DCIT,CIRCLE-17(1), HYD, HYDERABAD vs. DR. REDDY'S LABOURATORIES LTD., HYD, HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 779/Hyd/2015 Assessment Year: 2006-07

Dy. Commissioner of Income- Vs. Dr. Reddy’s Laboratories Ltd., tax, Circle – 17(1), Hyderabad. Hyderabad. PAN – AAACD 7999 Q

(Appellant) (Respondent)

Revenue by : Shri J. Siri Kumar Assessee by : Shri K.R. Sekhar & Shankar Kapse

Date of hearing : 04-07-2018 Date of pronouncement : 20-07-2018

O R D E R PER S. RIFAUR RAHMAN, A.M.:

This is an appeal of the Revenue directed against the order of the learned Commissioner of Income-tax (A) – 5, Hyderabad, dated 25/02/2017 for AY 2006-07 whereby he cancelled the penalty levied by the AO u/s 271(1)(c) of the Income-tax Act, 1961 (in short ‘the Act’).

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required u/s 144C to which the assessee filed objections before the DRP u/s 144C(2) on 29.01.2010. The DRP passed an order u/s 144C(5) on 30.09.2010 and the assessing officer based on the directions given by the DRP, passed the assessment order on 01.11.2010. Further, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act stating that the assessee had made wrong claims under different heads and levied penalty of Rs.34,65,20,080/- which is stated to be equal to 100% of tax sought to be evaded.

(b) The assessee co-operated and furnished all the particulars, details, documents and information, etc. during the assessment proceedings and there is no finding by the AO that the assessee did not furnish any particulars. Further there is also no finding of satisfaction in the assessment order as to the concealment of income or furnishing of any particulars. Even consequent to the amendment to Section 271, the requirement of recording of satisfaction and the prevalence of 'mens rea' is still a pre-requisite.

(c) It may be noted that all the additions made were a result of issues in respect of which more than one view is possible. It may be noted that there are no disallowances on factual issues. This position is validated by the order of the Hon'ble ITAT for A.Y. 2006-07 (ITA 1605/Hyd/10). While it disallowed certain claims, purely on legal arguments, it allowed many claims. It may also be noted that many issues were set aside to the file of the AO for re-examination of the claims in the light of the observations and directions given by the ITAT.

(d) It is submitted that the levy of penalty is not automatic even after the insertion of explanation in Section 271. The case of

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the assessee should have been examined from the point of view whether the assessee withheld any particulars or concealed any income with any malafide intention. If there is no such finding, the levy of penalty is not warranted and needs to be quashed.

5.2 While continuing the submissions, the appellant contended that no penalty is leviable in case of disclosure of particulars and where the issue is debatable, the imposition of penalty is not automatic. While elaborating on various issues on which the additions were made and penalty levied, the assessee had submitted that various additions as made by the Assessing Officer and approved by DRP were either deleted or set aside to the file of the Assessing Officer, by the ITAT, Hyderabad 'B' Bench vide order in ITA No.1605/Hyd/2010 dated 08.08.2013. It was also submitted that on few other issues, the ITAT had confirmed the additions, but are still debatable in nature, where the assessee' had furnished all the particulars, while filing the return of income. Further, while elaborating on the decision of ITAT on various additions made, the assessee furnished the copy of the order of Hon'ble ITAT, along with a chart indicating the specific directions / order on each of the issues under reference, on which penalty was levied by the Assessing Officer.

3.1 Further, relying on the decision of the Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd., 322 ITR 158, submitted that no penalty is leviable in the cases of disclosure of particulars by assessee. Also relying on the decision of the Apex Court in the case of Dilip N. Shroff Vs. JCIT, 291 ITR 519, submitted that imposition of penalty is not automatic and levy of penalty not only discretionary in nature but such discretion is required to be exercised on the part of the AO.

“5.8 Considering all the facts of the case, it was clear in this case that the issues on which the additions made and penalty levied, were not held to be on account of furnishing of inaccurate particulars. In fact the additions upheld or otherwise,

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are a result of required debates on the relevant issues, and there was nothing on record to prove that the additions made by the AO and upheld by the appellate authorities, are on account of furnishing of inaccurate particulars or concealment of income. Further, the issues under reference are debatable in nature and more than one view is possible. Under the circumstances, based on facts of the case and the ratio of judicial decisions, it is reasonable to hold that penalty u/s 271(1)(c) on the additions made by the AO is not sustainable.”

b. Whether in the facts and circumstances of the case, the Learned CIT(A) is correct in law in deleting the penalty u/s 271(1)(c) of the Act ignoring the fact that the AO has clearly brought out the element of false claim, both while recording satisfaction during initiation of penalty in the assessment order, as well as in the penalty order.

c. Whether in the facts and circumstances of the case, the Learned CIT(A) is correct in law in deleting the penalty u/s 271(1)(c) of the Act ignoring the fact that additions are made on facts and pertain to deductions claimed on the basis of incorrect information which amounts to filing of inaccurate particulars of income.

d. Any other ground(s) that may be urged at the time of hearing.”

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3 Rs. 8,50,98,956 towards loss on Confirmed Allowed investment in Auratis Pharmaceuticals Ltd. 4 Rs. 4,90,00,000/- towards bad Confirmed Allowed debts written off of Pathnet India 5 Rs. 13,30,73,097 towards Confirmed Allowed expenditure claimed on ESOP 6 Local Doctor’s Meet Expenditure Confirmed Set aside to AO 7 Rs. 8,84,41,258 towards local Confirmed Set aside to Doctor services AO 8 Rs. 15,31,97,199/- towards Confirmed Set aside to allocation of administrative and AO other expenses to the Units claiming deduction u/s 10B/80IB 9 Rs. 18,19,60,500 towards claim Confirmed Confirmed of customers contracts 10 Rs. 49,51,77,983/- towards Confirmed Confirmed capital gain on sale of Goa unit 11 Rs. 8,25,910/- towards business Confirmed Confirmed promotion expenses 12 Rs. 68,62,136/- towards gifts and Confirmed Confirmed compliments 13 Rs. 41,33,675/- towards Confirmed Confirmed Marketing expenses

From the above, the Hon’ble ITAT has set aside or deleted most of the issues and confirmed only 5 issues. Even the issues, which were confirmed by Hon’ble ITAT, for which, all the relevant informations were placed on record before the revenue authorities, are debatable issues. In this connection, we refer to the following cases:

6.1 In the case of Pr. CIT Vs. Hemalatha Rajan [2017] 84 Taxmann.com 25, the Hon’ble Madras High Court held that there being no mens rea on part of assessee qua concealment and non- disclosure, penalty proceedings u/s 271(1)(c) were not warranted.

6.2 In the case of CIT Vs. Reliance Petroproducts (P) Ltd., [2010] 189 Taxman 322 (SC), the Hon’ble Supreme Court has held as under: “A glance of provision of section 271(1)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his

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income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars.

Therefore, it must be shown that the conditions under section 271(1)(c) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise.

The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.

The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (I) an item of receipt may be suppressed fraudulently,· (Ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment

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of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.”

6.3 In view of the above discussion, we do not find any infirmity in the order of CIT(A) in directing the AO to delete the penalty of Rs. 34,65,20,080/- made u/s 271(1)(c) and accordingly, upholding the order of CIT(A), we dismiss the grounds raised by the revenue.

Pronounced in the open court on 20th July, 2018.

Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated: 20th July, 2018 kv Copy to:- 1) DCIT, Circle – 17(1), 9th Floor, Signature Towers, Opp. Botanical Garden, Kothaguda, Kondapur, Hyd. 2) M/s Dr. Reddy’s Laboratories Ltd., 8-2-337, Road No. 03, Banjara Hills, Hyderabad – 500 034. 3) CIT(A) - 5, Hyderabad 4) CIT - 5, Hyderabad 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File

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Description Date Intls

S.No. 1. Draft dictated on Sr.P.S./P.S 2. Draft placed before author Sr.P.S/PS Draft proposed & placed JM/AM 3 before the second Member 4 Draft discussed/approved by JM/AM second Member 5 Approved Draft comes to the Sr.P.S./P.S Sr.P.S./PS 6. Kept for pronouncement on Sr. P.S./P.S. 7. File sent to the Bench Clerk Sr.P.S./P.S 8 Date on which file goes to the Head Clerk 9 Date of Dispatch of order