Loading judgment…
Facts
The assessee's assessment for AY 2016-17 was completed under Section 144, with additions for excess depreciation (Rs. 8,34,935/-) and exempt income from car sale (Rs. 2,30,320/-), leading to a penalty under Section 271(1)(c). While the excess depreciation addition was later withdrawn by the AO, the CIT(A) upheld the addition and the penalty related to the car sale income.
Held
The Tribunal held that the assessee's treatment of the profit from car sale, by reducing it from the WDV of the block of assets, was a bona fide and permissible claim, not constituting furnishing inaccurate particulars or concealment of income. Furthermore, the Assessing Officer failed to record explicit satisfaction for initiating penalty proceedings concerning this specific addition in the assessment order. Consequently, the penalty levied under Section 271(1)(c) for the profit on sale of the car was deemed invalid and deleted.
Key Issues
Whether the penalty under Section 271(1)(c) for alleged concealment or inaccurate particulars regarding profit from sale of a depreciable asset (car) is sustainable when the assessee treated it as a reduction from the Written Down Value of the block of assets. Also, whether the penalty is valid in the absence of explicit satisfaction recorded by the Assessing Officer for initiating such proceedings for this specific addition.
Sections Cited
250, 271(1)(c), 156, 144, 50, 32(1), 43(6), 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘SM’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G
आदेश/ORDER
PER VIJAY PAL RAO, VICE PRESIDENT :
This appeal by the assessee is directed against the order dated 13.03.2025 of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 13.03.2025 for the Assessment Year 2016-17.
The assessee has raised the following grounds of appeal :
1. “ 1. On the facts and in the circumstances of the case, the order passed by the learned CIT(A), NFAC, Delhi u/s. 250 for the A.Y. 2016-17 is bad in law.
2. On the facts and in the circumstances of the case, the learned CIT(A), NFAC, Delhi erred in upholding the penalty order passed by the learned A.O. u/s. 271(1)(c) of the Act for the A.Y. 2016-17 ignoring the fact that the said penalty had been levied vide order dated 15.03.2022 even though the jurisdictional A.O. was yet to pass orders giving effect to the directions given by the CIT(A)-5, Hyderabad vide order no. ITBA/APL/M/250/2019-20/1018505770(1) dated 30.09.2019 w.r.t. quantum appeal to verify the reconciliation of depreciation. Hence, passing orders levying a penalty when the quantum orders are not yet finalized is bad in law and hence, the penalty levied needs to be deleted.
3. On the facts and in the circumstances of the case, the learned CIT(A), NFAC, Delhi erred in upholding the penalty order passed by the learned A.O. u/s. 271(1)(c) of the Act for the A.Y. 2016-17 ignoring the fact that the demand notice u/s. 156 of the Act was issued on 10.03.2022 vide DIN & Notice No. ITBA/PNL/S/156/2021- 22/1040833436(1) even before the penalty order was passed on 15.03.2022 vide DIN ITBA/PNL/F/271(1)(c)/2021-22/1040786101(1). Hence, the demand of penalty is infructuous, erroneous and not enforceable.
4. On the facts and in the circumstances of the case, the learned CIT(A), NFAC, Delhi erred in partly upholding the penalty order passed by the learned A.O. u/s.271(1)(c) of the Act for the A.Y. 2016-17 instead of deleting the penalty in full as the penalty order was barred by limitation.
5. Without prejudice, on the facts and in the circumstances of the case, the learned CIT(A), NFAC, Delhi erred in upholding the penalty u/s.271(1)(c) of the Act for the A.Y. 2016-17 to the extent of disallowance of exempt income arising from sale of assets by ignoring the fact that the learned A.O. did not take into consideration the submissions made by the assessee Company that the profit of Rs. 2,30,321/- from sale of assets is not to be treated as capital gains but needs to be reduced from book profit while computing taxable income.
6. On the facts and in the circumstances of the case, the learned CIT(A), NFAC, Delhi erred in upholding the act of the learned A.O. who ignored the provisions of section 50 of the Act which deals with the capital gains on sale of depreciable assets and states that when the net sale consideration on the sale of asset is reduced from the written down value (opening WDV + cost of assets acquired if any) of the block of the assets and the written down value of the said block of asset is not Nil, then capital gain is not chargeable to tax.
7. The appellant craves leave to add, to amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if considered necessary.”
3. The assessee company filed its Return of Income for the year under consideration declaring income of Rs.9,95,360/-. The Assessing Officer completed the assessment u/s.144 of the Income Tax Act, 1961 (“the Act”) on 18.12.2018 thereby made the addition on account of excess depreciation of Rs.8,34,935/- and on account of exempt income of sale of car of Rs.2,30,320/-. Thereafter the Assessing Officer initiated the penalty proceedings u/s.271(1)(c) of the Act and levied penalty of Rs.3,29,165/- being 100% of tax sought to be evaded in respect of these two additions viz. disallowance of excess claim of depreciation and on account of income on sale of car.
In the quantum appeal, the Ld. CIT(A) directed the Assessing Officer to verify correct details regarding the additions made on account of excess claim of depreciation as the assessee furnished the details about the additions in the plant and machinery and building during the year which was also directed to be reconciled. In the order passed in giving effect to the order of Ld. CIT(A), the Assessing Officer has accepted the claim of the assessee and withdraw the additions made on account of excess claim of depreciation. As regards the addition made by the Assessing Officer by making the addition on account of sale of car, the Ld. CIT(A) in the quantum appeal sustained the said addition. Therefore the Ld. CIT(A) in the appeal against the penalty u/s. 271(1)(c) of the Act while passing the impugned order deleted the penalty to the extent of relief granted by the Assessing Officer while passing consequential order dated 03.09.2025 towards excess claim of depreciation. The penalty levied u/s. 271(1)(c) of the Act in respect of addition made on account of income from sale of car has been sustained by the Ld. CIT(A).
Before the Tribunal, the Learned Authorised Representative of the assessee submitted that in the assessment order passed u/s.144 of the Act, the Assessing Officer has not recorded any satisfaction for initiating the penalty proceedings u/s. 271(1)(c) of the Act in respect of the addition / disallowance made on account of profit on sale of asset/car. Thus the Ld. AR has submitted that the Assessing Officer levied penalty against the said addition is not sustainable and liable to be deleted. He further submitted that the assessee has rightly not offered the profit on sale of car because it was part of the block of assets and the sale proceeds was reduced from the block of assets still in existence. He has further submitted that though in the profit and loss account the assessee has shown profit of Rs.2,30,321/- on sale of assets, these amounts to be reduced from the profit while computing the taxable income as the sale amount is reduced from the block of assets and therefore the depreciation was claimed by the assessee on the reduced Written Down Value (WDV) of block of assets. Thus the Ld. AR has submitted that, not offering the profit on sale of car is a right claim of the assessee and atleast a bona fide claim of the assessee which does not amount to furnishing of inaccurate particulars of income or concealment of income attracting the levy of penalty u/s. 271(1)(c) of the Act. He has referred to the ledger account and particulars of land and building, plant and machinery on which the depreciation is claimed by the assessee and submitted that the assessee has claimed the depreciation after reducing the sale proceeds of the car from the block of assets and therefore once the assessee has claimed the depreciation on net block under the head “vehicles”, then the profit on sale of car cannot be assessed to tax. Thus he has contended that the penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) is not sustainable and liable to be deleted.
On the other hand, the Learned Department Representative has submitted that the assessee failed to produce any supporting evidence before the Assessing Officer and consequently the Assessing Officer has passed the assessment order u/s.144 of the Act. The claim of the assessee would have been considered only in the quantum proceedings and the Ld. CIT(A) has also confirmed the addition made by the Assessing Officer on this count. Therefore the Assessing Officer is justified in levying the penalty in respect of the addition on the profit of sale of car/asset. He has relied upon the orders of the authorities below.
We have considered the rival submissions and perused the material available on record. The Assessing Officer has made two additions while framing the assessment u/s.144 of the Act. The addition made by the Assessing Officer on account of excess claim of depreciation was subsequently deleted by the Assessing Officer himself while passing the consequential order to the order of the Ld. CIT(A) in quantum appeal. Thus the Assessing Officer has accepted the claim of depreciation of the assessee worked out as per the WDV and calculation of net block of various assets including the vehicles.
Therefore the only issue before us is regarding the penalty levied u/s. 271(1)(c) of the Act in respect of the disallowance made by the Assessing Officer in respect of exempt income representing profit on sale of asset (car). The relevant part of the assessment order in para 4.2 is as under :
6.1 There is no dispute that this addition made by the Assessing Officer represents the profit on sale of Hyundai Verna car by the assessee which is part of the block of assets (vehicles) comprising of five vehicles as under :
6.2 The assessee has claimed depreciation in respect of the vehicles only on the net block after reducing the sale consideration of Hyundai Verna car. Therefore, the assessee has given the accounting treatment to this transaction of sale of car in the block of assets strictly as per the accounting standard as well as the provisions of section 32(1) r.w. section 43(6) of the Income Tax Act.
The Assessing Officer in the order passed pursuant to the order of Ld. CIT(A) in the quantum appeal has accepted the claim of the assessee regarding the depreciation of various assets including the vehicles and therefore the Assessing Officer did not find any discrepancy in respect of the claim of depreciation on vehicles. It is also undisputed fact and rather the matter of record that the sale of Hyundai Verna car is only one of the vehicles comprising the gross block of vehicles and therefore, it would not lead to cessation of the block of assets of vehicles. Hence, when the block of assets (vehicles) remains in existence, then the assessee has given proper treatment to the transaction of sale of the car in question and therefore, the claim of the assessee is in accordance with the provisions of law and a bona fide claim, not falling in the category of impermissible claim leading to the inference of furnishing of inaccurate particulars of income or concealment of income. Once the claim of the assessee is a bona fide claim and rather a permissible claim under the provisions of the Act then the mere disallowance made by the Assessing Officer cannot ipso facto invite the provisions of section 271(1)(c) of the Act.
The penalty proceedings are separate proceedings and even if in the assessment proceedings any addition is made by the Assessing Officer, the assessee can explain the correct fact and justify the claim which was disallowed in the assessment proceedings. Therefore in the facts and circumstances of the case, when the claim of the assessee is a permissible claim and in accordance with the provisions of the Act then the levy of penalty u/s. 271(1)(c) of the Act against the addition made on account of profit on sale of asset is not justified and the same is deleted.
Before parting with the matter, we may also point out that the Assessing Officer has not recorded the satisfaction for initiating the proceedings u/s. 271(1)(c) of the Act in respect of the addition made on account of profit on sale of asset (car). It is manifest from the assessment order that the Assessing Officer has recorded the satisfaction and initiated the proceedings u/s. 271(1)(c) of the Act only in respect of the addition made on account of excess claim of depreciation which was subsequently deleted. Therefore, in the absence of the satisfaction recorded in the assessment order for initiating the proceedings u/s. 271(1)(c) of the Act against the addition made on account of profit on sale of asset (car), the penalty levied by the Assessing Officer is not valid and liable to be deleted.
Though the assessee has filed an application for admission of additional ground on the point of levying the penalty for concealment of the particulars of income as against the initiation of penalty proceedings by issuing notice u/s. 274 r.w.s. 271(1)(c) of the Act on the default of furnishing of inaccurate particulars of income however, once we have deleted the penalty on merits, this additional ground raised by the assessee becomes academic in nature.
Therefore, we do not propose to take up the additional ground raised by the assessee being academic in nature. We order accordingly.
In the result, the appeal of the assessee is allowed.