ACIT 15(2)(1), MUMBAI vs. KIMPLAS PIPING SYSTEMS LTD, NASHIK

1. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the penalty of Rs.3,11,27,792/- levied u/s. 271(1)(c) of the IT Act, ignoring that the assessee had not been able to explain as to how the explain as to how the excess claim of deduction u/ s. 35(2AB) amounting to Rs. 10,07,37,194/- was made even after revising the claim of deduction in the revised Computation of Income, thereby indicating deliberate filing of inaccurate particulars of income which would have escaped the tax, and Mum 2018-M/s Kimplas Piping Systems Ltd.

The Assessing Officer issued show-cause notice under section 274 r.w.s.

The reply of assessee was not accepted by Assessing Officer. The Assessing Officer concluded that the assessee should have made his claim of deduction under section 35(2AB) after proper approval from competent authority (DSIR, New Delhi). It was only during the scrutiny assessment that assessee accepted and withdrawn the excess claim. The Assessing Officer penalty @ 100% of tax sought to be evaded, on the disallowance of Rs. 10,07,37,194/-. The Assessing Officer worked out the penalty of Rs. 3,11,27,792/- in its order dated 29.08.2016. On appeal before the ld. CIT(A), the entire penalty was deleted. The ld. CIT(A) deleted the penalty that no specific limb in the penalty notice was clearly specified. Thus, aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before us.

We have heard the submission of ld. Department Representative (DR) for the revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. The ld. DR for the revenue 3 ITA No. 1187 Mum 2018-M/s Kimplas Piping Systems Ltd. submits that the assessing officer while passing the assessment order clearly held that the assessee furnished the inaccurate particulars of income, which is clearly specified in para 3.4 of the assessment order.

On the other hand the learned AR of the assessee supported the order of learned CIT(A). The learned AR submits that issue in the present appeal stands covered in favour of assessee by the decision of honorable Gujarat High Court in case of CIT versus Amoli Organics Private Ltd (Tax Appeal No. 344 of 2014 dated 22nd of April 2014), wherein it was held that a mare denial of claim of deduction under section 35(2AB) would not lead to levy of penalty despite the facts the assessee has himself accepted the disallowance before assessing officer. And the decision of Mumbai tribunal in JCIT versus Crompton Greaves Ltd in 2016 dated 31 May 2017.

In second alternative submissions the learned AR submits that Ahmedabad Tribunal in ACIT versus Torrent Pharmaceuticals Ltd (ITA No.3569 /AHD /2004) held that the amount of expenditure as approved /stated in form 3CL by the Department of Scientific and Industrial Research is irrelevant for the purpose of claiming deduction under section 35 (2AB ). In third the learned AR submits that the assessee made its claim on the basis of facts available at the time of filing of 4 ITA No. 1187 Mum 2018-M/s Kimplas Piping Systems Ltd. return and was appropriately disclosed in the return of income as well as in the accounts. Admittedly the facts pertaining to the claim under section 35(2AB) as stated in the return are true and correct. Not only that said claim was also mentioned in the tax Audit report in Form 3CD as required under section 44AD of the Act which was uploaded along with return filed. The only reason for disallowance was Form 3CD issued by the DSIR which was received on 13 May 2014 i.e. around after six months after filing of return of income. It is settled position that where no information given in the return was found to be incorrect or inaccurate no penalty under section 271(1)(c) could be levied since there is neither concealment of particular is of income nor furnishing inaccurate particulars of income in such cases. In support of his submission the learned AR relied upon the decision of Hon’ble Supreme Court in CIT versus Reliance Petroproducts Ltd (322 ITR 158 SC).

In fourth alternative submission the learned AR of the assessee submits that in the present case, it is evident that penalty has been levied by the assessing officer without any application of mind whatsoever. It was it was not clear as to on what charge the assessing officer has initiated penalty and on what charge he has levied the penalty. The assessing officer invoked the Explanation-1 of section 271(1) which applies only to concealment but apparently levied penalty on the ground of furnishing inaccurate particulars. As such the penalty without any 5 ITA No. 1187 Mum 2018-M/s Kimplas Piping Systems Ltd. application of mind and hence unsustainable, therefore, the learned CIT(A) appeal has rightly deleted the penalty. In support of his submission the learned AR of the assessee relied upon the decision of Hon’ble Bombay High Court in case of PCIT Vs Samson Perincheri (ITA No.1154 of 2014), Gujarat High Court in CIT versus Lakadhir Lalji (85 ITR 77 Gujarat).

In fifth alternative and without prejudice submission the learned AR submits that the view taken by assessing officer in denying the deduction under section 35(2AB) to the assessee is a possible view (though contrary to the decisions relied by assessee), still the issue is debatable issue, therefore penalty under section 271(1)(c) is not leviable in support of his submission the learned AR relied upon the decision of Rajasthan High Court in CIT Vs Harsvardhan Chemicals & Minerals Ltd (259 ITR 212 Rajasthan).

We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on various case laws relied by lower authorities as well as by learned AR of the assessee. During the assessment assessing officer disallowed the claim of deduction of Rs.10,07,37,194/-. The assessing officer levied penalty @100% of tax sought to be evaded which works out to be Rs.3,11,27,792/-. The assessing officer levied the penalty by taking his view that the assessee should have made his claim of deduction under 6 Mum 2018-M/s Kimplas Piping Systems Ltd. section 35(2AB) after proper approval from competent authority (DSIR, New Delhi). Even the entire claim of assessee under section 35(2AB) was not approved by DSIR and only part of claim was approved, the assessee should have restricted the claim to the extent of its approval. It was only during the scrutiny assessment that assessee accepted and withdrawn the excess claim. Before the ld CIT(A) the assessee, besides making submissions on merit, made their submissions that the notice issued under section 274 rws 271(1) dated 09.02.2016 was not valid. In the notice, the AO has not strike out the inappropriate portion specifying, if the notice is issued for concealing particular of income or for furnishing inaccurate particular of such income. The ld CIT(A) after perusal of the notice under section 274rws 271(1) concluded that the assessing officer not bothered to fill the blanks with the appropriate limbs of section 271(1) (c) and that he has not applied his mind to the facts of which reason the penalty notice was issued and held that penalty is not sustainable. The ld CIT(A) while deleting the penalty relied on the decision of Karnataka High Court in Manjunatha Cotton & Ginning Factory (359 ITR 566) and the case law in SSA’S Emerald Meadows [2016] 73 taxmann.com 248 (SC). No contrary facts or law is brought to our notice.

The Hon’ble Bombay High Court in case of Samson Perinchery (supra) while following the decision of Hon’ble Karnataka High Court in CIT 7 ITA No. 1187 Mum 2018-M/s Kimplas Piping Systems Ltd.

The revenue/ assessing officer has not filed even single documentary evidences to substantiate its grounds of appeal

In the result, appeal of the revenue is dismissed.