ITAT confirmed deletion of penalty in a case of full disclosure

1. M/s Exensys Software Solutions Ltd was engaged in software business and filed its return of income for the year under consideration admitting Nil income.

2.  Later, it filed a revised return of income on admitting Nil income under normal provision and Rs. 1.2 crore under MAT.

3.  AO passed assessment order u/s 143(3) (of Income Tax Act, 1961) assessing the total loss admitted by assessee at Rs 2.77 crores.

4.  During the course of assessment AO noted that assessee had claimed higher depreciation on software @60% and on software development @100%.

5.  Observing that any purchase or development made on software comes under intangible assets and the rate of depreciation is @25% only, AO reworked allowable depreciation and arrived at excess depreciation claimed by assessee at Rs 19.99 crores.

6.  Assessee did not go in appeal against the quantum addition.

7.  Thereafter, AO initiated penalty proceedings u/s 271(1)(c) (of Income Tax Act, 1961), and levied penalty.

8.  CIT(A) cancelled the penalty imposed by AO.

On appeal, the ITAT held as under:

9.  We are of the view that penalty cannot be levied on presumptions relying on the judgment of the Hon'ble Supreme Court in the case of Dilip N Shroff Vs JCIT (291 ITR 519).

10. In the case under consideration, the ld. CIT(A) gave a categorical finding that the assessee has made proper and full disclosure of its income and the higher percentage claimed in depreciation was only a bonafide error which was corrected by assessee.

11. Therefore, the ratio laid down by the Hon'ble Supreme Court fully supports and is applicable to the case of assessee.

12. Accordingly, we do not find any infirmity in the order of ld. CIT(A) in cancelling the penalty of Rs. 6,79,65,180/- levied by AO u/s 271(1)(c) (of Income Tax Act, 1961) and the same is hereby upheld dismissing the grounds raised by the revenue.