TaxTMI 
TaxTMI 
TaxTMI 
2024 (4) TMI 592
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....e issue and also not appreciating the fact that the assessee company was aware of the fact that the competent authority had restricted the deduction of Rs. 2.6 crores, u/s 35(2)(AB) of the Act and hence the furnishing of inaccurate particulars was deliberate? (iii) The appellant craves to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of his appeal." 3. Facts giving rise to the present appeal are that the assessee had e-filed its return of income on 30.11.2016, declaring total income of INR 14,22,64,180/-. The case was selected for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 ("the Act") was framed on 22.12.2018 at INR 16,14,72,606/- by making disallowance of INR 15,21,372/- by invoking the provision of section 40(a)(i) of the Act; disallowance u/s 35(2)(AB) of the Act at INR 1,76,87,054/- and relief claimed u/s 90 of the Act of INR 24,37,344/- was restricted to NIL. Thereafter, the Assessing Officer ("AO") initiated penalty proceedings u/s 271(1)(c) of the Act and vide order dated 28.06.2019, imposed penalty in respect of disallowance of INR 1,76,87,054/- for furnishing inaccurate particulars....
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....) of the Act. 2. Brief facts of the case are that assessee is a limited company engaged in the business of manufacturing of plastic film and polyester chips and have in-house research and development center which has been recognized by department of scientific and Industrial research. (PB Pg.140). 3. Assessee filed its return of income for AY 2016-17 on 30.11.2016 declaring total income of Rs. 14,22,64,180/- (PB Pg 1-2). The assessee claimed the deduction of 200% of the amount of Rs. 441.39 lacs spent on research and development expenditure in approved R & D Centre amounting to Rs. Rs. 882.78 lakhs u/s 35(2AB) of the Act on the basis of report issued by the Auditor in Form 3CL enclosed at PB Pg. 134-137. 4. Thereafter, assessee's case was selected for scrutiny and notice u/s 143(2) dated 14.07.2018 was issued to the assessee. 5. During the course of assessment proceedings, assessee via reply dated 15.10.2018 (PB 148-152, relevant page 152) submitted before the Ld.AO that during year under consideration assessee incurred Rs. 4.41 crores for running / operation of research & development unit established as per the provision of section 35(2AB) of the Income Tax Act, 1961 a....
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....d u/s 35(2)AB of the Act. 10. Subsequently, Ld. AO vide order 22.12.2018 u/s 143(3) allowed the total research and development expenditure of Rs. 4.41 crores. However, in view of DSIR approval, he restricted the additional deduction u/s 35(2AB) in respect of the expenditure to Rs. 2,64,52,000/-. 11. It is relevant to mention that there is no dispute regarding the incurrence of expenditure. The dispute is only regarding the amount of deduction approval of which was received on 26.11.2018, much after the initiation of assessment proceedings. 12. Subsequently, Ld. AO vide order 22.12.2018 u/s 143(3) made disallowance of Rs. 1,76,87,054/- u/s 35(2AB) computing the same as (Rs. 4,41,39,054-Rs. 2,64,52,000) and assessee did not file an appeal before CIT(A) against the said disallowance. 13. However, Ld. A.O. Initiated penalty proceedings u/s 271(1)(c) of the Act on the above mentioned disallowance of Rs. 1,76,87,054/- u/s 35(2AB) of the Act. 14. Thereafter, Ld.AO issued notice u/s 274 r.w.s 271(1)(C) dated 21.12.2018 (PB Pg 183). 15. In response to above mentioned notice, assessee filed its reply dated 21.12.2018 and submitted that disallowance of Rs. 1,76,87,054/- u/s 35(2AB....
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....he Act in the instant case are satisfied. Accordingly we have no hesitation in deleting the penalty imposed of Rs. 31,85,292/-." 22. Further reliance is placed on the judgment of co-ordinate bench of ITAT Lucknow in the case of A.C.I.T., RANGE-V, LUCKNOW VERSUS MIS PTC INDUSTRIES LTD., 2015 (12) TMI 963 ITAT LUCKNOW, Dated.- June 15, 2015, wherein Hon'ble Tribunal held as under- "8.1 From the above paras from the order of learned CIT(A), we find that the relief was allowed by CIT(A) on the basis that the assessee was under bonafide belief that his claim of revenue expenditure u/s 35(2AB) was genuine as per the provisions of the Act, although the approval DSIR was pending till completion of scrutiny assessment proceedings. He has also given a finding that the assessee has filed proper application for approval in the form of 3CL for approval of Revenue Expenditure which were incurred and recorded in the books of accounts. He has further given a finding that the A.O. has never doubted the genuineness and correctness of the revenue expenditure claimed and shown by assessee on which penalty was levied. He has also given a finding that only sole reason to impose the penalty u/s 2....
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....SR was not available with assessee at the time of filling of income tax return. * Assessee after receiving approval of secretary, DSIR whereby deduction u/s 35(2AB) of Rs. 2.85 crores were approved, suo moto., during the course of assessment proceedings, informed A.O in respect of the report of secretary, DSIR and accepted the disallowance of Rs. 1.76 crores and did not file an appeal before CIT(A) in respect of said disallowance. * Genuineness of the expenditure has not been questioned by A.Ο. * Basic expenditure of Rs. 4.41 crores has been allowed as expenditure u/s 37(1) and only additional deduction of Rs. 4.41 crore u/s 35(2AB) stands restricted to Rs. 2.84 crores. 9. In the result, the appeal of the Revenue stands dismissed." Disallowance was made only on the basis of report of DSIR and genuineness of the expenditure was never doubted by the AO. 23. It is relevant to mention that Ld. A.O has not doubted the genuineness of expenditure of Rs. 4.41 crores incurred by assessee for running / operation of research & development unit established as per the provision of section 35(2AB) of the Income Tax Act, 1961. 24. It is also relevant to mention that Ld.AO ha....
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....ntention of assessee is supported by following judicial pronouncement- > PRICE WATERHOUSE COOPERS (P.) LTD. VERSUS COMMISSIONER OF INCOME-TAX, KOLKATA 1, 2012 (9) TMI 775 - SUPREME COURT, Dated.- September 25, 2012 > COMMISSIONER OF INCOME-TAX VERSUS RELIANCE PETROPRODUCTS PVT. LTD., 2010 (3) TMI 80 SUPREME COURT, Dated.- March 17, 2010 > THE COMMISSIONER OF INCOME TAX EXEMPTION VERSUS MEHTA CHARITABLE PRAJANALAYA TRUST, 2021 (2) TMI 651- DELHI HIGH COURT, Dated February 12, 2021 Hence, in the view of above mentioned submissions and judicial pronouncements, the order of CIT(A) should be upheld." 8. We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. Ld.CIT(A) has decided the issue by observing as under:- 4.1. "During the assessment proceedings, it was noticed that the assessee had claimed deduction of Rs. 4,41,39,054/- u/s 35(2)AB of the Income Tax Act, 1961. The assessee was asked to produce the relevant approval of the competent authority. In response, the assessee explained that amount of Rs. 4.41 crores was spend for the running/operation of R&D unit established....
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....l deduction because of the report of competent authority but assessee suo moto restricted the deduction himself. 4.3. It was also submitted that penal provisions are only applicable if assessee had furnished any inaccurate particulars and in the present case the report of Competent authority was not available till date of filling ITR but was received much later, so assessee did not furnish any inaccurate particulars. However, the details furnished by the appellant were not found to be false. Ipso facto, this cannot be treated as a malafide intent on the part of the appellant. All the relevant facts were available before the AO, at best it was an inadvertent error committed by the appellant. The explanation furnished by the appellant are genuine and bonafide. The Hon'ble Supreme Court in the case of Price Water House Coopers Pvt. Ltd. vs. CIT reported in 253 CTR 1 (SC) (2012) has held as under: "Held, allowing the appeal, that the facts of the case were peculiar and somewhat unique. Notwithstanding that the assessee was a reputed firm and had great expertise available with it, it was possible that even the assessee could make a "silly" mistake. The fact that the tax audit ....
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....ssessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars." In view of the judicial pronouncements referred above and the facts of the case, the appellant had given an explanation, which is bonafide. Therefore, there is no furnishing of inaccurate particulars of income or deliberate attempt to conceal income. The rigors of the provisions of section 271(1)(c) are clearly not attracted in this case. In view thereof, the penalty levied u/s 271(1)(c) of the Act of Rs. 60,11,830/- is deleted. The grounds of appeal are ruled in favour of the appellant." 9. From the above finding of Ld.CIT(A), it is evident that at the time of filing of the return of income, the claim of deduction u/s 35(2)(AB) of the Act, was not reduced by the Competent Authority. The Competent Authority had subsequently approved the expenditure to the extent of INR 2,65,52,000/-. Therefore, th....