Company is Guilty for making False Depreciation Claim: Delhi High Court Rejects Plea of Accounting Mistake [Read Order]

While rejecting a plea of ‘clerical error’, a division bench of the Delhi High Court confirmed criminal proceedings against Ambience Hospitality Pvt Ltd, who made a false depreciation claim in its income tax returns.

In the instant case, the Deputy Commissioner of Income Tax, filed a criminal complaint against the petitioner alleging that for the year under consideration, the latter had claimed false depreciation on land amounting to Rs. 31,80,000 in the company’s balance sheet under the head ‘property’ along with the depreciation on building and as per IT Act, land is exempted from taxation.

Both the addition sand penalty imposed on the petitioners were confirmed by the ITAT on appeal. Subsequently, the ACMM found that the Company is guilty for the offence punishable under Section 266C and 277 of the Income Tax Act.

Before the High Court, the petitioner Company took a plea that the error appeared in the books of accounts was a sheer mistake made by the accounts clerk of the company and the same was not in the knowledge of the petitioner, Director or its Chartered Accountants.

The bench rejected the contention of the Company that the mistake in the balance sheet was suo moto rectified in the balance sheet of the subsequent year much before it was scrutinised by the Assessment Officers.

“The alleged mistake was detected in the month of August by the company but only on 08.09.2009, the same was informed by the petitioner to the Assessment Officer. The petitioner had ample time to rectify its mistake by either bringing the same into the notice of the Assessing Officers soon after its detection or by filing a revised IT return to that effect. But, no action was taken by the petitioner until 08.12.2009, which casts a serious doubt on the story of the petitioner,” the bench observed.

Dismissing the writ petition, the bench observed that “It is a manifest procedure that before filing of the Income Tax return for the assessment year 2007-2008 by the petitioner, the same is scrutinized, firstly, by the auditors of the company. Secondly, by the directors of the company before endorsing their signatures on the final Balance Sheet. Therefore, it cannot be considered as a mere accounting mistake.”