(Per : HONOURABLE MR.JUSTICE V. M. SAHAI) 1. We have heard Mr. Varun. K. Patel, learned counsel for the Revenue.
2. This Tax Appeal has been filed on the following proposed question of law :
“Whether the Appellate Tribunal is right in law and on facts in deleting the penalty of Rs. 11,73,470/- levied u/s 271(1) (c)of the Act?”
3. The facts in brief are that the respondent/assessee on 4.11.2003 filed return of Income for A. Y. 2003-2004 showing a loss of Rs. 4,48,42,862/-. The return was processed on 13.2.2004 under section 143(1) of the Income Tax Act, 1961, (for short 'Act') accepting the loss. The case was selected for scrutiny and on 7.4.2004, a notice under section 143(2) was issued, which was duly served on the assessee.
4. The assessee is engaged in running of hotel Royal Menor at Ahmedabad. In response to the notice, a Chartered Accountant from G.K.Chokshi & Co. attended the proceedings and filed details.
5. The assessee claimed depreciation of Rs. 73,40,441/- @ 25% on electric installations of Rs. 2,98,29,841/-. The rate of depreciation on electric installations for A. Y. 2003-2004 was 15% only, and therefore, excess depreciation claimed of Rs. 29,82,984/- was disallowed and added to total income of the assessee by the Assessing Officer by order dated 31.3.2006. Penalty proceeding under section 271 (1) (c) was also initiated.
6. The assessee suo motu applied on 13.07.2006 for rectification under section 154 of the Act pointing out that depreciation on hotel building had been allowed @ 20% WDV whereas the same should have been allowed @ 10%. The Assessing Officer in his order dated 24.11.2006 found that by amendment w.e.f. A. Y. 2003- 2004 rate of depreciation on hotel building has changed from 20% to 10%, therefore, he recomputed the depreciation of hotel building and excess depreciation allowed Rs. 31,45,850/- was disallowed and added to the total income of the assessee. The Assessing Officer also allowed the application of the assessee dated 15.4.2006 and unabsorbed depreciation loss of Rs. 20,83,16,233/- was allowed to be carried forward to the next year.
7. In assessee's appeal, the CIT(A) by order dated 7.2.2007 accepted assesse's contention that certain electrical fittings were included in the block of Plant and Machinery and, therefore, restricted the disallowance of Rs. 47,272/- and the balance disallowance of Rs. 29,35,712/- was deleted.
8. The Deputy Commissioner passed an order dated 28.3.2008 under Section 271(1)(c) of the Act and imposed penalty of Rs. 11,73,470/- on the assessee. The penalty was levied as the assessee has claimed depreciation @ excessive 25% on entire block of plant & machinery and electrical installations and the other ground was that the assessee has claimed excessive 20% depreciation on hotel building.
9. The assessee filed an application challenging penalty order dated 28.3.2008 passed by the Dy. Commissioner of Income Tax before the Commissioner of Income Tax (Appeal). The CIT (Appeal), so far as depreciation of 25% on plant & machinery and electrical installations was concerned, came to the conclusion that the appellant has initially claimed 25% depreciation in view of tax audit report under form 3CD. However, subsequently by his letter dated 8.3.2006, he has filed revised chart during the assessment proceedings giving the break up of WDV on block of plant & machinery for which 25% depreciation was leviable. In the chart, it was explained that for electric fitings, only 15% depreciation was allowed. The CIT(A) came to the conclusion that the entire material was placed before the assessing officer by the assessee, therefore, it can not be accepted that the assessee has concealed the fact from the assessing officer and, therefore, the penalty was not leviable for claiming depreciation for electric installations.
10. The Commissioner CIT(A) found that with regard to hotel building, the assessee has claimed @ 20% WDV under a mistake, as w.e.f. A.Y. 2003-2004, the rate of depreciation on hotel building had changed from 20% to 10% and therefore, the assessee suo motu filed an application on 13.7.2006 before the assessing officer under section 154 of the Act for rectification of the mistake and the application was allowed by the assessing officer on 24.11.2006 and depreciation on hotel building was changed from 20% to 10% WDV and he recomputed the depreciation on hotel building and excess depreciation disallowed to the tune of Rs. 31,45,850/- and added to the total income of the assessee. The assessing officer allowed the application of the assessee.
11. On the basis of the aforesaid facts, the CIT(A) recorded his findings that there was no intention on the part of the assessee to furnish incorrect information or details for claiming excess depreciation and even the department could not detect excess allowance or depreciation. On the other hand, the assessee suo motu has pointed out the mistake and requested for rectification. Therefore, there was no concealment on the part of the assessee. For levying the penalty, the essential ingredient of mens rea was not established and, therefore, no penalty can be levied against the assessee. Therefore, the CIT(A) deleted the penalty of Rs. 11,73,470/- imposed by the assessing officer.
12. The Revenue filed an appeal before the Tribunal. The Tribunal relied on the decision of the ITAT, Ahmedabad bench in the case of sister concern Marvar Hotels Ltd. in ITA No. 881/AHD/2006 dated 20.10.2006 wherein relying on the decision of Apex Court in Taj Mahal Hotels and Geeta Hotels Pvt. Ltd., it was held by the Tribunal that WDV on block of plant & machinery and electric fittings included in it and held that since electrical fittings are plant, the issue is covered in favour of the assessee and no penalty was leviable for claiming depreciation for electrical fittings. The Tribunal vide its ordered dated 13-04-2010 affirmed the findings recorded by the CIT(A) and dismissed the appeal of the Revenue.
13. After hearing learned counsel for the parties, we are of the opinion that there was a bonafide mistake committed by the assessee and there was no intention to claim wrong depreciation. Had the intention of the assessee been to claim wrong depreciation, he would not have moved the assessing officer suo motu for correcting the assessment order by filing rectification application under section 154 of the Act, as the mistake in claiming excess depreciation on hotel building was not detected by the Assessing Officer at the time of assessment. Therefore, so far as electric fittings are concerned, the CIT(A) as well as Tribunal have recorded findings that they are electrical plants and covered by the decision of the Apex court and therefore CIT(A) and the Tribunal came to the opinion that no penalty was leviable against the appellant. We further find that there was no mens rea on the part of the assessee to claim wrong deduction. In absence of mens rea , penalty can not be levied.
14. For the aforesaid reasons, we are of the considered opinion that the issue sought to be raised in this appeal stands concluded by findings of facts recorded by the Tribunal. Questions proposed by the appellant do not raise any substantial question of law. This Tax Appeal is accordingly dismissed.
[V.M.SAHAI, J.] [N.V.ANJARIA, J.] cmjoshi