Tuesday, 17 December 2013
Bonafide beliefs can land you in serious trouble with the Taxman !!!!: Depreciation woes
Bonafide beliefs can land you in serious trouble with the Taxman !!!!: Depreciation woes: You all might have heard the adage-There is no equity as far as Tax law is concerned. Add to that –your Bonafide beliefs will not ...
Depreciation woes
You all might have heard the adage-There is no equity as far
as Tax law is concerned.
Add to that –your Bonafide beliefs will not be taken kindly
by the Tax man!!!
So, whenever in doubt regarding any provision of the Tax
law, especially the rate of depreciation allowable, consult the text or better
still, meet a Tax consultant
(Your bonafide belief is true-that The tax laws are made
complex so that Consultants like me can make a living!!!)
Now, to the matter of the belief.
In financial year 2004-05
a Hospital purchased a C.T. scan system and claimed 40% depreciation thereon
under a belief that it is magnetic resonance imaging system, which was eligible
for 40% depreciation.
During the course of assessment Income Tax Officer held
that the Hospital was eligible to depreciation @ 15% only.
In addition, the
officer demanded penalty for the excess claim of depreciation.
Although the
Commissioner Appeals did not grant any relief to the Hospital, the Income Tax Appellate
Tribunal deleted the penalty, observing as under:
“17. In view of the
foregoing, we are of the opinion that mere erroneous claim in the absence of
any concealment or furnishing of inaccurate particulars, is no ground for
levying penalty, especially when there is nothing on record to show that the
explanation offered by the assesses was not bona fide or any material particular were
concealed or furnished inaccurate. In these circumstances, we have no
hesitation in observing that no penalty is exigible in relation to claim for deduction
of excess depreciation and interest on amount borrowed for building which was
incomplete. Therefore, we hold that penalty is not imposable in this case and
action of authorities below in imposing/ confirming the penalty u/s 271(1)(c)
of the Act is neither proper nor justified. As such, while accepting the plea
of the assesse, we direct to delete the impugned penalty imposed.”
The Hospital heaved a
sigh of relief, which was short lived.
Following the earlier
claim of depreciation next year also, the Hospital claimed the same rate which
was disallowed by the officer. The officer disallowed the same following earlier
year and initiated the penalty proceedings.
The Hospital filed
reply to the penalty proceedings in response to show cause notice dated
11-5-2009, pleading that depreciation @ 40% was claimed under bona fide belief
that C.T. scan machine amounted to magnetic imaging system. The bona fide belief
was based on its interpretation of the equipment and its professional use which
were purely medico technical terms. The Hospital’s reply was supported by
various case laws which are mentioned therein
The officer then
dropped the penalty proceeding by a short order which is as under:
“Penalty proceedings
initiated u/s 271(1)(c) are hereby dropped"
However, the
Commissioner of Income Tax thought otherwise .He maintained that Penalty was
payable and using his power for revision demanded penalty for the Bonafide belief.
Against this order, the
Hospital approached the Income Tax Appellate Tribunal, which agreed with the
Hospital’s argument and cancelled the action of the Commissioner in levying
penalty.
Lesson to be learned
Do not hold any Bonafide
or malafide belief regarding Tax law
The Tax man is, as far as Tax law is
concerned, the deciding factor.
Although ultimately the Hospital
got the penalty dropped, it was after a fight.
AND, kindly note, when
there is a demand pending against you, the department waits for one month and
then initiates recovery action!!!!
Reference
LALA HARBHAGWAN DAS vs.
COMMISSIONER OF INCOME TAX
ITA NO. 2555/Del/2012
6th December, 2013
(2013) 38 CCH 012
Del Trib
Subscribe to:
Posts (Atom)