec. 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in details although they may lead to same effect, namely, keeping of a certain portion of income. The former is direct and the later may be indirect in its execution. The word “conceal” is derived from the Latin word “concolare” which implies to hide. In the present appeal, even if a excess depreciation has been claimed by the assessee on the basis of the Companies Act does not mean that the assessee had hidden something, therefore, even if a wrong claim is made, automatically, does not tantamount to furnishing inaccurate particulars. Concealment refers to a deliberate act on the part of the assessee. The primary burden of proof is on the Revenue, before a penalty is imposed u/s 271(1)(c) because by no stretch of imagination, making a incorrect claim, does not tantamount to furnishing inaccurate particulars, therefore, keeping in view the totality of facts and the judicial pronouncements, that too from the Hon’ble Apex Court, no penalty is leviable especially when there is no finding that any details supplied by the assessee in its return is erroneous or incorrect, therefore, mere making a excess claim in itself does not invite imposition of penalty u/s 271(1)(c) because the same cannot amount to furnishing inaccurate particulars. ”

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June 2021