Jubilant Infrastructure Ltd. faced a legal challenge against the penalty imposed by the Commissioner of Income Tax (Appeals), related to the disallowance of depreciation on water use rights for the assessment year 2016-17. This analysis covers the tribunal’s decision to cancel the penalty, emphasizing the significant arguments and legal principles involved.
The dispute originated from the penalty of Rs. 9,50,000 imposed under section 271(1)(c) of the Income Tax Act, concerning the disallowance of Rs. 28,39,272 in depreciation claims on intangible assets specifically, water use rights. The assessee had capitalized a one-time payment for water supply and drainage connection and claimed depreciation since AY 2011-12 without any prior disallowances.
The tribunal found merit in the assessee’s arguments against the penalty. It highlighted that the assessee had not exhibited any malafide intent in its claim, which was further substantiated by the fact that the depreciation claim, though disallowed for AY 2016-17, did not impact the revenue due to a corresponding enhancement under section 80 IAB. Furthermore, the adjustments made in the ‘book profits’ for MAT purposes did not warrant a penalty, referencing the decision in CIT vs. Nalwa Sons Investments Ltd.
The judgment clarified that mere disallowance of a claim does not necessarily lead to penalties if there is no concealment or erroneous claim by the assessee. This principle is particularly pertinent under the Minimum Alternate Tax (MAT) provisions, where the tribunal relied on precedent to negate the imposition of penalties.
This case sets a significant precedent on how penalties for disallowance of depreciation are treated, especially in scenarios where no revenue loss occurs due to corresponding adjustments. It underscores the importance of assessing the intent and factual matrix behind claims made by the assessee.
The decision not only provided relief to Jubilant Infrastructure Ltd. but also guided similar cases where penalties might be imposed merely based on disallowances without considering the underlying reasons and the broader fiscal impact.
The tribunal’s decision in ITA 1682/DEL/2021 is a landmark in interpreting the applicability of penalties under sections 271(1)(c) and 115JB, offering clarity and direction for both taxpayers and tax authorities in handling disputes over disallowance of claims.
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