2024 (5) TMI 153 - AT - Income Tax

Penalty under Section 271(1)(c) deleted where deduction claimed based on DSIR guidelines and CA certification

ITAT Chennai held that penalty u/s 271(1)(c) was not justified where assessee claimed deduction u/s 35(2AB) based on DSIR guidelines and CA certification, ... Levy of penalty u/s. 271(1)(c) - disallowance made u/s. 35(2AB) - assessee argued that claim was made by the assessee as per DSIR guidelines and duly certified by a Chartered Accountant and DSIR does not communicate the grounds or items on which, it has restricted the claim of weighted deduction towards capital expenditure and revenue expenditure - Whether the DSIR approval or certificate restricting the claim of deduction u/s. 35(2AB) and particularly, when certificate comes after filing of return of income, restricting the deduction by the AO based on DSIR approval can amount to concealment of particulars of income or not ? HELD THAT:- The issue answered in the case of CIT vs. Balaji Distilleries Ltd. [2012 (10) TMI 514 - MADRAS HIGH COURT], wherein it is held that in the absence of due care, it did not mean that the assessee was guilty of either furnishing inaccurate particulars or attempting to conceal its income and hence, the imposition of penalty for furnishing of inaccurate particulars of income on assessee’s held not justified. The Hon’ble Madras High Court applied the decision of Price Waterhouse Coopers Pvt. Ltd. [2012 (9) TMI 775 - SUPREME COURT] Also decided in Reliance Petroproducts Ltd. [2010 (3) TMI 80 - SUPREME COURT] wherein as propounded “the meaning of the term ‘particulars’ used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate ‘particulars’. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate ‘particulars’” Thus at the time of filing of return of income, the DSIR approval was not available with the assessee restricting the claim of deduction will not tantamount to furnishing of inaccurate particulars of income in the return of income filed by the assessee. Hence, we delete the penalty and allow the appeal of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether claiming weighted deduction under section 35(2AB) in the return, before receipt of the DSIR certificate that subsequently restricts the claim, amounts to furnishing inaccurate particulars of income attracting penalty under section 271(1)(c). 2. Whether a difference between the deduction claimed in the return and the amount subsequently certified by DSIR, where the certificate issues after filing of the return and without communicated reasons, can be treated as concealment or suppression of income for the purpose of imposing penalty under section 271(1)(c). ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether pre-certification claim of weighted deduction that is later restricted by DSIR constitutes furnishing inaccurate particulars of income under section 271(1)(c). Legal framework: Section 35(2AB) provides for weighted deduction for specified R&D expenditure subject to certification by the designated authority (DSIR). Section 271(1)(c) penalises furnishing inaccurate particulars of income or concealment of income. Precedent treatment: The Court considered higher-court pronouncements that interpret 'particulars' in the penalty provision to mean the details supplied in the return and that an incorrect claim is not necessarily equivalent to inaccurate particulars unless the return contains incorrect or misleading information. The Tribunal relied on a state high court ruling applying the higher-court principles to post-return certification issues. Interpretation and reasoning: The Tribunal reasoned that at the time of filing the return the assessee legitimately claimed the weighted deduction in conformity with DSIR application procedures and contemporaneous knowledge. The DSIR certificate, which limited the eligible amount, was issued after the return was filed and did not provide itemised grounds enabling the assessee to have known or to have adjusted the return earlier. In these circumstances the excess claim in the return was not an inaccurate 'particular' within the meaning of section 271(1)(c) because the return did not contain an incorrect statement of known facts or deliberate misrepresentation; rather it reflected a bona fide claim pending final administrative certification. Ratio vs. Obiter: Ratio - A claim made in good faith in the return, filed before the certifying authority's final determination and without knowledge of restriction, does not amount to furnishing inaccurate particulars under section 271(1)(c). Obiter - Observations on the procedural opacity of DSIR certificates and administrative practice. Conclusion: Penalty under section 271(1)(c) cannot be sustained for the pre-certification claim that was later restricted by DSIR where the claimant filed the return before receipt of the certificate and lacked knowledge of the specific restrictions. Issue 2: Whether the existence of a later-adopted disallowance by AO (based on DSIR certificate) establishes suppression of income or culpable conduct justifying penalty. Legal framework: Penalty under section 271(1)(c) requires either concealment of income or furnishing inaccurate particulars; both typically require culpable intention, gross negligence, or materially false particulars. Precedent treatment: The Court relied on precedential guidance that penalties must be invoked strictly and that mere incorrect claims do not ipso facto attract penalty absent concealment, misrepresentation or culpability. A high-court decision applying the higher-court test to cases where administrative certification post-dates the return was followed. Interpretation and reasoning: The Tribunal examined facts showing no appeal was filed against the substantive disallowance (accepted before penalty), and that the DSIR certificate was issued after return filing without disclosing reasons. The Tribunal held that absence of due care does not equate to deliberate furnishing of inaccurate particulars. Since the assessee's claim conformed to available processes and the excess arose only because of subsequent restrictive certification, the AO's conclusion that 'there cannot be more than one view' and that the assessee thus furnished inaccurate particulars was rejected as unsustainable when applied to post-filing certification situations. Ratio vs. Obiter: Ratio - Imposition of penalty for concealment or inaccurate particulars is not justified where excess claims result from later administrative restriction and where there is no evidence of deliberate concealment or knowledge of inaccuracy at the time of filing. Obiter - Rejection of the proposition that statutory prescription always precludes reasonable differences of claim in provisional or certifying-authority dependent matters. Conclusion: The factual matrix did not establish suppression of particulars or culpability necessary for penalty; therefore, penalty under section 271(1)(c) was deleted. Cross-References and Interplay of Issues The analysis of Issue 1 and Issue 2 is interdependent: the timing and knowledge at filing (Issue 1) determine whether there was culpable conduct or suppression (Issue 2). The Tribunal applied higher-court principles to hold that post-filing administrative adjustments by DSIR cannot retroactively convert a bona fide return entry into an inaccurate particular attracting penalty. Final Conclusion The Court allowed the appeal against imposition of penalty under section 271(1)(c), holding that a claim for weighted deduction under section 35(2AB) made in the return prior to DSIR's restrictive certificate does not amount to furnishing inaccurate particulars of income or concealment justifying penalty, absent evidence of knowledge, deliberate misstatement or culpable conduct at the time of filing.