Pr. Commissioner Of Incometax-1 vs. M/S Rashtriya Taknikishikshak Prashikshanevamanusandhansansthansamiti Evam Anusandhansansthan Samit

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ITA/19/2026HC Madhya Pradesh02 July 2026Bench: HON'BLE THE ACTING CHIEF JUSTICE6 pages
For Petitioner: Siddharth Sharma[P-1]
AI SummaryDismissed

What did the High Court hold?

The High Court held that the assessee society was exempted under Section 10(23C)(iiiab) of the Act. The disallowance of depreciation amounting to Rs. 5,72,14,721/- was made because the assets were acquired out of Central Government funds, rendering their actual cost for depreciation purposes as NIL. Although the assessee claimed depreciation without considering Section 43(1) and later realized the mistake, accepting the disallowance without challenge, the Court found no deliberate attempt to conceal income or furnish inaccurate particulars. Since the assessee is totally exempted from income tax, there was no mens rea to commit a deliberate act to pay less tax. Therefore, the CIT(A) and ITAT rightly held that there would be no penalty under Section 271(1)(c) for a bona fide/inadvertent/human error. The penalty of Rs. 2 Crore was imposed to bring the case within jurisdiction, despite the tax effect being zero. The Court found no substantial question of law involved and dismissed the appeal.

What were the facts?

The assessee, M/s Rashtriya Taknikishikshan Evamanusandhansanstha Samiti, an organization under the Ministry of Human Resources & Development, filed its return for Assessment Year 2014-15 declaring a total loss of Rs. 5,72,14,721/-. The initial assessment under Section 143(3) assessed the loss at the same amount. However, the Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263. Consequently, the Assessing Officer (AO) completed a fresh assessment under Section 143(3) read with Section 263, assessing the total income at Rs. NIL after adding Rs. 5,72,14,721/- on account of disallowance of depreciation, citing Explanation 10 to Section 43(1). Penalty proceedings under Section 271(1)(c) were initiated for furnishing inaccurate particulars. The AO levied a penalty of Rs. 2 Crore. The Commissioner of Income Tax (Appeals) [CIT(A)] set aside the penalty, holding the claim of depreciation as an inadvertent error. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s order. The Revenue has appealed to the High Court.

What were the issues?

1. Whether the lower authorities (CIT(A) and ITAT) erred in holding that there was no intentional furnishing of inaccurate particulars of income by the assessee, thereby setting aside the penalty under Section 271(1)(c) of the Income Tax Act, 1961, despite the assessee accepting the disallowance of depreciation? The Assessee's contentions (as inferred from the judgment and the Revenue's arguments): The assessee claimed depreciation inadvertently, and since the entire income of the society is exempt under Section 10(23C)(iiiab), there was no intention to evade tax. The claim was a bonafide human error, and the assessee accepted the disallowance. Reliance was placed on the Supreme Court judgment in Pricewaterhouse Coopers Pvt. Ltd. Vs. CIT. The Revenue's contentions: The assessee, with expert assistance from accountants and auditors, blatantly claimed depreciation on assets acquired through government grants, which is disallowed under Explanation 10 to Section 43(1). This constitutes intentional furnishing of inaccurate particulars, and mens rea cannot be denied.

Which sections of the Income-tax Act were involved?

Section 260A,Section 139,Section 143(3),Section 263,Section 43(1),Section 271(1)(c),Section 12A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF MADHYA PRADESH AT JABALPUR BEFORE HON'BLE SHRI JUSTICE VIVEK RUSIA, ACTING CHIEF JUSTICE & HON'BLE SHRI JUSTICE PRADEEP MITTAL ON THE 2nd OF JULY, 2026 INCOME TAX APPEAL No. 19 of 2026 PR. COMMISSIONER OF INCOMETAX-1 Versus M/S RASHTRIYA TAKNIKISHIKSHAK PRASHIKSHANEVAMANUSANDHANSANSTHANSAMITI EVAM ANUSANDHANSANSTHAN SAMIT Appearance: Shri Siddharth Sharma - Advocate for the appellant. ORDER Per: Vivek Rusia, Acting Chief Justice Heard on the question of admission. The present income tax appeal has been filed under Section 260A of the Income Tax Act, 1961 (in short "the Act") in respect of assessment year 2014-15 against the order dated 22.12.2025 passed by the learned Income Tax Appellate Tribunal whereby the appeal filed by the Revenue has been dismissed and the order passed by the Commissioner of Income Tax (Appeal) (in short "CIT(A)") was upheld. Facts of the case, in short, are as under :- 2 . The respondent-assessee is a Society incorporated under the Ministry of Human Resources & Development (MHRD) to provide training 1 ITA-19-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:47697 Signed by: SHIVANI TIWARI Signing time: 7/8/2026 5:46:37 PM Signature Not Verified

to technical teachers/faculties. The respondent-assessee filed a return under Section 139 of the Act on 31.03.2015 declaring total loss of Rs.5,72,14,721/-. Vide order dated 04.11.2016, the original assessment was completed under Section 143(3) of the Act, assessing total loss of Rs.5,72,14,721/- after making addition of Rs.NIL. The said order was set aside by the Pr. Commissioner of Income Tax-1, Bhopal vide order dated 26.10.2018 passed under Section 263 of the Act and the assessment proceedings again completed under Section 143(3) read with Section 263 of the Act wherein the total income of the assessee was assessed at Rs. NIL vide order dated 30.08.2019 after making addition of Rs.5,72,14,721/- on account of disallowance of depreciation in view of explanation 10 to Section 43(1) of the Act. 3 . Vide order dated 30.08.2019, the penalty proceeding under Section 271(1)(c) of the Act was initiated on account of furnishing inaccurate particulars of income as the assessee-society claiming depreciation amount of Rs.5,72,14,721/- in the return of income tax for the assessment year 2014-15 in contravention to the explanation 10 to Section 43(1) which deals with receiving of grant/donation directly or indirectly for acquiring fixed assets. According to the Revenue, the assessee was not eligible for claiming depreciation on fixed assets acquired out of grant/donation received from the Central Government. 4. Admittedly, the respondent-society is exempted under Section 10(23C)(iiiab) of the Act. The expenditure on depreciation is only as per the guidelines of MHRD. The Assessing Officer disallowed the depreciation 2 ITA-19-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:47697 Signed by: SHIVANI TIWARI Signing time: 7/8/2026 5:46:37 PM Signature Not Verified

claimed by the assessee amounting to Rs.5,72,14,721/- and the same was added to the total income of the assessee and directed the initiation of penalty proceedings under Section 271(1)(c) of the Act. In compliance of the aforesaid order, a penalty of Rs.2 Crore under Section 271(1)(c) of the Act was levied on assessee vide order dated 28.02.2020 on account of furnishing inaccurate particulars of income. 5. Being aggrieved by the aforesaid order of penalty dated 28.02.2020, the assessee approached the Commissioner of Income Tax (Appeal) by way of filing Appeal No.CIT(A), Bhopal-1/100332020-21 on the ground that it is a charitable trust registered under Section 12A of the Act; hence, entitled for exemption under Section 10(23C) of the Act. The learned CIT(A) held that the appellant has inadvertently claimed the depreciation on the assets which have already been allowed. The depreciation was mistakenly claimed without considering the provisions of Section 43(1) of the Act. Once the mistake was realised, the appellant has accepted the order passed by the Assessing Officer. Thus, there was no intentional furnishing of inaccurate particulars of income on the part of the assessee. The CIT(A) also placed reliance on a judgment passed by the Apex Court in the case of "Pricewaterhouse Coopers Pvt. Ltd. Vs. CIT, [(2012) 25 taxmann.com 400/211 Taxman 40/348 ITR 306 (SC)]" in which the Apex Court has held that there would be no penalty under Section 271(1)(c) of the Act for a "bonafide/inadvertent/human error". Hence, vide order dated 19.02.2025, the CIT(A) set aside the penalty of Rs.2 Crore imposed under Section 271(1)(c) of the Act. 3 ITA-19-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:47697 Signed by: SHIVANI TIWARI Signing time: 7/8/2026 5:46:37 PM Signature Not Verified

6.

Being aggrieved by the aforesaid order dated 19.02.2025 passed by the CIT(A), the Revenue preferred an appeal before the Income Tax Appellate Tribunal (ITAT), which came to be dismissed vide order dated 22.12.2025. The ITAT has held that the assessee filed a return declaring loss of Rs.5,72,14,721/- and perhaps because of the loss, the assessee might not have felt necessary of claiming exemption and it is not the case of the Revenue that the assessee was not entitled to exemption under Section 10(23C)(iiiab) of the Act in current year or subsequent year and accordingly dismissed the appeal. Hence, this present appeal is filed before this Court. Submissions. 7 . Shri Siddharth Sharma, learned counsel appearing for the appellant submits that the orders passed by the CIT(A) and ITAT suffers from perversity on the ground that the assessee has accepted the disallowance towards captioned claim and holding that disallowing of expenses would not alter the status of payment of tax as assessee is exempted under Section Section 10(23C)(iiiab) of the Act and there is no intention or mens rea in part of the assessee to make incorrect claim. The intention or mens rea cannot be denied since claiming expenses (depreciation expenses) when no expenses have been incurred in light of the admitted reimbursement is indeed quite blatant when the assessee has expert assistance of Accountants and Auditors. Conclusion. 8. Since the assets of the assessee society were acquired directly or indirectly from utilising the Central Government Funds, the actual cost of the 4 ITA-19-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:47697 Signed by: SHIVANI TIWARI Signing time: 7/8/2026 5:46:37 PM Signature Not Verified

assets on which depreciation was claimed Rs. NIL. The assessee claimed exemption bonafidely as per the provisions of section 10(23C)(iiiab) of the Act, although no exemption was claimed in the return of income. The AO disallowed the depreciation as claimed by the assessee amounting to Rs.5,72,14,721/- and the same was added to the total income of the assessee and initiated penalty proceedings u/s 271(1)(c) of the Act, for furnishing inaccurate particulars of income. Although the assessee made a mistake of claiming depreciation without considering the provisions under Section 43(1) of the Act and such mistake was realised, and the assessee accepted the same without challenging the order passed by the Assessing Officer in appeal, the assessee revised the return. The respondent has voluntarily conceded that the depreciation was erroneously claimed and accordingly accepted the disallowance made by the Assessing Officer. It is statutorily required to charge depreciation on fixed assets, and charging of depreciation or otherwise does not have any impact on its income as the entire income is exempt u/s. 10(23C) of the Act. Therefore, there cannot be any deliberate attempt on the part of the respondent. Hence, the learned CIT and ITAT have rightly held that there would be no penalty u/s. 271(1)(c) for a bona fide/ inadvertent/ human error. 9 . Admittedly, the respondent-assessee was entitled to exemption under Section 10(23C)(iiiab) of the Act. Originally, the Assessing Officer allowed the deduction of depreciation, but, subsequently, due to the observation by Pr. CIT in the revision order under Section 263 of the Act, the assessment order was reframed by the Assessing Officer, whereas he 5 ITA-19-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:47697 Signed by: SHIVANI TIWARI Signing time: 7/8/2026 5:46:37 PM Signature Not Verified

(VIVEK RUSIA) ACTING CHIEF JUSTICE (PRADEEP MITTAL) JUDGE disallowed the depreciation. 10. The respondent-assessee is a Society formed by the Ministry of Human Resources & Development for providing training to the technical teachers/faculties. It is under direct control of the MHRD. The respondent- society prepared the book of accounts as per the prescribed financial regulations, and they are subjected to audit by CAG. Thus, the depreciation accounted in the book of accounts was claimed as a deduction in the return of income. It was a deliberate attempt to conceal the income or furnish inaccurate particulars. There was no willful suppression of fact by the assessee, but the same is a genuine mistake or omission. 11. When the assessee is totally exempted from payment of income tax, therefore, there cannot be mens rea to commit such a deliberate act to pay less income tax. Therefore, the CIT(A) as well as ITAT has rightly held that it was a "bonafide/inadvertent/human error". The penalty is liable to be imposed @100% to 300%. It appears that to bring the case within jurisdiction, the penalty of Rs.2 Crores has been imposed otherwise the tax effect in this case is zero. 12. In view of the above, we do not find any question of law involved in this appeal and the present income tax appeal is dismissed, accordingly. Shivani

6 ITA-19-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:47697 Signed by: SHIVANI TIWARI Signing time: 7/8/2026 5:46:37 PM Signature Not Verified

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