BAYER VAPI PVT. LTD., (FORMERLY KNOWN AS BILAG INDUSTRIES PVT.LTD.,),VAPI vs. THE A CIT., VAPI CIRCLE,, VAPI

Per contra, the ld.Departmental Representative has 17. assailed the order of ld.CIT(A) by pointing out that the allocation of expenses between Bilag unit and BEOU units made by the assessee was not acceptable which has led to increase profit from the eligible units and thus, it has showed incorrect claim deduction on account of allocation of common personal expenses, interest expenses and common other expenses. Further, the loss claimed by assessee on account selling the product at lower rate to related party is also amounts to furnishing of inaccurate particulars of income.

We have heard the rival submissions and perused the 18. material available on record. We find that disallowances to the tune of Rs.7,95,27,784/- made on account of depreciation

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claim on intangible assets by the assessee was deleted by the ITAT in ITA No.2584 & 2446/Ahd/2007 for A.Y. 2004-05 dated 28.06.2018. This order of the ITAT has also been confirmed by the Hon'ble Gujarat High Court in Tax Appeal No.166 of 2019 dated 22.04.2019. Similarly, following the same order of ITAT in Hon'ble High Court this Tribunal has deleted these disallowance made by the AO for A.Y. 2005-06 in ITA No.1486 & 1366/Ahd/2010 in the quantum appeal. Therefore, penalty levied on this account does not survive, accordingly the penalty in respect of this addition is therefore, deleted.

With regard to disallowance of Rs.2,02,31,841/- being 19. legal and professional expenses, we find that such disallowances were deleted by the ITAT in ITA No.2584 & 2446/Ahd/2007 for A.Y. 2004-05 dated 28.06.2018. This order of the ITAT has also been confirmed by the Hon'ble Gujarat High Court in Tax Appeal No.166 of 2019 dated 22.04.2019. Similarly, following the same order of ITAT in Hon'ble High Court this Tribunal has deleted these disallowance made by the AO for A.Y. 2005-06 in ITA No.1486 & 1366/Ahd/2010 in the quantum appeal. Therefore, penalty

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levied on this account does not survive, accordingly the penalty in respect of this addition is therefore, deleted.

In view of the above, the penalty is not leviable on this 20. account also, therefore, penalty is directed to be deleted in this account.

With regard to disallowance of Rs.40,12,124/- being 21. trading loss incurred by the assessee, we find that the assessee has submitted complete details of purchase and sales and carried out the business in ordinary course of business. Further, the books of accounts of the assessee are audited and just because the AO disallowed the loss by not accepting the claim that the assessee has sold such raw material at lower price does not mean that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. The disallowance of loss is made on difference of opinion, hence penalty for concealment is not leviable in the light of decision of Hon'ble Gujarat High Court in the case of Gujarat State Financial Services Limited (supra).

Similarly, reallocation of expenses on account of common 22. personal expenses amounting to Rs.1,18,78,668/- between

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Bilag unit and BEOU unit this Tribunal has found that the assessee has allocated 11% of the turnover whereas such disallowance were restricted to 10% of the turnover in A.Y. 2004-05 by the Tribunal for the assessment year under consideration by the order in ITA No.1486 & 1366/Ahd/2010 of even date. The same stands deleted by this Tribunal in for A.Y. 2005-06 in ITA No.1486 & 1366/Ahd/2010. Therefore, penalty levied on these disallowance is deleted.

With regard to penalty in respect of reallocation of 23. interest expenses amounting to Rs.3,24,00,950/- between Bilag unit and BEOU unit, we find that this issue has been set- aside to the file of the AO for reconsideration of the issue. Therefore, penalty in respect of this is also not leviable. Similarly, the allocation of other common expenses done by the AO at 35% of the turnover has been reduced to 10% of the turnover by the Tribunal for A.Y. 2005-06, hence the reallocation of other common expenses is based on difference of opinion, therefore penalty u/s.271(1)(c) is not leviable. This view is also supported by the decision of Co-ordinate Bench on Tribunal in the case of DCIT Vs. Allied Instruments Private Limited (supra) of Mumbai Bench in which it was held

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that its penalty levied u/s.271(1)(c) was cancelled by holding that the allocation of expenses between eligible and not eligible units made by the assessee for claiming of deduction u/s.80IB which was not found accepted by the AO cannot be treated as case of furnishing of inaccurate particulars of income. Similarly, reliance also placed in the case of DCIT Vs. Canon India Private Limited (supra) wherein the Tribunal upheld the deletion of penalty by observing that merely because the expenditure claimed by the assessee has been disallowed by the Revenue Authorities does not lead to an inference that it is a case of furnishing inaccurate particulars of income. Further, the aforesaid facts, disallowance are adhoc in nature and there is no positive concealment has been established by the AO. Therefore, penalty levied by the AO and confirmed by the ld.CIT(A) in respect of aforesaid additions is not exigible in the light of decision of Hon'ble Gujarat High Court in the case of Gujarat State Financial Services in Tax Appeal No.233 and 601 of 2013 dated 12.08.2016 findings are reproduced as under: “7.2 Thus, we are of the view that the contention raised by the assessee is required to be accepted. The revenue is not in a position to show the mens rea in the present cases. Disallowance of certain claims neither amounts to concealment nor deliberate furnishing of inaccurate particulars of income as laid down by the Apex Court unless and until there is some evidence or some circumstance to show

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that the omission was attributable to an intention or desire on the part of the assessee to conceal the income so as to avoid imposition of tax thereon. Thus, jurisdiction u/s 271(1)(c) of the Act cannot be sustained. 7.3 In the case of Geeta Prints (P.) Ltd (supra), this court has observed that when no information as given in the return was found to be incorrect, penalty could not be imposed. In the present case, the claims made were not granted by the Assessing Officer on merits. This did not mean that the assessee had tried to conceal the income. 8. We have also given our thoughtful consideration to the decision of the Apex Court in the case of T. Ashok Pai (supra) and we feel that the said decision is very much applicable on the facts and circumstances of the present case. It is settled law now that merely because some omission or wrong statement was made in the original return, penalty proceedings for concealment as contemplated by section 271(1)(c) might not be attracted. In the penalty proceedings, when it is found as a fact that the assessee had acted on the basis of wrong legal advice or misinterpretation, the question of his failure to discharge his burden in terms of Explanation to section 271(1)(c) of the Act would not arise. 9. In the present case, we are of the view that the impugned orders passed by the Tribunal as well as CIT(A) are erroneous with regard to levy of penalty u/s 271(1)(c) of the Act. We therefore find that the Tribunal was not right in law in upholding the penalty under section 271(1)(c) of the Income Tax Act, 1961 and the question is required to be answered accordingly. 10. In the premises aforesaid, the questions raised in the present appeals are answered in favour of the assessees and against the revenue. The impugned orders passed by the Tribunal as well as CIT(A) with regard to levy of penalty u/s.271(1)(c) of the Act are hereby quashed and set aside. Appeals are accordingly allowed.”

In the light of above facts, we are of the considered 24. opinion that the Lower Authorities are not justified in levying and confirming penalty in respect of aforesaid additions, accordingly the penalty levied u/s.271(1)(c) in the case of assessee is deleted.

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In the result, appeal of the assessee for A.Y. 2005-06 is 25. allowed.

The order is pronounced by listing the case on the Notice 26. Board under Rule 34(4) of Income Tax Appellate Tribunal Rules 1963.

Sd/- Sd/- (H.S.SIDHU) (O.P.MEENA) (�याियकसद�यतथा/JUDICIAL MEMBER) (लेखासद�यकेसम� /ACCOUNTANT MEMBER) सुरत/ Surat, �दनांक Dated: 27th August, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat