THE ITO, WARD-3(1)(1),, AHMEDABAD vs. M/S. NASCENT INFO TECHNOLOGIES PVT. LTD.,, AHMEDABAD

आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ ‘B’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & M/s. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 2828/Ahd/2016 (�नधा�रण वष� / Assessment Year : 2012-13) बनाम/ ITO M/s. Nascent Info Technologies Pvt. Ltd. Ward-3(1)(1), Vs. A-805, Sapath-IV, Opp. Ahmedabad Karnavati Club, Ahmedabad- 380054 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAC CN3 670 J (अपीलाथ� /Appellant) .. (��यथ� / Respondent) अपीलाथ� ओर से /Appellant by : Santosh Karnani, Sr. DR ��यथ� क� ओर से / Respondent by: Mehul K. Patel, AR सुनवाई क� तार�ख / Date of Hearing 13/02/2019 घोषणा क� तार�ख /Date of pronouncement 27/03/2019 आदेश/O R D E R PER WASEEM AHMED - AM:

The Revenue in this appeal has challenged the deletion made by the Ld. CIT (A) on account of the penalty imposed by the AO under section 271(1)(c) of the Act. 2. Briefly stated facts are that the assessee in the present case is a private Ltd company and engaged in the business of software development agency. The AO during the assessment proceedings made the disallowance of the following items:

i. Depreciation claimed on the lease data centre amounting to Rs. 2,50,46,116/-.00 only ii. Disallowance of security charges on account of non-deduction of TDS under section 194(C) of the Act amounting to Rs. 2,34,538/- 3. Thus the AO framed the assessment under section 143(3) of the Act after making the addition of the above items to the total income of the assessee vide order dated 23-03-2015. Accordingly, the AO initiated the penalty proceedings in respect of the aforesaid addition on account of furnishing inaccurate particular of income under section 271(1)(c) of the Act. 4. The AO subsequently issued a notice under section 274 r.w.s 271(1)(c) of the Act vide dated 23-03-2015 for levying the penalty on account of furnishing inaccurate particular of income. 5. The assessee in compliance to the notice submitted that it had claimed depreciation on the lease datacentre after having a reliance on the judgment of Hon’ble Supreme Court in the case of Asea Brown Boveri Limited v/s CIT reported in 154 taxman 512 which was pronounced dated 27th October 2004. However, subsequently, the Hon’ble Supreme Court in the case of ICD v/s CIT reported in 350 ITR 527 has decided the issue against the assessee involving similar facts & circumstances vide order dated 14-01-2013. Accordingly, the assessee was not entitled to the depreciation in respect of lease datacentre. However, it is pertinent to note that the assessee claimed depreciation on such datacentre before the verdict of Hon’ble Supreme Court in the case of ICD v/s CIT (as supra). Thus the assessee was not aware at that relevant time about this judgement. As such the assessee claimed the depreciation on lease datacentre under the bona fide belief that it is entitled to the same. The assessee in support of his contention relied on the following judgements: a) Geeta Priates (P) Ltd vs. ACIT (2012) 67 ITR (Guj) 30

b) CIT vs. Caplin Point Laboratories Ltd. 293 ITR 524 (Mad). 6. The assessee further submitted that it had not concealed particulars of income or furnished inaccurate particular of income in its income tax return. The claim for the depreciation was made under the bona fide belief. Thus the claim of the assessee may be wrong but that does not mean that the assessee has furnished inaccurate particulars of income/concealed particulars of income. The assessee in support of its contention relied on the judgement of Hon’ble Supreme Court in the case of CIT v/s Reliance Petro Products Ltd reported in 332 ITR 158. 7. The assessee also submitted that it had claimed the depreciation on the basis of the audit report under section 44AB which was signed by the tax auditor of the company. 8. However, the AO disagreed with the submission of the assessee and held the assessee guilty for furnishing inaccurate particular of income. The AO in confirming the penalty placed his reliance on the judgment of Hon’ble Supreme Court in the case of the Dharmendra textiles processor reported in 306 ITR 277 wherein it was held that the penalty is a civil levy and accordingly it is attracted when the default is committed by the assessee. 9. Aggrieved assessee preferred an appeal before the Ld. CIT (A), the assessee before the Ld. CIT (A) submitted that the depreciation on lease datacentre was claimed as per the accounting standard 19 and 6 issued by the Institute of chartered accountant of India. Thus the claim of the assessee cannot amount to furnishing inaccurate particulars of income. 10. All the material facts regarding the depreciation were duly disclosed in the financial statements, audit reports etc.

“6. I have perused the arguments of both sides and case laws relied upon. The penal proceedings u/s. 271(1)(c) of the Act would be decided based on following observations. As per the provisions of section 271(1)(c) of the Income-tax Act,1961, penalty u/s.271(1)(c) can be imposed on two charges i.e. (1) concealment of particulars of income (2) furnishing of inaccurate particulars of income. The common factor in the above charge is "particulars of income" has been considered by ITAT Pune in the case of Kambay Software India (P) Ltd. 122 TTJ 721 (Pune). In this case it was held that "particulars" refer to facts, defects, specifics or the information about someone or something. Thus, the details or information about the income would deal with the factual details of income and cannot be extended to areas which are subjective such as status of taxability of income, admissibility of deduction and interpretation of law. Accordingly it was held that mere rejection of legal claim would not amount to furnishing of inaccurate particulars of income. This view is accepted by Hon'ble Supreme Court in the case of Reliance Petro Products reported at 322 ITR 158. In Hs case the claim of the assessee u/s.36(1)(iii) was rejected by the A O. and this order was upheld by the Hon. ITAT. The A.O. imposed penalty u/s.271(1)(c) for furnishing inaccurate particulars of income. The penalty was held to be illegal by the Tribunal. Since, the factual details of income furnished by the assessee were found to be correct. The matter ultimately reached to Hon'ble Supreme Court and the Hon'ble Court upheld the view of the Tribunal by holding that mere making the claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate claim or furnishing inaccurate particulars regarding the income of the assessee. Further in the case of CIT v/s. PHI Seeds India Ltd. (2008) 301 ITR 29, the Hon'ble Delhi High Court held that provisions of section 27l(1)(c) is attracted only in those instances where the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income with an intention to mislead the revenue. The Hon'ble Gujarat High Court in the case of National Textiles v/s. CIT (2001) 249 ITR 295 has held that for levying u/s.271(1)(c) of the IT. Act, the revenue has to prove animus i.e. conscious concealment or act of furnishing inaccurate particulars of income. In this case it is also held that if the assessee gives an explanation which is unproved but not disproved i.e. it is not accepted but circumstances do not lead reasonable and positive inference that the

assessee's case is false, the explanation 1 to section 271(1)(c) cannot help the department because there will be no material to show that the amount in question was the income of the assessee. This way if any erroneous claim of deduction is made, or if the explanation of the appellant remains unproved, provisions of concealment penalty are not attracted. 7. During the appellate proceedings appellant submitted that it has filed Return of Income for A. Y. 2012-13 on 11/10/2012. In the said return of income it had claimed depreciation of Rs.2,50,46,116/- on Data Centre, as per the Tax Audit Report u/s.44AB of the Act. The Return of Income, audit report under Companies Act and Income-tax Act reflected all the details of addition to fixed assets and working of depreciation. According to the appellant, it had entered into finance lease agreement with IBM. According to Accounting Standard No.19 and 6 under Companies Act, lessee is entitled to get depreciation in case of finance lease. According to the appellant under Income-tax Act, there was no accounting standard prescribed for this purpose. Depreciation has to be computed as per section 32 of the Act. Appellant had thus claimed depreciation on the data centre as per Tax Audit Report U/S.44AB of the Act. Appellant had relied upon two judgments namely, Asea Brown Boveri Ltd. v/s. IFCI (2006) 154 Taxman 512 (SC) pronounced on 27/10/2004 and Indusind Bank Ltd. v/s. Addl. CIT (2012) 145 TTJ (Mum) SB pronounced on 14/03/2012. According to the appellant in the above decisions, it has been held that, in a finance lease, lessee is to be considered as owner of the asset and ITAT has held that in case of finance lease, lessee will be entitled to depreciation. As both judgments were delivered prior to the filing of Return of Income i.e. on 11/10/2012 appellant has relied upon these judgments. From the order of penalty it has been observed that A.O. has relied upon the judgments of Hon'ble Supreme Court in the case of ICDS v/s. CIT (350 ITR 527). Relying upon this judgment, A.O. has denied depreciation on data centre i.e. on leased assets. However, A.O. has allowed lease rent as deduction of expense in place of depreciation. Appellant has also relied upon various judgments such as judgment of Hon'ble Supreme Court in the case of Brij Mohan v/s. CIT 120 ITR 1 wherein it was held "it is the law ruling at the date on which the act takes place which is relevant. The assessment for reassessment year cannot be affected by the law in force in another assessment year." Thus, according to the appellant it was under the bona fide belief that it's claim of depreciation is the correct claim based on the judgments of Asea Brown Boveri Ltd. (supra) and Indusind Bank Ltd. v/s. Add. CIT (supra). Appellant has also relied upon the judgment of Reliance Petro Products Ltd. 322 ITR 158 (S.C.). It was held in the case of Reliance Petro Products Ltd. (supra) that "A mere making of a claim, which is not sustainable in law, itself, will not amount to furnish inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to furnishing inaccurate particulars". I agree with the contention of the appellant. It is under the bona fide belief that appellant has claimed depreciation. Further, the said claim was also supported by Tax Audit Report u/s.44AB of the Act. Judgment of ICDS v/s. CIT (supra) by Hon'ble Supreme Court was pronounced on 14/01/2013 i.e. after Return of Income has been filed by the appellant. Appellant had made full disclosure in its return of income regarding the claim of depreciation. Relying on the judgment of Reliance Petro Products Ltd. (supra) I am of the considered opinion that A.O. was not justified in levying penalty on addition made on account of disallowance of depreciation for Rs.2,50,46,111/-.

16.1 The provisions of section 271(1)(c) of the Act states that the penalty can be levied on account of concealment of the particulars of income or furnishing inaccurate particular of income. The assessee claimed the depreciation in respect of lease datacentre as per the law prevailing at that relevant time. As such the assessee was entitled to the depreciation on such lease datacentre in view of the judgement of Hon’ble Supreme Court in the case of Asea Brown Boveri Limited v/s CIT (supra).

16.2 However, subsequent to the above judgement, the Hon’ble Supreme Court in the case of ICD v/s CIT (supra) decided the issue against the assessee vide order dated 14-01-2013.

16.3 From the perusal of the above judgements, we note that the subsequent judgement of the Hon’ble Supreme Court was pronounced after filing the return of income by the assessee. Therefore there remains no doubt that the assessee claimed the depreciation under the bona fide belief as discussed above. Therefore in our considered view the assessee cannot be held guilty for furnishing inaccurate particular of income. In holding so we find support and guidance from the judgement of Hon’ble Madras High Court in the case of CIT vs. Caplin Point Laboratories Ltd. reported in 293 ITR 524 wherein it was held as under:

"The legal history of section 271(1)( c) of the Act traced from the 1922 Act prima facie shows that the Explanations were applicable to both the parts. However, each case must be considered on its own facts. The role of the Explanation having regard to the principle of statutory interpretation must be borne in mind before interpreting the aforementioned provisions. Clause (c) of sub-section (1) of section 271 categorically states that the penalty would be leviable if the assessee conceals the particulars of his income or furnishes inaccurate particulars thereof. By reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been noticed in some of the decisions of this Court, inheres on the face of the statutory provisions. Penalty proceedings are not to be initiated, as has been noticed by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective.” 16.4 Besides the above, we also note that the assessee has made a claim after the disclosure of necessary facts in its income tax return and the financial statements which is available on record. Thus the claim may be wrong but it cannot amount to furnishing inaccurate particulars of income. In this regard we find support and guidance from the judgement of Hon’ble Supreme Court in the case of CIT versus Reliance Petro Products Ltd (supra) wherein it was held as under:

“The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10] Therefore, the appeal filed by the revenue had no merits and was to be dismissed.” 16.5. We also note that the facts of the case relied by the AO in the case of the Dharmendra textiles processors (supra) are distinguishable from the facts of the present case.

16.7 Regarding non- deduction of TDS, we note that the claim of the assessee was genuine in respect of security charges, but the same was disallowed on account of a technical default, i.e., non-deduction of TDS under section 194(C) of the Act. Thus the claim of the assessee cannot be regarded as furnishing inaccurate particular of income in the event of non-deduction of TDS. Regarding this, we find support and guidance from the judgement of CIT v/s Dahyabhai Veljibhai Patel (Tax Appeal No.793 of 2013) Guj and ACIT (OSD)- 1 v/s Mazda Ltd. 33 CCH 047 (Ahd). Wherein it has been held that penalty u/s 271(1)(c) is not leviable on account of disallowance made u/s 40(a)(ia) of the Act. The relevant extract of the case ACIT Vs. Mazda (supra) stands as under:

“Thus, merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, attract the penalty u/s. 271(1)(c) of the Act. In the present case, we are of the opinion that the disallowance of claim for deduction of royalty, by merely having recourse to

provisions of sec. 40(a)(ia) of the Act cannot be considered as concealment of income or furnishing inaccurate particulars thereof.” 16.8 In view of the above, we hold that the assessee cannot be held guilty for furnishing inaccurate particulars of income for the reasons as discussed above. Accordingly, the question of levying penalty under section 271(1)(c) of the Act does not arise. Hence we do not find any reason to disturb the finding of the Ld. CIT (A). Thus the ground of appeal of the Revenue is dismissed. 17. In the result the appeal of the Revenue is dismissed.

This Order pronounced in Open Court on 27/3/2019

-Sd- -Sd- (MS.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/03/2019 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT-4, Ahmedabad 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�यािपत �ित //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad