Deferral of depreciation allowance not concealment of income or furnishing of any inaccurate particulars for levy of penalty u/s 271(1)(c). Noted Lawyer Harish Salve gets relief from ITAT
ABCAUS Case Law Citation:
ABCAUS 2081 (2017) (09) ITAT
The Challenge/Grievance:
This appeal was filed by assessee against the Order passed by the CIT(A)confirming the levy of penalty u/s 271(1)(c)
The Ground raised:
- That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the action of the AO imposing the penalty of Rs. 4,04,635/- under section 271(1)(c) of the Act by alleging that the appellant furnished inaccurate particulars of income thereby resulting into concealment of income.
- That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming penalty under section
a) disallowance of depreciation on car and
b) inadvertently not adding back a sum of Rs. 1,69,948/- towards loss on fixed assets (which was duly disclosed in the Tax Audit Report) which is a sheer inadvertent error.
Assessment Year : 2010-11
Brief Facts of the Case:
The assessee was a leading senior advocate and derived income from Profession, income from Capital Gain and income from other sources. The assessee filed his return of income declaring at Rs. 34,74,20,950/- on 14.10.2010. He has also filed a revised return on 31.3.2012 declaring income at Rs. 34,94,15,822/- which was processed under section 143(1) of the Income Tax Act, 1961 (Act). The case of the assessee was selected for scrutiny. A notice u/s 143(2) of the Act was issued and served upon the assessee. The proceedings were duly attended and all necessary details information / documents alongwith the books of accounts and vouchers were produced.
During the course of the assessment proceedings it was noticed by the AO that the assessee had claimed depreciation on Bentley car for the full year whereas it was acquired only in Nov-2009 . Accordingly, the AO issued a show cause notice to the assessee.
The assessee vide his submission stated that though addition of the car was made in the month of May, 2009 by making advance payment of Rs. 22 lakhs and another advance payment was made in October, 2009 for Rs. 40 lacs. However, the balance payment of Rs. 90 lacs was made in November, 2009 when actual transfer documents were signed.
The assessee further stated that there was no documentary proof available with him to substantiate that the purchase of car was prior to 30 September and was thus eligibility for depreciation for the full year. The Tax Auditor, however, had certified claim of depreciation for full year.
Thus in view of the above the assessee, in order to avoid any unnecessary tax implications, voluntarily on his own motion revised the computation by disallowing 50% of the depreciation claimed on the addition of Bentley car and reduced my claim for refund of tax.
Subsequently, the Assessing Officer (AO) completed the assessment u/s 143(3) at an income of Rs. 35,10,91,350/- against the revised returned income of Rs. 34,94,15,822/- by making inter alia the disallowance of depreciation of Rs. 11,40,000/- on account of depreciation allowance for the first half added back on Bentley Car.
The AO initiated the penalty proceedings u/s 271(1)(c) of the Act and held that the assessee had concealed his income and had furnished inaccurate particulars by wrongly claimed depreciation on Bentley car and also claimed wrong expenses under the head loss on fixed assets in his return. Considering the above, the AO levied the penalty of Rs. 4,04,635/- u/s. 271(1)(c) of the Act. The assessee appealed before the CIT(A), who confirmed the penalty imposed by the AO.
Contention of the Appellant:
It was stated there was no documentary evidence which could support the fact that the assessee owned the car since May, 2009 as the registration of the car in his name was completed in November, 2009 for which only part payment was made in May, 2009. He further stated that assessee was personally driving the car and had never maintained any log books in respect of a car which is under his personal use and in order to avoid any suggestion the assessee had made a claim which was not justified and accordingly he advised his accountant not to pursue the matter any further and to withdraw the claim. But unfortunately this has been construed in the order as an admission that the claim itself was false
The assessee relied on a plethora of judgments wherin it was held that penalty under section 271(1)(c) of the Act could not be levied simply because the assessee had withdrawn the claim for depreciation.
Contentions of the Respondent Revenue.
It was submitted that assessee had made illegal and unjustified claim of expenses on account of depreciation on car and on account of loss on sale of fixed assets. The assessee understated his taxable income by claiming depreciation at Rs. 11,40,000/- and loss on sale of fixed assets at Rs. 1,69,498/-.
It was alleged that the assessee did not voluntarily surrender the claim of depreciation, it was only when a show cause was issued by the Assessing Officer as to basis of claim of depreciation for entire year. Before issuing show cause the assessee was sitting quietly. This shows that this was not mere a bona fide mistake or error.
It was further stated that the assessee was unable to prove that he had filed the true particulars of his income and expenses during the assessment proceedings.
It was submitted that though the car was purchased and delivered in November 2009, the assessee had wrongly claimed depreciation for the entire year. He had thus tried to make wrong claim in spite of the fact that these facts were very much in his knowledge. The seller of the car had categorically mentioned that the car has been delivered to the assessee on 23.11.2009.
Thus it was stated that it was a clear case of reducing the income tax liability and concealing the income. The fact was very much in the knowledge of the assessee and the claim of depreciation and loss on sale of assets is ex facie bogus which attracted penalty uls 271(1)(c).
Observations made by the Tribunal:
The ITAT noted that there was no documentary evidence which could support the fact that the assessee owned the car since May, 2009 as the registration of the car in his name was completed in November, 2009 for which part payment was made in May, 2009 after the full payment was made and on completion of custom requirements.
The ITAT observed that the assessee had voluntarily foregone the depreciation and offered tax on the same.
Considering the totality of facts and in view of the decisions relied by the assessee, the ITAT opined that the claim for depreciation only gets deferred to subsequent Years by claiming it for half year and thus the deferral of depreciation allowance does not result into any concealment of income or furnishing of furnishing of any inaccurate particulars.
Decision/Held:
It was held that the assessee’s conduct was not contumacious so as to warrant levy of penalty. Accordingly, the levy of penalty was set aside.
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