No Penalty for Trust if It Mistakenly Claimed Deduction and Withdrew Objection Before Appeal | ITAT

Case Details: Mumbai Educational Trust vs. DCIT (Exemptions)-2 - [2024] 169 taxmann.com 689 (Mumbai-Trib.)[02-12-2024]

Judiciary and Counsel Details

• Saktijit Dey, Vice President & Ms Padmavathy S, Accountant Member
• Bhupendra Shah, AR for the Appellant.
• R.R. Makwana, Rs. DR for the Respondent.

Facts of the Case

The assessee, a charitable trust registered under section 12A, filed its return for the relevant assessment year, claiming exemption under section 11. During scrutiny under section 143(3), additions were made for notional rental income, disallowance of repairs and maintenance, and disallowance of depreciation.

Before the CIT(A), the assessee withdrew its ground, challenging the disallowance of depreciation, citing the amendment brought by the Finance Act, 2014, which introduced section 11(6). This amendment barred claiming depreciation on assets whose cost was already treated as an application of income. The assessee argued that the depreciation claim was inadvertently made and voluntarily withdrawn, requesting the penalty proceedings under section 271(1)(c) be dropped as there was no deliberate furnishing of inaccurate particulars.

The Assessing Officer (AO) rejected this submission and levied a penalty under section 271(1)(c), stating that the assessee furnished inaccurate particulars regarding the depreciation claim.

On appeal, the CIT(A) upheld the penalty order, and the matter reached before the Mumbai Tribunal.

ITAT Held

The Tribunal held that the Finance (No. 2) Act, 2014, inserted sub-section (6) to section 11 to provide that if the acquisition of an asset is allowed as an application of funds, then the assessee once again cannot claim depreciation on the same asset as a deduction or application. For the year under consideration, the assessee claimed depreciation on the asset in the return of income, the cost of which was already claimed as an application. While completing the assessment under section 143(3), the AO has disallowed the depreciation.

Though the assessee raised a ground contending the said disallowance before the CIT(A) subsequently withdrew the same. The AO initiated the penalty proceedings under section 271(1)(c), stating in the notice that the assessee has furnished inaccurate particulars. In the instant case, it was noticed that the assessee did not deliberately claim the depreciation to make an erroneous claim. This was evidenced by the fact that the assessee voluntarily conceded that the depreciation was erroneously claimed and accordingly withdrew the ground raised against the said claim before the CIT(A).

Considering the fact in the assessee’s case, it was held that there was no intention on the part of the assessee to make an incorrect claim, which was evidenced by the assessee’s subsequent actions and the fact that the assessee did not claim depreciation in the subsequent years. Further, the assessee voluntarily corrected the inadvertent error by accepting the disallowance of depreciation before the CIT(A). Accordingly, it was held that the AO was incorrect in levying a penalty under section 271(1)(c) in the assessee’s case towards the disallowance of depreciation admitted by the assessee as inadvertently claimed.

Thus, the assessee’s appeal was allowed.

List of Cases Referred to

• Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 25 taxmann.com 400/211 Taxman 40/348 ITR 306 (SC) (para 6)
• Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 6).