Commissioner Of Income Tax vs Brahmaputra Consortium Ltd.
2011 Latest Caselaw 3688 Del

*                      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                  ITA 1582 OF 2010
%
                                          Judgment reserve on: 12.7.2011
                                        Judgment delivered on: 03.8.2011


COMMISSIONER OF INCOME TAX                                . . . APPELLANT

                                Through:   Mr. M.P. Sharma, Sr. Standing
                                           Counsel.

                                      VERSUS

BRAHMAPUTRA CONSORTIUM LTD.                              . . .RESPONDENT

                                Through:   Mr Satyen Sethi Advocate with
                                           Mr. A.T. Panda, Advocate.

CORAM:-

           HON'BLE MR. JUSTICE A.K. SIKRI
           HON'BLE MR. JUSTICE M.L. MEHTA

           1.          Whether Reporters of Local newspapers may be
                       allowed to see the Judgment?
           2.          To be referred to the Reporter or not?
           3.          Whether the Judgment should be reported in the
                       Digest?


A.K. SIKRI, J.

1. The penalty imposed by the Assessing Officer under Section

271 (1) (c) of the Income-Tax Act (hereinafter referred to as 'the

Act') and confirmed by the CIT (A) has been deleted by the

Tribunal vide impugned orders dated 13th August, 2009.

Aggrieved by this order of the Tribunal, the present appeal is

preferred by the Revenue.

2. We may first give the narration of the facts which have led

to the imposition of penalty on the assessee. The case pertains to

the assessment year 2001-02 for which year the

respondent/assessee had filed its return declaring loss at

`93,74,724/-. During the assessment proceedings, the Assessing

Officer noticed that the assessee had claimed the following

deduction/expenditure:-

(i) the fee of ` 1.59 lacs paid to the Registrar of Companies (ROC) for increasing authorized capital as revenue expenditure, treating the same as revenue expenditure, the Assessing Officer disallowed the same following the judgment of Supreme Court in 225 ITR 792.

(ii) The assessee had shown addition of ` 28,53,130/- in building. However, supporting vouchers/evidence could not be produced. Accordingly the Assessing Officer estimated addition at `20,00,000/- and allowed depreciation at 5% on this amount. In the process, claim of `42,656/- was disallowed as excessive.

(iii) The assessee had claimed depreciation @ 40%on earth moving equipment which consisted of excavators and tippers. As per the rules, only tippers were eligible for higher rate of depreciation at 40% and not excavators.

When the assessee was confronted with this, it revised its claim, claiming 25% of depreciation instead of 40%. This

resulted in disallowance of excess depreciation in the sum of ` 65,89,097/-.

3. All the aforesaid disallowances were accepted by the

assessee. At the same time, while passing the assessment order,

the Assessing Officer, also initiated penalty proceedings. Show

cause notice was given in this behalf which was replied to by the

assessee. Finding the reply as unsatisfactory, the Assessing

Officer imposed penalty of ` 26,29,147/- under section 271 (1)(c)

of the Act holding that the assessee had made wrong claim of

excess depreciation on plant and machinery as well as on building

and also on the wrong claim of deduction of fee paid to ROC for

increase of authorized share capital as revenue expenditure. While

doing so, the Assessing Officer rejected the contention of the

assessee that the assessee had, by mistake claimed depreciation

of 40% on tippers and excavators and since it had itself revised

the computation, it was a bona fide error. The Assessing Officer

took the view that the assessee revised its computation only when

the wrong claim of depreciation was discovered by the AO, that

too, when it could be discovered after proper enquiry and scrutiny

of the details. The Assessing Officer further recorded in his order

that only when the assessee was confronted with the facts and

specifics queries were raised vide orders dated 31st March, 2004

that the assessee accepted the position and revised the claim and,

therefore it was clearly a case of furnishing of inaccurate

particulars for the claim of excessive depreciation.

4. The Assessing Officer also held the view that in so far as

addition to the building is concerned, claim was made without

supporting evidence and, therefore, the Assessing Officer had to

allow the depreciation on estimated cost only. The excessive

depreciation on that account also was thus treated as a false

claim.

5. Insofar as claim for deduction of fee paid to ROC is

concerned, as per the Assessing Officer this fee was paid for

increase of authorized share capital which could not be treated as

revenue expenditure in view of the categorical judgment of the

Apex Court in PSIDC Ltd. Vs. Commissioner of Income Tax,

225 ITR 792 and, therefore, the claim was palpably false.

6. The CIT (A) concurred with the aforesaid approach of the

Assessing Officer holding that in view of Explanation-I to Section

271 (1) (c) of the Act disallowances of above claims deem to be

the income in respect of which particulars had been concealed by

the assessee within the meaning of Section 271(1)(c) of the Act

and consequently the assessee was liable for penalty. According

to the CIT (A) it also amounted to furnishing of inaccurate

particulars of income.

7. The aforesaid approach of the Assessing Officer and CIT (A)

has not found favour with the Tribunal. According to it, insofar as

disallowance of part depreciation on building is concerned, it was

merely on account of estimated cost of building which did not call

for any penalty. In respect of penalty on the wrong claim qua

payment of fee to the ROC, the penalty has been deleted on the

ground that explanation given by the assessee could not be called

mala fide and no particulars were concealed in this behalf. The

Tribunal accepted the explanation of the assessee that it was

claimed as revenue expenditure by placing reliance on several

judicial pronouncements, and therefore, the claim was not mala

fide.

8. Likewise, regarding the claim for depreciation, according to

the Tribunal, it was a case of bona fide mistake as the assessee

had claimed depreciation treating the earth moving equipment to

be one block assets consisting of tippers and excavators and

claiming depreciation @ 40% on the entire block of earth moving

equipment. When the assessee found, during the course of

assessment proceedings, that it was infact entitled to depreciation

@ 25% on excavators, the assessee accepted the said mistake

immediately and revised the claim of depreciation by reducing it.

The explanation was accepted as genuine and bona fide resulting

into deleting of penalty on this count as well.

9. We may state at the outset that entire thrust of argument of

the counsel for the appellant was to justify the penalty imposed on

wrong claim of depreciation at higher rate on excavators. It was

argued that the Schedule clearly provides that on excavators the

depreciation allowable is at 25% and it is tippers on which

depreciation is to be allowed is 40% by mixing the acquisition cost

of tippers with excavators, the assessee had claimed depreciation

at 40% on both excavators and tippers which was contrary to the

specific provisions and thus Explanation-I to Section 271 (1)(c)

clearly attracted as it would amount to giving inaccurate and false

particulars and concealing material particulars for higher claim.

10. There cannot be dispute about the aforesaid provisions

allowing depreciation @ 25% on excavators. However, the

circumstances under which the claim was made at 40%, shows

that it was a genuine and bona fide which was directed by the

assessee. In this year, the assessee had acquired new excavators

and tippers for a total sum of `1,78,75,260/- and `6,36,88,865/-

respectively. All block of assets were termed as 'earth moving

equipments' and taken in the profit and loss account under the

aforesaid head. The cost on tippers was much higher on which

depreciation was rightly claimed at 40%. However, since the

entire block consisting of excavators and tippers was taken under

the head 'earth moving equipment', the explanation given by the

assessee was that inadvertently, in respect of excavators are the

depreciation was claimed at 40% instead of 25%. This explanation

has been accepted as genuine and bona fide by the Tribunal which

is the final fact finding authority. In CIT Vs. Escorts Finance

Ltd. (2010) 328 ITR 44 this Court has held that deletion of penalty

on the ground of inadvertent error is a finding of fact. Infact, the

Assessing Officer did not even contradict the plea of the assessee

that excess claim of depreciation was not an inadvertent error.

11. That apart, other element present in this case gives a strong

indication that the error was genuine and bona fide. Return for

the assessment year in question was filed declaring loss of `

93,74,724. Assessment was also completed at loss of `

23,33,321/-. Therefore, excess claim of depreciation was not

advantageous to the assessee. Had depreciation been claimed @

25%, it would have resulted in higher depreciation in the

succeeding years which would, , have consequently reduced the

total income of succeeding years. It indicates that excess claim of

depreciation was not a device, rather it was an inadvertent error.

12. Thus by making claim of depreciation at higher rate in this

year, where the income tax return was at loss, the assessee did

not gain any mileage. On the contrary, it was better for him to

claim depreciation @ 25% in this year resulting into higher written

down value in the next year for claim of depreciation of a higher

amount on higher written down value thereby reducing the tax

liability.

13. The Assessing Officer was not correct in holding that

submitting inaccurate claim would amount to giving inaccurate

particulars. Such a contention of the Department is specifically

rejected by the Supreme Court in a recent judgment in the case of

CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158.

14. We are, thus, of the opinion that no substantial question of

law arises in this appeal which is accordingly dismissed.

(A.K. SIKRI) JUDGE

(M.L. MEHTA) JUDGE AUGUST 3,2011 skb