Whether when there is neither concealment nor furnishing of inaccurate particulars, even then mere erroneous claim would attract penal provisions u/s 271(1)(c) - NO: ITAT

 THE issue before the Tribunal is - Whether when there is neither concealment nor furnishing of inaccurate particulars, even then mere erroneous claim would attract penal provisions u/s 271(1)(c). And the question is answered in favour of assessee.

Facts of the case

The assessee is a Multi Specialty Hospital and Nursing Institute which had claimed depreciation @ 4O% on the block of assets of life saving equipment which included on addition of Rs.55 lakhs. The AO noted that as per the depreciation table relevant to the assessment year 2005-06 provided in the appendix of Income Tax Rules 1962, among the list of life savings medical equipment eligible for depreciation @ 40%, the name of CT Scan Machine is not mentioned. Hence, the AO held that CT Scanner machine purchased during the year is not eligible for depreciation @ 40% under the block of life saving medical equipment. The assessee did not offer any explanation in this regard and submitted that depreciation @ 40% was claimed under the bonafide belief that it is covered under 'lifesaving medical equipment' just like Magnetic Resonance Imagine System (“MRI”) on which it has been claiming depreciation @ 40% since A.Y. 2003-04. The A.O., however, noted that the assessee reduced the amount of Rs.5 lakh on account of sale of old CT scan machine from the WDV of the block of assets under the head 'plant & machinery' eligible for depreciation @ 40% and not from the WDV of block of assets under the head 'life saving medical equipment' eligible for depreciation @ 40%. The A.O. further stated that the assessee could not establish that the CT scan machine purchased was put to use for the purpose of business during the year itself and hence held that the same is not eligible for depreciation in the year under consideration and disallowed CT scan machine of Rs.55 lakh by the assessee. Further, the assessee claimed payment of interest of Rs.5,93,815/-on building loan taken for construction of building which was not used for the purposes of business and profession during the year under consideration. The same was, therefore disallowed as expenditure by the A.O. The A.O. also initiated penalty proceedings u/s 271(1)(c) of the Act w.r.t. disallowance of

depreciation and of interest.

CIT(A) confirmed the action of the A.O. that depreciation on the CT scan machine would be allowed at normal rates i.e. 25% as against claimed by the appellant at 40% but partly allowed the claim of the appellant and held that depreciation on this machine would be allowed for six months being the same was used for two days during the previous year. The CIT(A) also confirmed the action of the AO regarding disallowance of interest on building loan taken for construction of building.

The A.O. on receipt of the order of the CIT(A), took up the penalty proceedings u/s 271(1)(c) of the Act, initiated vide the assessment order. During the penalty proceedings, the appellant submitted that the wrong and excess charging of depreciation was unintentional and there was no malafide motive on their part, regarding the claim of interest on the building loan, the appellant submitted that the building was constructed by a contractor and advances were given to 'him from time to time which were shown as 'advances to contractor' in the balance sheet as the contractor did not submit the bills before finalization of the balance-sheet. The assessee further claimed that the building was put to use during the year. It is further submitted that no depreciation was claimed since the cost of construction of the building was not transferred to the 'building account' during the year under consideration. The appellant also submitted that penalty u/s 271(1)(c) is not leviable since it has offered an explanation and has substantiated it and proved that its explanation was bonafide and all the facts relating to the same and material to the computation of the total income have been disclosed by it.

The submissions of the assessee were considered by the A.O. but was not found tenable and held the assessee liable for penalty u/s 271(1)(c) of the Act for concealment of income and for furnishing inaccurate particulars of its income.

The assessee took up the matter in appeal and during the appeal proceedings submitted that both MRI and CT Scanner are Diagnostic Tools to Non-Invasively (non-surgically) look inside the body. Both have same functions but are used for and for different purposes. The Depreciation Chart as per Income Tax Act and Note on CT Scan & MRI functions being purely Medico-technical terms and considering the same functions, assessee treated the CT Scanner as Life Savings Medical, Equipment like MRI and charged depreciation rate @ 40% whereas AO has gone by exact phraseology in Depreciation Chart. Merely the AO has not accepted the contention of the assessee that depreciation @ 40% has to, be charged on CT Scan instead of 25% as provided by Assessing Officer does not attract penalty u/s 271(1)(c).

The assessee has claimed Interest on Loan taken for construction of building as it was put to use during the year. However, the AO denied Interest under consideration on the ground that there was no use of building during the year. The assessee appealed before this Tribunal wherein it reiterated the same submissions as placed before the lower authorities.

Having heard both the parties the Tribunal held that:

++ the decisions relied upon on behalf of the assessee as well as by the department, as regards penalty levied in respect of amount of excess depreciation and interest on amount borrowed for building which was incomplete and find that not even a whisper has been made in the penalty order as to which specific particulars were furnished inaccurate or were concealed. The expression 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271 or elsewhere in the Act. However, not withstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return;

++ the penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is settled position that assessment proceedings and penalty proceedings are separate and distinct and as held by the Supreme Court in the case of Ananthraman Veerasinghaiah & Co. Vs. CIT, the findings in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is also well settled that the criterion and yardsticks for the purpose of imposing penalty u/s 271(1) (c) of the Act are different than those applied for making or confirming the additions. It is, therefore, necessary to re-appreciate and reconsider the matter so as to find out as to whether the addition or disallowance made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in sec. 271(1)(c) of the Act, and whether it is a fit case to impose the penalty by invoking the said provisions. The provisions of section 271(1)(c) of the Act stipulate that if the Assessing Officer or the CIT(Appeals) or the Commissioner, in the course of proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars thereof, he may direct that such person shall pay by way of penalty a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by a reason of the concealment of particulars of his income. The necessary ingredients for attracting Explanation 1 to section 271(1) (c) are that (i) the person fails to offer the explanation, or (ii) he offers the explanation which is found by the AO or the CIT (Appeals) or the Commissioner to be false, or (iii) the person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him;

++ if the case of any assessee falls in any of these three categories, then the deeming provision provided in Explanation 1 to section 271(1) (c) come into play, and the amount added or disallowed in computing the total income shall be considered as the income in respect of which particulars have been concealed, for the purposes of clause (c) of section 271(1), and the penalty follows. On the other hand, if the assessee is able to offer an explanation, which is not found by the authorities to be false, and assessee has been able to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him, the assessee shall be out of the clutches of explanation 1 to section 271(1) (c) of the Act, and in that case, the penalty shall not be imposed. In the instant case, the assessee discharged the onus cast on it in terms of explanation 1 to section 271(1)(c) of the Act;

++ in the light of aforesaid observations of the Apex Court, what is to be seen in the instant case, is whether the claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete, made by the assessee was bona-fide and whether at all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty u/s 271(1)(c) of the Act. The AO has not been able to establish that the claim of the assessee for deduction of excess depreciation and interest on amount borrowed for building which was incomplete was not bona fide or that any specific particulars were concealed or furnished inaccurate. A mere rejection of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars thereof by the assessee. The Tribunal relied on the Supreme Court judgement in CIT v. Reliance Petroproducts (P.) Ltd. where it was concluded that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars;

++ in the case under consideration, the assessee had given all the particulars of income and had disclosed all facts to the AO in relation to claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete. Mere disallowance of a claim will not amount to filing of inaccurate particulars of income. It can at best be a “wrong claim” not “a false claim”. Therefore, mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especially when there is nothing on record to show that the explanation offered by the assessee was not bona fide or any material particulars were concealed or furnished inaccurate. In these circumstances, we have no hesitation in observing that no penalty is exigible in relation to claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete. Therefore, we hold that penalty is not imposable in this case and action of authorities below in imposing/confirming the penalty u/s 271(1)(c) of the Act is neither proper nor justified.