Facts of the Case

  • The assessee was engaged in development and operation of highways under BOT model and collected toll revenue.
  • It claimed depreciation @10% on roads under Section 32, which was initially allowed in regular assessment under Section 143(3).
  • A search under Section 132 was conducted, followed by proceedings under Section 153A.
  • During reassessment, based on CBDT Circular No. 09/2014, the assessee withdrew depreciation claim and instead claimed amortization of expenditure.
  • The Assessing Officer imposed penalty under Section 271(1)(c) for furnishing inaccurate particulars.
  • CIT(A) and ITAT deleted the penalty, leading to appeal before High Court.

Issues Involved

  1. Whether withdrawal of depreciation claim based on subsequent CBDT clarification amounts to concealment or furnishing inaccurate particulars.
  2. Whether penalty under Section 271(1)(c) can be imposed where the claim was made under a bonafide belief and full disclosure of facts.
  3. Whether debatable legal issues can attract penalty provisions.

Petitioner’s Arguments (Revenue)

  • The assessee made a wrong claim of depreciation knowingly, later revised only after detection.
  • CBDT circular only clarified existing law; hence the claim was not justified.
  • Delay in revising claim indicated intent to conceal income.
  • Penalty was rightly levied for inaccurate particulars of income.

Respondent’s Arguments (Assessee)

  • The claim of depreciation was made under a bonafide belief based on industry practice.
  • All facts were fully disclosed in returns and assessment proceedings.
  • Depreciation claim was earlier accepted in scrutiny assessment.
  • Withdrawal was made voluntarily after CBDT Circular clarified legal position.
  • Issue was debatable and not settled by higher courts.

Court Findings / Order

  • The Court upheld deletion of penalty and dismissed Revenue’s appeal.
  • It held that:
    • The issue of depreciation vs amortization was highly debatable and contentious.
    • The assessee had disclosed all material facts.
    • Claim was made under bonafide belief and accepted earlier by AO.
    • Mere disallowance of claim does not automatically attract penalty.
  • Therefore, penalty under Section 271(1)(c) was not justified.

Important Clarification by Court

  • Penalty proceedings are distinct from assessment proceedings.
  • A wrong claim does not equal concealment, if:
    • All facts are disclosed
    • Claim is bonafide
  • CBDT circular reflects legal ambiguity, reinforcing that the issue was debatable.
  • Reliance placed on:
    • CIT vs Reliance Petroproducts Pvt. Ltd.
    • CIT vs Brahmaputra Consortium Ltd.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:5480-DB/CSH28082018ITA9292018.pdf

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