ACIT-8(2)(1), MUMBAI, MUMBAI vs. PRAVARA RENEWABLE ENERGY LIMITED, MUMBAI

आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR (AM) :- This appeal by the Revenue is directed against the order dated 04.11.2025 passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as "the CIT(A)"], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"], for the assessment year 2016-17, whereby the learned CIT(A) deleted the penalty of Rs.34,97,33,414/- imposed by the Assessing Officer under section 271(1)(c) of the Act. The impugned penalty arose

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from the assessment order dated 28.12.2018 passed under section 143(3) of the Act.

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of depreciation to Rs.10,39,81,936/- and withdrew excess depreciation of Rs.1,02,86,27,689/-. The Assessing Officer completed the assessment under section 143(3) of the Act on 28.12.2018, after disallowing the excess depreciation of Rs.1,02,86,27,689/- and determining the total loss under the normal provisions of the Act at Rs.8,41,69,523/-. Penalty proceedings under section 271(1)(c) were initiated for furnishing inaccurate particulars of income.

3.1 In response to the show-cause notice issued under section 274 read with section 271(1)(c), the assessee furnished its written explanation dated 28.05.2019. The assessee submitted that depreciation of Rs.1,13,26,09,625/- had inadvertently been claimed in the original return of income in terms of clause III(8) of Part A of New Appendix I to the Income-tax Rules, 1962, read with sections 32(1)(ii) and 32(1)(iia) of the Act and rule 5(1) of the Rules. The claim was stated to have been made on the basis of the depreciation certified by the tax auditors in the tax audit report furnished in Form Nos. 3CB and 3CD.

3.2 It was explained that the assessee’s tax consultant subsequently pointed out that, being engaged in the business of generation and distribution of power, the assessee was required to claim depreciation at the rates separately prescribed in Appendix IA to the Income-tax Rules, 1962, read with rule 5(1A). Upon the mistake being noticed, the assessee first furnished a letter dated 11.07.2018 revising the claim of depreciation on plant and

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machinery from Rs.88,65,84,342/- to Rs.16,62,34,563/- and withdrawing excess depreciation of Rs.72,03,49,778/-.

3.3 Thereafter, upon a further examination of the applicable rates, the assessee furnished another letter dated 26.10.2018, in supersession of its earlier letter dated 11.07.2018. By the said letter, the assessee revised its total claim of depreciation from Rs.1,13,26,09,625/- to Rs.10,39,81,936/- and, consequently, withdrew excess depreciation of Rs.1,02,86,27,689/-. The assessee also furnished a block-wise revised computation of depreciation. It was submitted that both letters were furnished before the Assessing Officer issued the specific show-cause notice dated 14.12.2018 concerning the claim of depreciation.

3.4 The assessee further submitted that the time prescribed under section 139(5) for furnishing a revised return had already expired by the time the mistake was noticed. Therefore, the correction could only be made by furnishing a revised computation during the assessment proceedings. In response to the notice dated 14.12.2018, the assessee furnished its reply dated 22.12.2018 along with a revised statement of computation of total income. As a consequence of the withdrawal of excess depreciation of Rs.1,02,86,27,689/-, the business loss of Rs.1,11,27,97,212/- declared in the original return stood revised to Rs.8,41,69,523/-. According to the assessee, the refund claimed at Rs.54,922/- and the book loss computed under section 115JB at Rs.3,27,47,892/- remained unchanged.

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3.5 It was, accordingly, contended that the excess claim arose from a bona fide and inadvertent application of an incorrect rate of depreciation and that the mistake had been voluntarily corrected before any specific query was raised by the Assessing Officer. The assessee maintained that there was no concealment of income or furnishing of inaccurate particulars thereof and, therefore, no penalty was exigible under section 271(1)(c).

3.6 The Assessing Officer did not accept the explanation furnished by the assessee. According to him, it was the responsibility of the assessee to disclose all material facts correctly in the return of income. He observed that, if there was any mistake in the return, the assessee could have rectified it by filing a revised return within the prescribed period. The failure to file a revised return was regarded by him as indicative of a willful submission of incorrect particulars for evasion of tax.

3.7 The Assessing Officer further observed that the assessee accepted the excess claim of depreciation only during the scrutiny proceedings. He also referred to the fact that the assessee initially furnished the letter dated 11.07.2018 and thereafter furnished the letter dated 26.10.2018 in supersession of the earlier letter. According to him, the successive revisions demonstrated that the assessee had not disclosed the correct particulars in a single attempt. He further held that, had the return not been selected for scrutiny, the excess depreciation of Rs.1,02,86,27,689/- would have remained undetected.

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3.8 The Assessing Officer, therefore, concluded that the assessee had furnished inaccurate particulars of income by claiming excessive depreciation. The tax sought to be evaded was computed at Rs.34,97,33,414/-. The minimum penalty at 100 per cent thereof was computed at Rs.34,97,33,414/-, whereas the maximum penalty at 300 per cent was computed at Rs.1,04,92,00,243/-. Taking what was described as a lenient view, the Assessing Officer, vide order dated 24.06.2019 passed under section 271(1)(c) read with section 274 of the Act, levied penalty of Rs.34,97,33,414/-, being 100 per cent of the tax sought to be evaded. The penalty order was passed after obtaining prior approval of the Additional Commissioner of Income-tax, Range 7(3), Mumbai, vide letter dated 14.06.2019.

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satisfaction in the assessment order for initiating penalty proceedings and had not brought any material on record to establish that the assessee had furnished inaccurate particulars of income.

5.1 On merits, the assessee reiterated that the original depreciation of Rs.1,13,26,09,625/- was claimed on the basis of the tax audit report and that the excessive claim resulted from the bona fide application of the rates prescribed in New Appendix I instead of the rates applicable to power-generating undertakings under Appendix IA read with rule 5(1A). The assessee emphasised that the mistake was initially corrected vide letter dated 11.07.2018 and was fully corrected vide letter dated 26.10.2018, whereas the specific query regarding depreciation was raised by the Assessing Officer only on 14.12.2018.

5.2 It was further submitted that, when the mistake was noticed, the time limit prescribed under section 139(5) had expired and, therefore, a revised return could not be filed. Nevertheless, the assessee voluntarily furnished the revised computation and the block-wise statement of depreciation during the assessment proceedings. The Assessing Officer also assessed the business loss at Rs.8,41,69,523/-, being the loss offered in the revised computation furnished by the assessee. According to the assessee, the voluntary correction before detection of the mistake by the Assessing Officer established the bona fides of the explanation and

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ruled out any intention to conceal income or furnish inaccurate particulars thereof.

5.3 The assessee also contended that the Assessing Officer had considered only a part of its written submissions dated 28.05.2019 and had failed to deal with the complete explanation and the supporting material furnished in the penalty proceedings. It was submitted that the mere making of an unsustainable or erroneous claim did not, by itself, amount to furnishing inaccurate particulars of income, particularly where the relevant particulars were disclosed and the mistake was subsequently corrected.

5.4 The CIT(A), after considering the penalty order, the written submissions and the supporting documents, recorded that the assessee had furnished its first letter dated 11.07.2018 before the Assessing Officer raised any query regarding depreciation. By the said letter, the assessee withdrew excess depreciation of Rs.72,03,49,778/- by revising the claim on plant and machinery from Rs.88,65,84,342/- to Rs.16,62,34,563/-.

5.5 The CIT(A) further recorded that, vide letter dated 26.10.2018, the assessee again, suo motu, revised its total claim of depreciation from Rs.1,13,26,09,625/- to Rs.10,39,81,936/- and thereby withdrew excess depreciation of Rs.1,02,86,27,689/-. Along with the said letter, the assessee furnished a statement containing the revised block-wise computation of depreciation.

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5.6 The CIT(A) found that both letters dated 11.07.2018 and 26.10.2018 were furnished before issuance of the notice under section 142(1) dated 14.12.2018, through which the Assessing Officer first raised the issue relating to the claim of depreciation. In view of this chronology, the CIT(A) held that the observations of the Assessing Officer that the assessee had wilfully furnished incorrect particulars for evasion of tax and that the excess claim would have remained concealed but for scrutiny were not sustainable.

5.7 The CIT(A) also rejected the observation of the Assessing Officer that the assessee was unsure of the correct particulars merely because the letter dated 26.10.2018 superseded the earlier letter dated 11.07.2018. The CIT(A) observed that both communications were made before the Assessing Officer issued the specific notice dated 14.12.2018 concerning depreciation. The CIT(A), therefore, accepted that the correction was made suo motu and not after detection of the excess claim by the Assessing Officer.

5.8 Considering the voluntary withdrawal of the excess depreciation before issuance of the specific notice by the Assessing Officer and the judicial precedents referred to in the appellate order, the CIT(A) held that the case was not fit for imposition of penalty under section 271(1)(c). Accordingly, vide order dated 04.11.2025 passed under section 250 of the Act, the CIT(A) directed the Assessing Officer to delete the penalty of Rs.34,97,33,414/-. Ground No. 1 of the assessee’s appeal was

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allowed, whereas Grounds Nos. 2 and 3, being general or non- specific, were not separately adjudicated. The appeal of the assessee was consequently allowed.

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6.1 The learned DR further referred to the observation in the order-sheet entry that the assessee initially furnished a letter dated 11.07.2018 withdrawing excess depreciation of Rs.8,86,58,434/-, as recorded therein, and subsequently furnished another letter dated 26.10.2018, in supersession of the earlier letter, withdrawing excess depreciation of Rs.1,02,86,27,689/-. It was argued that these successive and allegedly inconsistent computations demonstrated that the assessee had failed to disclose the correct particulars of depreciation in a clear and consistent manner. According to the learned DR, the subsequent withdrawal of the claim did not establish the bona fides of the original claim.

6.2 The learned DR also relied upon the observation in the order- sheet entry that, had the return not been selected for scrutiny, the excess depreciation of Rs.1,02,86,27,689/- would have remained undisclosed. It was, therefore, submitted that the assessee had furnished inaccurate particulars of income and that the initial claim of depreciation lacked bona fides and attracted the penal consequences under section 271(1)(c).

6.3 Reliance was also placed upon the decision of the Hon’ble Supreme Court in K.P. Madhusudan v. CIT (251 ITR 99). The departmental order-sheet entry records the proposition relied upon in the following terms: “if the assessee fails to return the correct income due to willful negligence, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof.”

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The learned DR, accordingly, submitted that the CIT(A) was not justified in treating the excess depreciation as a bona fide mistake and deleting the penalty of Rs.34,97,33,414/-. He prayed that the order of the CIT(A) be set aside and the penalty imposed by the Assessing Officer under section 271(1)(c) be restored.

7.1 The learned AR invited our attention to page 38 of the paper book, being Enclosure III to the tax audit report containing the particulars of depreciation allowable under clause 18 of Form No. 3CD. He pointed out that, in respect of Block II comprising “Plant and Equipment”, the tax auditors had applied the rate of depreciation at 80 per cent. The additions put to use for less than 180 days were shown at Rs.2,21,64,60,855/-, additional depreciation was computed at Rs.22,16,46,086/- and normal depreciation was computed at Rs.88,65,84,342/-. The statement reflected aggregate normal depreciation of Rs.91,09,63,540/- and

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additional depreciation of Rs.22,16,46,086/- in respect of all the blocks of assets.

7.2 On the strength of the aforesaid document, the learned AR submitted that the depreciation claimed in the original return was based on the computation certified by the tax auditors under clause 18 of Form No. 3CD. Thus, the relevant particulars concerning the assets, their cost, the date of use and the rate at which depreciation was computed were disclosed in the tax audit report accompanying the return. According to him, the error was confined to the application of the rate of 80 per cent to the block of “Plant and Equipment”, instead of the rates prescribed for a power- generating undertaking under Appendix IA read with rule 5(1A). It was, therefore, contended that the original claim arose from the computation contained in the tax audit report and not from any suppression of the primary particulars by the assessee.

7.3 The learned AR thereafter invited our attention to rule 5(1A) of the Income-tax Rules, 1962, and in particular to its second proviso. The relevant provision, as relied upon, reads as under: “(1A) The allowance under clause (i) of sub-section (1) of section 32 of the Act in respect of depreciation of assets acquired on or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purposes of the business of the assessee at any time during the previous year: Provided that the aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed the actual cost of the said asset: Provided further that the undertaking specified in clause (i) of sub-section (1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read

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with Appendix I, if such option is exercised before the due date for furnishing the return of income under sub-section (1) of section 139 of the Act.”

Referring to the second proviso, the learned AR submitted that an undertaking engaged in the generation or generation and distribution of power is permitted to opt for depreciation under rule 5(1) read with Appendix I instead of depreciation under Appendix IA. The only condition stipulated in the proviso is that such option should be exercised before the due date for furnishing the return of income under section 139(1).

7.4 The learned AR submitted that neither the second proviso to rule 5(1A) nor any other provision referred to therein prescribed a separate form or particular manner in which such option was required to be exercised. According to him, the assessee had claimed depreciation under Appendix I in the return of income furnished under section 139(1), and the corresponding computation was also disclosed under clause 18 of Form No. 3CD. It was contended that, in the absence of any separately prescribed form, the claim made in the return itself was capable of being understood as the exercise of the option contemplated by the second proviso to rule 5(1A).

7.5 The learned AR submitted that this statutory framework further demonstrated that the original claim was not fictitious or wholly alien to the Act and the Rules. Rule 5(1A) itself permitted a power-generating undertaking, subject to the prescribed condition, to claim depreciation under Appendix I instead of Appendix IA.

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Therefore, even if the assessee subsequently accepted the computation under Appendix IA and withdrew the excess claim, the original computation under Appendix I was made on a possible understanding of the second proviso to rule 5(1A).

7.6 In support of the aforesaid submission, the learned AR placed reliance upon the decision of the Hon’ble Supreme Court in CIT v. Jindal Steel & Power Ltd. [2023] 157 taxmann.com 207 (SC)/[2024] 460 ITR 162 (SC), dated 06.12.2023. He invited our attention particularly to paragraphs 35 to 44 of the judgment, wherein the Hon’ble Supreme Court examined whether compliance with a particular mode of exercising the option to adopt the written down value method, in place of the straight-line method, was a statutory requirement. The learned AR pointed out that, in the said case, the assessee had claimed depreciation under rule 5(1) read with Appendix I before the due date for furnishing the return of income. The Assessing Officer reduced the claim on the ground that the assessee had not separately or specifically exercised the option to adopt the written down value method. The Hon’ble Supreme Court, after considering section 32(1), rule 5(1), rule 5(1A), Appendix I and Appendix IA, observed in paragraph 43 as under: “43. In the instant case, there is no dispute that the assessee had claimed depreciation in accordance with sub-rule (1) read with Appendix-I before the due date of furnishing the return of income. The view taken by the assessing officer as affirmed by the first appellate authority that the assessee should opt for one of the two methods is not a statutory requirement. Therefore, the revenue was not justified in reducing the claim of depreciation of the assessee on the ground that the assessee had not specifically opted for the WDV method.”

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The learned AR particularly relied upon the principle enunciated in paragraph 44 of the judgment, which reads as under: “44. A similar issue was examined by this Court in CIT v. G.R. Govindarajulu [2016] 16 SCC 335/[2015] 61 taxmann.com 400/235 Taxman 199/378 ITR 1 (SC), wherein it has been held that the law does not mention any specific mode of exercising such an option. The only requirement is that the option has to be exercised before filing of the return. In that case, assessee had set apart a sum of Rs. 32 lakhs to be spent for charitable purposes in the following year and claimed deduction of the entire amount under section 11 of the Act which deals with income from property held for charitable or religious purposes. This claim of the assessee was denied by the assessing officer on the ground that no option for this purpose was exercised by the assessee before filing of the return. Though the assessee had stated so in the return itself, that was not treated as exercising the option in a valid manner. All the appellate authorities answered this issue in favour of the assessee. When the revenue approached this Court by way of civil appeal, this Court opined that the law does not mention any specific mode of exercising the option. The only requirement is that the option has to be exercised before filing of the return. This Court held that if the option is exercised when the return is filed, that would be treated as in conformity with the requirement of section 11 of the Act.”

7.7 The learned AR further submitted that the aforesaid principle was applied by the Hon’ble Supreme Court to the second proviso to rule 5(1A) in paragraph 45, which reads as under: “45. Applying the aforesaid principle to the facts of the present case, we are in agreement with the view expressed by the Tribunal and the High Court that there is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Rules that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return. All that is required is that the assessee has to opt before filing of the return or at the time of filing the return that it seeks to avail the depreciation provided in Section 32 (1) under sub-rule (1) of Rule 5 read with Appendix-I instead of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee has done. If that be the position, we find no merit in the question proposed by the revenue. The same is therefore answered in favour of the assessee and against the revenue.”

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Applying the aforesaid ratio to the present case, the learned AR submitted that the assessee had claimed depreciation under rule 5(1) read with Appendix I in the return of income itself. The corresponding computation, including the rate of 80 per cent applied to “Plant and Equipment”, was disclosed under clause 18 of Form No. 3CD. Since the Rules did not prescribe any separate form or particular mode for exercising the option contemplated by the second proviso to rule 5(1A), the claim made in the return itself constituted the exercise of that option.

7.8 The learned AR thereafter explained the chronology. The return was selected for complete scrutiny by notice dated 21.07.2017 issued under section 143(2). The said notice did not raise any specific query concerning depreciation, the applicable rate, or the exercise of the option under rule 5(1A). Mere selection of the return for scrutiny could not, according to him, be equated with detection of an incorrect claim by the Assessing Officer.

7.9 When the tax consultant initially entertained a doubt regarding the applicable rate, the assessee furnished the letter dated 11.07.2018, acknowledged by the Department on 16.07.2018. By the said letter, the assessee revised depreciation on additions to plant and machinery from Rs.88,65,84,342/- to Rs.16,62,34,564/- and withdrew excess depreciation of Rs.72,03,49,778/-. The letter contained the cost of the additions, the rate originally applied, the rate subsequently considered applicable and the resulting revised computation.

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8.1 The learned AR emphasised that the first specific query concerning depreciation was raised only through the notice under section 142(1) dated 14.12.2018. By that date, the assessee had already furnished both letters and had completely revised the depreciation claim on 26.10.2018. Thus, the revision preceded the detection or identification of the issue by the Assessing Officer.

8.2 In response to the notice dated 14.12.2018, the assessee furnished a reply dated 22.12.2018 reiterating that the claim had already been revised to Rs.10,39,81,936/- on 26.10.2018. The assessee also furnished a revised statement of computation of total income and requested the Assessing Officer to take cognizance thereof while completing the assessment under section 143(3).

8.3 The learned AR submitted that, when the doubt regarding the computation was raised by the tax consultant, the statutory period for furnishing a revised return under section 139(5) had already

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expired. Consequently, the assessee could not revise the claim by filing a revised return and adopted the only course then available by furnishing letters, the block-wise depreciation statement and the revised computation during the pending assessment proceedings.

8.4 It was submitted that this chronology demonstrated that the revision was suo motu. The mere pendency of scrutiny proceedings did not establish that the error had been detected by the Assessing Officer. The specific notice concerning depreciation was issued only on 14.12.2018, whereas the complete withdrawal had already been communicated on 26.10.2018. The allegation in the Revenue’s grounds that the claim was withdrawn only after its detection was, therefore, contrary to the contemporaneous record.

8.5 The learned AR submitted that the two letters were not inconsistent. The letter dated 11.07.2018 represented the first correction of the rate applied to additions put to use for less than 180 days. The letter dated 26.10.2018 represented a comprehensive re-computation under Appendix IA. Both letters disclosed the figures and the basis of computation. The departmental order-sheet entry, however, incorrectly recorded that the withdrawal under the first letter was Rs.8,86,58,434/-, whereas the letter itself showed that the amount withdrawn was Rs.72,03,49,778/-.

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8.6 The learned AR reiterated that, on a correct interpretation of the second proviso to rule 5(1A), the original claim under Appendix I was legally permissible and was wrongly withdrawn. Nevertheless, even assuming that the claim was not ultimately allowable, it remained a bona fide claim because it was based on the tax audit report, supported by the statutory provision, fully disclosed in the return and voluntarily given up before any specific query was raised.

8.7 It was emphasised that the Department had not disputed any primary fact furnished by the assessee. There was no allegation that the assets were non-existent, that their actual cost was inflated, that the assets were not owned or used by the assessee, or that the entries in the books and Form No. 3CD were false. The dispute was confined to whether depreciation should be computed under Appendix I or Appendix IA and whether the option under the second proviso to rule 5(1A) had been validly exercised.

8.8 In support of the proposition that a claim based on expert advice does not amount to furnishing inaccurate particulars merely because it is not accepted, the learned AR relied upon Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC). The Hon’ble Supreme Court observed in paragraph 82 as under: “82. A duty may be enjoined on the assessee to make a correct disclosure of income but if such disclosure is based on the opinion of an expert, who is otherwise also a registered valuer having been appointed in terms of a statutory scheme, only because his opinion is not accepted or some other expert gives another opinion, the same by itself may not be sufficient for arriving at a conclusion that the assessee has furnished inaccurate particulars.”

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8.9 The learned AR submitted that the claim in the present case was similarly founded upon the computation certified by the tax auditors under clause 18 of Form No. 3CD. The Department had not found the factual particulars disclosed in the tax audit report to be false. A dispute concerning the method or rate adopted by the tax auditors could not, by itself, establish furnishing of inaccurate particulars.

10.1 The learned AR submitted that the aforesaid reasoning concerning the meaning of “concealment” and “inaccurate particulars” continued to hold the field. He referred to CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC), wherein the Hon’ble Supreme Court clarified the extent to which Dilip N. Shroff had been overruled:

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“However, it must be pointed out that in Dharamendra Textile Processors’ case (supra), no fault was found with the reasoning in the decision in Dilip N. Shroff’s case (supra), where the Court explained the meaning of the terms ‘conceal’ and ‘inaccurate’. It was only the ultimate inference in Dilip N. Shroff’s case (supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff’s case (supra) was overruled.” (para 8)

The learned AR particularly relied upon paragraph 9 of Reliance Petroproducts (supra), which reads as under: “9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster’s Dictionary, the word ‘inaccurate’ has been defined as:— ‘not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript.’ We have already seen the meaning of the word ‘particulars’ in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would 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.”

10.2 It was submitted that the aforesaid ratio squarely applied because none of the factual particulars supplied by the assessee was found to be incorrect, erroneous or false. Even if the claim under Appendix I were assumed to be legally unsustainable, the mere making of that claim could not amount to furnishing inaccurate particulars.

10.3 The learned AR also relied upon the decision of the Co- ordinate Bench in DCIT v. Ashajyot Mercantile Private Limited,

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ITA No.347/Mum/2024, order dated 22.05.2024. The relevant findings in paragraphs 6 and 7 read as under: “6. In our considered opinion when the expenses are otherwise genuine and allowable but disallowed only due to dispute with respect to year of allowability of the claim then in such circumstances it is not a fit case for the levy of Penalty under section 271(1)(c) of the Act. 7. A perusal of the orders of the authorities below show that neither in the assessment order nor the Penalty order have alleged any misrepresentation/illegal claim or bogus expenses on part of the assessee. All the payments pertain to the statutory dues. If these statutory expenses are taken to be part of stock-in-trade and were to be debited on sale of such stock, even then these expenses were to be allowed. If these statutory expenses are considered as capital expenditure, then the assessee would be eligible to claim it as and when the capital assets are sold. Therefore, the only dispute was the year in which these expenses should have been allowed. Considering the facts of the case in totality, we do not find any reason to interfere with the findings of the Ld. CIT(A).”

10.4 Drawing an analogy from the aforesaid decision, the learned AR submitted that depreciation was otherwise allowable to the assessee and no factual component of the claim was doubted. The dispute concerned only the applicable method and rate of depreciation. A difference concerning the manner or quantum of an otherwise admissible deduction did not warrant penalty under section 271(1)(c).

10.5 The learned AR thus summed up his submissions by contending that the original depreciation claim was legally sustainable under the second proviso to rule 5(1A); the claim was wrongly withdrawn under an erroneous understanding of the provision; the withdrawal was nevertheless made suo motu before the Assessing Officer raised any specific query; and all material facts were fully disclosed and remained undisputed. Even if the

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original claim were treated as having been given up, its bona fides stood established by the tax audit report, the statutory option, the contemporaneous correspondence and the voluntary revised computation. He, therefore, submitted that no case of furnishing inaccurate particulars was made out and prayed that the order of the CIT(A) deleting the penalty of Rs.34,97,33,414/- be upheld.

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12.1 The depreciation claimed in the return was based on the statement prepared by the tax auditors under clause 18 of Form No. 3CD. The statement disclosed the block of assets, the actual cost of the additions, the period for which the assets were put to use, the rate applied, additional depreciation and normal depreciation. In respect of “Plant and Equipment”, additions put to use for less than 180 days were disclosed at Rs.2,21,64,60,855/-, additional depreciation was computed at Rs.22,16,46,086/- and normal depreciation was computed at Rs.88,65,84,342/-. Thus, all the primary particulars relevant to the claim were disclosed.

12.2 The Assessing Officer proceeded on the premise that, since the assessee was engaged in the generation of power, depreciation was mandatorily required to be computed under Appendix IA read with rule 5(1A). This premise overlooks the second proviso to rule 5(1A), which permits an undertaking engaged in the generation or generation and distribution of power to opt for depreciation under rule 5(1) read with Appendix I instead of depreciation under Appendix IA.

12.3 The Rules do not prescribe any separate form or particular mode for exercising the option. The assessee claimed depreciation under Appendix I in the return of income itself and disclosed the corresponding computation in Form No. 3CD. The assessee commenced commercial generation of power during the relevant previous year and exercised the option through the return furnished for the corresponding assessment year.

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12.4 The issue is directly covered by the decision of the Hon’ble Supreme Court in CIT v. Jindal Steel & Power Ltd. [2023] 157 taxmann.com 207 (SC)/[2024] 460 ITR 162 (SC). The relevant para is reproduced earlier. In view of the said exposition, the original claim under Appendix I could not have been characterised as a claim wholly unknown to law. The claim made in the return itself constituted the exercise of the option contemplated by the second proviso to rule 5(1A). The subsequent withdrawal proceeded on an erroneous understanding that depreciation under Appendix IA was mandatory for the assessee.

12.5 We are presently concerned with the levy of penalty and not with recomputation of the assessed loss. Nevertheless, the statutory basis of the original claim is directly relevant for examining whether the assessee furnished inaccurate particulars. Merely because the assessee, acting on subsequent professional advice, gave up a claim which was supported by the second proviso to rule 5(1A), the particulars originally furnished cannot retrospectively be regarded as false.

12.6 The chronology also does not support the allegation that the assessee withdrew the claim only after its detection by the Assessing Officer. The notice under section 143(2) dated 21.07.2017 merely informed the assessee that the return had been selected for complete scrutiny. It did not raise any query concerning depreciation, the applicable rate or the exercise of the option under rule 5(1A).

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12.7 The assessee furnished the first letter dated 11.07.2018, acknowledged by the Department on 16.07.2018, revising depreciation on additions to plant and machinery from Rs.88,65,84,342/- to Rs.16,62,34,564/- and withdrawing excess depreciation of Rs.72,03,49,778/-. The departmental order-sheet entry incorrectly recorded the amount withdrawn under this letter as Rs.8,86,58,434/-. The letter itself contains the relevant computation and leaves no ambiguity regarding the amount withdrawn.

12.8 Thereafter, the assessee furnished the letter dated 26.10.2018, in supersession of the earlier letter, and re-computed depreciation under Appendix IA at Rs.10,39,81,936/-. It consequently withdrew excess depreciation of Rs.1,02,86,27,689/- and furnished a block-wise revised statement. The letter bears the acknowledgment of the office of the Assessing Officer dated 26.10.2018.

12.9 The Assessing Officer raised the specific query concerning depreciation only through the notice under section 142(1) dated 14.12.2018. Thus, the complete withdrawal of the excess claim on 26.10.2018 preceded the specific query by approximately seven weeks. Mere pendency of scrutiny proceedings cannot be equated with detection of the alleged error when no query concerning that issue had been raised.

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13.1 The two letters also cannot be regarded as inconsistent disclosures. The first letter corrected the rate applied to additions put to use for less than 180 days. The second letter made a comprehensive re-computation of depreciation under Appendix IA. Both letters disclosed the basis and figures of the respective computations. They represent successive stages of reconsideration of a legal claim and not concealment of any factual particular.

13.2 The claim of depreciation was based on the computation certified by the tax auditors under clause 18 of Form No. 3CD. The ratio of the decision of the Hon’ble Supreme Court in Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC) is that, where the disclosure made by an assessee is founded upon the opinion of a qualified expert appointed under a statutory scheme, the mere non-acceptance of such opinion or adoption of a different opinion does not, by itself, establish that the assessee furnished inaccurate particulars.

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14.1 The ratio laid down by the Hon’ble Supreme Court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) is that the mere making of a claim which is not accepted or is found to be unsustainable in law does not amount to furnishing inaccurate particulars, provided the particulars furnished in the return are not found to be incorrect, erroneous or false.

14.2 The present case stands on a stronger footing. The original claim was supported by the second proviso to rule 5(1A), the computation was disclosed in the tax audit report, and the claim was suo motu revised before the Assessing Officer raised any specific query. Even assuming that the original claim was not ultimately allowable, the ratio of Reliance Petroproducts applies because none of the particulars supplied by the assessee was found to be incorrect, erroneous or false.

14.3 The decision of the co-ordinate Bench in DCIT v. Ashajyot Mercantile Private Limited, ITA No.347/Mum/2024, order dated 22.05.2024, also supports the assessee’s case. The ratio of the said decision is that, where an expenditure or

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deduction is genuine and otherwise allowable, but the dispute is confined to the year or manner of its allowability, such a dispute does not justify the levy of penalty under section 271(1)(c), particularly in the absence of any allegation of misrepresentation, bogus expenditure or false particulars.

14.4 In the present case, depreciation was otherwise allowable to the assessee under section 32. The dispute was confined to the applicable method and rate of depreciation under Appendix I or Appendix IA. Neither the assessment order nor the penalty order identifies any bogus asset, false entry or misrepresentation of a primary fact. The aforesaid decisions, therefore, support the conclusion that the assessee did not furnish inaccurate particulars of income.

14.5 The Revenue, in Ground No. iii, has relied upon K.P. Madhusudhanan v. CIT [2001] 251 ITR 99 (SC). In that case, the Assessing Officer detected that a demand draft and a telegraphic transfer had not been entered in the cash book on the dates on which the transactions occurred. When confronted, the assessee claimed that the transactions had been financed through hand loans obtained from friends. The assessee was unable to furnish any evidence in support of the alleged loans and thereafter offered the amount of Rs.93,000/- as additional income.

14.6 In those circumstances, the Assessing Officer found the explanation concerning the hand loans to be unacceptable and

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applied Explanation 1(B) to section 271(1)(c). The principal issue before the Hon’ble Supreme Court was whether the Explanation to section 271(1)(c) could be applied without being expressly invoked in the penalty notice. The Hon’ble Supreme Court held: “No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied.”

14.7 The factual and legal setting of K.P. Madhusudhanan is materially different. In that case, transactions had not been contemporaneously entered in the books, the omission was detected by the Assessing Officer, the explanation of hand loans was unsupported by evidence, and the amount was offered only after the assessee was confronted. The explanation was, therefore, held to be unsubstantiated for the purposes of Explanation 1(B).

14.8 In the case before us, no transaction, asset or factual particular was omitted from the books or return. The assets, actual cost, period of use, rate applied and depreciation claimed were disclosed in the return and Form No. 3CD. The claim was based on a statutory option under the second proviso to rule 5(1A) and on the tax auditors’ computation. The assessee revised the claim before the Assessing Officer raised the specific query dated 14.12.2018. Its explanation is supported by the return, tax audit report, contemporaneous letters and the law declared in Jindal Steel & Power Ltd. (supra).

14.9 The ratio in K.P. Madhusudhanan that Explanation 1 need not be separately mentioned in the penalty notice is not in

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dispute. However, the application of Explanation 1 still depends upon the facts of each case. The present assessee neither failed to offer an explanation nor offered an explanation found to be false. The explanation was substantiated, bona fide and accompanied by disclosure of all facts material to the computation of income. Accordingly, the deeming fiction under Explanation 1 is not attracted.

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Order pronounced in the open court on 27.07.2026.

Sd/- Sd/- (KAVITHA RAJAGOPAL) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated 27/07/2026 PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1.

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��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मु�ई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�ािपत �ित //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु�ई / ITAT, Mumbai