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Income Tax Appellate Tribunal, ‘’ B’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-1, Vadodara, dated 05/02/2019 arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2005-06.
The only issue raised by the assessee is that the learned CIT (A) erred in confirming the penalty levied by the AO under section 271(1)(c) of the Act in part on the reasoning that the assessee has furnished inaccurate particulars of income.
The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of trading of intermediate drugs. The assessee in the year under consideration has claimed an expense of Rs. 28,48,709/- under the head research and development. It was also submitted that the assessee is maintaining research and development facility approved by DSIR vide order dated 25-04-2008. However, the AO was not satisfied with the contention of the assessee and therefore, he confirmed the addition of the expenses claimed by it for Rs. 28,48,709/- on the reasoning that the expenses claimed by the assessee are bogus in nature vide order dated 29-10-2015 which were subsequently confirmed by the learned CIT (A). At the time of framing the assessment, the AO initiated the penalty proceedings under section 271(1)(c) of the Act on the charge of furnishing inaccurate particulars of income and finally levied the penalty of Rs. 10,42,410/- being 100% of the amount of tax sought to be evaded vide order dated 13-11-2017.
Aggrieved assessee preferred an appeal to the learned CIT (A) who reduced the amount of penalty from Rs. 10,42,410/- levied by the AO to Rs. 5,21,205/-. It was observed by the learned CIT (A) in the penalty proceedings that, the quantum addition made by the AO in the assessment framed under section 143(3) read with section 254 of the Act was reduced by 50% by the order of the learned CIT (A) in a quantum proceedings vide order dated 13-11-2011. Accordingly, the learned CIT (A) confirmed the penalty of Rs. 5,21,205/- on the amount of balance addition on the charge that the assessee has furnished inaccurate particulars of income.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us submitted that the assessee has not furnished any inaccurate particulars of income inviting the provisions of section 271(1)(c) of the Act. The genuineness of the expenses were not doubted by the authorities below. As such the learned CIT (A) disallowed only 50% of the expenses in his order on the reasoning that the sister concern of the assessee was also enjoying the benefit on account of the research and development activity carried on by the assessee. As such the penalty was levied under section 271(1)(c) of the Act on the basis of the addition which was made on adhoc basis. Therefore, the assessee cannot be charged with the allegation that it has furnished inaccurate particulars of income.
On the contrary the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the assessee has claimed an expenditure of Rs. 28,48,709/- relating to the research and development activity carried out by it under section 37 of the Act. The AO has made the disallowance of 100% of the expenses claimed by the assessee which was restricted to 50% amounting to Rs. 14,24,354/- by the learned CIT (A) on the reasoning that the other associated/sister concern of the assessee also availed the benefit of research and development activity carried out by the assessee. Accordingly, the learned CIT (A) was of the view that the assessee is not entitled to claim 100% deduction of such expenses. As such, 50% of such expenses was allowed to the assessee on adhoc basis which was subsequently confirmed by the ITAT.
8.1 Thus the issue in the given facts and circumstances revolves whether the assessee has furnished inaccurate particulars of income with respect to research and development activity carried out by it to the tune of 50% of the total claim.
8.2 The word ‘inaccurate particulars’ has not been defined under the provisions of the Act. Thus we refer the dictionary meaning of inaccurate which denotes ‘not accurate’, something incorrect or wrong, not exact, in error. Admittedly, the claim of the assessee with respect to research and development activity to the tune of 50% was not acknowledged by the ITAT. Thus it can be concluded that the claim of the assessee to the tune of 50% of research and development expenses was inaccurate. Accordingly, it appears that the penalty provisions under section 271(1)(c) have to be invoked. Thus, if we apply this logic, then any addition made by the AO in the assessment would lead either to concealment of the particulars of income or furnishing inaccurate particulars of income. In other words the assessee furnishes the particulars of income in his income tax return which is subsequently verified by the revenue. If in the process of verification of the income of the assessee, the AO calculates different total income than the income declared by the assessee, the difference between incomes declared by assesses and assessed by the AO would amount to furnishing of inaccurate particulars of income or concealment of income. However, we note that the Hon’ble Supreme Court in the case of Dilip N Shroff vs. JCIT reproetd in 161 taxman 218 has discussed the term inaccurate by observing that the word inaccurate signifies a deliberate act or omission on the part of the assessee. Thus, to arrive at the conclusion that, the assessee has furnished inaccurate particulars of income, it has to be tested whether it has been done so with the dishonest intent which cannot be regarded as an innocent act. In other words the element of consciousness in furnishing inaccurate particulars of income coupled with circumstantial evidences should be present in the particular case. Unless, the characters of inaccurate particulars of income as discussed above are present in any particular case, the penalty provisions under section 271(1)(c) of the Act cannot be attracted.
8.3 Moving further, there is an explanation 1 to section 271(1)(c) of the Act which provides deemed concealment of income. Under the explanation 1 to section 271(1)(c) of the Act, there are 2 situations. In situation (A), if the assessee failed to offer an explanation or offers an explanation which is found to be false with respect to any fact material to the computation of income, then the amount added or disallowed shall be deemed as concealment of income. In situation (B), if the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides and that all the facts relating such explanation and material to the computation of income have been disclosed by him, then the amount added or disallowed to the total income of the assessee shall be deemed as concealment of income.
8.4 Coming to the present case, we have to test whether the case of the assessee falls under the main provisions of section 271(1)(c) of the Act or explanation 1 attached with it.
8.5 As regards the main provisions of section 271(1)(c) of the Act, we find that the genuineness of the expenses were not doubted by the learned CIT (A). It was only alleged that the associated concern /sister concern have availed the benefit of the expenditures incurred by the assessee out of research and development activity. Therefore, the entire expenses cannot be allowed as deduction to the assessee. As per the learned CIT (A) the impugned expenses should also be allocated to the other units of the assessee group concern which availed the benefit of research and development activity carried out by it.
8.6 There was no doubt raised by the authorities below as far as genuineness of the expenses is concern. Undeniably research and development facility maintained by the assessee was approved by DSIR. What was doubted the quantum of the expenses by the learned CIT (A) which has led to the present penalty proceedings. Thus, to our considered view, the claim of the assessee at the most can be regarded as inaccurate claim which cannot be equated with the inaccurate particulars of income. It is for the reason that nothing has been brought on record by the authorities below suggesting that the assessee has furnished the particulars of income with dishonest intent.
8.7 As regards the explanation 1 to section 271(1)(c) of the Act, there was no iota of evidence suggesting that the explanation offered by the assessee was false. Since the research and development facility was maintained by the assessee and the expenditures were also incurred by it, claim of the assessee cannot be said amounting to concealment of particulars of income. Likewise, there was no finding of the authorities below qua the fact that the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides with respect to material facts relating to the computation of total income. Thus in our considered view the provisions of expression 1 to section 271(1)(c) of the Act cannot be attracted in the given facts and circumstances. In view of the above and after considering the facts in totality, we set aside the finding of the learned CIT (A) and direct the AO to delete the penalty levied by him under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is allowed
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 09/12/2021 at Ahmedabad.