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Facts
The Revenue appealed an order deleting a penalty imposed under Section 270A. The assessee, a charitable institution, initially claimed depreciation on an asset whose acquisition cost was claimed as application of income. Later, upon obtaining registration under Section 12AA, it withdrew the depreciation claim and offered the amount for taxation.
Held
The Tribunal held that the assessee's claim for depreciation was bonafide at the time of filing the return, as it lacked registration. Upon obtaining registration, it correctly withdrew the claim and offered income for taxation, thus not constituting under-reporting of income.
Key Issues
Whether penalty under Section 270A is leviable when an assessee withdraws a depreciation claim after obtaining registration under Section 12AA and offers the amount for taxation.
Sections Cited
270A, 1961, 143(3), 11, 11(1), 12AA, 12A
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
The Revenue is in appeal before against the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 06.02.2024 passed in assessment year 2018-19.
Though the Revenue has taken three grounds of appeal
, but its grievance revolves around a single issue namely, the ld. CIT(A) has erred in deleting the penalty imposed by the A.Y.2018-19
2. Assessing Officer under Section 270A of the Income Tax Act, 1961.
3. The brief facts of the case are that assessee has filed its return of income for assessment year 2018-19 on 29.08.2018 declaring total taxable income at ‘Nil’. An assessment order was passed under Section 143(3) of the Income Tax Act determining taxable income at Rs.25,43,66,930/-. It emerges out from the record that assessee has claimed depreciation of Rs.25,43,66,930/-. The AO was of the view that by Finance Act, 2015, sub-section (6) of Section 11 has been brought on the Statute Book which prohibits an assessee to claim depreciation on an asset whose cost of acquisition was claimed as deduction towards application of income of a Charitable Institution. When this fact was confronted to the assessee, it withdrew its claim of depreciation. Accordingly, addition of Rs.25.43 Cr was made to the total income of the assessee. The ld. AO has initiated the penalty proceedings against the assessee under Section 270A and he ultimately imposed a penalty of Rs.18,07,78,378/- which is 200% of the taxable income.
ITA No.359/CHD/2024 A.Y.2018-19 3
On appeal, ld. CIT(A) has deleted the penalty.
With the assistance of ld. Representative, we have gone through the record carefully. It is pertinent to observe that as per Section 11 and 12 of the Income Tax Act, if a Charitable Institution is having registration under Section 12AA of the Income Tax Act and derives income from a property held under such Charitable Institution, then 85% of such income is to be applied on the objective of Charitable Institution. Prior to introduction of sub-section (6) of Section 11, if an assessee has acquired the capital asset and claimed acquisition cost towards application of income contemplated in Section 11(1), then such income would not be brought to tax in the hands of Charitable Institution.
Apart from claiming of application of income, Charitable Institution was entitled for claiming depreciation of such capital assets. With effect from 01.04.2015, such double deduction is being disallowed to an assessee once acquisition cost of a capital asset is being claimed towards application of income on charitable objectives. Then assessee will not be entitled for depreciation.
ITA No.359/CHD/2024 A.Y.2018-19 4
In the present case, when assessee has filed its return of income, it was not having registration under Section 12A, though it has applied for registration on 02.04.2006 but such application was rejected, ultimately registration was granted to the assessee on 06.02.2020 after the adjudication of the issue by the Tribunal. It has filed its return on 29.08.2018. Upto that date, it was not claiming double deduction. Its income would have been determined on commercial principles wherein it would be eligible for claiming depreciation also. Since during pendency of determination of income vis-à-vis filing of the return, it has been granted registration, therefore, it withdrew its claim of depreciation and offered such income for taxation. There is no deliberate attempt at the end of the assessee to misreport the income. The ld. First Appellate Authority has appreciated this issue in right perspective after following the judgement of Hon'ble Punjab & Haryana High Court in the case of CIT Vs Rajiv Batra 360 ITR 121 as well as of the Hon'ble Supreme Court in the case of CIT Vs Reliance PetroProducts Ltd. 322 ITR 158 and Price Waterhouse Coopers (P) Ltd. Vs. CIT 348 ITR 306 A.Y.2018-19 5 (S.C.). The claim made in the return was a bonafide claim because at that point of time, assessee was not enjoying registration under Section 12AA of the Income Tax Act. The moment it got registration under Section 12AA, it withdrew its claim for depreciation and offered that amount for taxation. Therefore, it cannot be imputed to the assessee that it has under reported its income and deserved to be visited with penalty. The ld. First Appellate Authority has rightly deleted the penalty and no interference is called for in the impugned order. Accordingly, appeal of the Revenue is dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 22.04.2025.