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Facts
The assessee claimed a deduction under section 35(2AB) of the Income Tax Act, which was later revised based on a Form 3CL issued by DSIR after the return filing due date. The Assessing Officer initiated penalty proceedings under section 270A based on this disallowance.
Held
The Tribunal held that the penalty was not automatic upon disallowance and that the assessee had disclosed all relevant facts. It was noted that the Form 3CL was received late, and the assessee had suo motu revised the computation. The AO failed to demonstrate concealment or furnishing of inaccurate particulars.
Key Issues
Whether the penalty under section 270A for disallowance of deduction u/s 35(2AB) is justified when the assessee disclosed all facts and the information leading to disallowance was received late.
Sections Cited
270A, 35(2AB), 143(3), 144B, 139(1), 139(4), 139(5), 271(1)(c)
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Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI AVDHESH KUMAR MISHRA
This appeal of the assessee for the Assessment Year (hereinafter, the ‘AY’) 2020-21 is directed against the order dated 26.09.2024 of the Commissioner of Income Tax (Appeals), NFAC, New Delhi [hereinafter, the ‘CIT(A)’].
The assessee has raised following grounds of appeal: -
1. That on the facts and circumstances of the case and the provisions of the law, the Ld. CIT(A) has failed to appreciate that the impugned penalty Akums Drugs and Pharmaceuticals Ltd. order passed by the learned assessing officer u/s 270A of the Act is illegal, bad in law, time barred and without jurisdiction.
2. That on the facts and circumstances of the case and the provision of law the Ld. CIT(A) has failed to appreciate the fact that the Initiation of the proceeding U/s 270A is illegal and bad in law and thus penalty order requires to be quashed.
3. That on the facts and circumstances of the case and the provision of Law the Ld. CIT(A) has failed to appreciate the fact that the impugned penalty order passed is without considering the reply submitted by the assessee and thus, the penalty order passed is bad in the eyes of law and liable to be quashed.
4. That on the facts and circumstances of the case and the provision of law the Ld. CIT(A) has erred in sustaining the penalty of Rs. 57,62,822/- u/s 270A on addition of income of Rs. 98,94,956/-on account of deduction u/s 35(2AB) of the Act.
5. That on the facts and circumstances of the case and the provision of law the Ld. CIT(A) has failed to appreciate the fact that the addition of Rs. 98,94,956/- was already suo moto made in the revised computation of income filed before the Ld. AO itself, so in this scenario imposition of penalty of Rs 57,62,822/-u/s 270A is not justified.
6. That the appellant craves leave to reserve to itself the right to add, alter, amend, vary, modify and/or withdraw any ground(s) of appeal at or before the time of earing.”
3. The relevant facts giving rise to this appeal are that the assessee’s case for the relevant year has been scrutinized and consequential assessment has been completed under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter, the ‘Act’) determining income at Rs.69,97,09,635/- as against the returned income of Rs.68,06,66,620/-, wherein following disallowances have made: -
Education Cess claimed as expenses Rs. 91,48,159/-
2. Claim under section 35(2AB) of the Act Rs. 98,94,856/- 3.1 The Assessing Officer (hereinafter, the ‘AO’) levied penalty @ 200% on the above disallowances aggregating to Rs.1,90,43,015/-(Rs.91,48,159/- + Rs.98,94,856/-) under section 270A of the Act. Aggrieved the assessee filed appeal before the CIT(A), who gave part relief. The Ld. CIT(A) deleted the penalty levied on the disallowance of Education Cess and upheld the penalty levied on the disallowance of claim of deduction under section 35(2AB) of the Act as under: -
“6.3 in the light of the observation of the AO in assessment order and the submission of the appellant, the issue is considered. The appellant company filed its return of income on 15.02.2021 for AY 2020-21 with claim of Rs. 39,80,28,741/- as deduction u/s 35(2AB) as per auditor’s certificate. After the issuance of Form 3CL by DSIR on 13.09.2021, the permissible expenditure was revised, leading to a reduction in the deduction. The appellant has submitted that since the Form 3CL was issued on 13.09.2021, well after the due date for filing a revised return, the Company could not have filed a revised return within the permissible timeframe and hence provided the details and filed revised computation voluntarily during the assessment proceedings. However, it is found from assessment order that the assessee vide letter dated 07/09/2022 submitted before the AO that the company has suo-moto accepted the disallowance of excess deduction u/s 35(2AB) and provided the revised computation for the same. It needs to be noted that case of the assessee was selected for scrutiny and notice u/s 143(2) was issued on 29.06.2021. Subsequently, notices have been issued on 01.12.2021, 11.03.2022 and 01.09.2022 and only after issue of the show cause notice that the assessee has submitted letter dated 07/09/2022 before the AO agreeing to accept the reduced deduction u/s 35(2AB). It is not understood as to why it took one year for the assessee after the issuance 3 Akums Drugs and Pharmaceuticals Ltd. of Form 3CL by DSIR on 13.09.2021 and pointed querry by the AO in show cause notice, to come forward with the revised computation. Hence, the claim of the assessee that it suo moto accepted the reduced deduction and submitted revised computation cannot be accepted. 6.4 It is apparent from above discussion that the rationale advanced by the AO for imposing penalty that the assessee has not filed revised return suo moto and the revised computation was filed only after being specifically asked about deduction claimed u/s 35(2AB), is justified. Further, the observation of the AO that the claim of deduction would have gone unnoticed if the case would not have been selected for scrutiny, is correct. Therefore, the penalty imposed by the AO u/s 270A on the reduction in claim of deduction claimed u/s 35(2AB) is upheld.”
The Ld. Authorized Representative (hereinafter, the ‘AR’), drawing our attention to page 6 of the assessment Order, submitted that the penalty proceeding under section 270A r.w.s. 274 of the Act was initiated for charges of ‘under- reporting’ and ‘misreporting’ of income. However, the AO, as evident from the noting in the table of calculation of penalty on page 6 of the penalty order, levied penalty for ‘under reported income’. The Ld. AR argued that the AO had failed to demonstrate that how the disallowance of claim of deduction under section 35(2AB) of the Act could be termed as ‘under- reported income’ under section 270A of the Act. Accordingly, he argued that the imposition of penalty under section 270A of the Act was not justified. In support of his arguments, he placed reliance on the following ITAT decisions: (i) Smt. Saroj Shrivastava Vs. ITO, 164 taxmann.com 1409, ITAT Raipur (ii) Jaipur telecom pvt. Ltd. vs. DCIT, 165 taxmann.com 289, ITAT Jaipur (iii) Saltwater Studio LLP vs. NFAC, 157 taxmann.com 749 ITAT Mumbai (iv) Kishor Digamber Patil vs. ITO 149 taxmann.com 502, ITAT Pune Akums Drugs and Pharmaceuticals Ltd. 4.1 The Ld. AR further contended that the DSIR issued Form 3CL of the Income Tax Rules on 13.09.2021 whereas the assessee had filed its Income Tax Return (ITR) on 15.02.2021. In otherwards, the assessee has received Form 3CL issued by the DSIR after 7 months from the date of filing of the ITR. The AO has not questioned the genuineness of this expenditure claimed in the Profit & Loss Account. Only the claim of weighted deduction under section 35(2AB) of the Act was restricted as per Form 3CL issued by the DSIR. Since the said Form was not issued by the DSIR to the assessee before filing of the ITR under section 139(1) of the Act; therefore, the assessee claimed deduction under section 35(2AB) of the Act as per the audited books of accounts. The Ld. AR further submitted that in view of the Circular 08/2021 dated 30.05.2021, the belated ITR of AY 2020-21, under section 139(4) of the Act, can be filed on or before 31st May, 2021. However, the CBDT did not extend the date of filing revised ITR of AY 2020-21. Thus, the time limit for filing revised ITR provided under section 139(5) of the Act for AY 2020-21 expired on 31.03.2021, even before filing the ITR under section 139(1) of the Act. Therefore, the said ITR filed under section 139(1) of the Act could not be revised online on the Income Tax Portal after receipt of Form 3CL.
4.2 The Ld. AR submitted that the assessee, suo moto, vide letter dated 22.11.2021 filed revised computation of income proposing disallowance of Rs.98,94,856/- under section 35(2AB) of the Act. A copy of the reply filed before the AO on 22.11.2021 was submitted before us. It was contended that 5 Akums Drugs and Pharmaceuticals Ltd. since the assessee was not in possession of the Form 3CL issued by the DSIR before 13.09.2021; therefore, its claim under section 35(2AB) of the Act was justified. Accordingly, he prayed for deletion of the penalty placing reliance on the following decisions: - (i) Jaypee Cement Corporation Ltd., 157 taxmann.com 757, ITAT Delhi, (ii) Ravindra Mahukar Kharche, 161 taxmann.com 712, ITAT Nagpur and (iii) Rajesh C. Dalal HUF, 157 taxmann.com 758, ITAT Surat.
The Ld. Senior Departmental Representative (hereinafter, the ‘Sr. DR’) supported the orders of the lower authorities.
We have heard both parties at length and have perused the material available on the record. We have considered the rival submissions and the material available on record. It is admitted fact that assessee disclosed all the particulars of the above disallowances in its ITR. The AO made the disallowance on the basis of Form 3CL. No disallowance of the above expenditure had been made due to non-genuineness or otherwise out of expenditure claimed in the books of accounts in this regard. It would, therefore, show that the assessee has disclosed all the relevant facts and materials in its ITR as well as before the authorities below on merit. It is not a case of the AO that the assessee has made false claim or suppressed the facts relating to the above claims of the expenditure. Since the assessee has disclosed all the facts before the authorities below, the disallowances under section 35(2AB) of the Act would not par-se lead to an inference that the Akums Drugs and Pharmaceuticals Ltd. assessee has under reported its income. On the disallowance under section 35(2AB) of the Act, imposition of penalty is not automatic. The Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) held that "A glance at the provisions of section 271(1)(c) of the Act, suggest that in order to be covered by it, there has to be concealment of particulars of the income of the assessee. For penalty purposes, we do not see much difference in interpretation under section 270A and section 271(1)(c) of the Act. Further, the AO has not established a case that the assessee has furnished inaccurate particulars of its income.
Where no information given in the ITR is found to be incorrect or inaccurate, the assessee cannot be held guilty of under reported income. 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. There can be no dispute that everything would depend upon the ITR filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. To attract penalty, the details mentioned in the ITR, based on the material available to the assessee till then, must be demonstrated to be incorrect or erroneous or false. Here, there is no finding that any details mentioned in the ITR is found incorrect or erroneous or false; therefore, the penalty is not leviable for under reporting of income under section 270A of the Act. A mere making of a claim based on the books of accounts, which is not sustainable in law, by itself, will not amount 7 Akums Drugs and Pharmaceuticals Ltd. to under reporting of income by the assessee. Here, there is reasonable caused for claiming deduction, based on the books of accounts, under section 35(2AB) of the Act particularly when the Form 3CL was issued by the DSIR after 7 months from the date of filing of the ITR.
In view of the above, we are of the considered view that it is not a fit case for levy of penalty. We accordingly, set aside the impugned order and delete the penalty. Accordingly, the assessee gets consequential relief.
In the result, appeal of the assessee is allowed.