DCIT 5(2)(1), MUMBAI vs. INFINITE COMPUTER SOLUTION (I) LTD, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order

dated 29/09/2016 of the Ld. First Appellate Authority,

Mumbai, and the assessee has also preferred Cross

Act, 1961 (hereinafter the Act) was not in order and was not contested with respect to the disallowance of claimed deduction without appreciating the decision in the case of Reliance Petro Products Ltd. 322 ITR 158 (Supreme

Court) and consequent penalty u/s 271(1)(c) read with Explanation-1 of the Act.

Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018

for the assessee Shri Thomas Kutty M.V. claimed that the impugned issue, exactly on identical facts, is covered by the decision of the Tribunal in the case of assessee itself for Assessment Year 2010-11, order dated 29/12/2017

(ITA No.1109/Mum/2016). This factual matrix was not controverted by the Revenue. However, the Ld. DR, Shri

Saurabh Kumar Rai, advanced arguments which is identical to the ground raised by defending the penalty so imposed upon the assessee.

2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated

29/12/2017 for ready reference and analysis:-

“This appeal filed by the assessee is directed against the order of the CIT(A)-10, Mumbai 20-11-2015 and it pertains to AY 2010- 11. The revenue has raised the following grounds of appeal:- 1(a). On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the penalty levied u/s 271(1)(c) of Rs. 44,43,404/- on the ground that a wrong claim which is not sustainable in the eyes of law will not become a base for concealment of penalty.

Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018

1(b). On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that the claim of deduction u/s 35D made by the assessee was prima facie not admissible as the project had not commenced during the previous year relevant to the assessment year 2010-2011 and, hence, the assessee had furnished inaccurate particulars of its income. 1(c). On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that the assessee accepted that its claim of deduction u/s 35D was not in order and did not contest the disallowance of the deduction u/s 35D in appeal. 1(d). On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that the Hon'ble Delhi High Court has considering the decision of the Hon'ble Supreme Court in the case of Reliance Petro products Pvt. Ltd. (322 ITR 158) held in the case of CIT v. Zoom Communication Pvt. Ltd. (2010) 191 Taxman 179 (Delhi) that if an assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, Explanation to section 271(1)(c) would come into play and assessee will be liable to penalty u/s 271(1)(c).”

2. The brief facts of the case are that the assessee company engaged in the business of development of computer software, filed its return of income for the assessment year 2010-11 on 27- 09-2010 declaring total income of Rs.25,97,48,000. The assessment was completed u/s 143(3) on 30-01-2014 determining total income at Rs.27,39,70,181 after making addition on account of disallowance of expenditure u/s 14A of Rs.77,500 and disallowance of claim of deduction u/s 35D amounting to Rs.1,41,44,681. While disallowing expenses u/s 35D, the AO observed that the assessee has claimed deduction towards expenses directly in the statement of computation of total income without routing through P&L Account. The AO has made addition on the basis of revised statement of total income filed by the assessee withdrawing the claim made u/s 35D as the business of the assessee company has not commenced during the year under consideration.

3. Thereafter, the AO initiated penalty proceedings u/s 271(1)(c) for wrong claim of deduction towards IPO expenses u/s 35D of the Income-tax Act, 1961. The AO initiated penalty proceedings on the ground that the assessee has filed inaccurate

Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018 particulars of income, which warrants levy of penalty u/s 271(1)(c). In response to notice issued by the AO assessee submitted that mere claim of expenses or disallowance of expenses does not tantamount to furnishing of inaccurate particulars of income so as to levy penalty u/s 271(1)(c) of the Act. In this regard, he relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt Ltd 322 ITR 158 (SC). The AO, after considering relevant submissions of the assessee and also relying upon the decision of Hon’ble Supreme Court in the case of CIT vs KP Madhusudan reported in 251 ITR 99 (SC) observed that the assessee has filed incorrect claim in the return of income in respect of deductions claimed towards IPO expenses u/s 35D which warrants levy of penalty u/s 271(1)(c) of the Act.

3. Aggrieved by the penalty order, assessee preferred appeal before CIT(A). Before CIT(A), assessee submitted that the AO was erred in levying penalty u/s 271(1)(c) in respect of disallowance of IPO expenses u/s 35D on the wrong footing that the assessee has filed inaccurate particulars of income without appreciating the fact that during the course of assessment proceedings, the assessee has filed revised statement of total income withdrawing deduction claimed u/s 35D. The assessee further submitted that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars of income. In this regard relied upon certain judicial precedents. The CIT(A), after considering relevant submissions of the assessee and also relying upon the decision of Hon’ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt Ltd (supra) observed that when the appellant has withdrawn the claim by filing a revised statement before the AO during the course of assessment proceedings itself, the AO should have considered the request while finalising the penalty proceedings. The withdrawal of claim in the course of assessment proceedings is a sufficient ground to prove that the mistake is inadvertent and there is no intention to avoid taxes. With these observations, the CIT(A) deleted penalty levied by the AO. The relevant portion of the order of the CIT(A) is extracted below:- 5.1 I'm not convinced with the concealment penalty levied by the AO. The disallowance made is in order so far as the quantum is concerned. When the appellant has withdrawn the claim by filing a revised statement before the AG during the course of assessment proceedings itself, the AG should have considered the request while finalising the penalty proceedings. The withdrawal of claim in the course of assessment proceedings is a sufficient ground to prove that Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018 the mistake is inadvertent and there is no intention to evade taxes. In my considered view there is no hiding of facts while filing the return of income but there is a wrong claim. As it is a settled law that a wrong claim which is not sustainable in the eyes of law will not become a base for concealment penalty. Reliance is placed on the decision of the Honourable Supreme Court in the case of Reliance Petroproducts P Ltd 322 ITR 158. Further, when the appellant has withdrawn the claim, there is no base on which penalty can be levied. In view of these facts, the penalty is not sustainable. Accordingly the ground is allowed.”

Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018 that the assessee has concealed the particulars of income or furnishing inaccurate particulars of income. It is the contention of the assessee that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars of income. It has disclosed all necessary facts and particulars in its books of account and no false statement has been made even in the return of income. It has withdrawn wrong claim made u/s 35D before the AO and also explained the reasons for making such claim. According to the assesse, it has made a wrong claim on the bona fide belief that it is eligible for 1/5th of deduction towards IPO expenses, even though it has not commenced business activities. However, on coming to know that it is not eligible for deduction during the current financial year, it has filed a revised statement of total income withdrawing its claim which shows the bona fideness and hence, the AO was incorrect in holding that the assessee has furnished inaccurate particulars of income which attracts penalty u/s 271(1)(c).

of facts with respect to claimed deduction u/s 35D of the Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018 Act and deletion of penalty levied u/s 271(1)(c) of the Act, the Tribunal has deliberated upon the issue and finally dismissed the appeal of the Revenue, upholding the stand taken by the First Appellate Authority. In the present appeal also, the assessment was completed u/s 144C/143(3) of the Act on 05/03/2015. While making the addition on account of 14A and disallowance of claim u/s 35D amounting to Rs.1,41,44,681/-, the Ld. Assessing Officer initiated penalty proceedings, u/s 271(1)(c) of the Act specially against the disallowance of claim of expenses u/s 35D of the Act. The assessee claimed the amount of Rs.1,41,44,681/- being one fifth of the total expenses. The Tribunal has already considered the decision from Hon'ble Apex Court in CIT vs Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (Supreme Court) and also the decision in the case of CIT vs K.P. Madhusudan 251 ITR 99 (Supreme Court).

The Hon'ble Apex Court in Reliance Petroproducts Pvt. Ltd. observed that when the assessee has withdrawn the claim by filing a revised statement before the Assessing Officer itself, the Assessing Officer should have considered

Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018 the request while finalizing the penalty proceedings. The withdrawal of claim during assessment proceedings is a sufficient ground to prove that the mistake is inadvertent and there is no intention to avoid taxes. The assessee withdrew the claim made u/s 35D of the Act before the Ld. Assessing Officer and also explained the reason for making such claim. According to the assessee, wrong claim was made on a bona-fide belief that assessee is eligible for 1/5th of deduction towards IPO expenses, even though it has not commenced business activities. On coming to know that the assessee is not eligible for deduction, during current financial year, a revised statement of total income was made withdrawing the claim which shows bona-fide intention of the assessee.

Thus, following the aforesaid decision of the Tribunal, we find no infirmity in the order of the First Appellate

Authority. It is upheld, resulting into dismissal of appeal filed by the Revenue.

67/Mum/2018), filed by the assessee. The ld. counsel for Infinite Computer Solution (I) Ltd. C.O. NO.67/Mum/2018 the assessee did not press the same, therefore, the cross objection of the assessee is dismissed as not pressed.

Finally, the appeal of the Revenue as well as the cross objection of the assessee are dismissed.

This Order was pronounced in the open court in the presence of ld. representative from both sides at the conclusion of the hearing on 16/04/2018.