Penalty cannot be imposed for mere disallowance of Additional Depreciation

Bhavani Gems Vs. ACIT (ITAT Mumbai)

We have heard the rival contentions and perused relevant material on record including cited orders of Tribunal in assessee’s case for different years. Upon perusal of the same, we find strength in the argument of Ld. AR since the assessee’s claim for additional depreciation has been allowed in subsequent orders of the Tribunal for preceding as well as succeeding years. Even otherwise, we find that the provisions of Section 271(1)(c) are not attracted since there was no furnishing of inaccurate particulars of income or concealment of income by the assessee. Rather the assessee made a claim with full disclosure which is not accepted by the revenue. These facts do not justify imposition of  penalty in view of the judgment of Hon’ble Apex Court rendered in CIT Vs. Reliance Petroproducts Pvt. Ltd. [322 ITR 158]. Therefore, finding assessee’s explanation a plausible one, we are inclined to delete the impugned penalty.

Full Text of the ITAT Order is as follows:-

1. The captioned appeal by assessee for Assessment Year [AY] 2008-09 assails the order of the Ld. Commissioner of Income-Tax (Appeals)-30 [CIT(A)], Mumbai, Appeal No. CIT(A)- 30/ACIT.19(1)/294/14-15 dated 31/07/2015 qua confirmation of penalty u/s 271(1 )(c) for Rs. 35 Lacs. The assessment for impugned AY was framed u/s 143(3) by Ld. Deputy Commissioner of Income Tax-16(3) on 23/12/2010 whereas penalty was levied by Ld. Assistant Commissioner of Income Tax-16(3) vide penalty order dated 26/06/2014. The effective grounds of appeal raised by assessee reads as follows:-

1. In law & in the facts and in the circumstances of the appellant’s case, the Hon’ble CIT(A) erred in confirming the penalty u/s 271(1)(c) of Rs. 35,00,000/- levied on account of dis allowance of claim of additional depreciation of the appellant firm misinterpreting the provisions of section 271(1)(c) and hence the same is unjustified/unwarranted/illegal and deserves to be cancelled

2. In law & in the facts and in the circumstances of the appellant’s case, the Hon’ble CIT(A) failed to appreciate that, mere addition to total income will not attract penal provision and there must be either “concealment” or “furnishing inaccurate particulars of income” by the appellant for levy of penalty. Hence, the order levying penalty must be annulled.

3. In law and in the facts and circumstances of the appellant’s case the Hon’ble CIT(A), misinterpreted the law laid down by Hon’ble Apex Court of in case CIT Vs Reliance Petro products Ltd. (2010) 230 CTR320(SC) and had further disregarded various other judicial pronouncement relied upon by the appellant. The order passed confirming penalty u/s 271(1)(c), overlooking the judicial decisions is unjust/unwarranted and must be deleted.

2.1 Facts leading to the same are that the assessee being resident firm engaged as manufacturer and exporter of cut & polished diamonds was assessed for impugned AY u/s 143(3). The assessee claimed additional depreciation @20% amounting to Rs. 116.17 Lacs over and above normal depreciation of 15% on certain plant & machinery. However, Ld. AO, relying on the decision of Hon’ble Apex Court in CIT Vs. Gem Indian Manufacturing Co. [249 ITR 347] concluded that the activities carried out by assessee did not constitute manufacturing activity and hence the assessee was not entitled to claim additional depreciation. The stand of Ld. AO was confirmed by Ld. CIT(A) as well as this Tribunal.

2.2 Consequently, penalty proceedings were initiated during quantum assessment proceedings and finally the assessee has been saddled with penalty of Rs. 35 Lacs u/s 271 (1)(c) for furnishing of inaccurate particulars of income vide penalty order dated 26/06/2014. The same, upon confirmation by Ld. CIT(A), has been contested before us.

3. The Ld. Counsel for Assessee [AR] drew our attention to the fact that the nature of quantum addition does not justify imposition of penalty since there was no furnishing of inaccurate particulars of income or concealment of income. In fact, the assessee made a claim with full disclosure, which was not accepted by the lower authorities. Nevertheless, the claim was genuine which is substantiated by the fact that subsequently the Tribunal in assessee’s own case for AYs 2006-07, 2007-08, 2010-11 & 2011-12 upheld the stand of assessee and concluded that the assessee’s activities amounted to manufacturing and hence, the assessee was entitled for additional depreciation. The orders of the Tribunal for these years have been placed on record. Per contra, DR while placing reliance on the stand of lower authorities conceded the factual position and could not bring on record any contrary material.

4. We have heard the rival contentions and perused relevant material on record including cited orders of Tribunal in assessee’s case for different years. Upon perusal of the same, we find strength in the argument of Ld. AR since the assessee’s claim for additional depreciation has been allowed in subsequent orders of the Tribunal for preceding as well as succeeding years. Even otherwise, we find that the provisions of Section 271(1)(c) are not attracted since there was no furnishing of inaccurate particulars of income or concealment of income by the assessee. Rather the assessee made a claim with full disclosure which is not accepted by the revenue. These facts do not justify imposition of penalty in view of the judgment of Hon’ble Apex Court rendered in CIT Vs. Reliance Petroproducts Pvt. Ltd. [322 ITR 158]. Therefore, finding assessee’s explanation a plausible one, we are inclined to delete the impugned penalty.

5. Resultantly, the assessee’s appeal stands allowed.

Order pronounced in the open court on 01^st November, 2017.