2025 (6) TMI 1059 - AT - Income Tax

Penalty u/s 271 (1)(c) - Assessee in its return claimed the depreciation twice - HELD THAT - Assessee did not derive any benefit due to loss in future years and the mistake was rectified while filing the return of income for Assessment Year 2019-20. The Ld. CIT(A) by relying on the ratio laid down in the case of Reliance Petro products Ltd. 2010 (3) TMI 80 - SUPREME COURT wherein held that mere making claim which is not sustainable by law will not amounts to furnishing inaccurate particulars regarding income of the Assessee. Considering the fact that the claim of depreciation made by the Assessee being clerical error while entering the details of depreciation and the same did not affect the taxes paid and the said error has been corrected by the Assessee in later assessment years the Ld. CIT(A) rightly observed that there was no mala-fide intention on the part of the Assessee to evade taxes and deleted the penalty. Thus we find no error or infirmity in the order of the Ld. CIT(A) in deleting the penalty,

Summary

The core legal questions considered in this appeal are:

1. Whether the penalty under section 271(1)(c) of the Income Tax Act, 1961, can be imposed on the assessee for claiming depreciation twice due to a clerical error?

2. Whether the act of claiming depreciation twice amounts to willful concealment or furnishing inaccurate particulars of income, thereby attracting penalty?

3. Whether the deletion of penalty by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (CIT(A)/NFAC) was justified in light of the facts and judicial precedents?

Issue 1: Legality of imposing penalty under section 271(1)(c) for double claim of depreciation

The relevant legal framework is section 271(1)(c) of the Income Tax Act, which provides for levy of penalty where the assessee has concealed particulars of income or furnished inaccurate particulars of income. The Supreme Court's ruling in CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 was relied upon by the CIT(A) to determine that a mere claim which is not sustainable by law does not amount to furnishing inaccurate particulars. Similarly, the Supreme Court judgment in Price Water House Coopers Pvt. Ltd. 138 ITR 306 holds that penalty is not leviable in cases of inadvertent and bona fide errors.

The Court examined the facts that the assessee claimed depreciation twice due to a clerical error caused by double entry in software. The assessee itself requested the assessing officer (A.O.) to disallow the excess depreciation and rectified the mistake in subsequent assessment years. Importantly, the assessee did not derive any tax benefit from the error as it declared a loss and corrected the error in the return for Assessment Year 2019-20.

Applying the law to these facts, the Court found that the double claim was an inadvertent clerical mistake rather than a willful attempt to evade tax. The Court emphasized that penalty under section 271(1)(c) is a civil liability but requires a degree of culpability such as willful concealment or malafide intention. Since the error was bona fide and corrected, the imposition of penalty was not justified.

The Court also addressed the Revenue's argument that the penalty order was warranted due to willful concealment. The Court rejected this contention, holding that the facts did not support any mala fide intention or deliberate concealment. The absence of any benefit derived by the assessee further negated the Revenue's claim.

Issue 2: Whether deletion of penalty by CIT(A)/NFAC was justified

The CIT(A) deleted the penalty relying on the above Supreme Court precedents and the factual matrix showing the clerical nature of the error. The Court upheld this deletion, reasoning that the penalty provisions should not be invoked to penalize bona fide mistakes without any fraudulent intent.

The Court noted that the assessee had voluntarily disclosed the error and cooperated with the authorities by requesting disallowance of the excess depreciation. The correction in subsequent returns further demonstrated the absence of any concealment or evasion.

In balancing the competing arguments, the Court gave precedence to the principle that penalty should not be imposed for inadvertent errors, especially where there is no tax benefit or malafide intent. The Revenue's appeal was dismissed as lacking merit.

Significant holdings and core principles established:

"Mere making claim which is not sustainable by law will not amount to furnishing inaccurate particulars regarding income of the Assessee."

"Penalty is not leviable in the case of inadvertent and bona-fide error."

The Court conclusively held that a clerical error in double claiming depreciation, which is corrected subsequently and does not result in tax evasion, does not attract penalty under section 271(1)(c) of the Income Tax Act.

The final determination was that the penalty imposed by the A.O. was rightly deleted by the CIT(A), and the Revenue's appeal against this deletion was dismissed.