SHREE HARI PROCESSORS INDIA PVT. LTD.,SURAT vs. INCOME TAX OFFICER - 2(1)(2) (NEW ITO WD. 2(1)(3), SURAT

Aggrieved by levy of penalty, the assessee filed appeal before Ld. CIT(A), which was adjudicated by National Faceless Appeal 4 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd Centre, Delhi (‘NFAC’ for short), Before Ld.NFAC/CIT(A) the assessee filed its detailed written submission. The submissions of assessee is recorded in para-4 of impugned order. In the submission, the assessee in sum and substance stated that they claimed depreciation on the block of asset at Rs.24,46,320/-. The depreciation schedule as a part of the audited statement was enclosed. The assessee was under bona fide belief that plant and machineries were let out on rent and that depreciation is allowable. The machineries were installed in the process house property and these were not removed from the premises. The plant & machinery were sold in financial year 2017-18 relevant to AY 2018-19 and Short Term Capital Gain/Loss was offered to tax in the relevant assessment years. Which also establishes the bona fide claim of assessee. The Assessing Officer disagreed with the submission and disallowed the depreciation and treated the rental income as income from “house property” instead of ‘business income’. The Assessing Officer rectified his order under section 154 of the Act and allowed the deduction @ 30% which was not allowed at the time of disallowance of 5 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd depreciation. The assessee was taxed under Minimum Alternative Tax (MAT) under section 115JB of the Act. The assessee’s claim was not found to be false, exaggerated or wrong but disallowed by Assessing Officer. The assessee also given explanation on various provisions section 271(1)(c) of the Act. The assessee finally submitted that there cannot be no dispute that having depend upon the return filed because the only document where assessee can furnish the particular of income and when such particulars are found to be inaccurate, the liability would arise. The assessee relied on the decision of Hon'ble apex court in the case of Commissioner of income-tax, Vs. Reliance Petroproducts (P) Ltd. (2010) 189 Taxmann 32 (SC)/[2010] 322 ITR 158 (SC).

The ld. NFAC/CIT(A) after considering the assessment order, rectification order passed under section 154, submission of assessee held that assessee in its submission stated that it was a bona fide belief that plant & machinery was given on rent and depreciation is allowable and assessee also stated that claim of depreciation was otherwise proper or incorrect. The Ld. NFAC/CIT(A) by referring the decision of Sundaram Finance 6 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd Ltd. vs. Deputy Commissioner of Income-tax (2018) 99 taxmann.com 152 (SC), wherein it was held that when assessee claims depreciation on non-existent asset, penalty under section 271(1)(c) was to be levied for filing inaccurate particulars of income. The Ld. NFAC/CIT(A) in para 6.5 recorded that assessee closed its manufacturing business and gave the land & building to various parties on rental basis and claimed depreciation which constitutes “furnishing of inaccurate particulars of income” and upheld the action of Assessing Officer. Further aggrieved assessee has filed present appeal before this Tribunal.

We have heard the submission of Ld. Authorized Representative (AR) for the assessee and Ld. Sr. Departmental Representative (Sr.DR) for the Revenue and have gone through the orders of authorities below. The Ld. AR of the assessee submits that the assessee was in a manufacturing business and suffered huge losses in its business and in order to curtail heavy loss and to protect the plant & machinery from deteriorating, the assessee let out the land & building alongwith plant & machinery to M/s Shri 7 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd Hanumant Life Style Pvt.Ltd.,M/s Shri Baba Dharshu Creation Pvt. Ltd., and M/s J.P. Creation at a monthly rent of Rs.20,000/- each. Though, the assessee also lets out its plant & machinery, but such averments due to inadvertent was not recorded in the lease deeds. The assessee offered rental income as ‘business income’ and claimed depreciation on plant & machinery. The assessee made bona fide claim. The bona fide of assessee proved by the fact that the plant & machinery was sold in AY 2018-19 and related to Short Term Capital Gain/Loss was offered to tax. There was no incorrect claim or concealment of income at the time of filing its return of income. The Assessing Officer treated the said business income as income from “house property” and allowed standard deduction @ 30% on disallowance of depreciation. The Assessing Officer levied penalty @ 100% of amount of tax sought to be evaded. The mere fact the assessee’s claim of depreciation, which was not accepted by Assessing Officer would not attract penalty under section 271(1)(c) of the Act. The Assessing Officer while making disallowance of depreciation has not investigated the fact that the plant & machinery were in fact lease out to the 8 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd tenant, which were sold in AY 2019-20 and Short Term Capital Gain/Loss was accepted by Revenue and no information in the return of income was found to be inaccurate particulars of income or incorrect. The disallowance of depreciation was due to the fact that assessee has not done any business during the year. To support his submission, Ld. AR of the assessee relied upon various case laws of Hon'ble Apex Court and Hon'ble High Courts;  CIT Vs. Reliance Petroproducts (P) Ltd. [2010] 189 Taxman 322/ [2010] 322 ITR 158 (SC)  PCIT Vs. Financial Technologies India Ltd. [2020] 113 taxmann.com 152 (SC)  CIT Vs. Royale Manor Hotels & Ind. Ltd. [2014] 41 taxmann.com 491 (Guj)  PCIT Vs. Himalayan Expressway Ltd. [2019] 109 taxmann.com 262 (P&H)  PCIT Vs. Financial Technologies Ltd. [2019] 112 taxmann.com 398 (Bom) 6. On the other hand, Ld. SR-DR for the Revenue supported the order of authorities below. He submits that the Assessing 9 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd Officer while levying penalty clearly held that assessee was not having any business taxable under the head “business and profession”. Admittedly, no business was carried out by the assessee during the year. In the rent agreement produced by assessee, there was no reference for letting out of plant & machinery. The Assessing Officer levied the penalty for furnishinginaccurate particulars of income and no appeal was filed by assessee against such disallowance of depreciation. The Ld. SR-DR submits that the case of assessee is clearly covered by the decision of Hon'ble apex court in the case of Sundaram Finance Ltd. (supra) related by Ld. NFAC/CIT(A) in his order.

We have considered the rival submission of both the parties and have gone through the orders of authorities below. We find that there is no dispute that during the year the assessee was not carrying out any business activities. The case of assessee throughout proceedings are that assessee has let out its business premises to various parties alongwith plant & machinery and income earned on letting out was offered for tax under the head business income from “business profession” 10 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd and the assessee was under bona fide belief that the depreciation is allowable of the block of asset. The assessee claimed depreciation on certain block of assets (plant & machinery). The Assessing Officer disallowed the depreciation by taking view that there is no reference of letting out of plant & machinery in the least out deed.

We find that the Assessing Officer disallowed the depreciation on the basis of contents of lease deed. And admittedly no verification of fact about the claim of assessee that plant & machinery is installed in the let out premises or the plant & machinery was not ready to use. We further find that before the Ld. NFAC/CIT(A), the assessee specifically contended that such machines which was a part of block assets or were sold during the AY 2018-19 and Short Term Capital Gains/Loss thereon offered for taxation. The Ld. NFAC/CIT(A) has not given any finding on such facts. The Ld. NFAC/CIT(A) confirmed the order of Assessing Officer by referring the decision of Sundaram Finance Ltd. (supra) with utmost regard to the said decision, we find that ratio of said decision was not applicable on the fact of the present case. In the said case there was no 11 (A.Y. 15-16) Shree Hari Processors (I) P. Ltd asset exist on which depreciation was claimed. However, in the present case, the assessee throughout proceeding, the claim that the asset on which depreciation was claimed is existed and was sold only in AY 2018-19 and earned Short Term Capital Gains/Loss thereon was offered to tax.

Now adverting to specific fact of the present case, the assessee while filing its return of income offered the rental income as “business income”. The Assessing Officer treated the rental income as “business income” primarily on the fact that the assessee was not doing any business activities and that plant & machinery were not shown in the lease deed. The Hon'ble Jurisdictional High Court in CIT Vs Rayale Mannor Hotel & Ind Ltd (supra) held that where there was no intention of the assessee to claim wrong deduction of depreciation on hotel building, and mistake was bona fide penalty could not be imposed.

Now applying such ratio on the facts of the present case as the claim of assessee is that they have let out its business premises to various parties alongwith plant & machinery and income earned on letting out was offered for tax under the head 12