Jayesh Desi, AR for the Assessee. Michael Jerald, DR for the Revenue.

The assessee has filed the above mentioned appeals against the different order passed by the Commissioner of Income Tax (Appeals)- 16, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Ys. 2011-12 & 2014-15 in which the penalty levied by the AO has been ordered to be confirmed.

ITA. NO.3467/M/2019

2. The assessee has filed the present appeal against the order dated 28.03.2019 passed by the Commissioner of Income Tax (Appeals)-16, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2011-12 in which the penalty levied by the AO has been ordered to be confirmed.

3. The assessee has raised the following grounds: -

“(1) The Ld. CIT(A)-16 has erred in confirming levy of penalty under section 271(1)(c) (of Income Tax Act, 1961) amounting to Rs.34,19,860/-.

b). Your appellant prays that the said penalty imposed u/s 271(1)(c) (of Income Tax Act, 1961) may be deleted. Your appellant craves leave to add, alter, modify or amend any ground of appeal."

4. The brief facts of the case are that the assessee filed its return of income on 29.09.2011 declaring total income at loss in sum of Rs.1,59,26,705/-. The return was processed u/s 143(1) (of Income Tax Act, 1961) of the I. T. Act. Subsequently, the case was selected for scrutiny. Notices u/s 143(2) (of Income Tax Act, 1961) & 142(1) of the I. T. Act, 1961 were issued and served upon the assessee. On verification, it was found that the assessee has claimed the depreciation @ 60% on the control room equipment and digital set top box details of which are hereby mentioned below.:-

Asset Opening balance Purchase Depreciation Closing balance Control Room equipment

0 1,74,80,348 1,04,88,209 69,92,139

Digital Set top box

0 53,98,232 32,38,939 21,59,293

Total 0 2,28,78,580 1,37,27,148 91,51,432

The AO was of the view that the assessee was entitled to claim the depreciation @ 15% upon the said equipment, therefore, the depreciation claimed in sum of Rs.1,02,95,361/- was declined and added to the income of the assessee and further the penalty u/s 271(1)(c) (of Income Tax Act, 1961) was initiated. After the notice of the u/s 271(1)(c) (of Income Tax Act, 1961), the penalty in sum of Rs.34,19,860/- was levied. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the penalty, therefore, the assessee has filed the present appeal before us.

ISSUE NO.1

5. Under this issue the assessee has challenged the finding of the CIT(A) on which the CIT(A) has confirmed the penalty in view of the provision u/s 271(1)(c) (of Income Tax Act, 1961). It is argued by the Ld. Representative of the assessee that the assessee claimed the depreciation @ 60% on control room equipment and digital set top box and the said claimed was declined by AO and restricted the claim to the extent of 15% which is nowhere termed as „concealment of particulars of income nor furnishing inaccurate particulars of income,‟ therefore, the penalty is not leviable in accordance with law. In support of this contention, the Ld. Representative of the assessee has placed reliance upon the decision in the case of Kanbay Software Enterprise Ltd. Vs. DCIT (122 TTJ 271 (ITAT Pune Bench), DCIT Vs. Apollo Hospitals Enterprises Ltd. (23 ITR (Tribunal) 49 (Chennai), CIT Vs. Reliance Petro Products (322 ITR 158 (SC)). It is also specifically argued that the Hon‟ble ITAT Chandigarh in the case of Fastway Transmission (P) Ltd. Vs. ACIT (ITA. No. 547/Chd/2017 dated 06.05.2020 has allowed the claim of depreciation on set top box @ 60% which means that the claim of the assessee was not false so the penalty is not justifiable in the interest of justice. However, on the other hand, the Ld. Representative of the revenue has strongly relying upon the order passed by the CIT(A) in question. The factual position is not in dispute that the assessee claimed the depreciation on set up box and on the control room equipment @ 60% which was disallowed and restricted to the extent of 15%. The ITAT Pune Bench in the case of Kanbay Software Enterprise Ltd. Vs. DCIT (122 TTJ 271 (ITAT Pune Bench) has given the following finding.:-

“70. Before we part with the matter, we would like to make a couple of observations. Firstly, we may mention that, as we have stated earlier in this order as well, this appeal was taken up for hearing along with several other appeals relating to penalties under section 271(1)(c) (of Income Tax Act, 1961). While deciding one aspect of this appeal, i.e., impact of Hon'ble Supreme Court's judgment in the case of Dharamendra Textile Processors (supra) on the legal framework relating to imposition of penalty under section 271(1)(c) (of Income Tax Act, 1961), we also had the benefit of arguments advanced by learned counsels, as also by the learned Departmental Representatives, in all those cases. We would like to place on record our deep appreciation to Shri Golvala as indeed to all the learned representatives for their valuable assistance in the lengthy hearing of these appeals which was spread over several sessions. We thus place on record our deep appreciation to Shri Golvala as also to Shri Chetan Karia, Shri D.P. Bapat, Shri K.A. Sathe, Shri Kishore Phadke, Shri M.N. Kulkarni, Shri Pramod Singte, Shri Rajan Vora, Shri Sunil Ganoo, Dr. Sunil Pathak, Shri S.P. Doshi, Shri S.P. Joshi, Shri S.R. Puranik, (in alphabetical order) appearing for other assessees; and - Shri R. Kaushal, Shri A.S. Singh, Shri K. Srinivasan, and Shri Santosh Kumar - appearing for the revenue. Secondly, no matter how politely Shri Kaushal puts it, which is his hallmark anyway, we were all along alive to his submission that, by resorting to a process of interpretation, we must not dilute the law laid down by Their Lordships in Dharamendra Textile Processors' case (supra). However, just as much as we were alive to this plea, we were also alive to the words of guidance by Hon'ble Supreme Court in Mumbai Kamgar Sabha v. Abdulbahi Faizullabhai AIR 1976 SC 1455 wherein Their Lordships have, in their inimitable and felicitous words observed thus, "It is trite, going by Anglophonic principles that a ruling of a superior court is binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark." It is, therefore, indeed duty of every subordinate judicial forum to apply the ruling of the superior Courts in such a manner so as to enforce the true legal principles emerging from the same, by putting the words and expression used in the ruling in the right perspective and by taking a holistic legal view of the matter. Such an exercise is not to be viewed as diluting the law laid down in a ruling, but as a cerebral judicial exercise and a call of duty in judicial offices. We have highest respects for the rulings by the higher judicial forums, but it would indeed be inappropriate to use the words and expressions employed in these rulings, in isolation, as complete exposition of law and as a blind man's walking stick, rather than luminosity of judicial knowledge with the benefit of which we have to perform our duties of office.

71. The appeal is allowed.”

6. In the case of DCIT Vs. Apollo Hospitals Enterprises Ltd. (supra) the Hon‟ble ITAT Chennai Bench has held as under.:-

“5. The facts of the present case are very simple. In Appendix I provided under rule 5 (of Income Tax Rules, 1962), different rates of depreciation are provided for different classes of machineries and assets. In the case of "life saving devices" the depreciation suggested is 40 per cent. There is no separate rate available in the appendix for hospital equipments as such. Therefore, obviously, the rate of depreciation applicable to hospital equipments, other than "life saving devices", will be the general rate applicable to plant and machinery.

6. But, while computing and claiming depreciation, the assessee- hospital treated its entire equipments as "life saving devices" and claimed depreciation at 40 per cent. The assessee is not a factory or a manufacturing system so as to name its equipments as normal plant and machinery. The hospital has employed innumerable and different types of medical equipments and devices to run its various departments. The assessee took a plausible view that, speaking in a general way, all the medical equipment systems deployed in a hospital could be "life saving devices". On that loose interpretation of the term, the assessee claimed depreciation at the rate of 40 per cent. on the entire assets employed by it other than buildings, furniture, etc. It is to be seen that such a misunderstanding is plausible in this case, as no separate entry is available in Appendix-I to suggest the rate of depreciation applicable to general medical equipments deployed in a hospital. This unique situation moved the assessee to presume that, being a hospital, the assessee is entitled to claim depreciation at 40 per cent. on all its medical equipment.

7. In the course of assessment proceedings, the Assessing Officer has rightly adopted the view that the entire equipment cannot be treated as "life saving devices". He accordingly bifurcated the medical equipment into two, the first being "life saving devices" and the other being normal equipment. He granted depreciation at 40 per cent. on "life saving devices". He granted depreciation at the normal rate on the remaining lot of equipment.

8. What is discussed in the above paragraphs is a very normal procedure in an assessment under section 143(3) (of Income Tax Act, 1961). If no discussion is called for or no adjustment is necessary, or mistake is permissible, then what is the necessity of a scrutiny assessment under section 143(3) (of Income Tax Act, 1961) ? The concept of scrutiny assessment under section 143(3) (of Income Tax Act, 1961) by its nature itself expects that there would be a lot of plus or minus adjustments and disallowances in the course of the assessment. This is because the view taken by an assessee either on fact or in law may not be acceptable to the assessing authority. Where the views taken by an assessee on fact and in law on different issues are not acceptable to the Assessing Officer, the assessing authority will make disallowances and additions. Such disallowances and additions made by the assessing authority, per se, do not constitute instances of concealment of income or furnishing of inaccurate particulars. Such additions and disallowances are the logical results of a conscious assessment of an income-tax return filed by an assessee.

9. In the present case the assessee has furnished the entire details of the medical equipments deployed in its hospital. As far as that matter is concerned, there is no concealment and there is no furnishing of any inaccurate particulars. The assessee also has not claimed depreciation at a non existent rate. The assessee has not misrepresented any fact. Everything was open before the Assessing Officer. It is true that the assessee claimed depreciation at 40 per cent. on the entire medical equipment. That may be a wrong claim. But, that does not mean that the assessee has concealed its income or furnished inaccurate particulars.

10. The Revenue has relied on the decision of the hon'ble Supreme Court rendered in the case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571, wherein the hon'ble apex court has held that mens rea is not an essential ingredient for levying penalty under section 271(1)(c) (of Income Tax Act, 1961), as it is in the nature of a civil liability. The present case does not reach to the point where the above decision should be considered by us.

The above decision declares that mens rea need not be present in a case of concealment, provided it is found that the assessee has concealed the income or has furnished inaccurate particulars of income. In the present case, there is no concealment of income as such. There is no furnishing of inaccurate particulars. So it is not at all necessary even to mention the judgment of the hon'ble Supreme Court in the case of Dharamendra Textile Processors (supra).

11. This is a simple case where the Assessing Officer has for valid reasons disallowed a portion of the depreciation claimed by the assessee. The said disallowance was added to the income of the assessee. This is a normal exercise of any scrutiny assessment. This case cannot be stretched beyond this. This case cannot be made out as a case of concealment of income or furnishing of inaccurate particulars of income.

12. The Assessing Officer has erred in law in levying penalty in this file. We find that the Commissioner of Income-tax (Appeals) has rightly deleted the penalty. His order is upheld.

13. In result, this appeal filed by the Revenue is dismissed.”

7. In the case of CIT Vs. Reliance Petro Products (supra) the Hon‟ble Apex Court has held as under.:-

“A glance at this provision would suggest that in order to be covered, 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. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) (of Income Tax Act, 1961) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India Vs. Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:-

"13. It goes without saying that for applicability of Section 271(1)(c) (of Income Tax Act, 1961), conditions stated therein must exist." 8. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) (of Income Tax Act, 1961) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed 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. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c) (of Income Tax Act, 1961), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) (of Income Tax Act, 1961) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and 1/28/2020 C.I.T., Ahmedabad vs Reliance Petro products Pvt. Ltd on 17 March, 2010 material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after quoting from Section 271 (of Income Tax Act, 1961) extensively and also considering Section 271(1)(c) (of Income Tax Act, 1961), the Court came to the conclusion that since Section 271(1)(c) (of Income Tax Act, 1961) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) (of Income Tax Act, 1961) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C (of Income Tax Act, 1961). The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) (of Income Tax Act, 1961) and Section 276-C (of Income Tax Act, 1961) was lost sight of in case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra). However, it must be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) (of Income Tax Act, 1961) that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled. 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) (of Income Tax Act, 1961). A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that Section 14A (of Income Tax Act, 1961) specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was 1/28/2020 C.I.T., Ahmedabad vs Reliance Petro products Pvt. Ltd on 17 March, 2010 https://indiankanoon.org/doc/1030377/ 5/6 up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c) (of Income Tax Act, 1961). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c) (of Income Tax Act, 1961). That is clearly not the intendment of the Legislature. 11.

In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return. 12. The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.”

8. In the case of Fastway Transmission Pvt. Ltd. (supra) the Hon‟ble ITAT Chandigarh Bench has held as under.:-

“54. We have heard the rival contentions. We find merit in the contention of the Ld. counsel for assessee. The Ld. Counsel has demonstrated that there were sufficient own funds available with the assessee company in the form of share capital and reserves to the tune of Rs.105 crores and Rs.107 crores respectively to meet the advance given of Rs.3.20 crores. The issue is now squarely covered by the various decisions of the High Courts as well as of the apex court of the country including that of the Hon'ble Jurisdictional High Court in the case of ‘Bright Enterprises Pvt. Ltd Vs. CIT, Jalandhar’ (supra), ‘CIT Vs. Kapsons Associates’ (2016) 381 ITR 204 (P&H) and the latest decision of the Coordinate Bench of the Tribunal in the case of ‘ACIT Vs. Janak Global Resources Pvt Ltd’ ITA No. 470/Chd/2018 order dated 16.10.2018, holding that that if the assessee is possessed of sufficient own interest free funds to meet the investments / interest free advances, then, under the circumstances, presumption will be that interest free advances / investments have been made by the assessee out of own funds / interest free funds. Reliance in this respect can also be placed on the decision of the Hon'ble Supreme Court in the case of ‘Hero Cycles (P) Ltd Vs. CIT’ 379 ITR 347 (SC) and also on the latest decision of the Hon'ble Supreme Court in the case of ‘CIT (LTU) Vs. Reliance Industries Ltd.’ *2019+ 410 ITR 466 (SC). Thus, as per the settled law no disallowance u/s 36(1)(iii) (of Income Tax Act, 1961) is warranted on this issue. This ground is accordingly allowed in favour of the assessee.

55. G round No . 9 : - Ground No. 9 is general in nature and does not require any specific adjudication.

This appeal of the assessee stands partly allowed.”

9. The factual position as well as the legal position are on record. It is quite clear that the declining of the claim of depreciation of the assessee nowhere come within the ambit to levy the penalty u/s 271(1)(c) (of Income Tax Act, 1961). Moreover, we find that in the case of the Fastway Transmission P. Ltd. (supra), the depreciation claim upon the set top box (STB) has been held justifiable @ 60%. Anyhow, the penalty is not justifiable, therefore, by relying upon the above mentioned law, we set aside the finding of the CIT(A) on this issue and delete the penalty.

In the result, the assessee filed by the assessee is allowed.

10. The facts of the present case are quite similar to the fact of the case as narrated above while deciding the ITA. No.3467/M/2019, therefore, there is no need to repeat the same. However, the figure is different. The matter of controversy is also the same. The finding given above in ITA. No.3467/M/2019 is quite applicable to the facts of the present case as mutatis mutandis and accordingly we allowed the claim of the assessee and delete the penalty.

11. In the result, the appeals filed by the assessee are hereby allowed.

Order pronounced in the open court on 11 /11/2020

Sd/- Sd/-

(MANOJ KUMAR AGGARWAL) (AMARJIT SINGH

ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai; Dated : 11 /11/2020