Penalty is not Leviable on Ground of Disallowance of Depreciation: ITAT Ahmedabad [Read Order]

The Ahmedabad bench of the ITAT, in the case of M/s Cera Sanitary ware Ltd. v. ACIT Ahmedabad, held that penalty under section 271(1)(c) of the Income Tax Act cannot be levied on the assessee on ground that their claim towards depreciation was disallowed by the Assessing Officer.

Coming to the facts of the case, the assessee was aggrieved by the order of penalty passed u/s 271(1)(c)of the Income Tax Act by the assessing officer after the disallowance of depreciation on show room building, claimed by the assessee while filing return.

The AO observed that the assessee had furnished inaccurate particulars of income by making wrong claim of depreciation. The first appellate authority confirmed the order on first appeal.

The assessee contended that the showroom building is a separate asset in itself and is capable to be put to use and therefore eligible for depreciation as per the provisions of section 32 of the Act. The assessee pointed out that the claim was supported by all the necessary the necessary documents including the Audit report. It was therefore, contended that allegation as to concealment of income or furnishing of inaccurate particulars of income are not sustainable since all the necessary information were very well available on record and it was merely because that assessee claimed it knowingly that it is valid claim whereas the assessing authority denied it.

The bench noted that the assessee has furnished all necessary particulars relating to its claim of depreciation and there is no mistake detected by the lower authorities with regard to the cost of the asset, depreciation amount, work in progress of “Bath Studio” and date of completion of Bath Studio.

“It was only the Revenue’s contention that the depreciation cannot be allowed on the show room building as it could not be deemed to be put to use on 5.3.2007 as claimed by the assessee but was put to use on 31.5.2007 after the completion of Bath Studio. Certainly in such circumstances it will be unjustified to impose penalty u/s 271(1)(c) of the Act as the assessee had only committed an undoubtful bona fide error and it certainly had no intention of concealing any income or furnishing inaccurate particulars of income. We are, therefore, of the view that assessee should not be visited with penalty u/s 271(1)(c) of the Act on the disallowance of depreciation of Rs.7,80,826/-.”

Read the full text of the order below.