2015 (6) TMI 1116 - AT - Income Tax

Penalty u/s. 271(1)(c) - Deduction claimed u/s. 80I and 80IA on manufacturing and sale of Gutka Treating sales tax incentive as capital receipt - Held that - We are of the considered view that since the first two issues on which the penalty has been levied u/s. 271(1)(c) involves substantial question of law therefore no penalty is leviable thereon. The Hon ble jurisdictional High Court in the case of CIT Vs. M/s. Nayan Builders and Developers (2014 (7) TMI 1150 - BOMBAY HIGH COURT) has held that where the debatable and arguable issues are involved and substantial question of law is framed in quantum proceedings no case for levy of penalty is made out. Depreciation on structures incidental or ancillary structure to the windmill - Held that - No penalty was levied by the Assessing Officer on similar disallowance in the preceding assessment year therefore the penalty cannot be levied in succeeding assessment year for the same disallowanceLevy of penalty for disallowance of depreciation claim on structures ancillary to windmill is deleted. Rate of depreciation is concerned the assessee has admitted that the mistake in adopting rate at 100% was bonafide. We accept the explanation furnished by the assessee in erroneously applying higher rate of depreciation. It was in the impugned assessment year that rate of depreciation was reduced from 100% to 80%. The assessee applied 100% rate of depreciation instead of 80%. The mistake can be said to be a silly mistake caused by callousness. The assessee should have been more careful in applying the rate of depreciation. In view of the facts of the case we are of the view that levy of penalty is not justified. - Appeal Decided in favour of assessee

Issues Involved:
1. Deduction claimed under Section 80I and 80IA on manufacturing and sale of Gutka.
2. Treatment of sales tax incentive as capital receipt.
3. Claiming higher rate of depreciation on structures ancillary to windmills.
4. Claiming 100% rate of depreciation on windmills instead of 80%.

Issue-wise Detailed Analysis:

1. Deduction Claimed Under Section 80I and 80IA on Manufacturing and Sale of Gutka:
The assessee claimed deductions under Section 80I and 80IA for profits from manufacturing and sale of Gutka. The Revenue allowed deductions for Pan Masala but denied them for Gutka, citing it as a tobacco preparation covered by item 2 of the Eleventh Schedule to the Act. The Commissioner of Income Tax (Appeals) initially allowed the claim, but the Tribunal set aside this order. The matter was taken to the High Court, which admitted the appeal, indicating substantial questions of law. The Tribunal, referencing the High Court's admission and the decision in CIT Vs. M/s. Nayan Builders and Developers, ruled that no penalty is leviable on debatable and arguable issues involving substantial questions of law.

2. Treatment of Sales Tax Incentive as Capital Receipt:
The assessee treated sales tax incentives received from windmill power generation as capital receipts, relying on the Special Bench decision in DCIT Vs. Reliance Industries Ltd. The Revenue, however, treated these incentives as revenue receipts. The Commissioner of Income Tax (Appeals) deleted the penalty imposed by the Assessing Officer for this treatment. The Tribunal upheld this deletion, citing that substantial questions of law were involved, referencing the High Court's admission in a related case and the principle that no penalty is warranted where substantial questions of law are involved.

3. Claiming Higher Rate of Depreciation on Structures Ancillary to Windmills:
The assessee claimed higher depreciation rates on items ancillary to windmills, which was disallowed by the Assessing Officer, who also initiated penalty proceedings for concealing income. The Commissioner of Income Tax (Appeals) upheld the penalty. The Tribunal, however, found that since no penalty was imposed for similar disallowances in the preceding year, it should not be imposed in the subsequent year for the same reasons. The Tribunal cited the case of Shri C.P. Mohandas Vs. DCIT, where it was held that penalty should not be levied under identical facts if it was not levied in the preceding year.

4. Claiming 100% Rate of Depreciation on Windmills Instead of 80%:
The assessee mistakenly claimed 100% depreciation instead of the revised 80% rate for windmills. The Tribunal accepted the assessee's explanation that this was a bonafide mistake due to the change in depreciation rates in the impugned assessment year. The Tribunal referenced the Supreme Court's decision in Price Waterhouse Coopers (P.) Ltd. Vs. CIT, which supports the view that penalties should not be imposed for genuine mistakes. Consequently, the Tribunal ruled that the penalty for this mistake was not justified.

Conclusion:
The Tribunal dismissed the Revenue's appeals for the assessment years 2003-04, 2004-05, and 2005-06 and partly allowed the assessee's appeal for the assessment year 2003-04. The Tribunal emphasized that penalties are not justified where substantial questions of law are involved or where genuine mistakes are made, aligning with precedents set by higher courts.

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