No Penalty us 271(1)(c) for claiming excess depreciation in regular course with firm belief that it is legally allowable and supported by tax audit report-ITAT
ABCAUS Case Law Citation:
ABCAUS 1100 (2017) (01) ITAT
Assessment Year : 2007-08
Important Case Laws relied upon:
CIT vs. Suhrid Geigy Ltd.
Price Waterhouse Coopers Pvt. Ltd. vs. CIT (SC)
Question for determination:
whether penalty u/s 271(1)(c) of the Act can be imposed when in the given circumstances there is no case of furnishing inaccurate particulars of income rather there is only a dispute about the claim of assessee which was made with some justification but was not accepted by the Revenue authorities?
Brief Facts of the Case:
The assessee was a limited company The income tax return was selected for scrutiny assessment. During the course of assessment proceedings it was noticed that the assessee had purchased a show room building on 5.3.2007 for a sum of Rs.1,51,18,160/-. Assessee started construction of “Bath Studio” in this showroom which was completed and put to use on 31.05.2007 (i.e. in AY 2008-09) . However, for AY 2007-08 assessee had claimed depreciation of Rs.7,80,826/- on the cost of show room building of Rs.1,51,18,160/-. AO observed that the building was actually put to use on 31.05.2007 i.e. after the completion of work of “Bath Studio”. As the asset was not put to use before 31st March, 2007 ld. Assessing Officer disallowed depreciation of Rs.7,80,826. In quantum appeal relating to this issue assessee lost both before CIT(A) as well as the Tribunal.
Subsequently penalty proceedings were initiated u/s 271(1)(c) and penalty was imposed for furnishing of inaccurate particulars of income by making wrong claim of depreciation . CIT(A) also confirmed the penalty u/s 271(1)(c).
Contentions of the Assessee:
It was submitted that the building was acquired on 5.3.2007 and work relating to ‘Bath Studio’ was started. The basis of claiming depreciation of Rs.7,80,826/- was that the showroom building is a separate asset in itself and is capable to be put to use and further as per the provisions of section 32 of the Income Tax Act, 1961 depreciation is to be allowed on assets which are owned and used for the purpose of business and as the building was purchased and its use was started by way of starting construction of ‘Bath Studio’, depreciation was claimed on the cost of the building. This claim for depreciation was duly supported by the tax audit report of the Chartered Accountant and it was a valid and bona fide claim.
It was further submitted that there was no concealment of income or furnishing of inaccurate particulars of income because all the necessary information were very well available on record and it was merely because that assessee claimed it knowingly that it is valid claim whereas the assessing authority denied it.
Observations made by the Tribunal:
It was observed that assessee had furnished all necessary particulars relating to its claim of depreciation and there was no mistake detected by the lower authorities with regard to the cost of the asset, depreciation amount, work in progress of “Bath Studio” and date of completion of Bath Studio.
It was also noticed that the assessee’s claim of depreciation is duly supported by the auditors report strengthening the claim of assessee that it was having some valid basis. It was only the other view taken by ld. Assessing Officer and confirmed by ld. CIT(A) and the Co-ordinate Bench that show room building was actually put to use after the completion of Bath Studio on 31.5.2007 and not on the date of purchase of show room building on 5.3.2007.
The Tribunal observed that the Hon’ble Supreme Court in the case of Price Waterhouse Coopers had held that it was possible that even the assessee could make a “silly” mistake and the calibre and expertise of the assessee has little or nothing to do with the inadvertent error.
The Tribunal observed that the assessee was a limited company which declared total income of Rs.11.43 crores (approx.) and having no mens rea of claiming excess depreciation of just Rs.7,80,826/- rather it was claimed in the regular course and with the firm belief that it is legally allowable which was further supported by the statutory audit report. It was only the Revenue’s contention that the depreciation cannot be allowed on the show room building as it could not be deemed to be put to use on 5.3.2007 as claimed by the assessee but was put to use on 31.5.2007 after the completion of Bath Studio.
In view of the above, the ITAT was of the view that in such circumstances it would be unjustified to impose penalty u/s 271(1)(c) as the assessee had only committed an undoubtful bona fide error and it certainly had no intention of concealing any income or furnishing inaccurate particulars of income.
Order of CIT(A) was set aside and assessee’s appeal was allowed.