TMI Blog2012 (3) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Anshul Sharma, Adv. O R D E R Vide order dated 12th January, 2012, the following substantial question of law was framed:- Whether the Income Tax Appellate Tribunal was justified in confirming penalty of ₹ 16,34,673/- under Section 271(1)(c) of the Income Tax Act, 1961? 2. The present appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) pertains to the assessment year 2005-06 and impugns the order dated 28th February, 2011 passed by the Income Tax Appellate Tribunal (for short, the tribunal) dismissing ITA No. 5053/Del/2010 filed by the assessee and confirming the penalty under Section 271(1)(c). 3. The appellant is a company and in the return of income filed for the assessment year in question it had claimed depreciation on building, which was being used by the partnership firm in which the assessee was a partner. The total claim for depreciation was ₹ 41,62,650/-. It is not in dispute and it is accepted that in the quantum proceedings it has been held that the assessee is not entitled to depreciation on the building as the same was being used by the partnership firm and not by the assessee company. The aforesaid addition/disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocated at 225, Udyog Vihar, Phase-1, Gurgaon would be used by the partnership firm for their business. The said property belongs to the appellant. However, the ownership of the property was not transferred to the partnership firm. The appellant-assessee continued to be the owner of the said property. Only right to use was given to the partnership firm. 7. Along with the return of income, the appellant-assessee had filed a table disclosing income from business. The relevant portion of the said table reads as under:- INCOME FROM BUSINESS Depreciation Claimed in P L A/c Income shown in P L A/c Total Net Loss Net (loss) as per Profit Loss A/c (4,162,650) 1, 411,927 (2,750,723) Less Share of profit Partnership Firm M/s Gaurav Intl to be assessed separately In the hand of the firm and claimed as Exempt u/s 10(2A) 1,238,042 1,238,042 (4,162,650) 173,885 (3,988765) Note: The assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd decision of Rajasthan High Court in Commissioner of Income-tax Vs. Amber Corporation 95 ITR 178. The said decisions were distinguished on the ground that the partnership firm could have claimed depreciation but not the partner. The relevant paragraph of the decision dated 1st November, 2010 in the quantum proceedings reads as follows:- In a case like this, the partnership firm which has utilized the said factory premises could have asked for depreciation. This so held by this Court in the case of Additional Commissioner of Income-tax, Delhi-III Vs. Manjeet Engineering Industries [154 ITR 509]. Another judgment rendered by the Rajasthan High Court is to the same effect in the case of Commissioner of Income-tax Vs. Amber Corporation [95 ITR 178] wherein it is held that the firm and the partners would be entitled to depreciation. 11. The tribunal in the impugned order has stated that the aforesaid observations of the High Court may not be applicable after the amendment and induction of Section 10 (2A) of the Act. The said provision stipulates that the share of profit received by a partner, from the partnership firm which is separately assessed is exempt, subject to certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat some interest income from the partnership firm is liable to tax in the hand of the assessee u/s 28 (v), it cannot be said that the assets in question were being used in the business of the assessee. Interest on capital with partnership firm is assessable as business income in the hands of the partner but against such business income, only those expenses can be claimed and allowed, which are incurred for earning the interest income. One of such expenses can be interest expenditure if borrowed funds are used for providing capital to the partnership firm but depreciation on an asset owned by the assessee used by the partnership firm cannot be claimed as deduction against such interest income, which is assessable as business income in the hands of the assessee partner. There is no basis at all to even claim such a deduction. Hence, we find that there is no basis of this claim or of this note given by the assessee in the computation of income. The existence of any legal advice on this has not been established by submitting a copy of such legal advice before us or before the authorities below or before the Hon ble High Court of Delhi in the quantum proceedings. We find that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn of income was duly audited. Claim for depreciation is a technical claim based on interpretation of legal provision. Legal opinion, in such cases, is frequently given by Chartered Accountants to help the company to prepare its return of taxable income. In the present case, there is no allegation that the quantum of depreciation claim was incorrectly computed. The note itself indicates that it is written by a professional. 15. The question whether penalty should be imposed under Section 271(1)(c) when a debatable and arguable legal issue is decided against the assessee and the assessee had disclosed full and correct facts is no longer res integra. The Courts in several judgments have drawn a distinction between a false claim, which cannot be countenanced and claims, which are made on the basis of legal provisions which are debatable and quite plausible. Supreme Court in the case of CIT Vs. Reliance Petroproducts P. Ltd [2010] 322 ITR 158 (SC) has held as under:- A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. 16. Referring to this judgment, Delhi High Court in the case of Commissioner of Income-Tax Vs. Zoom Communication P. Ltd. [2010] 327 ITR 510 (Del) has held as under:- The proposition of law which emerges from this case, when considered in the backdrop of the facts of the case before the court, is that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) would come in to play and the assessee will be li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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