Brief of the case
In the case of Income-tax Officer vs. M/s Besto Tradelink (P) Ltd ITAT has held that that quantum and penalty proceedings under the Act stand on a different footing and each and every disallowance/addition does not lead to automatic imposition of penalty as held by hon’ble apex court in Reliance Petroproducts Ltd. 322 ITR 158 (SC), Penalty cant not be levied once assessee made accurate particular of income. Further, Penalty cannot be levied on disallowances of interest amount and the one under section 40A(3) only on the basis of assessee’s accurate particulars already submitted on record in the course of scrutiny.
Facts of the case
1. The assessee had claimed depreciation relief on wind mills of Rs.2.40 crores. It would also claim deduction of interest payment amounting to Rs.60,892/- towards unsecured loans and freight payment in cash of Rs.8,63,903/-.
2. The Assessing Officer found that the assessee had not become owner of the windmills in question so as to claim depreciation relief. And that it had advanced interest bearing loans without charging any interest. He also found that its freight payments made in cash violated section 40A(3) of the Act. This made him to disallow all the three claims in assessment order dated 18.3.2004. He also initiated penalty proceedings against the assessee under section 271(1)(c) of the Act.
3. AO has levied penalty by holding that the assessee had not disclosed about the vital fact qua its windmills in claiming depreciation, it was fully aware that the impugned interest on unsecured loans was not allowable and that its freight payments (supra) invited section 40A(3) of the Act. He treated the assessee’s case as that of furnishing of inaccurate particulars of income and imposed minimum penalty of Rs.95,86,108/-.
4. In quantum appeal against all these three disallowances stands rejected upto the “tribunal”.
5. Aggrieved by the decision of AO to levied penalty u/s 271(1)(c) , assessee filed an appeal from CIT(A) who has given relief to assessee by holding that:
Assessing officer levied penalty on the additions confirmed in appeal as mentioned in the penalty order referred earlier. The major addition on which penalty was levied is claim of depreciation on windmill. The said windmill was not transferred in the name of the appellant and therefore ownership was not proved and accordingly it is held that since appellant is not the owner of windmill, depreciation cannot be claimed. However it is not in dispute that appellant purchased windmill by entering into a MOD and also made the payment of purchase consideration. The proceeds of electricity generated through this windmill were also offered as income by the appellant. All these documents along with the documents submitted by the appellant for transferring the windmill in its name were submitted. It is clear that except the transfer of windmill in the name of appellant, all other procedures and paperwork were completed. Appellant claimed depreciation on the windmill by treating itself beneficial owner of the windmill. Several decisions allowed claim of depreciation in case of beneficial ownership including apex court decision in the case of Mysore minerals Ltd. However requirement of transfer was there as per MOU in this case, the transfer could not get completed and next year it was reversed.
Since several judicial decisions supported the view of claim of depreciation in case of beneficial ownership, appellant’s claim is held to be bonafide. The disallowance of depreciation is confirmed only because the windmill could not be transferred in the name of appellant. This cannot make the claim false or inaccurate. When there are decisions to support appellant’s claim, such claim will not be liable for penalty of concealment of income.
As regards levy of penalty on disallowance under section 40A (3), appellant submitted that this ground was not pressed before ITAT in quantum appeal however the payment was genuinely made towards freight charges. The disallowance is estimated at the rate of 20% as per the provisions of section 40 A (3). Appellant claimed that the payment was covered under rule 6DD however the same was not pursued in appeal. Since this is estimated disallowance not in respect of bogus claim or disallowable claim, penalty for inaccurate particulars cannot be levied on such disallowance.
As regards disallowance of interest, appellant submitted that tribunal found that assessee has proved the nexus still disallowance was confirmed and therefore the ITAT’s order to this extent is contradictory. The similar interest disallowance in the assessment year 2002-03 was deleted by CIT (A) which was upheld by ITAT. Considering the facts and decisions, penalty cannot be levied for interest disallowance.
Aggrieved against the said decision, the assessee has filed an appeal before ITAT
Whether penalty u/s 271 (1)(c) can be levied even in case where assessee is claimed is bonafide and even when accurate particular of income was made.
Tribunal decision / observations
1. that the assessee has already placed on record sufficient evidence of payments of Rs.2.40 crores being made to the vender entity along with copy of the purchase deed. It also applied for State government’s approval. Even the Revenue is fair enough not to dispute these facts. The assessee acquired these windmills in March, 2000. It also declared power generation income of Rs.9,44,146/-. The assessee further obtained insurance cover for the said windmills. It raised depreciation claim @ 100% in the impugned assessment year only. The same stood declined for want of ownership transfer.
2. It is evident that the assessee chose to hand over the windmills back to the vender since the State government had not accorded approval of the ownership transfer. The Revenue sought to tax the very sum of Rs.2.40 crores received in the following assessment year as capital gains. The tribunal in the subsequent year held that once it has not become owner in the impugned assessment year, no capital gain had arisen to be taxed on account of handing over the windmills back to the owner. All these facts indicate that the assessee has not furnished any inaccurate particulars of income. There is nothing attributable on assessee’s conduct in not possessing fullfledged ownership
3. We find that the hon’ble apex court in case of Mysore Minerals Ltd. Vs. CIT (1999) 239 ITR 775 interprets the ownership concept for the purpose of depreciation as under :-
‘’An overall view of the above said authorities show that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment caused by wear and tear; and would need to replace the same by having lost its value fully over a period of time.
It is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the building for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32..”
4. We reiterate that quantum and penalty proceedings under the Act stand on a different footing and each and every dis-allowance/addition does not lead to automatic imposition of penalty as held by hon’ble apex court in Reliance Petroproducts Ltd. 322 ITR 158 (SC).
5. Therefore, we hold that the Assessing officer had wrongly held assessee’s case as that of furnishing of inaccurate particulars of income under section 271(1)(c) of the Act. We also find in the same tune that the Assessing Officer has computed the other disallowances of interest amount and the one under section 40A(3) only on the basis of assessee’s accurate particulars already submitted on record in the course of scrutiny. Therefore, the impugned penalty qua these issues has also been rightly deleted.