PRASAM RAKESH CHOUDHARY,GIRNAR SOCIETY, BAPURAO GALLI, ITWARI, NAGPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL -1, BHOPAL , BHOPAL

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15

271(1)(c) holding that "The penalty under Section 271(1)(c) is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability? 3. Whether on facts and in the circumstances of the case, the CIT(A) was justified in deleting the penalty imposed on the assessee for claiming of depreciation expense even on those assets whose capital cost has been reimbursed to the assessee in contravention of Explanation 10 to section 43(1) as also the CBDT Circular No. 715, dated 8-8-1995 and the judgement of the Supreme court in the case of CCE v. Intercontinental Consultants and Technocrats Pvt. Ltd., wherein the SC held that Reimbursable expenses are not deductible, completely ignoring that the assessee has claimed already reimbursed expenses in shape of depreciation and this claim is deliberate in light of preponderance of probabilities since one cannot claim an expense which has not been incurred?.

(i) The assessee is a society incorporated by an order of Central Govt. under the MHRD (Ministry of Human Resources & Development) to provide training to technical teachers/faculties. The assessee is funded by Central Govt. through MHRD and the grant-in-aid received is the source of revenue (Para No. 4 of penalty order). For AY 2014-15 under consideration, the assessee filed return of income u/s 139 on Page 3 of 17

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15

31.03.2015 declaring a loss of Rs. 5,72,14,721/-. The case of assessee was selected under scrutiny and the AO passed assessment-order dated 04.11.2016 u/s 143(3) accepting the loss declared by assessee.

(ii) Subsequently, the assessment-order passed by AO was examined by PCIT-1, Bhopal who found that the same was erroneous-cum- prejudicial to the interest of revenue since the AO failed to examine the issue that the assessee received grants/donations from Central

Govt. and used it directly or indirectly for acquiring fixed assets and therefore the depreciation claimed by assessee was not allowable due to Explanation to section 43(1). Accordingly, the PCIT-1, Bhopal, after giving opportunity to assessee, passed revision-order dated

26.10.2018 u/s 263 setting aside AO’s order and directing AO to re- frame assessment after examining the issue identified by him.

(iii) Pursuant to aforesaid revision-order, the AO passed fresh assessment- order dated 30.08.2019 wherein he disallowed depreciation of Rs.

5,72,14,721/- claimed by assessee and re-computed total income at Rs. Nil. The AO also initiated proceeding, vide show-cause notices dated 30.08.2019/11.02.2020, for imposition of penalty u/s 271(1)(c) on the footing that the assessee had furnished inaccurate particulars of income by claiming inadmissible depreciation. Ultimately, the AO passed penalty-order dated 28.02.2020 imposing a penalty of Rs.

2,00,00,000/- u/s 271(1)(c) for the impugned disallowance of depreciation of Rs. 5,72,14,721/-.

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 (iv) Aggrieved by penalty-order, the assessee carried matter in first-appeal whereupon the CIT(A) reversed AO’s action and deleted penalty. Now, the revenue is aggrieved by relief given by CIT(A) and has come in present appeal before us.

“5. Facts of the case are that during the year under consideration, the assessee society claimed depreciation amounting to Rs. 5,72,14,721/- in its return of income for A.Y 2014-15. During the assessment proceedings the assessee was show caused as to why depreciation amounting to Rs. 5,72,14,721/- be not disallowed and added back to the total income in view of Explanation 10 to section 43(1) as grant/donation has been directly/indirectly used for acquiring fixed assets and therefore the assessee were not eligible for claiming depreciation on fixed assets acquired out of grant/donation received from Central Govt.

7. As per section 43(1), Explanation 10 of the Act, if a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Govt. or the State Govt, the so much of the cost shall not be included in actual cost to the assessee. Since, the assets of the assessee society were acquired directly or indirectly from utilizing the Central Govt Funds, therefore the actual cost of the assets on which depreciation was claimed was calculated Rs. NIL by the AO. The assessee in its submission claimed that income of the assessee is exempted 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 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.

8. The reply of the assessee has been considered and not found to be acceptable as the assessee has failed to submit any directions issued by the Central Govt. of India for charging such depreciation. Thus, AO rightly initiated penalty proceedings u/s 271(1)(c). Even if the assessee had to claim depreciation as per Central Govt. guideline, the assessee could have Page 5 of 17

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 disallowed the same in computation of income as per Income Tax Act and not carried forward the unabsorbed depreciation. Therefore, penalty u/s 271(1)(c) is leviable as per the Explanation 4(b) to section 271(1)(c) of the Act.

9. Having regard to the above and considering the totality of the facts and circumstances of the case, I am satisfied that the assessee had furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Income Tax Act, 1961 to the tune of Rs. 5,72,14,721/- in the return of income filed for the A. Y. 2014-15 for which assessee is liable for penalty u/s 271(1)(c) of the Income tax Act. 1961”

“7. Decision :- 7.1 The appellant is a charitable trust registered under section 12A of the Income Tax Act (the Act). The income of the appellant is exempt u/s. 10(23C) of the Act. The appellant filed the return of income for the impugned A.Y. declaring Nil income after claiming exemption under section 11 of the Act. An order u/s. 143(3) r.w.s. 263 was passed in which the depreciation claimed by the appellant was disallowed by virtue of the provisions of section explanation 10 to section 43(1) of the Act. As per the said provisions where the portion of the cost of the assets acquired by the assessee is met directly or indirectly by the Central Government or State Government or any Authority established under any law or by any other person by way of subsidy or grant of reimbursement, in such case the cost relatable to such subsidy or reimbursement shall not be included in total cost of asset of the assessee. Thus, the depreciation claimed on assets which were acquired by the appellant by using subsidy or reimbursement from the government was not an allowable deduction. Accordingly, the said depreciation claimed was disallowed and added to the total income. Penalty proceedings were initiated for furnishing inaccurate particulars of income u/s. 271(1)(c) of the Act. Subsequently, by order dated 28.02.2020 the penalty of Rs. 2,00,00,000/- was levied under the said section. Aggrieved by they said levy of penalty, the appellant is in appeal and has raised 5 grounds, which are adjudicated as under: 8. Ground no. 1 to 4 are relating to levy of penalty u/s. 271(1)(c) of the Act of Rs. 2,00,00,000/-. The contention of the appellant in raising these grounds is that the depreciation has been claimed as per the accounting policies consistently followed by the appellant which are as per the guidelines issued by ministry of HRD and audited by C&AG. The report of the C&AG is placed before the Parliament and hence, the appellant cannot furnish inaccurate particulars of its income. 8.1 The appellant further submitted that it is statutorily required to charged 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)

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 of the Act. Therefore, there cannot be any deliberate attempt on the part of the appellant to make any wrong claim of expenditure. The appellant also accepted the disallowance made by the AO and did not file the appeal. Therefore, it was prayed that the voluntary acceptance of addition cannot be treated as furnishing of inaccurate particulars and the penalty proceedings may be dropped. 8.2 The appellant has inadvertently claimed the depreciation on the asset which has already been allowed as an application. The AO on the other hand has held that the appellant could have disallowed the claim of depreciation in the total income computation, which the appellant has failed to do. The argument of the appellant is that it has made an inadvertent mistake of claiming the depreciation, without considering the provisions of section 43(1) of the Act and that once the mistake is realized the appellant has accepted the order of the AO. Therefore, it is contended that there is no intentional furnishing of inaccurate particulars of income on the part of the appellant. From the perusal of the facts, it is noticed that the appellant has not deliberately claimed the depreciation with an intention to make an inaccurate claim. This is evidenced by the fact that the appellant has voluntary conceded that the depreciation is erroneously claimed and accordingly accepted the disallowance made. The Hon'ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd. v. CIT [2012] 25 taxmann.com 400/211 Taxman 40/348 ITR 306 (SC) has held that there would be no s. 271(1) (c) penalty for a "bona fide/ inadvertent/human error". The below observations of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) is relevant in this context - "Penalty is not to be imposed if there is no conscious breach of law. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute" 8.3 Considering the fact in appellant's case in my considered view that there is no intention on the part of the appellant to make an incorrect claim which is evidenced by appellant's subsequent action of accepting the disallowance. Further, the income of the appellant is exempt u/s 10(23C) of the Act and hence, not claiming of /depreciation does not alter the status of payment of tax. The contents of the Tax Audit Report suggest that there is no question of the appellant concealing its income, as there is no benefit of doing so.

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 It appears to me that all that has happened in the present case is that through a bona fide and inadvertent error, the appellant while submitting its return, failed to add the depreciation claimed in Income and Expenditure account to its total income. This can only be described as a human error which anyone is prone to make. This view has been taken by Hon'ble ITAT, Mumbai in the case of Mumbai Educational Trust Vs. DCIT reported in 169 taxmann.com 689. In view of these discussions and considering settled position of law laid down in this regard, I hold that AO is not correct in levying penalty under section 271(1)(c) of the Act in the appellant's case. Accordingly, the penalty levied of Rs. 2,00,00,000/- stands deleted. Ground no. 1 to 4 are treated to have been allowed.”

6. Before us, the Ld. DR for revenue/appellant raised following contentions to oppose the impugned order passed by CIT(A) and support the penalty imposed by AO:

(i) That, the CIT(A) has given relief mainly accepting that the assessee’s income was exempt u/s 10(23C) and therefore the wrong claim of depreciation, even if made by assessee, does not have any impact on taxable income. But the AO has clearly mentioned in Para 7 of penalty-order (re-produced above) that the exemption u/s 10(23C)(iiiab) was not claimed by assessee in return of income and the very same observation has also been made by AO in Para 7 of assessment-order. Thus, according to Ld. DR, neither the assessee claimed exemption u/s 10(23C)(iiiab) in return of income nor the AO allowed same in assessment-order. Therefore, when the exemption u/s 10(23C)(iiiab) was not available to assessee, the CIT(A)’s basis of giving relief is perverse.

(ii) The CIT(A) has given benefit of Price Waterhouse Coopers Pvt. Ltd. Vs. CIT (2012) 25 taxmann.com 400 (SC) read with Hindustan Steel Page 8 of 17

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15

Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) but the case of Price

Waterhouse (supra) was totally different. In that case, there was a bonafide mistake committed by assessee which the assessee accepted before AO and in that situation, the Hon’ble Court held that there was no concealment of particulars of income or furnishing inaccurate particulars of income. On the other hand, in present case of assessee, the assessee made a wrong claim of depreciation in return of income but the assessee did not disclose such wrong claim to AO despite scrutiny-proceeding conducted by AO. It is subsequently when the Ld.

PCIT examined AO’s assessment-order and found a faulty claim of depreciation made by assessee and the PCIT directed the AO to reframe assessment, at that stage only the assessee accepted wrong claim. Therefore, the assessee’s case has altogether different facts and cannot get benefit of Price Waterhouse (supra).

(iii) That the AO has disallowed depreciation claimed in the order of fresh assessment and the assessee has accepted such disallowance by not filing further appeal to CIT(A). Therefore, it is a clear-cut case of furnishing wrong particulars of income and the AO has rightly imposed penalty.

7. Per contra, Ld. AR for assessee/respondent defended the relief granted by CIT(A) and opposed the order of AO with following contentions:

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 (i) That, the assessee is a specialized institution formed under an order of Central Govt. for providing training to technical teachers/faculties.

The assessee is under direct control of MHRD. The books of accounts of assessee are prepared as per financial regulations framed by Govt. and such books have been subjected to audit by CAG. That, in terms of accounting regulations framed by Govt., the depreciation on assets was computed and accounted for in books of account. Hence, there is no mistake in claiming depreciation in books of account. The depreciation so accounted for in books of account remained claimed as a deduction in return of income. But the impugned depreciation claimed by assessee resulted only in loss and not reduced assessee’s positive income or taxable income of current year. The assessee is not a business or commercial entity and the loss resulting from claim of depreciation was not available to assessee for claiming any benefit of set off in subsequent year so as to reduce the tax liability of subsequent year also because the income of assessee is exempted u/s 10(23C)(iiiab).

(ii) That, the Ld. CIT(A) has rightly accepted that it was a simple case of bonafide mistake on the part of assessee. The impugned claim of depreciation was not motivated to reduce taxable income/tax liability of assessee in any manner. In fact, the allowance or disallowance of depreciation did not prejudice assessee (or even revenue) and that is why the assessee did not file any appeal against the disallowance

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 made by AO in assessment-order. This clearly reflects that there is nothing mala fide on the part of assessee.

(iii) That, the CIT(A) has passed a proper order and his order must be upheld.

8. We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record to which our attention has been drawn. The dispute in present case is qua the penalty of Rs. 2,00,00,000/- imposed by AO u/s 271(1)(c) but deleted by CIT(A) in first-appeal. Undisputed facts are such that (i) the assessee accounted for depreciation of Rs. 5,72,14,721/- in its account and claimed the same while filing return of income, (ii) the AO initially allowed assessee’s claim in scrutiny-assessment but in pursuance to revision-order passed by PCIT u/s 263, the AO re-framed assessment wherein he disallowed assessee’s claim, (iii) the AO thereafter imposed penalty u/s 271(1)(c) treating it as a case of furnishing inaccurate particulars by assessee. Thus, the penalty imposed by AO hinges on the point that the assessee had furnished inaccurate particulars of income by making wrong claim of depreciation. However, the assessee claims that it is a society formed under an order of Central Govt. for providing training to technical teachers/ faculties; it is under direct control of MHRD; its books of account were prepared as per prescribed financial regulations and books of account have also been subjected to audit by CAG. Thus, there was a depreciation item accounted for in books of account which stood claimed as deduction in Page 11 of 17

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 return of income. The assessee submits that it was an inadvertent claim and not a result of any attempt of assessee to conceal income or furnish inaccurate particulars. In our view, the CIT(A) has applied a judicious approach in accepting this submission of assessee considering the specific facts of assessee and assessee’s case.

9. In so far as the reliance placed by Ld. CIT(A) on Price Waterhouse (supra) is concerned, the facts of that case were such that the assessee claimed deduction of gratuity which was disallowable u/s 40A(7). The AO finalized assessment of assessee by way of scrutiny u/s 143(3) and in the assessment so finalized, the assessee’s claim remained allowed.

Subsequently, the AO re-opened assessee’s case u/s 147 and during proceeding of re-assessment disallowed assessee’s claim which the assessee accepted. However, the AO imposed penalty u/s 271(1)(c) and on appeal, the Hon’ble Supreme Court exonerated assessee from penalty. The relevant portion of Hon’ble Supreme Court’s order is re-produced below:

“5. Even though the Statement indicated that the provision towards payment of gratuity was not allowable, the assessee claimed a deduction thereon in its return of income. On the basis of the return and the Statement, an assessment order was passed under section 143(3) of the Act on 26-3-2003. According to the assessee, the claim for deduction was inadvertent and it also seems to have been overlooked by the Assessing Officer.

6. Much later, the Assessing Officer issued a notice to the assessee under section 148 of the Act on 22-1-2004 for reopening the assessment The notice did not indicate any reason why it was issued except to state that income for the assessment year 2000-01 had escaped assessment.

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15

11. After obtaining a response from the assessee, the Assessing Officer saddled the assessee with penalty at 300% on the tax sought to be evaded by the assessee by furnishing inaccurate particulars. The quantum of the penalty was determined at Rs. 27,37,689/-.

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 consultant. We also do not find any substance in the submissions made by Dr. Pal; on the contrary, in our considered opinion, we find that section 271(1)(c) of the Act has specifically stated about the concealment of the particulars of income or furnishing of inaccurate particulars of such income which has to be read "either" - "or" and on the given facts of this case would automatically come within the four corners of section 271(1)(c ) of the Act and we come to the conclusion that the appellant have failed to discharge their strict liability to furnish their true and correct particulars of accounts while filing the return. We are also of the opinion that the penalty under that provision is a civil liability and wilful concealment is not an essential ingredient for attracting civil liability as in the mailer of prosecution under section 276C, as has been held by the Hon'ble Supreme Court. We also find that the mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. We, therefore, accept the contention of Mr. Shome and dismiss the appeal answering the questions in the negative.' 14. During the course of hearing this appeal against the judgment and order of the Calcutta High Court, we had require the assessee to explain to us how and why the mistake was committed.

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report.

10. Thus, in Price Waterhouse (supra), the deduction claimed by assessee was allowed by AO in original scrutiny-assessment and subsequently during re-opened assessment u/s 147, the assessee accepted mistake and the claim was disallowed by AO. In present case of assessee also, the deduction of depreciation was originally allowed by AO but subsequently due to observation by PCIT in revision-order u/s 263, the assessment order was re-framed by AO wherein he disallowed depreciation.

Thus, there is no substantial difference in the facts of both cases; there is a limited difference that in Price Waterhouse (supra) there was a re-opening of assessment u/s 147 whereas in present case of assessee there was a revisionary proceeding u/s 263. The Ld. DR’s submission is that despite scrutiny-assessment framed by AO, the assessee did not disclose his mistakenly claimed depreciation to AO, is something which was also in Page 15 of 17

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15 Price Waterhouse (supra). In Price Waterhouse (supra), the assessee did not point out mistakenly claimed deduction of gratuity to AO during scrutiny-assessment and the AO also overlooked the deduction claimed by assessee [Para 5 of Price Waterhouse (supra)]. In assessee’s case also, the facts are same. Furthermore, when we look at the facts of assessee and assessee’s case with a holistic and judicious mind, it is very much apparent that the assessee is a society established in terms of order of Central Govt. and its income is entitled for 100% exemption u/s 10(23C)(iiiab) and that the depreciation as accounted for in the books of account audited by CAG had only gone as a claim in income-tax return. Thus, the CIT(A) has rightly accepted that a bonafide and inadvertent error had occurred on the part of assessee but there is no question of the assessee concealing income or furnishing inaccurate particulars [Para 8.3 of impugned order]. Therefore, in our considered view, the CIT(A) has rightly given benefit of Price Waterhouse (supra) to assessee.

M/s. Rashtriya Takniki Shikshak Prashikshan Evam Anunsandhan Sansthan – AY 2014-15

12. In view of discussions above and for the reasons mentioned therein, we are in agreement with the order passed by CIT(A), accordingly we uphold the same. The revenue fails in this appeal assailing the order of CIT(A).

Order pronounced by putting up on notice board as per Rule 34 of ITAT Rules, 1963 on 22/12/2025