ACIT, NEW DELHI vs. M/S ELEL HOTELS AND INVESTMENTS LTD.,, MUMBAI

Briefly stated, the facts of this case are: during the Assessment Year 2006-07, the assessee company filed its return of income u/s 139 of the Act declaring a loss under the Act at Rs.39,39,710/- and the appellant company being covered u/s 115JB, paid aggregate tax of Rs.9,15,785/- on the book profit. A search operation was conducted u/s 132 of the Act in the group cases of Suresh Nanda on 28.02.2007 and the premises of assessee were also covered u/s 132 of the Act and consequently, the case of the assessee company was reopened u/s 153A of the Act and in response thereto, the assessee filed return of income for the Assessment Year 2006-07 declaring a loss of Rs.5,08,73,700/-. The difference in the return of income (loss) filed in response to notice u/s 153A of the original return is claimed to be on account of depreciation. In the original return of income, depreciation was claimed for Rs.3,08,93,616/- whereas in the return of income filed in response to notice u/s 153A it was claimed at Rs.7,78,27,608/-. So, the order u/s 143(3) read with Section 153A was passed on 31.12.2008 assessing the total income at Rs.2,85,42,450/- as against the returned loss of Rs.5,08,73,700/-.

The assessee company is engaged in the business of hotel and hospitality and during the assessment proceedings, addition on account of disallowance of depreciation of Rs.7,78,27,608/- on hotel building was made on the ground that reply of the assessee was considered and found unacceptable as the company had not carried out any business activity itself during the year under consideration nor the assets have been used for the purpose of business actually and constructively. Consequently, the penalty proceedings u/s 271(1)(c) of the Act were initiated during assessment proceedings and after issuance of numerous notices, reply dated 19.04.2012 was filed in the office on 20.04.2012 on the issue of disallowance of depreciation of Rs.7,78,27,608/- on hotel building on account of payment made to ITC for termination of operator agreement. The assessee filed appeal before Ld. CIT(A), who vide order in appeal No.301/2008-09 dated 30.12.2009, confirmed the decision of A.O. on account of disallowance of depreciation on account of hotel building on account of payment made to ITC for termination of operator agreement to the extent of Rs.4,69,63,944/- and allowed the relief by deleting the addition of Rs.3,08,63,664/- and the Hon’ble Tribunal on appeal of the assessee company vide order in I.T.A.No.1047/Del/2010 and dated 05.08.2011, upheld the decision of Ld. CIT(A). Since the assessee company has furnished inaccurate particulars of income in this regard, the A.O. came to the conclusion that he is satisfied that assessee has furnished inaccurate particulars of income thereby concealed its income within the meaning of Section 271(1)(c) of the Act and thus imposed penalty of Rs.1,58,08,063/- for furnishing inaccurate particulars of income by way of concealment of income in respect of wrong claim of depreciation of Rs.4,69,63,944/- on hotel building on account of payment made to ITC for termination of operator agreement.

Feeling aggrieved, the assessee agitated the matter before Ld. CIT(A) who has allowed the appeal. Now, the Revenue has come up before the Tribunal by challenging the impugned order.

Ld. D.R. challenging the order under appeal contended that since the assessee has concealed the income and has put forth incorrect and false facts before the Revenue Authorities, Ld. CIT(A) has erred in deleting the penalty and relied upon the order passed by the A.O.

We have heard Ld. Authorized Representatives of both the parties and have gone through the material placed on record in the light of facts and circumstances of the case.

Undisputedly, penalty proceedings as well as assessment proceedings are to be decided independently and the penalty proceedings are not to be influenced by the assessment proceedings; that initially at the time of filing of original return, the assessee claimed depreciation @ 10% on the amount of Rs.30.84 crores paid to ITC Ltd. in lieu of termination of hotel operating agreement but at the time of filing of return in response to the assessment proceedings u/s 153A, depreciation claimed was revised from 10% to 25% on the amount of Rs.30.84 crores as acquisition of intangible assets.

The A.O. while making assessment u/s 153A of the Act, disallowed the entire claim of depreciation of Rs.7,78,27,608/- against which appeal was filed and depreciation to the extent of Rs.3,08,63,664/- i.e. 10% has been allowed by the Hon’ble Tribunal vide order dated 05.08.2011. The findings of Hon’ble Tribunal in disallowing the revised depreciation of 25% have attained finality.

Now, the solitary question arises for determination in this case is, “as to whether claiming revised depreciation from 10% to 25% on the amount of Rs.30.84 crores during the assessment proceedings u/s 153A amounts to concealment of facts and filing of false facts before the assessing authority”.

A bare perusal of the provisions contained u/s 271(1)(c) of the Act goes to prove that to impose penalty upon the assessee under the relevant provisions of the Act, two conditions are required to be fulfilled one: that the assessee must have furnished inaccurate particulars of income and two: the assessee must have concealed particulars of income from the tax authorities.

Coming to the case at hand, the assessee has initially claimed depreciation @ 10% on the amount of Rs.30.84 crores at the time of filling original return of income stated to have paid to ITC Ltd in lieu of termination of hotel operation agreement between the assessee and ITC Ltd. and at the time of filing of return pursuant to assessment proceedings u/s 153A, he has raised depreciation from 10% to 25% on the same amount of Rs.30.84 crores as acquisition of intangible assets. No doubt, assessee has changed the nature of depreciation and has enhanced the quantum of depreciation from 10% to 25% at the time of filing of second return in response to notice u/s 153A of the Act, but it does not amount to concealment of particulars of income nor it amounts to furnishing of inaccurate particulars of income. The assessee has simply put forth his bonafide claim for perusal and scrutiny by the tax authorizes who are to proceed in accordance with law for making the assessment.

Hon'ble Supreme Court in a case cited as Reliance Petroproducts Pvt. Ltd. (supra) has decided the issue in controversy and operative part of which is reproduced as under: “A glance at the provisions of section 271(1)(c) of the I. T. Act, 1961 suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the detail of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.

Even otherwise by making claim of depreciation at higher rate in the year under assessment where the state exchequer was at loss, the assessee has not been benefited in any manner. The assessee has bonafidely furnished all the relevant particulars of his income by claiming higher depreciation which according to the tax authorities, was not admissible under the Act, it does not and cannot amount to furnishing of inaccurate particulars of income sufficient to attract penalty proceedings. Even making of incorrect claim for expenditure does not amount to furnishing of inaccurate particulars of income. Reliance in this respect is placed on the judgement cited as Mahanagar Telephone Nigam Ltd (supra).

The facts and circumstances of the case apparently lead to the conclusion that disallowance in this case on account of depreciation has been made by the tax authorities on the basis of different interpretation than the view of the assessee, it cannot be said that the particulars of income have been concealed. So, mere rejection of any claim of the assessee by relying upon the different interpretation regarding claim of depreciation, does not amount to concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee. 15. So as a sequel to the above discussion, we are of the considered view that Ld. CIT(A) has rightly concluded that here is no concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee rather it is a case of making a claim of an allowance of benefit under the law under bona fide belief. So, finding no illegality or perversity in the findings returned by Ld. CIT(A) in the impugned order, present appeal is hereby dismissed. Order pronounced in the open court on 30th Oct., 2015. 16.