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2017 (1) TMI 994 - ITAT MUMBAI

2017 (1) TMI 994 - ITAT MUMBAI - TMI - Penalty u/s. 271(1)(c) - claim for depreciation on account of purchase of machinery - Held that:- We find that the assessee had made claim for depreciation on account of purchase of machinery, that the AO had directed it to produce various details with regard to the purchase, including the copies of the invoices/ purchase bills, sources of funds, bank charges etc., that the scrutiny revealed that certain expenses were capital in nature. He called for furthe .....

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as filed. The assessee himself admitted that claim made by it were disallowable. - We are of the opinion that allowabiltiy of claim of depreciation in subsequent years would not justify the action of the assessee not to file a bonafide claim. It is not the duty of a taxpayer to determine the tax liability for a particular year. The AO has been assigned the role of tax administrator in the Act.The assessee has to make only bonafide claim in the returns of income.To decide the taxability or ot .....

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civil contract.He filed his return of income on 31/ 03/2010,declaring loss at ₹ 7.82 lakhs. The Assessing Officer(AO)completed the assessment u/s.143(3) of the Act,on 11/08/2011 computing his income at ₹ 18.19 lakhs. 2. Effective ground of appeal deals with imposition of penalty u/s. 271(1)(c) of the Act, amounting to ₹ 2.5 lakhs.During the assessment proceedings,the AO found that the assessee had acquired machinery worth ₹ 5.85 crores for business expansion.He directed .....

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tal interest at ₹ 11.23 lakhs claimed as revenue expenditure ₹ 8.90 lakhs needed to be treated as capital expenditure,that the same was relatable to the period beginning from the date on which the capital was borrowed for acquisition of the machinery till the date on which the machinery was first put to use.As a result, the AO disallowed some of ₹ 9, 56, 914/-out of the total interest on loan paid and claimed as revenue expenses in light of the proviso to clause (iii) of subsec .....

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r on, on 21/02/2012 the assessee stated that it had not filed any appeal against the additions made during the assessment proceedings in order to by piece and to avoid lengthy litigation with the Department,that there was no deliberate intent or attempt on part of the assessee to conceal income or to furnish inaccurate particulars, that all the facts had been duly recorded in reflected in the audited books of accounts. After considering the submissions of the assessee, the AO observed that the a .....

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se truly and correctly all the particulars of the income while filing his return. The AO referred to the cases of Dharmendra Textile Processors (13SCC 369) and Reliance Petro Products (189 Taxman 322)and held that the assessee had concealed the particulars of income which had been uneathered during the assessment proceedings.He imposed a penalty of ₹ 2,51,609/-,invoking the provisions of section 271(1)(c) of the Act. 3. Aggrieved by the order of the AO, the assessee preferred an appeal bef .....

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Nali P Shah of the jurisdictional High Court. After considering the submission of the assessee and the penalty order,the FAA referred to the Explanation 1 to section 271(1)(c) of the Act and held that the onus to establish that explanation offered by the assessee was bona fide and that all the facts relating to the competition of his income had been disclosed by him was on the assessee,that the legislature had used word particu -lars of income, that if facts material to determine the income was .....

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egarding the loss claimed and carried forward,that the Hon ble High Court had held that the issue was facts based,that the assessee had made no such disclosure in the return of income, that it was only after the relevant facts were called for and examined,that he admitted the true state of the affairs, that the assessee did not prefer any appeal against the additions made by the AO, that the facts of the case of Reliance Petro Products were distinguishable,that no legal claim had been accepted f .....

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as inaccurate.Referring to the explanation 4 to the section 271(1)(c), the FAA held that the assessee had furnished inaccurate particulars of income, that the loss claimed by it had been reduced and assessed income had turned into was positive,that the AO had rightly invoked the provisions of section 271(1)(c) of the Act. 4. During the course of hearing before us, the Authorised Representative (AR) argued that over a period of years depreciation had to be allowed to the assessee, that there was .....

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rival submissions and perused the material before us.We find that the assessee had made claim for depreciation on account of purchase of machinery,that the AO had directed it to produce various details with regard to the purchase,including the copies of the invoices/ purchase bills, sources of funds,bank charges etc.,that the scrutiny revealed that certain expenses were capital in nature.He called for further explanation from the assessee in that regard. It was only after the inquiry made by th .....

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uld like to refer to the case of matter of Zoom Communication (327ITR510),of the Hon ble Delhi High Court.We would like to reproduce the relevant part of the order and it reads as under: If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) would come into play and the assessee will be liable for the prescribed penalty. …..The court cannot overlook the fact that only a small percentage of the Income-tax returns are picked up for scrutiny .....

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was not acting bona fide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them .....

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of tax. No hard and fast rule in this regard can be laid down and every case will have to be decided considering the facts and circumstances in which such a deduction is claimed, coupled with as to whether the explanation offered by the assessee for making the claim, is shown to be bona fide or not. The alleged admission by the assessee is after detection by the Department.It is not a case of mere making wrong claim.Both the claims were inadmissible prima-facie.The assessee had no justification .....

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nse to the notice of penalty.There is need to say that penalty and assessment proceedings are two different proceedings and therefore, the explanation becomes very important.If the explanation filed by the assessee is bonafide there is justification for levying penalty.But,if the AO/FAA find that explanation is not bonafide,penalty has to be levied/confirmed.In the instant case,both the authorities has given a fact of the fact that explanation offered by the assessee about the disputed items was .....

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