RUGBY PHARMA PRIVATE LIMITED,MUMBAI vs. ACIT 1(3)(1), MUMBAI

The only issue to be decided in this appeal is whether learned CIT(A) was justified in upholding the levy of penalty u/s. 271(1)(c) of the Act in the facts and circumstances of the case.

Brief facts on this issue are that the assessee filed its return of income for A.Y. 2009-10 on 29.9.2009 declaring total income at Rs.80,44,178/-. Assessment for A.Y. 2009-10 was completed u/s. 143(3) of the Act dated 30.11.2011 determining the total income at Rs. 87,17,930/-. In the said assessment, the disallowance was made on account of professional charges to the tune of Rs. 2,80,900/- in respect of consultancy fees paid to NNE Pharma Plan India Limited for the reason that bill did not contain nature of service rendered by the said party to the assessee-company. Similarly, the Assessing Officer also disallowed proportionate interest expenditure to the tune of Rs. 3,92,848/- on the ground that unsecured loan borrowed by the assessee on which interest was paid, was partially utilized for capital work-in-progress of the assessee-company and accordingly, interest thereon needs to be capitalized.

From the reading of the penalty order u/s. 271(1)(c) of the Act dated 28.3.2016, the Assessing Officer levied penalty to the tune of Rs. 86,798/- only on the disallowance of consultancy fees paid to NNE Pharma Plan India Ltd. to the tune of Rs. 2,80,900/-

Learned AR before us submitted that description of bills specifically contained that the payment was made by the assessee for conducting Goods Manufacturing Practice Audit (GMP Audit) and copy of the audit report was also placed on record before the lower authorities during the course of penalty proceedings. Hence, it was pleaded that service rendered by the said party to the assessee-company was proved beyond doubt. He also stated that the said details could not be furnished before the lower authorities during the quantum appeal which resulted in upholding of disallowance made by the Assessing Officer. He further submitted that against the order passed by learned CIT(A) confirming the disallowance in quantum appeal, assessee chose not to prefer any appeal before this Tribunal in view of the smallness of the amount.

Learned DR on the other hand stated that since quantum has been upheld by learned CIT(A) and the assessee not being in appeal before this Tribunal against the same, levy of penalty on the said quantum become automatic and hence has been rightly levied penalty by the Assessing Officer.

We have heard the rival submissions. It is not in dispute that penalty u/s. 271(1)(c) of the Act has been levied in the instant case on the ground that the assessee had furnished inaccurate particulars of income. We find that the assessee had furnished entire details indicating nature of services rendered by NNE Pharma Plan India Ltd. together with copy of GMP audit report thereon during the course of penalty proceedings. We hold that these details were not appreciated by the authorities below during the penalty proceedings. We further hold that levy of penalty is not automatic. The assessee had duly furnished all relevant details during the course of penalty proceedings. Moreover, mere disallowance of expenditure for non appreciation of relevant facts would not result in levy of penalty. Reliance in this regard is placed on the decision of Hon’ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. reported in 322 ITR 158(SC). Respectfully following the said decision, we have no hesitation in directing the AO to cancel the penalty levied u/s. 271(1)(c) of the Act in the facts and circumstances of the instant case. Accordingly, ground raised by the assessee is allowed.

In the result, appeal filed by the assessee is allowed. Order has been pronounced in the Court on 29.1.2019.