I-T - When return was scrutinised by auditors and also Directors of company, it cannot be said that invalid claim of depreciation is not concealment and merely an accounting error: HC
By TIOL News Service
NEW DELHI, NOV 30, 2017: THE issue is - Whether when the return filed was scrutinised by the auditors and also the Directors of the assessee-company, it can still be said that invalid claim of depreciation is not concealment and merely an accounting error. NO is the verdict.
Facts of the case
The assessee- company claimed depreciation on land, during the year under consideration. The DCIT claimed that the assessee had incorrectly claimed such depreciation, as under the provisions of the Act, land was exempted from taxation. On assessment, penalty of Rs.32,11,164/- was imposed on the assessee for concealment. On appeal, the CIT(A) deleted the penalty on the rationale that the assessee had mistakenly claimed such depreciation.
On appeal by the Revenue, the ITAT restored the penalty. The assessee then approached the high court, but the appeal stood dismissed. Thus the DCIT filed complaint before the ACMM, pursuant to which the assessee was found guilty of offences u/s 266C and 277 of the Act. An amount of fine was also imposed. Thus, the present appeal was filed to challenge of the same.
On hearing the revision petition, the High Court held that,
++ it is seen that the main contention of the counsel for the assessee is that the fact with regard to charging of depreciation on the land along with the building and the same shown under a common head in the balance sheet of the AY 2007-2008 as ‘property’, is a mere clerical mistake and the same was suo motu corrected by the company in the balance sheet of subsequent year, i.e 2008-2009 and was informed about it to the AO vide letter dated 08.12.2009. Perusal of the record shows that after the assessment of the Balance Sheet of the year 2007-2008 by the AO, two order sheet entry dated 04.09.2009 and 23.11.2009 was made by the AO whereby the AO had asked the petitioner to explain the claim of depreciation on building as shown in the said balance sheet for the AY 2007-2008. The said order sheet entries are proved by PW-2/Sh.S.K. Mehra(IT Department) in his cross examination wherein he has stated that “…It is the order sheet entry dated 23.11.2009 Ex.PW2/2 in which at question no. 1 the assessee was specifically asked to explain the claim of depreciation under the head building and has not shown land separately in the companies assets…” It was further proved by DW-2/Shri Manoj Kumar Maheshwari/Occupation Service in M/s Ansal Properties, during his cross-examination wherein he has stated that “…It is correct that on 04.09.2009, I appeared before the Asssessing officer. My sign are at point "X" and on that date AO had asked the details of addition in assets already Ex.PW2/1. It is correct that on 23.11.2009 I again appeared before the AO during the assessment proceedings and he has at sl.no. 1 asked to explain claim of depreciation on building. The same is already Ex.PW2/2, my sign at point "X". It is correct that I have filed letter dated 08.12.2009 Ex.PW2/3 in response to the hearing on 23.11.2009 duly signed by me at point "X" wherein in para no. 7, it has been mentioned by me that depreciation on land was inadvertently charged as included by the tax auditiors. …..It is correct that no letter admitting the wrong claim upon depreciation on land was written by the assessee company to the complainant department prior to 23.11.2009 for AY 2007-2008…”
++ the explanation given above proves that only after the order sheet entry made by the Department of Income Tax, that the correction was made by the assessee in the subsequent AY 2008-2009. It was on 08.12.2009, when the assessee sent the letter to the AO by stating that :- “…This mistake came to notice of the auditors next year while preparing and certifying the balance sheet and the tax audit report relating to AY 2008-2009. In the balance sheet for that year land has been segregated and appears as the distinct item in Schedule of the fixed assets. In the tax audit report and in the income tax return also depreciation has been claimed only on the building. It is therefore, prayed that depreciation on building may kindly be allowed after excluding the cost of land namely Rs. 3,18,00,000/-..”Therefore, the contention of the counsel for the assessee that the mistake in the balance sheet was suo motu rectified in the balance sheet of the subsequent year much before it was scrutinised by the AO cannot be accepted.
++ it is a manifest procedure that before filing of the Income Tax return for the AY 2007-2008 by the assessee, the same is scrutinized, firstly, by the auditors of the company. Secondly, by the directors of the company before endorsing their signatures on the final Balance Sheet. Therefore, it cannot be considered as a mere accounting mistake. Therefore, it is viewed that the judgment dated 24.06.2014 and order of sentence dated 25.06.2014, is a well reasoned order and does not suffer from any infirmity. The same is upheld.
(See 2017-TIOL-2493-HC-DEL-IT)
