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Facts
The assessee filed an appeal against the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied after the Assessing Officer (AO) disallowed a claim of deduction under Section 80-IA. The assessee had acquired wind mills and claimed depreciation. The AO disallowed a part of the claim, which led to the penalty.
Held
The Tribunal noted that the co-ordinate bench had previously decided the quantum appeal in favor of the assessee, holding that unabsorbed depreciation cannot be set off against profits of initial years. Since the basis for the disallowance by the AO was set aside, the Tribunal held that the penalty could not be sustained.
Key Issues
Whether penalty under Section 271(1)(c) can be sustained when the primary disallowance forming the basis of the penalty has been set aside by a coordinate bench of the Tribunal.
Sections Cited
271(1)(c), 80-IA, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI “C” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI SANDEEP SINGH KARHAIL
Assessment Year : 2012-13 Clover Developers Pvt. Ltd., DCIT-6(1)(1), Flat No. 12, Mumbai. 1st Floor, Plot No. 541/C, vs. Ashok Building, Edenwalla Road, Matunga, Mumbai-400019. PAN : AAACG1925B (Appellant) (Respondent) For Assessee : Shri K. Gopal a/w. Shri Akhilesh Deshmukh For Revenue : Shri Virabhadra Mahajan, Sr.DR Date of Hearing : 11-02-2026 Date of Pronouncement : 16-02-2026 O R D E R PER VIKRAM SINGH YADAV, A.M :
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 08-09-2025, pertaining to Assessment Year (AY) 2012-13, wherein the Ld.CIT(A) has sustained the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 („the Act‟).
During the course of hearing, the Ld.AR submitted that assessment in this case was completed u/s. 143(3) of the Act, vide order dt. 27-03-2015, wherein the AO has disallowed the claim of deduction u/s. 80-IA of the Act amounting to Rs. 1,05,82,467/-. The assessee thereafter, carried the matter in appeal before the Tribunal and the Tribunal has since decided the matter in favour of the assessee, vide its order dt. 20-08-2019 in and our reference was drawn to the findings of the Co-ordinate Bench of the Tribunal, which reads as under:
“9. After hearing both the parties and perusing material on record, we observe that the claim made by assessee is as per law. The assessee had acquired wind mills in the previous year relevant to the AY.2007-08. However, the assessee did not make any claim u/s.801A of the Act till AY.2011-12. The year under consideration i.e., AY.2012-13, is the first year of claim u/s.801A of the Act and thus, there is no dispute so far as the initial year is concerned. The AO allowed the depreciation only to the tune of Rs.13,87,637/- instead of Rs. 1,19,71,104/ as claimed by assessee. The AO calculated the amount of Rs. 13,87,637/- by reducing the claim u/s 80IA of Rs. 1,05,83,467/- from total unabsorbed depreciation. The above un-absorbed depreciation is the aggregate of the depreciation in eligible units as well as other business of construction carried on by the assessee. According to the AO, the actual depreciation of the earlier years in respect of wind mill is not to be allowed against the non-eligible business of the assessee whereas the contention of the assessee is that unabsorbed brought forward depreciation can not be set off against the initial year. In this connection, the assessee relied on the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills P. Ltd., Vs. ACIT [340 ITR 477]. After taking into account the submissions of the assessee and decision of the Madras High court in the case of Velayudhaswamy Spinning Mills P. Ltd., Vs. ACIT (supra) we are set aside the order of CIT(A) and direct the AO to accept the claim of assessee as filed as the unabsorbed depreciation can not be set off against the profits of the initial years.. Hence, the grounds raised by assessee are allowed.”
3. It was accordingly submitted that the very basis of the disallowance by the AO has since been set-aside by the Co-ordinate Bench of the Tribunal and the matter has been decided in favour of the assessee and in view of the same, there is no basis for levy of penalty by the AO u/s. 271(1)(c) of the Act. It was accordingly submitted that the penalty so levied and confirmed by the Ld.CIT(A) may be directed to be deleted.
Per contra, the Ld. DR is heard, who has relied on the order passed by the lower authorities.
We have heard the rival contentions and perused the material available on record. Admittedly in the quantum proceedings, the matter has since been decided by the Co-ordinate Bench of the Tribunal in favour of the assessee and which also happened to be the subject matter of impugned penalty proceedings and, therefore, we find force in the contentions advanced by the Ld.AR where the very basis of levy of penalty has been set-aside, the penalty so levied cannot be sustained. In light of the same, the penalty so levied is hereby directed to be deleted.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 16-02-2026.
Sd/- Sd/- [SANDEEP SINGH KARHAIL] [VIKRAM SINGH YADAV] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 16-02-2026 TNMM