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Income Tax Appellate Tribunal, DELHI BENCH ‘FRIDAY’, NEW DELHI.
Before: HON’BLE, SHRI G.D. AGRAWAL & SHRI KULDIP SINGH
(PAN : AAACJ9445P) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rishabh Malhotra, AR REVENUE BY : Shri Amit Katoj, Senior DR Date of Hearing : 01.02.2019 Date of Order : 25.02.2019
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Keeping in view the undisputed fact that the addition made by the AO and confirmed by ld. CIT (A) on the basis of which penalty proceedings were initiated, has been deleted and in the given circumstances, prima facie penalty levied by ld. CIT (A) is not sustainable in the eyes of law, so the application for early hearing is allowed and the Bench is proceeded to hear and decide the appeal by today itself.
2. The appellant, M/s. Jubilant Biosys Limited (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 31.03.2018 passed by Ld. CIT (Appeals)-I, Noida qua the Assessment Year 2011-12 on the grounds inter alia that :-
“1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] under section 271(1)(c) of the Income Tax Act 1961 ["the Act] is bad in law and passed in haste without providing reasonable opportunity to the appellant more so when the quantum merits appeal is currently pending before the Hon'ble Appellate Tribunal, Delhi.
That on the facts and in the circumstances of the case and in law, the show cause notice under section 271(1)(c) of the Act is issued mechanically and printed without specifying the precise charge to levy penalty under section 271(1)(c) for the year under consideration.
3. That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in initiating and imposing penalty under section 271(1)(c) of the Act on income enhanced by his office in the appellate order dated 30.06.2017 arising from the assessment order dated 25.03.2014.
4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in levying penalty under section 271(1)(c) of the Act on the alleged ground that the appellant has willfully and deliberately furnished inaccurate particulars of income and has also concealed the particulars of its income to the extent of the income enhanced by his office in these appellate order dated 30.06.2017.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of completed assessment under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) at loss of (-) Rs.2,85,68,828/-, penalty proceedings under section 271(1)(c) was initiated. After declining the contentions raised by the assessee, ld. CIT(A) proceeded to levy the penalty of Rs.87,34,96,838/- @ 100% under section 271(1)(c) of the Act on the ground that the assessee has willfully furnished the inaccurate particulars of income and has deliberately concealed particulars of its income.
Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
At the very outset, it is brought to our notice by the ld. AR for the assessee that since the co-ordinate bench of the Tribunal vide order dated 28.11.2018 in 1822/del/2018, 1823/Del/2018, 2759/Del/2018 & 2760/Del/2018, has deleted the quantum addition, penalty levied on the basis of assessment order is not sustainable.
Bare perusal of the order passed by the co-ordinate Bench of the Tribunal in quantum proceedings goes to prove that addition made by the AO/ld. CIT (A) on account of disallowance of expenditure claimed by the assessee to the tune of Rs.102,52,32,000/- has been deleted by returning following findings :-
“11. Ground No. 3-3.2 is in respect of disallowance of expenditure amounting to Rs.102,52,32,000/- holding it to be capital in nature.
Ld. Counsel submitted that Ld.CIT(A) disallowed entire expenditure by holding that research activity carried on by assessee has resulted in enduring benefits to assessee. He submitted that while doing so, Ld.CIT(A) examined various definitions of the term “research” to arrive at the conclusion that the activity pertains to enhancement of cumulative knowledge of human civilisation and, therefore, cost of research done by assessee resulted in long and enduring benefit, which cannot be held as revenue expenditure. Ld.Counsel submitted that Ld. CIT (A) failed to appreciate that assessee is in the business of research and informatics services for drug discovery units based upon Insilco Solutions. It has been submitted that assessee provides discovery informatics products and services and collaborative drug services that include pre-clinical, in-vivo and formulation services. He submitted by placing reliance upon agreement placed at page 109 of paper book that, services rendered are as per agreement, and upon termination of agreement all research materials, notes etc shall be property of Elly Lilly and Co. Ld.Counsel further submitted that on one hand assessing officer is accepting income offered by assessee received from research services rendered, and on other hand expenditure incurred for earning income has been totally disallowed. Placing reliance upon audited accounts placed in paper book, Ld.Counsel submitted that breakup of expenditure incurred by assessee are as under:
Particulars Amount (Rs.) Remarks Cost of Services 64,98,47,000 Such expenses were incurred and Other towards: Expenses 1. Lab Chemicals and Spares (excluding Consumed; subcontractor 2. Repairs and Maintenance of services) Plant and Machinery; 3. Salary, Wages, Bonus, Gratuity and Allowances, 4. Staff Welfare Expenses, 5. Advertisement Expenses, 6. Printing and Stationary Expenses, 7. Communication Expenses 8. Freight and Forwarding Expenses, 9. Office maintenance Expenses, 10. Contribution to Provident Fund and Other Funds etc.
Rates and taxes 12. Rent 13. Insurance 14. Vehicle and running maintenance 15. Staff recruitment and training 16. Software license fee 17. Finance charges 18. Misc. Expenses 19. Bad debts Subcontractor 15,92,90,000 Such expenses were incurred Services towards sub-contracting of a part of research activities Depreciation & 8,27,41,000 Such expenses were incurred Amortisation towards normal wear and tear of fixed assets Interest 13,33,54,000 Such expenses were incurred towards unsecured loans borrowed by the Appellant Total: 1,02,52,32,000
He placed reliance upon decision of Hon’ble Supreme Court in case of Bombay Steam Navigation Co (1953) (P.) Ltd., vs. CIT reported in (1965) 56 ITR 52.
On the contrary, Ld. Sr.DR placed reliance upon the orders of authorities below.
We have perused submissions advanced by both sides in the light of records placed before us.
It is observed that, expenditure incurred by assessee is in its normal course of business. Further, it is also not disputed that assessee has been remunerated as per contract, under which assessee is required to incur expenditure. Ld. AO/CIT(A) did not dispute that expenditure has not been incurred for purposes of research activity carried on by assessee in its normal course of business. We draw our support from decision of Hon’ble Supreme Court in case of Empire Jute Company Ltd vs. CIT reported in (1980) 124 ITR 1, wherein Hon’ble Court laid down that test of enduring benefit cannot be applied blindly and mechanically without having regard to facts and circumstances of a given case. We also referred to Clause 5.1 of agreement at page 109 of paper book, wherein assessee has to ensure that it is able to carry out its obligations under contract, wherein the ownership of inventions of research services under agreement was to be retained by Eli Lilly and not by assessee.
We are therefore are of considered opinion that assessee has to be granted benefit of expenditure incurred by it, incurred in due course of business activity.”