GHARDA CHEMICALS LIMITED ,MUMBAI vs. DY. CIT CIRCLE 4(2)(1), MUMBIA

आयकर अपील�य अ�धकरण, मुंबई पीठ�, मुंबई INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI BENCH: G BEFORE HON’BLE BEENA PILLAI, JUDICIAL MEMBER AND HON’BLE JAGADISH, ACCOUNTANT MEMBER

ITA 606/MUM/2026 िनधा�रण वष�/Assmt. Year: 2013-14) DY. CIT CIRCLE 4(2)(1) GHARDA CHEMICALS LIMITED ROOM NO. 642, 6TH FLOOR, AAYAKAR BHAVAN M.K 48, GHARDA HOUSE BANDRA ROAD, WEST HILL ROAD, BANDRA Vs. WEST, MUMBAI-400050, MUMBAI-400020, MAHARASHTRA MAHARASHTRA (अपीलाथ� Appellant) (��थ� Respondent) Permanent Account Number of AAACG1255E Assessee: िनधा�रती �ारा/Assessee represented Shri Viral Shah & Ms. Vidhi by: Sheth राज� व �ारा/Revenue represented by: Shri Mahesh Parwani - Sr. AR

सुनवाई की तारीख / Date of conclusion of hearing: 20-Apr-2026 घोषणा की तारीख / Date of pronouncement: 05/06/2026 आदेश / ORDER PER SMT. BEENA PILLAI, JM: Present penalty appeal filed by the assessee arises out of order dated 04/11/2025 passed by NFAC, Delhi for A.Y. 2014-15 on following grounds of appeal:- “1. The Ld. CIT(A) erred in confirming the levy of penalty under section 271(1)(c) of the Income Tax Act 1961 (herein referred to as “the Act”) in respect of disallowance of Rs. 2,43,26,542 out of the total deduction of Rs.76,03,75,084 claimed by the appellant under section 35(2AB) of the Act. 2. The Ld. CIT(A) erred in confirming the penalty despite the fact that the appellant had made complete and true disclosure of all material 1

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED facts and had furnished all relevant particulars of income while filing the return of income as well as during the course of relevant assessment / appellate proceedings. 3. The Ld. CIT(A) erred on facts in upholding the penalty even though the deduction under section 35(2AB) of the Act was claimed on the basis of a certificate issued by the statutory auditor in Form 3CK, as prescribed under the Act, and the claim was therefore bona fide and made in good faith. 4. The Ld. CIT(A) failed to appreciate that merely because the disallowance made in the reassessment proceedings was not contested before the appellate authorities, that would in itself not warrant a levy of penalty. 5. The Ld. CIT(A) failed to appreciate that the Ld. AO had not substantiated the disallowance through any cogent evidence either in the penalty proceedings or in the reassessment proceedings and proceeded to levy penalty on disallowance merely based on the difference in the amount disclosed in the audited financials and amount certified by a Chartered Accountant in a Form specifically prescribed for this purpose. Prayer Your appellant prays that the penalty levied under section 271(1)(c) of the Act of Rs. 78,92,747 be deleted. The appellant craves leave to amend or alter any of the above grounds or add a new ground, if and when necessary.” 2. Brief facts of the case are as under:

The assessee is a company engaged in the business of manufacturing and sale of agrochemicals and polymers. It filed its return of income for the year under consideration on 30/11/2012 declaring total income at Rs.64,93,94,170/-. The case was selected for scrutiny and the assessment was completed u/s 143(3) read with section 142A(3) of the Act on 24/01/2017 determining the total income at Rs.103,76,20,070/-.

2.1. Subsequently, the case was reopened u/s 147 of the Act on the ground that the assessee claimed deduction u/s 35(2AB) of the Act at Rs.76,03,95,542/- being 200% of the expenditure incurred on research and development, including capital expenditure amounting to Rs.38,01,97,542/-.

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED 2.2. During the reassessment proceedings, the notices issued by the Ld.AO were duly responded to by the representatives of the assessee and the reassessment was completed by observing as under:

“3.1On careful examination of assessee's submissions it is seen that there is Variation between the two auditor's report. Though a reconciliation statement has been furnished but no documentary evidence has been submitted to justify the difference in amounts certified. Further there is substantial variation between amount claimed in Form 3CK and amount certified in Form 3CL. A show cause notice dated 23.03.2022 containing draft assessment order was sent to assessee. The assessee made his submissions in response dated 25.03.2022. On careful perusal examination of the response, it is seen that the assessee has still not provided proper documentary evidences to reconcile the differences. Hence, the contention of assessee is not accepted. 3.2. In view of the above, amount of Rs.2,43,26,542l- claimed as excess deduction u/s 35(2AB) is disallowed and added back to income. Penalty proceedings u/s 271(1)(c) is being initiated separately for furnishing inaccurate particulars of income.” 2.3. Accordingly, a notice u/s 274 of the Act dated 27/03/2022 was issued initiating penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income.

2.3.1. During the penalty proceedings, the assessee submitted that the difference in the figures disclosed in the Annual Report (Note 35) and the amount claimed in the return of income arose because, at the time of finalization of accounts, the amount eligible towards R&D expenditure was computed at Rs.3,561.00 lakhs. Subsequently, pursuant to the approval granted by DSIR, which was received thereafter, the eligible amount was revised and reduced to Rs.2,691.59 lakhs. 2.4. The assessee submitted that such disallowance made by the Ld. AO cannot lead to the levy of penalty u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income. It was submitted

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED that the assessee had furnished letters providing clarification and a detailed reconciliation of the difference between the two amounts, which was duly certified by the statutory auditors. 2.5. However, the Ld. AO levied penalty at 100% of the tax sought to be evaded on the difference amounting to Rs.78,92,747/-. The penalty was levied on the premise that, had the assessment not been reopened, the assessee would not have disclosed the discrepancy and offered the said amount to tax. Aggrieved by the penalty order passed by the Ld. AO, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A) also confirmed the penalty on identical grounds. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. 3. The Ld. AR submitted that the impugned penalty levied u/s 271(1)(c) of the Act is wholly unsustainable both on facts and in law. It was contended that the present case is not one involving furnishing of inaccurate particulars of income or concealment of income, as all material facts relating to the claim made u/s 35(2AB) were fully and truly disclosed by the assessee in the return of income, audited financial statements, and during the course of assessment proceedings. 3.1. The Ld. AR submitted that the deduction claimed u/s 35(2AB) was duly reflected in the return of income and supported by the books of account and audited financial statements. There was never any dispute by the Revenue authorities regarding the expenditure incurred by the assessee on scientific research activities that eligible for deduction under the said provision. The only dispute pertained to the quantification of the amount eligible for deduction.

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED 3.2. It was further submitted that the quantification of the expenditure claimed under section 35(2AB) was based upon a certificate issued by the statutory auditor. The said certificate was duly furnished before the Ld.AO during the assessment proceedings. He submitted that the, assessee acted bona fide on the basis of such professional certification and, therefore, no adverse inference could be drawn merely because the claim was subsequently subjected to a different interpretation by the Revenue. 3.3. The Ld. AR further submitted that the auditor's certificate was issued subsequent to the finalisation of the annual financial statements and essentially represented a rectification and reconciliation of certain figures. Significantly, the certificate was issued by the very same statutory auditor who had audited and signed the annual financial statements of the assessee. Therefore, the assessee had every reason to rely upon the correctness and authenticity of such certification while computing its claim. 3.4. The Ld.AR It was also submitted that during the assessment proceedings the assessee furnished complete reconciliation statements together with documentary evidences explaining the variation between the expenditure disclosed in the Notes to Accounts and the expenditure certified by the statutory auditor for the purpose of section 35(2AB). These reconciliations formed an integral part of the auditor's certification and were made available to the Ld.AO for necessary verification. 3.5. The Ld. AR emphasized that no discrepancy, defect, or inconsistency was pointed out by the Ld.AO in the reconciliation statements or supporting documentary evidences furnished by the assessee. He submitted that, the Revenue did not bring any

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED material on record to establish that the particulars furnished by the assessee were false, incorrect, or misleading. 3.6. It was further argued that the difference resulting in the disallowance arose merely on account of regrouping and classification of expenditure under different accounting heads. At no stage was the actual incurrence of the expenditure doubted or disputed by the authorities below. Thus, the issue was purely one of computation and classification and not of concealment or furnishing of inaccurate particulars. 3.7. The Ld. AR contended that, at the highest, the findings of the Ld.AO may have relevance for the purpose of sustaining the quantum addition. However, the same cannot automatically justify the levy of penalty. For invoking the provisions of section 271(1)(c), the Revenue is required to establish conscious concealment of income or furnishing of inaccurate particulars. In the present case, the Assessing Officer has failed to discharge such burden. 3.8. Accordingly, it was submitted that since the claim was made on the basis of audited records, statutory certification, and complete disclosure of all relevant facts, and as there was neither concealment of income nor furnishing of inaccurate particulars, the penalty levied u/s 271(1)(c) deserves to be deleted. The Ld. AR submitted that the claim was based on a certificate issued by the statutory auditors and that the acceptance of the addition in the quantum proceedings itself establishes the bona fides of the assessee. It was submitted that the conditions necessary for establishing either "furnishing of inaccurate particulars of income" or "concealment of income" are not satisfied in the facts of the present case. He, therefore, prayed that the penalty levied be deleted. 6

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED

3.9. The Ld. AR further submitted that the issue involved in the present case is squarely covered by judicial precedents wherein it has been consistently held that penalty u/s 271(1)(c) cannot be levied merely because a claim made by the assessee has not been accepted or has been disallowed during assessment proceedings. It was argued that where all primary facts have been truly and fully disclosed and the claim has been made on the basis of available records and professional certification, the same cannot be equated with furnishing of inaccurate particulars of income or concealment of income. 3.10. The Ld. AR submitted that the assessee disclosed the entire claim of deduction u/s 35(2AB) in its return of income and financial statements and had furnished all supporting details during the course of assessment proceedings. The disallowance arose only on account of a difference in quantification of eligible expenditure and not because any expenditure was found to be fictitious, bogus, or unsupported by evidence. Therefore, the essential ingredients for levy of penalty u/s 271(1)(c) were absent. Reliance was placed on the decision of the Hon'ble Supreme Court in CIT vs. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) wherein it was held that merely because an assessee makes a claim which is not accepted or is found to be unsustainable in law, the same would not amount to furnishing inaccurate particulars of income so as to attract penalty u/s 271(1)(c). 3.11. Reliance was also placed on the judgment of the Hon'ble Bombay High Court in Ventura Textiles Ltd. vs. CIT [2020] 426 ITR 478 (Bom.), wherein the Hon'ble Court held that where the claim of deduction is made on the basis of material available on record and all relevant particulars are disclosed, penalty cannot 7

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED be sustained merely because the claim is disallowed in assessment proceedings. 3.12. Further reliance was placed on the decision of the Hon'ble Gujarat High Court in CIT vs. Amol Dicalite Ltd. [2015] 55 taxmann.com 419 (Guj.), wherein it was held that where the assessee had made a bona fide claim supported by relevant particulars and there was no finding regarding concealment of income or furnishing of inaccurate particulars, levy of penalty u/s 271(1)(c) was not justified. 3.13. The Ld. AR therefore submitted that in the present case the claim was made on the basis of the statutory auditor's certificate, complete disclosures were made before the Revenue authorities, and the expenditure itself was never doubted. Consequently, the disallowance made in the quantum proceedings, by itself, could not form the basis for levy of penalty. It was accordingly prayed that the penalty levied u/s 271(1)(c) be deleted. 3.14. On the contrary, the Ld. DR relied upon the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of the records placed before this Tribunal. 4. Admittedly, the genuineness of the expenditure claimed by the assessee has not been doubted by the Ld. AO in the quantum proceedings. The difference arose on account of the subsequent revision of the eligible expenditure pursuant to the certificate issued by DSIR for the purposes of section 35(2AB) of the Act. 4.1. Thus, in our view, there is no concealment of particulars of income by the assessee. The observations of the Ld. AO in the quantum proceedings as well as in the penalty proceedings are not supported by any material establishing an intention on the 8

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED part of the assessee to conceal income or furnish inaccurate particulars thereof. No mala fide intention has been brought on record by the Revenue. 4.2. The primary claim made by the assessee u/s 35(2AB) of the Act was based on a certificate issued by the statutory auditors. Therefore, no wilful concealment or furnishing of inaccurate particulars of income stands established in the facts of the present case. 4.3. Respectfully following the judicial precedents relied by Ld.AR and the above discussion, we do not find any justification to uphold the penalty levied u/s 271(1)(c) of the Act. Accordingly, the penalty sustained by the Ld.CIT(A) is directed to be deleted. Accordingly, the grounds raised by the assessee stand allowed. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 05/06/2026 Sd/- Sd/-

JAGADISH BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 05/06/2026 SC. Sr. P.S.

ITA 606/MUM/2026 GHARDA CHEMICALS LIMITED Copy to: GHARDA CHEMICALS LIMITED , 48, GHARDA HOUSE BANDRA WEST 1 HILL ROAD, BANDRA WEST, MUMBAI-400050, MAHARASHTRA

DY. CIT CIRCLE 4(2)(1), ROOM NO. 642, 6TH FLOOR, 2 AAYAKAR BHAVAN M.K ROAD,, MUMBAI-400020, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE