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Facts
The assessee claimed depreciation on office premises for AY 2016-17. The Assessing Officer (AO) recalculated the WDV for preceding years, leading to a disallowance of depreciation for AY 2016-17 and a penalty under Section 271(1)(c). The assessee argued that the claim was not inaccurate and that the issue was debatable.
Held
The Tribunal held that the issue of depreciation allowance was debatable and that the overall effect of the adjustments across the three assessment years was revenue neutral. Consequently, the penalty imposed under Section 271(1)(c) was deleted.
Key Issues
Whether the penalty under Section 271(1)(c) is leviable when the depreciation claim is debatable and the overall impact is revenue neutral?
Sections Cited
271(1)(c), 143(3), 143(1), 32, 43(6)(b), 50
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
Present for: Assessee : Shri Fenil Bhatt, Advocate Revenue : Shri Aditya M. Rai, Sr. DR Date of Hearing : 25.06.2025 Date of Pronouncement : 24.07.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by assessee is against the order of Ld. CIT(A)- 47, Mumbai, vide order no. ITBA/APL/S/250/2024- 25/1074362108(1), dated 11.03.2025 passed against the penalty order by Assistant Commissioner of Income Tax, Central Circle – 31(3), Mumbai, u/s. 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 31.05.2019 for Assessment Year 2016- 17.
2. Grounds taken by the assessee are reproduced as under: "1. Whether on the facts and circumstances of the case of the appellant and in law, the Ld Commissioner of Income Tax Appeals erred in confirming the penalty levied by the Assessing Officer of Rs. 455,452/-.
Steelfab Building Systems AY 2016-17 Your appellant submit that there is no question of filing any inaccurate particulars of Income.The appellant has preferred not to claim the depreciation of the office premises for the A.Y. 2014- 15,2015-16 and claimed the depreciation during the AY 2016-17 and the fact was also mentioned in the Return of Income and Balance Sheet for all the 3 years as mentioned above and therefore it does not amount to furnishing of inaccurate particulars of Income. If all the three assessment years A.Y 2014-15, A.Y 2015-16 and A.Y 2016-17 is considered together there is no net tax liability. The Assessee humbly request your honour to direct the Assessing officer to kindly drop the penalty levied.".
The sole issue is in respect of imposition of penalty u/s. 271(1)(c) amounting to Rs.4,55,452/- relating to claim of depreciation. Brief facts of the case are that assessee filed its return of income on 16.10.2010 reporting total income at Rs.45,98,550/-. Assessment was completed by making an addition of Rs.14,73,956/- towards depreciation on office premises. According to the ld. Assessing Officer, assessee had claimed depreciation amounting to Rs.2,83,04,104/-. Assessee had shown opening balance of written down value (WDV) of the office premises at Rs.7,75,76,657/-. The same amount was show as opening balance of WDV for Assessment Year 2014-15 and 2015- 16, i.e., the preceding two Assessment Years. Ld. Assessing Officer on these set of facts recalculated the depreciation for the year under consideration by reworking the WDV for Assessment Year 2014-15 and 2015-16 by making a reduction towards depreciation for these two years. Thus, the difference on account of the WDV because of the two preceding years resulted into a disallowance of depreciation for the year under consideration as the WDV taken by the assessee was at a higher amount.
2.1. According to the assessee, disallowance of depreciation is on account of allowance of depreciation in Assessment Year 2014-15 and 2015-16 suo moto by the ld. Assessing Officer and is not on account of furnishing of inaccurate particulars of income. It was submitted that Steelfab Building Systems AY 2016-17 assessment for Assessment Year 2014-15 was completed u/s. 143(3) and for Assessment Year 2015-16, it was u/s.143(1) wherein ld. Assessing Officer did not suo moto allow depreciation u/s. 32 on the office premises. Accordingly, assessee stated that different views are taken in the Assessment Year 2014-15, 2015-16 and 2016-17. Assessee also referred to explanation 5 to section 32 in respect of depreciation which provides that “For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the depreciation in respect of depreciation in computing his total income.” According to the assessee, it has an option not to claim depreciation while computing its total income.
2.2. Further, it was submitted that consequential changes in depreciation in Assessment Year 2014-15 and 2015-16 has the effect of increasing the carry forward of losses which shall be available for set off in the year under consideration and hence the total taxable income will get reduced to that extent. Working in this regard was furnished before the ld. CIT(A), and the same is extracted below: “The appellant has set off /loss of brought forward loss of AY 2013-14 in AY 2014-15 and AY 2015-16. The total income of AY 2014-15 and AY 2015-16 has been reworked as below if the depreciation has been allowed in AY 2014- 15 and AY 2015-16. Particular AY 2014-15 AY 2014-15
(As filed by the (As recomputed Appellants) after giving consequential effect of depreciation) Income declared as Income Tax 2,06,00,804 2,06,00,804 Return Add: Depreciation Claimed (in ITR) 2,03,54,499 2,03,54,499 Gross Total Income 4,09,55,303 4,09,55,303 Less: Depreciation Allowable 2,03,54,499 2,79,06,336 Steelfab Building Systems AY 2016-17 Gross Total Income before Set off of 2,06,00,804 1,30,48,967 brought losses Less Brought forward loss set off 2,06,00,804 1,30,48,967 Ordinary business loss c/f Unabsorbed depreciation c/f 1,09,37,403 1,84,89,240 Total Income Particular AY 2015-16 AY 2015-16 (As filed by the (As recomputed Appellants) after giving consequential effect of depreciation) Income declared as Income Tax 69,82,433 69,82,433 Return Add: Depreciation Claimed (in ITR) 1,83,42,705 1,83,42,705 Gross Total Income 2,53,25,138 2,53,25,138 Less: Depreciation Allowable 1,83,42,705 2,53,45, 187 Gross Total Income before Set 69,82,433 off of brought losses Less: Brought forward loss set off 69,82,433 (unabsorbed depreciation) Ordinary business loss c/f Unabsorbed depreciation of 39,54,970 1,85,09,289 Total Income After considering above fact, the appellant has an unabsorbed depreciation for AY 2014-15 and AY 2015-16 amounting to Rs 1,45,54,319/-. The unabsorbed depreciation loss can be set off against the Total Income of AY 2016-17 i.e. Rs 60,72,508/- (as declared in the order by the AO). Considering unabsorbed deprecation loss set off against total income declared of Rs 60,72,508/- as per order. There would NIL income liable to Tax and the appellant has carried forward of unabsorbed deprecation loss of Rs 84,81,811/- for further Assessment Years (after set off unabsorbed depreciation against total income declared in AY 2016-17).
This working indicates that the assessing officer has not maintained consistent stand and on the contrary which is in favor of the department (in order to raise the revenue). He has given the effect in A.Y 2016-17 which is in his favor but the A.Y 2014-15 and 2015-16 though he has worked out the depreciation and written down value but not rectified as per his own stand because if he allowed then there will be substantial refund worked out in favor of your appellant that he has to give.
To carry out the reworking of depreciation for all the 3 assessment years i.e. Α.Υ. 2014-15, Α.Υ. 2015-16 & Α.Υ.2016-17 is inter-connected and since the Steelfab Building Systems AY 2016-17 Assessing Officer has done reworking of one year and refused to do the rectification of earlier two assessment years i.e. A.Y.2014-15 & A.Y.2015-16 is creating absurd position to the extent that your appellant does not get depreciation allowance and relief of earlier two assessment years i.e. Α.Υ. 2014-15 & Α.Y.2015-16 amounting to Rs.2,79,06,336/- for A. Y.2014-15 &Rs. 2,53,45,187/- A.Y.2015-16 he will never get it. This is an absurd position created due to refusal of rectification. The Assessing Officer has violated the principle of equity and the intention of the legislation that whatever is legitimate claim of the assessee must be given to them.”
2.3. Accordingly, the adjustments so made is tax neutral and does not cause any prejudice to the Revenue. 2.4. Assessee also asserted that mere making of a claim which is permissible under law as explained in explanation 5 to section 32 does not amount to furnishing of inaccurate particulars of income of the assessee. To buttress its contention, reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petro products Pvt. Ltd [322] ITR 158 (SC). Assessee also placed reliance on the decision of the Coordinate Bench in the case of Pravinchandra Dwarkadas Dalal Vs. DCIT [2025] 172 taxmann.com 813 (Mum) (the undersigned Accountant Member is the author for this also). Reference was made to para 7.3 and 7.4 of this order which are extracted below: “7.3. In the present case before us, depreciation “actually allowed” has to be taken, based on claim made by the assessee up to Assessment Year 2003-04, subsequent to which, there has been no claim made and allowed. Hence, no occasion for computing notional depreciation as done by ld. Assessing Officer from Assessment Year 2004-05. Accordingly, for the purpose of computation of capital gain u/s.50, WDV as at 31.03.2003 at Rs.33,02,106/- is to be reduced from sale consideration of Rs.1,45,00,000/-. 7.4. For this, we find force from the decision of Hon'ble Supreme Court in the case of CIT vs. Doom Dooma India Ltd. [2009] 310 ITR 392 (SC). Hon'ble Court analysed the words “depreciation actually allowed” as occurring in section 43(6)(b) to arrive at “written down value” as defined u/s. 43(6). Hon'ble Court, came to conclusion in para-9 that meaning of the words “actually allowed” in section 43(6)(b) is to be “limited to depreciation actually taken into account or granted and given effect to, i.e., debited by the Income-tax Officer against the incomings of the business in computing the taxable income of the assessee”. We also refer to the decision of Sakthi Metal Depot [2011] 333 ITR 492 (Ker), wherein Hon'ble High Court in para-4, while allowing the appeal of the Revenue, held that WDV to be taken is the WDV available as on the date of ending of previous year Steelfab Building Systems AY 2016-17 in which depreciation was allowed last. Accordingly, in the present case before us, WDV as on 31.03.2003 of Rs.33,02,106/- is to be taken into account for the purpose of computing capital gains u/s. 50 of the Act.
Assessee thus pointed out and asserted that the issue on which penalty has been levied is debatable issue. Further, it has consequential effect in the preceding two Assessment Years and when all the three years from Assessment Year 2014-15 to 2016-17 are considered in totality, the effect is revenue neutral, thereby causing no prejudice to the Revenue. In these given set of facts and circumstances, fortified by the judicial precedents referred above, we delete the penalty so imposed. Accordingly, ground raised by the assessee is allowed.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 24th July, 2025