DCIT, CIRCLE- 20(1), NEW DELHI vs. POLYPLEX CORPORATION LIMITED., NEW DELHI

4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, deleted the impugned penalty.

5. Aggrieved against the order of Ld.CIT(A), the Revenue preferred appeal before this Tribunal. 6. Apropos to the grounds of appeal

, Ld. Sr. DR for the Revenue submitted that the assessee had wrongly claimed deduction u/s 35(2)(AB) of the Act hence, he furnished inaccurate particulars of income. He contended that under the facts, the AO was justified in imposing the impugned penalty. Had the case of the assessee was not taken up for scrutiny, the correct figure of claim would have gone unnoticed. The AO correctly held that the assessee is Page | 2 guilty of furnishing of inaccurate particulars of income. He prayed for sustaining the impugned penalty. As the Ld.CIT(A) was not justified in deleting the penalty under the facts of the present case.

7. On the other hand, Ld. Counsel for the assessee reiterated the submissions as made in the Synopsis. He submitted that it is not the case of concealment or furnishing of inaccurate particulars of income. Infact, the assessee had incurred expenditure of INR 4.41 crores for running/operation of Research & Development activities. However, Department of Scientific and Industrial Research (“DSIR”) in respect of expenditure of INR 4.41 crores claimed by the assessee, restricted it to the extent of INR 2.85 crores. It was contended that the AO has not disallowed the expenditure as not being genuine. The expenditure was disallowed on the basis that DSIR had restricted this expenditure to INR 2.85 crores. It was contended that the nature of expenditure remained to be business expenditure and it is allowable u/s 37(1) of the Act. Therefore, looking to the totality of the facts of the present case and case laws relied upon by the assessee, the AO was not justified in imposing the penalty. For the sake of clarity, the synopsis filed by the Ld. Authorized Representative (“AR”) of the assessee is reproduced as under:- 1. “This is a Revenue appeal filed against the order passed by the CIT(A) dated 21.11.2019, whereby CIT(A) deleted the penalty of Rs. 60,11,830/- imposed by A.O. under section 271(1)(c) of the Income Tax Act, 1961. Ant the penalty was levied on the disallowance of deduction claimed by the assessee under section 35(2AB) of the Act.

2. Brief facts of the case are that assessee is a limited company engaged in the business of manufacturing of plastic film and polyester chips and have in-house research and development center which has been recognized by department of scientific and Industrial research. (PB Pg.140).

8. Further, assessee via reply dated 13.12.2018 (PB Pg 168-170, relevant page 170) submitted as under- "The amount of Rs. 4.41 crores has been spend for the running/operation of R&D unit established as per provisions of section 35(2)(AB) of the Income Tax Act, 1961. However, the Secretary DSIR had restricted this expenditure to Rs. 2.85 crores meaning thereby the DSIR had confirmed only Rs. 2.85 crores had been spent for R&D purpose, however the expenditure remains business expenses u/s 37(1) of the Act. Hence only the additional deduction of Rs. 4.41 crores claimed u/s 35(2)(AB) stands restricted to 2.85 crores and the basic expense of Rs. 4.41 crores is eligible expenditure u/s 37(1) of the Act.

9. Hence, during the course of assessment proceedings made true and full disclosure of all the relevant facts in relation to deduction claimed u/s 35(2)AB of the Act.

10. Subsequently, Ld. AO vide order 22.12.2018 u/s 143(3) allowed the total research and development expenditure of Rs. 4.41 crores. However, in view of DSIR approval, he restricted the additional deduction u/s 35(2AB) in respect of the expenditure to Rs. 2,64,52,000/-.

23. It is relevant to mention that Ld. A.O has not doubted the genuineness of expenditure of Rs.4.41 crores incurred by assessee for running / operation of research & development unit established as per the provision of section 35(2AB) of the Income Tax Act, 1961.

24. It is also relevant to mention that Ld.AO has solely relied on report of secretary DSIR for making disallowance of Rs. 1.76 crore and no any other observation/ allegation was made by the AO. 25. It is further submitted that assessee in support of expenditure of Rs.4.41 crores, has furnished report in form no.3CLA, from accountant which is required to be furnished u/s 35(2AB) of the Act. (PB Pg. 134-137). 26. The above mentioned facts at Pt. 2-9, highlight following points- ➤ Assessee received approval of secretary, DSIR in respect of expenditure of Rs.4.41 crores on 22.11.2018 which is after the date of issuance of notice u/s 143(2) which is 14.07.2018. ➤ Report of secretary, DISR was not available with assessee at the time of filling of income tax return. ➤ Assessee after receiving approval of secretary, DSIR whereby deduction u/s 35(2AB) of Rs. 2.85 crores were approved, suo moto., during the course of assessment proceedings, informed A.O in respect of the report of secretary, DSIR and accepted the disallowance of Rs. 1.76 crores and did not file an appeal before CIT(A) in respect of said disallowance. ➤ Genuineness of the expenditure has not been questioned by A.Ο. ➤ Basic expenditure of Rs.4.41 crores has been allowed as expenditure u/s 37(1) and only additional deduction of Rs. 4.41 crore u/s 35(2AB) stands restricted to Rs.2.84 crores. Based on above mentioned facts and points, it is an undeniable fact that assessee furnished complete information and accurate information at the time of filling of income tax return, as report of DSIR was not available with assessee at the time of filling of income tax return and was received much later, so assessee cannot be deemed to have furnished any inaccurate particulars.

> PRICE WATERHOUSE COOPERS (P.) LTD. VERSUS COMMISSIONER OF INCOME-TAX, KOLKATA 1, 2012 (9) TMI 775 - SUPREME COURT, Dated.- September 25, 2012

> COMMISSIONER OF INCOME-TAX VERSUS RELIANCE PETROPRODUCTS PVT. LTD., 2010 (3) TMI 80 SUPREME COURT, Dated.- March 17, 2010

> THE COMMISSIONER OF INCOME TAX EXEMPTION VERSUS MEHTA CHARITABLE PRAJANALAYA TRUST, 2021 (2) TMI 651- DELHI HIGH COURT, Dated February 12, 2021 Hence, in the view of above mentioned submissions and judicial pronouncements, the order of CIT(A) should be upheld.”

4.1. “During the assessment proceedings, it was noticed that the assessee had claimed deduction of Rs.4,41,39,054/- u/s 35(2)AB of the Income Tax Act, 1961. The assessee was asked to produce the relevant approval of the competent authority. In response, the assessee explained that amount of RS. 4.41 crores was spend for the running/operation of R&D unit established as per provisions of section 35(2)AB of the Income Tax Act, 1961. Assessee has also admitted that the Secretary DSIR had restricted/confirmed this expenditure to Rs. 2.85 crores. Assessee had also submitted that the additional deduction of Rs. 4.41 crores claimed u/s 35(2)AB stands restricted to 2.85 crores and the basic expense of Rs. 4.41 crores is eligible expenditure u/s 37(1) of the Act. It was observed by the AO that as the competent authority had approved only amount of Rs. 2,64,52,000/- against the expenditure of Rs. 4,41,39,054/- claimed by the assessee, thus, the assessee is not entitled to the differential amount of Rs. 1,76,67,054/- and the same was disallowed by adding back to the income of the assessee. In view of the above, the AO disallowed assessee's claim of Rs. 1,76,87,054/- u/s 35(2)AB of the Income Tax Act, 1961 as the same was not approved by the assessee's competent authority. Further, assessee has also admitted in its reply submitted during the assessment proceedings that "....additional deduction of Rs. 4.41 crores claimed u/s 35(2)AB of the Act stands restricted to 2.85 crores...". Therefore, assessee itself admitted that it had wrongly claimed the deduction u/s 35(2)AB of the Income Tax Act, 1961. The AO therefore concluded during penalty proceedings that the appellant had accepted the addition and not filed appeal on this issue before CIT(A) the charge of filing inaccurate particulars stands substantiated and accordingly imposed a penalty of Rs. 60,11,830/-. 4.2. It was submitted that section 35(2)AB provides for 200% deduction of the amount spend by assessee on R&D activities. During the year the Appellant had spend Rs. 4,41,39,054/- on R&D unit approved by DSIR u/s 35(2) (AB) and accordingly claimed 200% deduction on the said amount. But DSIR approved only Rs. 2,64,52,000/- out of the above amount & the appellant accordingly reduced its deduction u/s 35(2)(AB) by Rs. 1,76,87,054/-during the assessment proceedings. The genuineness of expenditure of basic amount of Rs. 4,41,39,054/- had never been in question during the assessment proceedings, the AO had verified these expenses during the assessment proceedings and allowed them as deduction u/s 37 of the Act. The issue was only for the additional deduction of 100% u/s 35(2)AB. It was submitted that as such there is no requirement in section to restrict additional deduction because of the report of competent authority but assessee suo moto restricted the deduction himself. 4.3. It was also submitted that penal provisions are only applicable if assessee had furnished any inaccurate particulars and in the present case the report of Competent authority was not available till date of filling ITR but was received much later, so assessee did not furnish any inaccurate particulars. However, the details furnished by the appellant were not found to be false. Ipso facto, this cannot be treated as a malafide intent on the part of the appellant. All the relevant facts were available before the AO, at best it was an inadvertent error committed by the appellant. The explanation furnished by the appellant are genuine and bonafide. The Hon'ble Supreme Court in the case of Price Water House Coopers Pvt. Ltd. vs. CIT reported in 253 CTR 1 (SC) (2012) has held as under: "Held, allowing the appeal, that the facts of the case were peculiar and somewhat unique. Notwithstanding that the assessee was a Page | 13 reputed firm and had great expertise available with it, it was possible that even the assessee could make a "silly" mistake. The fact that the tax audit report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7) of the Act indicated that the assessee made a computation error in its return of income. The contents of the tax audit report suggested that there was no question of the assessee concealing its income or of the assessee furnishing any inaccurate particulars. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. All that had happened was that through a bonafide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. The assessee should have been careful but the absence of due care, in a case such as the present, did not mean that the assessee was guilty of either furnishing inaccurate particulars or attempting to conceal its income. On the peculiar facts of this case, the imposition of penalty on the assessee was not justified." The Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. observed as under: "A glance at the provisions of section 271(1)(c) of the Income Tax Act, suggest that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to Page | 14 furnishing inaccurate particulars. There can be no dispute that everything depend upon the return filed by the assessee, 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. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars." In view of the judicial pronouncements referred above and the facts of the case, the appellant had given an explanation, which is bonafide. Therefore, there is no furnishing of inaccurate particulars of income or deliberate attempt to conceal income. The rigors of the provisions of section 271(1)(c) are clearly not attracted in this case. In view thereof, the penalty levied u/s 271(1)(c) of the Act of Rs.60,11,830/- is deleted. The grounds of appeal are ruled in favour of the appellant.”

9. From the above finding of Ld.CIT(A), it is evident that at the time of filing of the return of income, the claim of deduction u/s 35(2)(AB) of the Act, was not reduced by the Competent Authority. The Competent Authority had subsequently approved the expenditure to the extent of INR 2,65,52,000/-. Therefore, the assessee during the course of assessment proceedings, reduced its claim to the extent of INR 1,76,87,054/-. The Ld.CIT(A), therefore, considering the facts and circumstances of the case, applied the ratio laid down by the Hon’ble Supreme Court in the case of Price Water House Coopers Pvt. Ltd. vs. CIT reported in 253 CTR 1 (SC) (2012). It is not the case of the Revenue that expenditure claimed by the assessee, was not genuine. The accounts are audited and reported in Form No.3CLA was filed. Thus, the assessee had disclosed all material particulars before the Assessing Authority. Merely because the DSIR reduced and approved lower expenditure should not be the only reason for imposition of penalty. The AO ought to have brought adverse material in respect of the expenditure so claimed by the assessee more particularly, when the assessee himself has reduced its claim as recorded by the AO in the assessment order itself. Under these facts and in the light of decision of Co-ordinate Bench rendered in the case of M/s. Napord Life Sicences P.Ltd. vs DCIT, Range-8(2), Mumbai, 2019 (2) TMI 980- ITAT Mumbai dated 30.11.2018, we do not see any infirmity in the finding of Ld.CIT(A), the same is hereby affirmed. Grounds raised by the Revenue are accordingly, dismissed.