2024 (4) TMI 1054 - AT - Income Tax

Penalty proceedings u/s 270A - under reporting of the income - allowability of depreciation on acquisition of mining rights treating the same as intangible asset - malafide intentions to under report the income by claiming depreciation - allowability of depreciation so claimed by the assessee was denied by the revenue on account of no activity leading to income from extraction of Iron Ore in the relevant year or in the preceding year - CIT(A) was convinced with the explanations of the assessee observing that the disallowance of depreciation is a subject matter of debate as in the case of holding company of the assessee i.e. NMDC the mining right has consistently been held as a depreciable asset eligible for depreciation u/s 32 HELD THAT - Since there were different order of different courts including case of NMDC the holding company of the assessee before us wherein the allowability of depreciation was a debatable issue. Moreover since the mining right are held as an intangible asset eligible for depreciation u/s 32 of the Act by the ITAT Hyderabad in the case of NMDC Limited for various assessment years from AY 2008-09 2014 (3) TMI 682 - ITAT HYDERABAD AY 2009-10 2014 (9) TMI 629 - ITAT HYDERABAD AY 2010-11 2014 (7) TMI 993 - ITAT HYDERABAD AY 2011-12 2015 (3) TMI 928 - ITAT HYDERABAD AY 2012-13 2017 (5) TMI 1714 - ITAT HYDERABAD AY 2013-14 AY 2014-15 2018 (10) TMI 1120 - ITAT AHMEDABAD the assessee company has a bonafide belief that depreciation would be allowed on such mining rights to the assessee company. It is also an admitted fact transpired from the order of Ld. CIT(A) that the assessee appellant had filed an application before the Ld. AO seeking immunity u/s 270AA of the Act after fulfilling all the pre-requisite conditions of the said section. There was no reason for the Ld. AO to deny grant of immunity to the assessee towards the application submitted u/s 270AA. Considering the facts and circumstances of the case since there were justifiable reasons supporting the bonafide belief of the assessee in claiming the depreciation on mining rights and since mala-fide intentions of the assessee could not be established by the revenue in terms of any cogent material or explanation. The decision of Ld. CIT(A) found to be worth concurrence in absence of any plausible argument explanation evidence or decision by the department to extricate the findings the Ld. CIT(A) thus we uphold the same. Therefore Ground No. 1 of the appeal of the revenue stands dismissed.

Summary

Issues Involved:
1. Justification of deleting the penalty levied u/s 270A of the Income Tax Act, 1961.
2. Acceptance of assessee's submissions by the CIT(A) and ignoring the facts brought on record by the Assessing Officer.

Summary:

Issue 1: Justification of deleting the penalty levied u/s 270A of the Income Tax Act, 1961:
The appeal was filed by the revenue against the order of CIT(A) u/s 250 of the Income Tax Act, which deleted the penalty imposed u/s 270A. The assessee, a limited company, was selected for limited scrutiny on the issue of "Investment in intangible assets." The AO disallowed the depreciation claim on mining rights, leading to a penalty for underreporting income. The AO argued that the mining rights did not qualify as an intangible asset u/s 32(1)(ii), were not owned by the company, and were not put to use during the year. The AO imposed a penalty of Rs. 3,12,82,936/- u/s 270A, arguing that the assessee's silence and acceptance of the addition indicated underreporting of income.

Issue 2: Acceptance of assessee's submissions by the CIT(A) and ignoring the facts brought on record by the Assessing Officer:
The assessee argued that the claim was based on a bona fide belief supported by judicial precedents and lacked malafide intention. The CIT(A) accepted the assessee's contentions, noting that the issue was debatable, especially since the holding company NMDC had similar claims allowed by ITAT Hyderabad. The CIT(A) also noted that the assessee fulfilled conditions for immunity u/s 270AA, including paying the tax and interest and not appealing the assessment order. The CIT(A) concluded that the penalty was not justified as the claim was made in a bona fide manner.

Conclusion:
The ITAT upheld the CIT(A)'s decision to delete the penalty, agreeing that the issue was debatable and the assessee had a bona fide belief in its claim. The ITAT noted that the assessee's application for immunity u/s 270AA should have been accepted by the AO. The appeal of the revenue was dismissed, and the order of CIT(A) deleting the penalty was upheld.