M/S Ptc Industries Ltd., Lucknow vs Department Of Income Tax

Both these appeals are filed by the Revenue for the same assessment year i.e. 2010-2011 and out of these two appeals, one appeal i.e. I.T.A. No.728/Lkw/2014 is in quantum proceedings and the second appeal i.e. I.T.A. No.729/Lkw/2014 is in course of penalty proceedings u/s 271(1)(c) of the Act. Both the appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

2. First we take up the appeal in quantum proceedings i.e. I.T.A. No.728/Lkw/2014. In this appeal, the Revenue has raised the following grounds:

2 "1. The Commissioner of Income-tax (Appeals), Lucknow has erred in law and on facts of the case in allowing the deduction of Rs.37.38 lacs on the basis of application filed before him by the assessee, as against Rs.27.43 lacs allowed by the Assessing Officer u/s 35(2AB) of the Income-tax Act, 1961 against the claim of Rs. 49.05 lacs, ignoring the fact that during the course of assessment proceedings, the assessee did not file any such Form- 3CL received from Ministry of Science & Technology, Department of Scientific and Industrial Research, New Delhi.

2. The Commissioner of Income-tax (Appeals), Lucknow has erred in law and on facts of the case to decide the issues involved in the assessment order u/s 143(3) of the Act dated 30.01.2013 ignoring the fact that no appeal was filed before him against the said order.

3. The Commissioner of Income-tax (Appeals), Lucknow has failed to appreciate that the order u/s 154 can be passed only if mistake is apparent from record, whereas, in the instant case , during the course of assessment proceedings, the assessee did not produce copy of any such Form-3CL in respect of the A.Y. 2010-11 submitted by DSIR to the Director General of Income-tax (Exemptions) based on the details of R&D expenditure regarding claim of expenditure to the extent of Rs. 37.38 lacs."

3. Learned D.R. of the Revenue supported the order of the Assessing Officer u/s 154 whereas Learned A.R. of the assessee supported the order of learned CIT(A).

4. We have considered the rival submissions. First of all, we find that as against the deduction allowed by the Assessing Officer to the extent of Rs.27.43 lacs, the CIT(A) has allowed deduction to the extent of Rs.37.38 lac and therefore, it is seen that the extra deduction allowed by CIT(A) is to the extent of Rs.9.95 lacs only. The tax effect on this relief of Rs.9.95 lacs allowed by learned CIT(A) is definitely less than Rs.4 lacs and therefore, as 3

per Board's instruction, this appeal of the Revenue is not maintainable because of low tax effect.

5. In the result, the appeal of the Revenue stands dismissed.

6. Now we take up the appeal in course of proceedings u/s 271 (1) (c) of the Act. In this appeal, the Revenue has raised the following grounds:

"1. The Commissioner of Income-tax (Appeals), Lucknow has erred in law and on facts of the case in deleting the penalty of Rs.10,02,053/- imposed u/s 271(1)(c) of the Income-tax Act, ignoring the facts that the assessee has claimed the deduction u/s 35 (2AB) in excess and that while calculating the deduction u/s 35(2AB) it did not exclude the amounts of revenue expenditure which were not eligible for the claim of deduction u/s 35(2AB) of the Income-tax Act."

7. Learned D.R. of the Revenue supported the penalty order whereas Learned A.R. of the assessee supported the order of learned CIT(A).

8. We have considered the rival submissions. We find that the relief was allowed by CIT(A) as per Para 7 to 9 of his order, which are reproduced below for the sake of ready reference:-

"7. I have examined the finding given by A.O. in penalty order u/s 271(1)(c) and written submission filed by appellant during appellate proceedings, case laws cited by appellant and I find that the A.O. has made the addition of disallowances of Revenue Expenditure claimed by appellant u/s 35(2AB) of I.T. Act of Rs.32,42,889/- (150% deduction claimed at Rs.21,61,926/-). The appellant has disclosed in its return of income in respect of the expenses claimed and shown in its return of income but the A.O. has found the same as disallowable expenses in the absence of approval/ sanction of Secretary, DSIR, New Delhi. The said approval was received by appellant from Secretary, DSIR, New Delhi vide letter dated 06.02.2013. In said approval letter the Secretary, DSIR has granted the approval of revenue expenditure allowable u/s 35(2AB) of I.T. Act of Rs. 37.38 lacs against claimed by 4

appellant at Rs. 49,05,284/-. The A.O. has allowed the said expenses as revenue expenditure only Rs.27,43,358/- against the approval of DSIR u/s 35(2AB) Rs. 37.38 lacs and accordingly the A.O. has levied penalty u/s 271(1)(c) of I.T. Act on the expenses claimed by appellant u/s 35(2AB) at Rs.32,42,889/-. The action of A.O. cannot be said justified because the A.O. has even not considered the quantum of revenue expenses allowed by Secretary, DSIR of Rs. 37.38 lacs vide letter dated 06.02.2013. It is worthwhile to mention here that the said letter was received well before the passing the present penalty order u/s 271(1)(c) of I.T. Act and the letter was submitted before A.O. by appellant during penalty proceedings but the A.O. has over-looked the quantum of revenue expenditure approval i.e. 37.38 lacs.

As mentioned above the appellant has furnished each detail/ information in respect of claim of Revenue Expenditure u/s 35(2AB) before A.O. either at the time of filing of return of income or assessment/penalty proceedings. The appellant has bonafide belief that its claim of Revenue expenditure u/s 35(2AB) was genuine as per provisions of I.T. Act, though the approval of DSIR was pending till completion of scrutiny assessment order. As mentioned above the appellant has filed proper application for approval of DSIR in the form of 3CL for approval of Revenue Expenditure which were incurved and recorded in its books of accounts. The A.O. has never doubted the genuineness and correctness of the Revenue expenditure claimed and shown by appellant on which penalty was levied. Only sole reason to impose the penalty u/s 271(1)(c) was that necessary approval from DSIR received till completion of scrutiny assessment order. Therefore, I hold that the appellant's case does not deserve to impose the penalty u/s 271(1)(c) and the penalty levied by A.O. of Rs.10,02,053/- cannot be sustained looking to the facts mentioned above. Accordingly the penalty levied by A.O. u/s 271(1)(c) of I.T.Act. 1961 is hereby cancelled.

8. Reliance is also placed on the following judicial decision

(i) 259 ITR 212 (Raj.)- CIT Vs. Harshvardhan Chemicals & Mineral Ltd. Held- "No penalty of concealment if the claim of the assessee is debatable and arguable."

(ii) 39 ITR 233 (Del.) 5

(iii) 261 ITR 67 (Raj) - Chandra Bagga Vs. ITAT (2003) (iv) CIT Vs. Reliance Petro Product Pvt. Ltd. (2010) 36 DTR 449 (SC). Held: "Merely because of the

assessee's claim deduction of the interest of expenses which has not been accepted by revenue penalty u/s 271(1)(c) not attracted, merely making of the claim, which is not sustainable in law by itself will not amount furnishing inaccurate particulars regarding the income of assessee."

(v) CIT Vs. Asim Kumar Agarwal (2005) 275 ITR 48 (Jharkhand) Held: That no penalty unless there is a deliberate attempt on part of assessee. Mere omission on part of assessee does not amount to concealment and if no supporting evidence are available to proof deliberate attempt, no penalty lies.

(vi) CIT Vs. Nalwa Sons Investment Ltd. Held: that penalty u/s 271(1)(c) cannot be levied as concealment in the form of disallowances of expenses did not lead to tax evasion."

9. Looking into these facts, the penalty levied by A.O. Rs.10,02,053/- is considered unjustified and same is deserve to be cancelled. Hence penalty u/s 271(1)(c) of Rs.10,02,053/-is hereby cancelled."

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 271(1)(c) was that necessary approval from DSIR was not received till 6

completion of scrutiny assessment order. Under these facts, it was held that the penalty is not justified u/s 271(1)(c) of the Act. Thereafter, the CIT(A) has referred to various judgments in Para 8 of his order particularly the judgment of Hon'ble apex court rendered in the case of CIT Vs. Reliance Petro Product Pvt. Ltd. (2010) 36 DTR 449 (SC) wherein it was held by Hon'ble Supreme Court that merely because of the assessee's claim, deduction of the interest of expenses which has not been accepted by revenue, penalty u/s 271(1)(c) not attracted, for merely making of the claim, which is not sustainable in law by itself will not amount furnishing inaccurate particulars of income. In the present case also, the claim of the assessee was not accepted by the Assessing Officer for the sole reason that the assessee could not get the approval from DSIR till completion of scrutiny assessment proceedings and therefore, in the facts of the present case, this judgment of Hon'ble Apex Court is squarely applicable and therefore, respectfully following this judgment of Hon'ble Supreme Court, we decline to interfere in the order of learned CIT(A).

9. In the result, the appeal of the Revenue stands dismissed.

10. In the combined result, both the appeals of the Revenue are dismissed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:15/06/2015 *C.L.Singh Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Asstt. Registrar