CIT vs. Mahanagar Telephone Nigam Ltd (Delhi High Court)

No S. 271(1)(c) Penalty Without AO’s Finding on “Inaccurate Particulars”

The AO imposed s. 271(1)(c) on the ground that the assessee had filed “inaccurate particulars” by wrongly (i) claiming deduction for contribution to a ‘staff welfare fund’ despite the bar in s. 40A(9) and the qualification of the auditors and (ii) claiming depreciation on vehicles at 25% though the prescribed rate was 20%. The assessee argued that despite s. 40A(9), the payment to the fund was allowable as “business expenditure” and that the higher depreciation was claimed on the basis that the vehicles were “plant & machinery” despite the lower rate prescribed for vehicles in the Rules. The CIT (A) & Tribunal deleted the penalty. On appeal by the department, HELD dismissing the appeal:

There is no finding by the AO that the assessee furnished inaccurate particulars and that its explanation was not bonafide. Accordingly, the imposition of penalty u/s 271(1)(c) was a “complete non-starter”. A mere erroneous claim made by an assessee, though under a bonafide belief that, it was a claim which was maintainable in law cannot lead to an imposition of penalty. The claim for deduction was made in a bona fide manner and the information with respect to the claims was provided in the return and documents appended thereto. Accordingly, there is no furnishing of “inaccurate particulars”. Making of an incorrect claim for expenditure does not constitute furnishing of inaccurate particulars of income (Reliance Petroproducts 322 ITR 158 (SC) followed)