Income Tax Appellate Tribunal - Delhi
Lord Shiva Construction Co. Pvt. Ltd., ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES 'D': NEW DELHI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER
AND
SHRI K.G. BANSAL, ACCOUNTANT MEMBER
ITA No. 1302/Del/2010
Assessment Year: 2004-05
Income Tax Officer, Vs. Lord Shiva Construction Co. P. Ltd.,
Ward 4(4), 66, Block, H-34, Sector-3.
New Delhi. Rohini, New Delhi.
AAACL2040G
(Appellant) (Respondent)
Appellant by : Shri A.K. Monga, DR
Respondent by : Shri R.S. Singhvi, CA
ORDER
PER I.P. BANSAL, J.M.
This appeal is filed by the revenue. It is directed against the order of CIT(A) dated 4.1.10 for A.Y. 2004-05. Grounds of appeal read as under: -
1. "The order of the ld. CIT(A) is erroneous and contrary to facts and law.
2. On the facts and in the circumstances of the case and in law, the ld.
CIT(A) has erred in deleting the penalty of Rs. 2,11,576/- levied by the AO u/s 271(1)(c) of the I.T. Act.
2.1The CIT(A) ignored the facts that the assessee has furnished inaccurate particulars of his income by claiming depreciation on machinery @ 40% as against 25% allowed by law.
3. The appellant craves leave to add, to alter, or amend any grounds of appeal raised above at the time of the hearing."
ITA No. 1302/D/10 2
2. The assessee is a civil contractor. It filed its return of income at Rs. 8,11,130/- on 30th October, 2004. Assessee claimed depreciation @ 40% on following assets: -
a) Dumper Rs. 7,86,802/-
b) JCB Rs. 3,19384/-
c) Road Roller Rs. 2,81,616/-
d) Tar Boiler Rs. 72,384/-
e) Trolley Rs. 1,12,500/-
Rs. 15,72,686/-
3. According to AO, 40% depreciation was not allowable on these assets as according to Income Tax Rules the rate of depreciation @ 40% was allowable only in respect of heavy machinery which is either used for hire purposes or heavy vehicles which are plied on hire for transportation of goods. The above machines were used by the assessee in its business activity and hence was to be categorized as "plant and machinery" for which depreciation rate of 25% is eligible. Accordingly, he reduced the claim of depreciation of the assessee from Rs. 25,70,286/- to Rs. 19,80,528/- by making disallowance of Rs. 5,89,758/-. Penalty proceedings u/s 271(1)(c) were also initiated. In response to show-cause notice issued against levy of penalty the assessee has filed a reply dated 23.3.09. The AO based on the opinion that it was clear from the rules that the depreciation @ 40% could be allowed only on vehicles plied on hire and as the said machinery was used for the purpose of own business of the assessee, has held that ITA No. 1302/D/10 3 depreciation @ 40% was not eligible. Such claim of higher depreciation is tantamount to furnishing inaccurate particulars of income on which penalty is leviable and thus, he has imposed minimum penalty leviable which has been calculated at 100% of the tax sought to be evaded amounting to Rs. 2,11,576/-. The levy of penalty was contested by the assessee before CIT(A).
4. Ld. CIT(A) after considering the submissions and after taking into account the factual aspect has observed that penalty proceedings are different from those in quantum proceedings. Levy of penalty is not automatic and it is not enough for levying the penalty that the amount has been assessed as income and circumstances must show that there was conscious concealment or act of furnishing inaccurate particulars on the part of the assessee. From the appellant's conduct and explanation offered, it appears that there was no conscious or intentional act of the assessee to conceal or furnish inaccurate particulars of income. The assessee did not furnish inaccurate particulars of its income. There was only difference of opinion on the relevant issue. Reference was made to various judicial pronouncements and it has been concluded that assessee had disclosed all material facts and had raised a legal claim which, even if, ultimately found to be legally unacceptable, cannot amount to furnishing of inaccurate particulars of income and in this manner penalty of Rs. 2,11,576/- has been deleted. The department is aggrieved, hence in appeal.
ITA No. 1302/D/10 4
5. After narrating the facts and relying upon the penalty order, it was pleaded by ld. DR that by claiming excess depreciation, the assessee has submitted inaccurate particulars of its income, hence, AO was right in levying the penalty and ld. CIT(A) has wrongly deleted the same. Ld. DR placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Zoo Communication Pvt. Ltd. 327 ITR 510 (Del.) to contend that penalty was rightly levied and it should be confirmed. He pleaded that order of CIT(A) in this regard should be set aside and that of AO be restored.
6. On the other hand, it was submitted by ld. AR that all the machinery upon which the assessee has claimed depreciation @ 40% is heavy machinery based upon bonafide belief that such heavy machinery is entitled for higher depreciation, the assessee had claimed depreciation @ 40%. He submitted that before AO, it was submitted that since WDV is accordingly reduced, the higher claim of depreciation does not result into any benefit to the assessee as in the later years less depreciation was accordingly claimed by the assessee. He submitted that it was only due to bonafide view taken by the assessee the claim was made. He submitted that ld. CIT(A) has rightly deleted the penalty. Ld. AR also placed reliance upon the decision of Hon'ble SC in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. 230 CTR 320 and thus, he pleaded that the order of CIT(A) should be upheld.
ITA No. 1302/D/10 5
7. We have carefully considered the rival submissions in the light of material placed before us. The list of heavy vehicles on which depreciation @ 40% has been claimed has already been reproduced in the above part of this order. It is in the nature of Dumper, JCB, Road Roller, Tar Boiler and Trolley etc. From the nature of the assets stated therein, it can be seen that it is heavy machinery and it is not general machinery. Strictly speaking, the claim of the assessee may not be in accordance with law, but there could be a bonafide belief to the assessee according to which it may be entitled for higher rate of depreciation on these objects and it is a natural phenomena that these types of assets depreciate fastly. It is not the case of the revenue that assessee has not furnished the correct facts. It also appears that it is not even the case of the AO that assessee with a view to show lesser income has claimed such depreciation as it can be seen from the following observations of the AO while making the addition: -
"1. Depreciation:
In the statement of computation of Income filed, the assessee company claimed depreciation as peer the Income tax Rules at Rs. 25,70,286/-. On perusal of the chart filed in this regard, it is noticed that the assessee claimed depreciation @ 40% as mentioned against each of the following fixed assets:
a) Dumper Rs. 7,86,802/-
b) JCB Rs. 3,19,384/-
c) Road Roller Rs. 2,81,616/-
ITA No. 1302/D/10 6
d)Tar Boiler Rs. 72,384/-
e) Trolley Rs. 1,12,500/-
Rs.15,72,686/-
During the course of assessment proceedings, the assessee was specifically asked to show-cause vide letter dated 9.1.06, as to why its claim of depreciation should not be restricted to 25% i.e. the correct rate of depreciation allowable as per the Income tax Rules as provided under the head "Plant & Machinery" as against its excessive claim of Depreciation @40%. It has been explained by the assessee vide letter dated 20.1.06, that the machinery as mentioned above is a heavy machinery used in the construction business and as per the Income Tax Rules, Depreciation is allowable @ 40% and the same has rightly been claimed.
The submissions of the assessee are not accepted. As per the Income Tax Rules, the rate of depreciation @ 40% is allowable only in respect of Heavy Machinery which is either used for hire purposes or heavy vehicle which are plied on hire for transportation of goods. The assessee company is engaged in the business of construction and any heavy machinery used by it is for the carrying on of its business activities is categorized under the head "Plant & Machinery" for the assessee company on which Depreciation @ 25% is only allowable. The word "Plant & Machinery" has been elaborately discussed in Sampath Iyengar's Law of Income tax wherein it has been mentioned that the Machinery & Plant which is used by an assessee for the carrying on of its business activities is covered under the head ITA No. 1302/D/10 7 "Plant & Machinery" and as such depreciation on the such assets is allowable @25% as per the Income tax Rules. In view of these facts, the excessive claim of depreciation made by the assessee on the above items is disallowed and only depreciation @25% as is allowable in respect of "Plant & Machinery" is allowed to the assessee company. A disallowance of Rs. 5,89,758/- is, therefore, made out of assessee's claim of depreciation. Penalty proceedings u/s 271(1)(c) of the I.T. Act are being initiated separately for excessive claim of depreciation."
8. It can be seen from above observations that AO had initiated the penalty proceeding on account of excessive claim of depreciation. The argument of the assessee that it was a bonafide claim has not been assailed by brining any material on record to suggest that such claim of the assessee was incorrect or fraudulent. In our view, the case of the assessee is supported by the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (supra), wherein it has been held that merely because the assessee claimed deduction of interest expenditure which has not been accepted by the revenue, penalty u/s 271(1)(c) is not attracted; merely making of the claim, which is not sustainable in law, by itself, will not amount to furnish inaccurate particulars regarding the income of the assessee. The decision of Delhi High Courts in the case of CIT Vs. Zoom Communication Ltd. (supra) will not applicable on the facts of the present case as in the said case assessee had claimed return of equipments worth Rs. 13,24,539/- and ITA No. 1302/D/10 8 had also claimed another sum of Rs. 1 lakh being Income tax paid and it was claimed by the assessee that due to over sight those amounts were not added back in the computation of income. It was observed by Hon'ble High Court that in the cases, where claims are made which are wholly unsustainable in law and has absolutely no foundation on which it can be made, it cannot be claimed by the assessee that it is not liable for imposition of penalty even if he was acting bonafide while claiming a claim of such nature. The facts of that case are totally different from the present case as assessee's claim in the present case cannot be said to be a claim which is wholly unsustainable in law and has absolutely no foundation for making it. In view of above discussion, we find no infirmity in the order of CIT(A) vide which impugned penalty has been deleted. We decline to interfere.
9. In the result, departmental appeal is dismissed.
Order pronounced in the Open Court on 28.1.11 Sd/- Sd/-
(K.G. BANSAL) (I.P. BANSAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
*Kavita
Dated:
ITA No. 1302/D/10 9
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
TRUE COPY
By Order
DEPUTY REGISTRAR
ITAT