SRINI PHARMACEUTICALS PRIVATE LIMITED,HYDERABAD vs. DCIT., CENTRAL CIRCLE-2(3), HYDERABAD

Any other ground or grounds that may be urged at the time of hearing of the appeal.”

Brief facts of the case are that, the appellant company is engaged in the business of manufacturing and sale of bulk drugs and intermediates, filed it's return of income for the assessment year 2012-2013 on 28.11.2012 declaring loss of Rs.10,29,71,338/-. The appellant company is having R & D facility and duly registered with DSIR, New Delhi and the Certificate from DSIR in Form 3CM was available for the assessment year under consideration.

The appellant-company has challenged the addition made by the Assessing Officer towards disallowance of weighted deduction u/sec.35(2AB) of the Act before the CIT(A). The appeal filed by the assessee company has been subsequently withdrawn on the ground that, the Competent Authority i.e., DSIR has rejected the application filed by the assessee company in Form-3CK and not issued Form-3CL, quantifying the amount eligible for deduction u/sec.35(2AB) of the Act.

The Assessing Officer after considering the relevant submissions of the assessee company and also taking note of various facts including the non-submission of relevant Form-3CL from the DSIR observed that, the assessee company has made an incorrect or in-eligible claim of deduction u/sec.35(2AB) of the Act @ 200% of expenditure incurred for R & D purpose, even though, it does not had relevant Form-3CL issued by the Competent Authority. Therefore, rejected the explanation of assessee company and levied penalty of Rs.50 lakhs u/sec.271(1)(c) of the Act for furnishing inaccurate particulars of income and thereby, concealing of income, in respect of excess

Aggrieved by the penalty order, the assessee company preferred appeal before the learned CIT(A). Before the CIT(A), the assessee company challenged the order passed by the Assessing Officer imposing penalty u/sec.271(1)(c) of the Act on two folds. The assessee company has challenged the validity of the order passed by the Assessing Officer u/sec.271(1)(c) of the Act, in light of show cause notice issued under section 274 read with section 271(1)(c) of the Act and argued that, the Assessing Officer has not specified under which limb, he proposed to levy penalty u/sec.271(1)(c) of the Act i.e., whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. In absence of specific charge, penalty livid by the Assessing Officer is invalid and liable to be quashed. The Assessing Officer had also levied the penalty u/sec.271(1)(c) of the Act for incorrect claim of weighted deduction u/sec.35(2AB) of the Act. Learned Counsel for the Assessee argued that, mere making a claim

Aggrieved by the order of the learned CIT(A), the assessee company is now, in appeal before the Tribunal.

CA, MV Prasad, Learned Counsel for the Assessee submitted that, the learned CIT(A) was erred in dismissing the ground taken by the assessee company challenging the 9 ITA.No.1121/Hyd./2025 validity of penalty order passed by the Assessing Officer in light of vague notice issued under section 274 read with section 271(1)(c) of the Act. Learned Counsel for the Assessee further submitted that, the Assessing Officer has not specified the limb, under which, he proposed to levy the penalty u/sec.271(1)(c) of the Act i.e., whether it is for concealment of particulars of income or for furnishing inaccurate particulars of income. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of CIT vs., SSA’s Emerald Meadows [2016] 73 taxman.com 248 (SC) and the decision of Hon’ble High Court of Karnataka in the case of CIT vs., Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka). Learned Counsel for the Assessee further submitted that, the learned CIT(A) has erred in sustaining the penalty levied by the Assessing Officer u/sec.271(1)(c) of the Act for furnishing inaccurate particulars of income, even though, the assessee company has disclosed necessary facts with regard to claim of weighted deduction u/sec.35(2AB) of the Act in the return of income furnished for the relevant assessment year, which is 10 ITA.No.1121/Hyd./2025 evident from the deduction allowed by the Assessing Officer by allowing 100% deduction towards expenditure incurred for R & D facility. Therefore, he submitted that, mere making of claim which is unsubstantiated, cannot be considered as furnishing of inaccurate particulars of income. In this regard, he relied upon decision of Hon’ble Supreme Court in the case of CIT, Ahmedabad vs., Reliance Petroproducts (P.) Ltd., [2010] 322 ITR 158 (SC) and the decision of ITAT, Delhi Bench, Delhi in the case of Akums Drugs and Pharmaceuticals ltd., vs., Assessment./DCIT [2025] 175 taxman.com 135 (Delhi-Trib.).

Dr. Sachin Kumar, learned Sr. AR for the Revenue, on the other hand, supporting the order of the learned CIT(A) submitted that, the assessee company has claimed an incorrect claim of weighted deduction u/sec.35(2AB) of the Act without getting proper approval from the Competent Authority i.e, DSIR, New Delhi. The arguments of the Learned Counsel for the Assessee that, mere claiming of any deduction does not lead to an inference of furnishing in accurate particulars of income

The appellant company was recognised for the purpose of carrying-out in-house R & D activities, which is evident from relevant Form-3CM issued by the Competent Authority i.e., DSIR which is valid for the assessment year under consideration. It also not in dispute that, at the time of filing the return of income, making a claim of weighted deduction u/sec.35(2AB) of the Act, the application filed by the assessee company in Form-3CK was pending before the DSIR for consideration. The assessee company made the claim of weighted deduction on the bonafide and legitimate expectation that, claim made, by filing Form-3CK will be considered by the Competent Authority i.e., DSIR. Although, the assessee has challenged the disallowance made by the Assessing Officer before the learned CIT(A), but,

In the present case, the assessee company has furnished complete particulars with regard to nature of expenditure incurred for R & D purposes and also furnished relevant approval from the Component Authority. The only reason for the assessee company could not substantiate it's claim is, non-submission of Form-3CL from the Competent Authority. Therefore, in our considered view, once the claim made by the assessee company is based on approval from the Competent Authority and further, at the time of making the said claim, it was a legitimate expectation of the 16 ITA.No.1121/Hyd./2025 assessee company that, it would get an approval from the Competent Authority, then, the subsequent rejection of approval by the Competent Authority cannot leads to an inference that, the assessee company has furnished inaccurate particulars of income. Therefore, we are of the considered view that, the Assessing Officer has erred in levying penalty u/sec.271(1)(c) of the Income Tax Act, 1961. This legal proposition is supported by the decision of ITAT, Delhi Bench, Delhi in the case of Akums Drugs and Pharmaceuticals Ltd., vs., Asst./Deputy CIT (supra), where it was clearly held that, “where Assessing Officer made disallowances u/sec.35(2AB) and levied penalty on assessee, since assessee disclosed all particulars of above disallowances in its ITR and no details mentioned in ITR were found to be incorrect or erroneous, penalty under section 270A was not leviable for under-reporting of income”. This legal proposition is further supported by the decision of Hon’ble Supreme Court in the case of CIT vs., Reliance Petroproducts (P.) Ltd., (supra), where it has been held that, “making an incorrect claim in law cannot be tantamount of 17 ITA.No.1121/Hyd./2025 furnishing of inaccurate particulars of income. Merely because the assessee claim of deduction of interest expenditure, has not been accepted by the Revenue, the penalty u/sec.271(1)(c) of the Act is not attracted. If the contention of Revenue is accepted, then, assessee would be liable to penalty u/sec.271(1)(c) of the Act in every case where the claim made by an assessee is not accepted by the Assessing Officer for any reason. The Court held that, this cannot be the intention of the legislature.

In the present case, there is no dispute with regard to the fact that, there is no observation by the Assessing Officer with regard to incorrectness of claim made by the assessee company towards weighted deduction claimed u/sec.35(2AB) of the Act. However, the Assessing Officer disallowed weighted deduction only for non- submission of Form-3CL from the Competent Authority i.e., DSIR. Therefore, we are the considered view that, mere making of claim cannot lead to an inference to furnishing of inaccurate particulars of income. The learned CIT(A) without appreciating the relevant facts, has simply sustained the 18 ITA.No.1121/Hyd./2025 penalty levied by the Assessing Officer. Thus, we set-aside the order of the learned CIT(A) and direct the Assessing Officer to delete the penalty levied u/sec.271(1)(c) of the Act.

In the result appeal of the assessee is allowed.