Facts of the Case

The petitioner company claimed depreciation on land amounting to Rs. 31,80,000 by clubbing it with building assets under the head “property” in its balance sheet for AY 2007–08. Since land is not a depreciable asset under the Income Tax Act, the Assessing Officer treated this as an impermissible claim and imposed penalty for concealment.

Although the Commissioner of Income Tax (Appeals) initially deleted the penalty treating it as a mistake, the Income Tax Appellate Tribunal restored the penalty. Subsequent challenge before the High Court failed.

Thereafter, criminal prosecution was initiated. The trial court convicted the company under Sections 276C and 277 of the Income Tax Act and imposed monetary fines. The company then filed the present criminal revision petition before the Delhi High Court challenging the conviction.

Issues Involved

  1. Whether wrongful claim of depreciation on land was merely an inadvertent clerical/accounting error?
  2. Whether criminal liability under Sections 276C and 277 of the Income Tax Act requires proof of deliberate intent?
  3. Whether correction made after departmental scrutiny could absolve the assessee from prosecution?
  4. Whether failure to file a revised return despite knowledge of error affects bona fides of the assessee?

Petitioner’s Arguments


The petitioner argued that:

  • The depreciation claim on land was purely an accounting mistake committed by the accounts clerk.
  • The directors and auditors were unaware of such error.
  • The mistake was discovered during subsequent audit and corrected in the following financial year.
  • The correction was communicated to the Assessing Officer through letter dated 08.12.2009.
  • There was no deliberate concealment or criminal intention (mens rea).
  • The prosecution was unjustified as the act lacked wilfulness.
  • The trial court failed to appreciate that the mistake was bona fide and unintentional.

 Respondent’s Arguments

The Income Tax Department contended that:

  • The claim of depreciation on land was patently impermissible and unlawful.
  • The so-called correction was made only after the Assessing Officer specifically questioned the claim.
  • The petitioner had knowledge of the mistake much earlier but failed to file a revised return.
  • The conduct of the petitioner reflected conscious concealment rather than inadvertence.
  • The trial court’s findings were reasoned, lawful, and based on evidence.

 Court Findings

The Delhi High Court found that:

  • The petitioner’s claim of suo motu correction was factually incorrect because the record showed that the discrepancy was noticed by the Assessing Officer first.
  • The letter admitting the mistake was filed only after specific departmental scrutiny.
  • The petitioner had sufficient time to voluntarily rectify the error by filing a revised return but failed to do so.
  • Corporate financial statements undergo audit scrutiny and director approval; therefore, such wrongful claim could not be casually treated as clerical oversight.
  • The conduct of the petitioner created serious doubt regarding bona fides.

The Court concluded that the wrongful claim was not a mere accounting mistake but a false statement attracting penal consequences.

 Court Order / Final Decision

The Delhi High Court upheld the conviction and sentence passed by the trial court and dismissed the criminal revision petition.

The Court held that the order of conviction under Sections 276C and 277 of the Income Tax Act suffered from no legal infirmity and required no interference.

 Important Clarification

The Court clarified that its observations in the revision petition shall not prejudice the merits of any other connected proceedings.

It emphasized that correction after detection by tax authorities cannot automatically establish bona fide conduct.

Further, audited financial statements carry greater responsibility, and incorrect tax claims cannot be lightly dismissed as clerical errors. 

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:7198/SDS23112017CRLR162015.pdf 

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