A.C.I.T. CENTRAL CIRCLE-20, MUMBAI vs. ANKUR DRUGS & PHARMA LTD., MUMBAI

आयकर अपीऱीय अधिकरण “A” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No. 7529/Mum/2011 (नििाारण वर्ा / Assessment Year: 2006-07)

बिाम/ ACIT, Central Circle-20 M/s. Ankur Drugs & R.No. 402, Pharma Ltd., 4t h floor, 29t h Floor, Lotus Business v. Aayakar Bhavan, Park, Andheri Link Road, M.K Road, Andheri(W), Mumbai-400020 Mumbai- 400056 स्थायी ऱेखा सं./ PAN : AACCA2062M (अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)

Assessee by: Shri. Vijay Mehta Revenue by : Shri. R.P Meena, CIT DR सुनवाई की तारीख /Date of Hearing : 06.12.2017 घोषणा की तारीख /Date of Pronouncement : 27.02.2018 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 7529/Mum/2011 for assessment year 2006-07, is directed against the appellate order dated 29.08.2011 passed by learned Commissioner of Income-tax (Appeals)-39, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2006-07, appellate proceedings had arisen before learned CIT(A) from the penalty order dated 29.06.2010 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter called “the Act”). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

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“The assessee has got part of the total manufacturing activities done from Vaibhav Healthcare Private Limited. The assessee has obtained the necessary licenses for manufacture of pharmaceutical products, has received the orders from the customers, purchased raw material and packing material, recruited and deputed staff for supervision and control of production and also effected the sales. The conversion of raw materials to finished goods was done by Vaibhav Healthcare Private Limited for which the job charges were paid. It may further be mentioned that in case of any problem with the goods manufactured, the assessee is fully responsible and liable. 02) On the facts of the case, the assessee is fully eligible for deduction u/s. 80IC. 03) It may be noted that in the following year, the unit of Vaibhav Healthcare Private Limited became part of the assessee company under the scheme of the merger. The assessee has already started setting up its new unit and further there were discussions on the merger. During the intervening period, the assessee has got the part of the manufacturing done by Vaibhav Healthcare Private Limited. 04) There is no undue or extra benefit of the scheme of provisions of Sec. 80IC on IT Act 1961. Vaibhav HealthcarePrivete Limited was also eligible for deduction under the provisions of sec. 80IC of IT Act, 1961. The assessee having manufacturing license for doing the manufacture at Baddi, Himachal Pradesh using the facilities at Vaibhav Healthcare Private Limited is also eligible for deduction u/s. 80IC of IT Act, 1961. 05) In this connection, the assessee relied on the following decisions: (i) Commissioner of Income Tax vs. Penwalt India Limited 196 ITR 813(Bom) held that:- An assessee would be said to be engaged in manufacturing activity if he is doing a part of the manufacturing activity-by himself and for the rest of it engages the services of somebody. else on a contract other then a contract of purchase. From the facts found by the Tribunal it is found that the assessee's manufacturing activity consisted of (i) canvassing of orders, (ii) preparing of designs and drawings on the basis of orders, (iii) placing orders for the manufacture of machinery with TH, (iv) to see that the manufacturing process is carried on by TH under the direct supervision of the assessee-company, (v) to have a check over the quality control and last, but not the least, to be responsible for the proper functioning of the machinery and guarantee after sale service for a stipulated period. Out of so many activities, except for one activity, namely, getting the machinery manufactured through TH all other activities are admittedly undertaken by the assessee-company. In the circumstances, there is no difficulty in the agreeing with the Tribunal that the assessee is engaged in the business of manufacture of sugar and tea machinery and is accordingly qualified for relief." (ii) Commissioner of Income Tax vs. Neo Pharma P. Ltd. (1982) 137 ITR 879 (Bom) held that:-

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Although the plant and machinery employed for the purpose of manufacture belonged to other company and the services of certain employees of other company were also utilised in that process, the manufacturing activity was really that of the assessee. It was the assessee which purchased the raw material and packing materials. The employees of other company carried out the manufactured of drugs and pharmaceuticals under the direct technical supervision of the expert staff employed by the assessee and the products manufactured were of the quality prescribed by the assessee. The risk for entire operation was that of the assessee. In view of this, it cannot be said that it was not the assessee but the other company which manufactured the said drugs and pharmaceuticals, the goods in question. The assessee must be regarded as the manufacture of the said drugs and pharmaceutical products, it is clear that the income of the assessee attributable to the said manufacturing activity in respect of the respective previous years, which are relevant to the aforesaid assessment years, was not less that 51 per cent of its total income." (iii) Commissioner of Income Tax vs. Anglo French Drug Co. (Eastern) Ltd.: (1991) 191 ITR 92(BOM) Held that: “It is not necessary that the manufacturing company must manufacture the goods by its own and machinery at its own factory. If, in substance, the manufacturing company `has employed another company for getting the goods manufactured by it under its own supervision or control, the assessee can be considered as a company engaged in manufacturing of goods and, thus, an industrial company. It is not absolutely necessary that the assessee must depute the supervisory staff or exercise direct supervision over the manufacturing process. It is sufficient if, on an overall view of the matter, it is found that it was the assessee-company which was the real manufacture and the assessee had merely employed the agency of someone else through whom the goods were caused to be manufactured. It is also not necessary that the assessee must pay the wages of the workers employed in the manufacturing process." (iv) Sunrise Metal Industries vs. Income Tax Officer: (2004) 86 TTJ (Mumbai) Held that: "It is undisputed that assessee, as observed by the CIT CA), is engaged in the manufacturing of articles. Simply because the hot rolling activity was done from the outside parties, the assessee cannot be denied the deduction under sec. 80-IA particularly when the hot rolling activity which was done by the outside agencies was done under the direct supervision and control of the assessee and at the risk of the assessee. By exercising effective supervision, the assessee could ensure that the product coming out of the mills/factories of outside agencies is of the same metal as was given to them for carrying out hot-rolling activity. For instance, assessee ensures that if it has given Russian metal; the product received is also of Russian metal. Therefore, it can be said that assessee is engaged in the manufacture of copper rods, segment section, wires, sheets, plates, etc., and hence deduction under sec. 80- IA is admissible to the assessee.”

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(v) Class India Ltd. vs. Assistant Commissioner of Income Tax (2008) 8 DTR 813 (Del) Held that: Assessee engaged in manufacture and sale of harvester combine, outsourcing manufacture of some of its spares and component on the basis of imported technology as per designs and specification supplied by it under its direct control and supervision putting them to further processes in its own industrial undertaking to make them marketable, profits derived from sale of such spares and components are eligible for deduction under sec 80-IB." (vi) Assistant Commissioner of Income Tax vs. Oscar Laboratories (P) Ltd.: (2004) 88 TTJ (Chd) Held that: "Assessee-company getting drugs and pharmaceuticals manufactured from another company by supplying raw material as per its own specifications and under its own control and supervision satisfied the condition regarding manufacture and production of articles and things and was entitled to deduction under sec. 80-I." 06) The decision of Hon’ble Jurisdictional High court is squarely applicable to the facts of the case. Further, the scheme of the sec. 80IC is more or less similar to the scheme of sec. 80I and 80IB. It is therefore requested that the assessee may be allowed the benefit of deduction u/s. 80IC. The A.O rejected the contention of the assessee. The AO distinguished the case laws relied upon by the assessee mainly on the grounds that no manufacturing activity whatsoever was conducted by the assessee itself and complete manufacturing was done by its sister concern Vaibhav Healthcare Private Limited . The assessee held the license for manufacturing at the unit of Vaibhav Healthcare Private Limited. It was also observed that unit of Vaibhav Healthcare Private Ltd. was not taken on loan / license basis by the assessee and also said Vaibhav is manufacturing for other customers also. It was also observed by the AO that the assessee’s manufacturing unit at Baddi (Himachal Pradesh) has not started manufacturing activity and the manufacturing licence though in the name of the assessee is for manufacturing at the unit of Vaibhav Healthcare Private Limited . The claim of deduction u/s 80IC w.r.t. the unit of the assessee at Baddi to the tune of Rs. 9,99,96,772/- was rejected by the AO , vide assessment order dated 31- 12-2009 passed by the AO u/s 153A r.w.s. 143(3). The assessee did not filed any appeal with learned CIT(A) against the quantum additions made by the A.O vide assessment order dated 31-12-2009 passed by the AO u/s 143(3) r.w.s. 153A which attained finality. The AO initiated penalty proceedings u/s. 271(1)(c) for furnishing of inaccurate particulars of income which duly

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found mentioned in the assessment order dated 31-12-2009 passed by the AO u/s 143(3) r.w.s. 153A of the 1961 Act. Penalty notice u/s 274 r.w.s. 271(1)(c) of the 1961 Act , dated 31-12-2009 was issued by the AO which is placed in paper book/page 56. 4. During the course of penalty proceedings u/s 271(1)(c) , the AO observed that the assessee had claimed deduction of Rs. 9,99,96,772/- u/s 80IC of the 1961 Act. The deduction had been claimed for the manufacturing activities carried out by unit at Baddi, Taluka : Nalagarh , District Solan, Himachal Pradesh. The AO observed from the financial statements that total sales of the unit at Baddi was shown by the assessee to the tune of Rs. 75.67 crores , while the Plant and Machinery of unit at Baddi has not become operational and all the manufacturing activities were outsourced to the unit of Vaibhav Healthcare Private Limited and the plant and machinery of the assessee’s unit were in the process of being installed. The AO disallowed the deduction u/s 80IC of the 1961 Act w.r.t. unit at Baddi vide assessment framed u/s 143(3) r.w.s. 153A of the 1961 Act. The AO observed that the assessee has deliberately made a claim of deduction u/s 80IC of the 1961 Act which deduction was not due , as the assessee has not even started the production. The AO held that the assessee has committed a clear default as the assessee has not even started the production and is liable for penalty within the provisions of Section 271(1)(c) and the AO imposed penalty u/s 271(1)(c) , vide penalty order dated 29-06-2010 passed by the AO u/s 271(1)(c) of the 1961 Act. 5. Aggrieved by the penalty levied by the AO u/s 271(1)(c) w.r.t. disallowance of its claim for deduction u/s 80IC, the assessee filed first appeal with learned CIT(A). The assessee in appellate proceedings submitted before learned CIT(A) that the assessee was setting up a new industrial undertaking at Baddi , Himachal Pradesh. The assessee submitted that the industrial undertakings set up in the said area was eligible for deduction u/s 80IC. It was submitted that while the assessee’s industrial unit was not fully operational, the assessee got part of the total manufacturing activities done from the industrial undertaking of Vaibhav Healthcare Private Limited which was also situated in Baddi H.P. only . The assessee submitted that the necessary licences from Drug Controller cum Licensing Authority, Shimla, HP for manufacturing of pharmaceutical products in Baddi, HP at the unit of

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Vaibhav were obtained by the assessee in its name. The assessee also submitted that orders were received from the customers , raw material and packing material were purchased by the assessee, the assessee recruited staff and staff was deputed for supervision and control of production and also the assessee effected the sales from Baddi at Himachal Pradesh. It was submitted that the conversion of raw materials to finished goods was got done from the Vaibhav Healthcare Private Limited at its industrial undertaking at Baddi , Himachal Pradesh for which the job charges were paid by the assessee to Vaibhav Healthcare Private Limited on which Income Tax was deducted at source in accordance with provisions of the 1961 Act. It was also submitted that the goods were manufactured at Vaibhav’s unit at assessee’s risk and responsibility . It was also submitted that ultimately Vaibhav Healthcare Private Limited was merged with the assessee company effective from 01.04.2006 under the scheme of merger approved by Hon’ble Bombay High Court although it was earlier planned to merge the said company Vaibhav Healthcare Private Limited with assessee with effect from 01.01.2006 which was later changed to 01.04.2006 and the same was approved by Hon’ble Bombay High Court . It was submitted that manufacturing was done at Baddi, HP under its supervision and control at the said Vaibhav unit, the deduction u/s 80IC was claimed. It was submitted that assessee has relied upon audit report issued by chartered accountant which stipulated that deduction u/s. 80IC was available to the assessee with in the provisions of the 1961 Act and also case laws as advised to the assessee by its Chartered Accountant , which are as under:- i) Commissioner of Income Tax v. Penwalt India Limited (1992) 196 ITR 813(Bom) ii) Commissioner of Income Tax v. Neo Pharma P. Ltd. (1982) 137 ITR 879 (Bom) iii) Commissioner of Income Tax v. Anglo French Drug Co. (Eastern) Ltd.: (l991) 191 ITR 92(BOM) (iv) Sunrise Metal Industries v. Income Tax Officer: (2004) 86 TTJ (Mumbai) v) Class India Ltd. v. Assistant Commissioner of Income Tax (2008) 8 DTR 813 (Del) It was also submitted that manufacturing was done under the manufacturing licence issued to the assessee by Drug Controller cum Licensing Authority , Shimla, H.P in assessee’s name for carrying out manufacturing at Vaibhav’s unit and the sales were also effected by the

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assessee from Baddi, HP. It was also submitted that the assessee will be responsible for quality of goods and its consequences will be borne by the assessee. It was submitted that Chartered Accountants M/s M G Vashi & Co, Mumbai who were auditors of the company had examined this issue and based on several case laws on this subject in assessee’s favour had opined that the assessee will be entitled for deduction u/s 80IC within the 1961 Act. It is only after examination of this issue , the said chartered accountants issued the audit report u/s 80IC , which copy of audit report was submitted before the AO as well before learned CIT(A) . It was also submitted that another report was obtained from Mr Raman Bissa, Editor in Charge, Current Tax Reporter who also opined that assessee will be entitled for deduction u/s 80IC based on several case laws. It was submitted that the assessee filed claim for deduction u/s 80IC based on a bonafide belief that the assessee will be entitled for deduction u/s 80IC for manufacturing done at Vaibhav Healthcare Private Limited unit at Baddi, HP. It was submitted that the AO did not allow the deduction u/s 80IC as he was not agreeable to the case laws relied upon by the assessee . The assessee submitted before learned CIT(A) that it did not file appeal against the said disallowance in quantum assessment to avoid protracted litigation with the Revenue and to have peace. The assessee submitted that it had furnished before the AO the copies of the minutes of the Board Meeting, copies of Board Resolution for change of date of merger from 01.01.2006 to 01.04.2006 along with relevant portion of annual report . The assessee strongly contended before learned CIT(A) that the AO erred in imposing penalty u/s 271(1)(c) which is not justified on facts and in law. It was submitted that the complete details/information in respect of the claim for deduction u/s. 80IC were duly furnished along with return of income and none of the information was found to be false or wrong . It was only that the claim made by the assessee which was rejected by the A.O and in order to avoid litigation , the assessee chose not to file appeal against the addition made in quantum assessment. The details of the information and documents furnished during the appellate proceedings before learned CIT(A) by the assessee are as under: - i) Copy of Return of Income along with computation of income. ii) Copy of Annual Report for the relevant financial year i.e. 2005-06

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iii) Copy of Audit Report u/s 80IC duly signed and sealed by the auditors. iv) Copy of the assessee’s reply dated 11-12-2009 as submitted to ACIT during the assessment proceedings along with following documents:- a) Statement of total income b) Statement of unit wise income c) Unit wise Profit and Loss Account d) Copies of drug license granted to the assessee company so as to manufacture at the premises of Vaibhav Healthcare Private Limited along with list of the drugs to be manufactured. e) Copy of manufacturing license as issued to Vaibhav Healthcare Limited f) Copy of the manufacturing agreement between the assessee company and Vaibhav Healthcare Private Limited g) Copies of the Job Charges Account showing the job charges as paid to Vaibhav Healthcare Private Limited for manufacturing done by it. h) Copy of TDS Certificate as issued by the assessee company to Vaibhav Healthcare Private Limited in respect of tax deducted at source from the job charges paid. i) Copy of letter dated 14-12-2009 as submitted by the assessee to the ACIT along with the copies of judgment mainly from Hon’ble Bombay High Court on which the assessee relied upon to claim deduction u/s 80IC. The assessee submitted that the new undertaking of the assessee at Baddi, HP was under construction in the relevant financial year. It was submitted that Vaibhav Healthcare Private Limited was having only industrial undertaking and that too at Baddi,HP. The assessee relied on the following judgements:- a) CIT v. Reliance Petroproducts Ltd. (2010) 322 ITR 158(SC) b) CIT v. Dharmpal Premchand Ltd. (2010) 329 ITR 572 (Del) c) CIT v. Krishna Maruti Ltd. (2011) 330 ITR 547 (Del) d) CIT v. SSP Ltd. (2010) 328 ITR 643 (P&H) e) ITO v. Parikh Investment & Development P. Ltd. (2011) 43 SOT 537 Mumbai

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f) Equest India P. Ltd v. Income Tax Officer (2011) 136 TTJ (Mumbai) g) Yogesh R. Desai v CIT (2010) 38 DTR (Mumbai) (Trib) 101 h) Glorious Realty P. Ltd. v. Income Tax Officer (2009) 29 SOT 292 (i) Suren Arvindbhai v. Income Tax Officer (2011) 43 SOT 168 (Ahd) j) DCIT v. Phathankot Primary Co-operative Development Bank Ltd. (2011) 59 DTR (Asr) (Trib) 67 k) T. Ashok Pal v. Commissioner of Income Tax (2007) 292 ITR 11(SC) 6. The learned CIT-A accepted the contentions of the assessee and deleted the penalty levied by the AO u/s 271(1)(c) , vide appellate order dated 29-08-2011 by holding as under :- “ 7. I have considered the issue. I have gone through the assessment order, penalty order and the appellant's submissions. In this case the appellant was setting up a new manufacturing unit at Baddi Himachal Pradesh and this fact was mentioned in page 2 of the printed Annual Report 2005-06. The appellant has obtained the manufacturing Licence, purchased the raw materials and manufactured the goods using the manufacturing facility of M/s. Vaibhav Healthcare P. Ltd. (Vaibhav). The appellant and Vaibhav has entered into Manufacturing Agreement on 17.6.2005. From the agreement it is seen that the appellant has manufactured its pharma products using the manufacturing facility of Vaibhav. It is also mentioned in the agreement that ADPL shall provide VHPL with the necessary raw materials including packaging materials for the manufacture and packing of the said products under this agreement, and ADPL agrees to reimburse VHPL for the entry tax/octroi payable on the raw material and packing material as applicable for supply of these items to their said factory. It is also seen that Excise Duty and other taxes are to be borne by the appellant. The appellant has manufactured its products using the manufacturing facility of Vaibhav and claimed deduction u/s.80IC of the I.T. Act. The A.O. has held that the appellant is not entitled to the benefits of deduction u/s.80IC of the IT Act and the appellant has not filed further appeal. 7.1 The appellant's contentions before me are that the appellant was under a bonafide belief that it was entitled to the benefits of section 80IC of the I.T. Act. The bonafide belief was formed on the basis of the auditors advice, the auditors certificate u/s.80IC of the I.T. Act and the case laws referred to in the submissions made before me. The appellant has submitted that it has furnished all the details/ materials/ documents required for making the assessment and the A.O. could not point out any instance of making inaccurate particulars. The particulars related to the income earned from the unit at Baddi were completely furnished and all the information required for the assessment were furnished before the A.O. In view of this the appellant submits that it made a bonafide claim before the A.O. and furnished all the details with regard to the claim and just because the appellant's claim is not found acceptable to the A.O. will not lead to furnishing inaccurate particulars of income or concealment of particulars of income. The

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appellant pleads that it made a bonafide claim which may be a debatable claim and that claim should not be considered as concealment of income. 7.2 I am of the view that if at all the assessee's case is covered u/s. 271(1)(c) of the IT. Act, it is through Explanation I to section 271(1)(c) of the I.T. Act. But in this case the appellant has explained that it made a bonafide claim on the basis of advice given by the auditor and all the facts relating to the claim and material to the computation of income have been disclosed by the appellant. 7.3 In the case of Yogesh R. Desai vs. ACIT (2010) 38 ITR (Mumbai)(Trib.) 101, the Hon'ble Mumbai ITAT has held as follows It is settled law that penalty under s. 271 (1)(c) is a civil liability and the Revenue is not required to prove wilfull concealment. However, each and every addition made in the assessment cannot automatically lead to levy of penalty for concealment of income. A case for imposition of penalty has to be examined in terms of the provisions of Expln. 1 to s. 271 (1)(c). Secondly, it is also a settled legal position that penalty proceedings are different from assessment proceedings. The finding given in the assessment though is a good evidence but the same is not conclusive in penalty proceedings. In the instant case there is no dispute that the assessee has made the claim of deduction under s. 80- O of Rs.14,12,642 on the basis of advice given by his tax consultant. This bona fide believe of the assessee was not controverted by the Revenue even at this stage. It is also not the case of the Revenue that the assessee has not disclosed complete particulars of his income or the claim made by the assessee is not supported by tax audit report. It is repeatedly held by the Courts that when the facts are clearly disclosed in the return of income penalty cannot be levied. Merely because an amount is not allowed or tax to income, it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Even if some deduction or benefit is claimed by the assessee wrongly but bonafidely and no mala fide can be attributed, the penalty would not be levied. This being so and keeping in view that the assessee's explanation that the claim of deduction under s. 80-O of Rs.14,12,642 was claimed on the basis of advice of the tax consultant supported by tax audit report was not found to be false or untrue, there is no concealment or furnishing of inaccurate particulars on the part of the assessee. In this view of the matter the penalty imposed by the A.O. and sustained by the CIT(A) is deleted - Chandra Pal Bagga vs. ITAT & Anr. (2003) 182 CTR (Raj) 185 : (2003) 261 ITR 67 (Raj) relied on. " 7.3.1 In the case of CIT vs. Reliance Petro products P. Ltd. (2010) 322 ITR 158 (SC), the Hon'ble Supreme Court has held as follows: A glance at the provision of s. 271 (1)(c) would suggest that in order to be covered there has to be a concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. As per Law Lexicon, the meaning of the word "particular" is a detail or 11

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details (in plural sense); the details of a claim or the separate items of an account. Therefore, the word "particulars" used in the s. 271 (1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the conditions under s. 271 (1)(c) must exist before the penalty is imposed, There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income - CIT vs. Atul Mohan Bindal (2009) 225 CTR (SC) 248 : (2009) 28 DTR (SC) 1 : (2009) 9 SCC 589 followed. (Paras 7 & 8) Reading the words "inaccurate" and "particulars" in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under s. 271 (1)(c). A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. The assessee had furnished all the details of its expenditure as well as income in its return which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its pan. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not attract the penalty under s. 271 (1)(c). If the contention of the Revenue is accepted then in case of every return where the claim is made is not accepted by AO for any reason, the assessee will invite penalty u/s. 271(1)(c). That is clearly not the intendment of the legislature. The Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion Sree Krishna Electricals vs. State of Tamil Nadu & Anr. (2009) 23 VST 249 (SC) applied; Reliance Petro products (P) Ltd. (Judgement dt. 23rd Oct., 2007 of the Gujarat High Court in Tax Appeal No. 1149 of 2007) affirmed. (Paras 9, 10 & 12) 7.3.2 In the case of Equest India (P) Ltd. vs. ITO (2011) 136 TTJ (Mumbai) 574, the Hon'bIe Mumbai ITAT has held as follows: Merely because the assessee has a different perception of the situation than the A.O., even though, in the ultimate analysis, the stand of the A.O is to be upheld, it cannot be said that the assessee has concealed any particulars. The expression 'furnishing of inaccurate particulars of income' has not been defined in the Act. The expression 'inaccurate' 12

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refers to not in conformity with the Fact or truth and that is the meaning which is relevant in the context of 'furnishing of inaccurate particular. The expression 'particulars' refers to 'facts, details, specifics, or information about someone or something'. Therefore, the plain meaning, of the expression 'furnishing of inaccurate particulars' implies furnishing of details information about income which are not in conformity with the facts or truth. The details or information about income deal with the factual details of income and this cannot be extended to areas which are subjective such as the status of taxability of an income, admissibility of a deduction and interpretation of law. The furnishing of inaccurate information thus relates to furnishing of factually correct details and information about income. The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected as nothing to do with furnishing of inaccurate particulars of income. The authorities below have apparently proceeded to treat assessee's making an incorrect claim of income as furnishing of inaccurate particulars. What is a correct claim and what is an incorrect claim is a matter of opinion. Raising a legal claim even if it is ultimately found to be legally unacceptable, cannot amount to furnishing of inaccurate particulars of income. Inaccurate', as noted above, is something factually incorrect and interpretation of law can never be a factual aspect. The development of law is a dynamic process which is affected by the innumerable factors, and it is always an ongoing exercise. In such circumstances, a bona fide legal claim by the assessee being visited with penal consequences only because it is has not been accepted thus far by the tax authorities or judicial authorities is an absurdity. In any event, the connotations of expression 'particulars of income' do not extent to the issues of interpretation of law and as such making a claim which is found to be unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income. In this view of the matter, the case of the assessee cannot be said to be a case of furnishing of inaccurate particulars of income, in its natural sense, either. The penalty has been imposed only for concealment of particulars and it has not been the case of the Revenue at any stage that any factual particulars furnished by the assessee are false. The penalty has been imposed because of legal inadmissibility of the claim of deduction, which is rejected on the grounds of application of s. 74A. In view of these discussions, as also bearing in mind entirety of the case, it was indeed not a fit case for imposition of penalty under 2. 271(1)(c) - CIT vs. Reliance Petroproducts (P) Ltd. (2010) 230 CTR (SC) 320 : (2010 36 DTR (SC) 449 : (2010) 322 ITR 158 (SC) applied. 7.4 The facts in the above cases are similar to the facts of the appellant's case. In this case the appellant has made a bonafide claim based on the advice given by the tax consultant. Respectfully following the above decisions, I hold that because a bonafide claim made by the appellant is rejected by the A.O. will not lead to concealment of particulars of income or furnishing of inaccurate particulars of income. In view of this I direct the A.O. to delete the penalty in relation to the disallowance of claim made u/s.80IC of the IT. Act.”

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Thus, the penalty levied by the AO u/s. 271(1)(c) with respect to the claim of the assessee for deduction u/s. 80IC was ordered to be deleted by the Ld. CIT-A, vide appellate order dated 29-08-2011. 7. Aggrieved by the appellate order dated 29-08-2011 passed by learned CIT(A), the Revenue has come in an appeal before the tribunal. The ld. CIT-DR submitted before the tribunal that penalty u/s. 271(1)(c) of the Act was levied with respect to the disallowance of the claim of deduction u/s. 80IC to the tune of 9.99 crores filed by the assessee in the return of income filed with Revenue in pursuance to notice issued u/s 153A of the 1961 Act, wherein the A.O levied the penalty u/s. 271(1)(c) as the claim of the assessee u/s. 80IC was disallowed by the A.O in quantum assessment . It was submitted that the assessee did not filed any appeal against quantum additions made by the A.O. on account of denial of claim of deduction u/s. 80IC which was accepted by the assessee and it reached finality . It was submitted that learned CIT-A has deleted the penalty u/s. 271(1)(c) vide appellate orders dated 29-08-2011. It was submitted by learned CIT-DR that addition of Rs. 7 lacs as was made by the AO on account of income surrendered which was later upheld by learned CIT(Appeals) and the assessee has not come in appeal against the appellate order of learned CIT(A) confirming penalty on said addition of Rs. 7 lacs, but presently we are not concerned with the said issue of levy of penalty u/s 271(1)(c) relating to additions to the tune of Rs. 7 lacs made by the AO. It was submitted by learned CIT-DR that the assessee has not filed any appeal against the said order of learned CIT(A) confirming the penalty on additions to the tune of Rs. 7 lacs. It was submitted by Ld. CIT-DR that there was a search operation u/s. 132(1) of the Act on 26.04.2007 carried on by the Revenue on Ankur Group and the assessee was also covered by the said searches conducted by Revenue u/s 132(1). It was submitted that return of income was filed by the assessee originally u/s. 139(1) on 27.11.2006 declaring income of Rs.3,81,37,586/- . The assessee also filed return of income in pursuant to notice u/s. 153A on 19.06.2009 wherein the assessee declared income of Rs. 3,81,78,610/- and the assessee made a claim of deduction u/s 80IC to the tune of Rs.9,99,96,772/- in the said return of income filed in pursuant to notice u/s 153A. The Ld. CIT-DR submitted that in the assessment framed u/s. 153A r.w.s 143(3) vide assessment order dated 31-12-2009, the claim

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of deduction u/s. 80IC to the tune of Rs. 9,99,96,772/- was disallowed by the Revenue as the assessee did not have its owned manufacturing unit at Baddi, Himachal Pradesh which was under installation during the relevant previous year and the assessee got manufacturing done at the unit of sister concern Vaibhav Healthcare Private Limited at Baddi, Himachal Pradesh on which deduction u/s. 80IC was wrongly claimed by the assessee. The assessee has claimed to have outsourced manufacturing to sister concern Vaibhav Healthcare Private Limited and the manufacturing was done at the said unit of Vaibhav and the assessee was never entitled for deduction u/s. 80IC. At this point of time, learned counsel for the assessee confirmed that during the previous year relevant to the impugned assessment year , the Baddi unit of the assessee had no production while the production started in the immediately succeeding year. Our attention was drawn by learned CIT DR to the orders of the authorities below to contend that all the production was outsourced by the assessee to Vaibhav’s unit at Baddi, HP during the year under consideration. Our attention was also drawn by learned CIT DR to page no. 11 of the paper book which is the part of the annual report and audited accounts for the year ended 31-03-2006 of the assessee to show that the assessee’s Director and Vaibhav Directors are same. Our attention was also drawn to page 11/pb wherein it is clearly written that the assessee’s business is to manufacture Pharma products on contracts basis. Our attention was also drawn to page no. 12 of the paper book wherein it is clearly stated in annual report that the new state of art manufacturing facility at Baddi,HP will start manufacturing during the financial year 2006- 07 . Our attention was also drawn by learned CIT DR to page no. 15 of the paper book wherein it is clearly stated that during the year under consideration the major production has been sourced from Vaibhav Healthcare Private Limited (associate/sister company). It is also stated therein that Vaibhav Healthcare Private Limited is now being merged with the assessee company with effect from 01.04.2006 . It is also stated in the annual report that the assessee unit at Baddi(HP) started manufacturing in the financial year 2006-07. Our attention was also drawn to the page no. 40 of the paper book wherein unit wise profit & loss account for year ended 31.03.2006 is placed wherein it is reflected that job charges were paid by the assessee to Vaibhav Healthcare Private Limited w.r.t. manufacturing done at Vaibhav’s unit at Baddi ,Himachal Pradesh to the tune of Rs. 3.87

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crores . Our attention was also drawn to page no. 41 wherein the assessee has only claimed depreciation of Rs. 44057/- w.r.t. its Baddi, HP unit during the impugned assessment year. Our attention was also drawn by learned CIT DR to page no. 42 to 43 wherein the loan licence to manufacturing the drugs bearing no. L/05/84 & 85-MNB dated 29.04.2005 at the unit of Vaibhav is placed , whereby the Drug Controller cum licensing authority allowed the assessee to manufacture drugs on loan licence basis at the premises of Vaibhav Healthcare Private Limited–unit Baddi, Himachal Pradesh from 29.04.2005 to 28.04.2010 . Our attention was also drawn by learned CIT-DR to page no. 44 to page no. 55 wherein manufacturing agreement is placed to contend that the assessee is getting drugs/pharmaceutical products manufactured under a contract manufacturing agreement with Vaibhav Healthcare Private Limited and assessee did not had manufacturing unit of its own. It was also submitted by learned CIT DR by referring to page no. 54 that Shri. Giriraj Vijayvargiya had signed on behalf of Vaibhav Healthcare Private Limited who is also Director in the assessee company. Thus, it is claimed that both are sister concern. Our attention was also drawn to page no. 56 of the paper book wherein notices u/s. 271(1)(c) r.w.s 274 is placed . Our attention was also drawn to Ld. CIT-A order at page no. 7 / para 6 wherein facts have been mentioned that the assessee got the entire manufacturing done at the Vaibhav Healthcare Private Limited unit. The CIT-DR would rely on the decision of Hon’ble Bombay High Court in the case of CIT v Penwalt India Limited reported in (1992) 196 ITR 813(Bombay) to contend that in this case some part manufacturing was done by tax-payer and rest of the manufacturing was got done on contract basis in other unit and under these circumstances the Court held that the assessee would be entitled for deduction u/s 80I of the 1961 Act. It was submitted that in the case before us , no manufacturing was done by the assessee . The learned CIT DR submitted that the assessee did not file appeal against the quantum assessment where deduction u/s 80IC was denied to the assessee which is in itself admission of the guilt by the assessee. The learned CIT DR submitted that decision of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts Private Limited (2010) 322 ITR 158(SC) is distinguishable as the claim filed by the assessee was ex-facie wrong and was not a bona fide claim made by the assessee. It was submitted that the advice rendered by the Chartered Accountant/Counsel that the assessee

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was entitled for deduction u/s 80IC was not correct and it is not a debatable issue because it was an ex-facie wrong claim made by the assessee which was not sustainable in the eyes of law. The learned CIT-DR submitted that provisions of Section 80IC are special provisions applicable to certain undertakings or enterprises in certain Special Category States and the benefit of deduction is available only on manufacture or on production while the assessee was not doing any manufacturing or production activity during the relevant previous year under consideration. The learned CIT DR submitted that learned CIT-A wrongly deleted the penalty and findings were perverse wherein learned CIT(A) erred in relying on the decision of ITAT, Mumbai in the case of Equest India Private Limited v. ITO , (2010)136 TTJ 574(Mum). It was also submitted by Ld. CIT-DR that it was not demonstrated that what opinion was given by the professionals which made the assessee to make such an ex-facie wrong claim as copy of no such opinion is brought on record. The Ld. CIT-DR relied upon the decision of Hon’ble Kerala High Court in the case of Kutookaran Machine Tools v. ACIT reported in (2009) 313 ITR 413(Ker.) to contend that penalty u/s 271(1)(c) is leviable when the claim is ex-facie bogus claim made by the assessee. The learned CIT DR also relied upon decision of Hon’ble Delhi High Court in the case of Kanchenjunga Advertising Private Limited v. CIT in ITA no. 944/2011. The learned CIT DR also relied on the decision of Hon’ble Delhi High Court in the case of CIT v. Zoom Communications Private Limited reported in (2010) 327 ITR 510(Del). The learned CIT DR also relied upon the decision of Hon’ble Karnataka High Court in the case of CIT v. Sree Valliappa Textiles reported in (2007) 294 ITR 322(Kar.) to contend that penalty is leviable even for omission and commission on the part of its counsel on which the assessee relied upon as the assessee is bound by counsels omission and commission. It was submitted by learned CIT DR that the assessee is a big company having turnover of more than Rs. 100 crores . It was submitted by learned CIT DR that it is not brought on record by the assessee as to what action was taken by the assessee against the counsel/CA who gave such an erroneous advice not sustainable in the eyes of law . The learned CIT DR relied upon the decision of Hon’ble Madras High Court in the case CRN Investments Private Limited v. CIT, Tax Case Appeal 125 of 2007, dated 13-02-2014 to contend that penalty u/s 271(1)(c) is leviable as the claim filed by the assessee is bogus. The learned CIT DR also

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relied upon decision of Hon’ble Madras High Court in the case of CIT v. Coromondal Indag Products Private Limited reported in (2004) 265 ITR 611(Mad. HC). The learned CIT DR also relied upon decision of ITAT, Delhi in the case of ACIT v. M/s. Khanna & Annadhanam in ITA no. 1395/Del/2009 vide orders dated 22-07-2011 and it was submitted that advice by two ex- CBDT chairman and one by lawyer given in this case was rejected by ITAT and levy of penalty u/s 271(1)(c) was confirmed. It was submitted that this deduction claimed by the assessee u/s 80IC was patently wrong and penalty was rightly levied by the A.O.. The learned CIT DR also relied upon decision of ITAT, Mumbai in the case of SBI DFHI Ltd. v. ACIT reported in (2016) 71 taxmann.com 178 (Mum-trib.) . The learned CIT DR also relied upon decision of Hon’ble Delhi High Court in the case of CIT v. N.G Technologies Ltd. reported in (2015) 370 ITR 7(Delhi) and in this case later on Hon’ble Supreme Court dismissed SLP filed by the assessee which was reported in (2016) 70 taxmann.com 37(SC). It was submitted that an opinion of CA is not relevant to get out of clutches of penalty proceedings u/s 271(1)(c). The Ld. CIT DR would also rely upon the decision of the Tribunal in the case of Mahesh. M. Gandhi v. ACIT in ITA no. 2976/Mum/2016 vide orders dated 27-02-2017 wherein one of us (Accountant Member) was member of the Division Bench passing the said judgment . The learned CIT DR also relied upon the decision of ITAT Chennai in the case of ACIT v. Harvey Heart Hospital Limited in ITA no. 1397/Mds/2012 order dated 15-11-2012. The learned CIT DR also relied upon the decision of Hon’ble Supreme Court in the case of Mak Data Private Ltd. v. CIT reported in (2013) 38 taxmann.com 448(SC) . The learned CIT DR also relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. HCIL Kalindi ARSSPL in ITA no. 480- 481/2012 dated 29.07.2013 wherein Hon’ble Delhi High Court upheld the penalty imposed by the Revenue . The learned CIT DR relied upon decision of ITAT Delhi in the case of Chadha Sugars Private Limited v. ACIT reported in (2012) 146 TTJ 112(Del-trib.). Thus in nutshell Ld. CIT-DR submitted that the finding of learned CIT-A while deleting penalty levied u/s 271(1)(c) was perverse which need to be reversed and penalty u/s 271(1)(c) as confirmed by learned AO needed to be confirmed. 8. The Ld. Counsel for the assessee on the other hand submitted that the claim of the assessee u/s. 80IC was disallowed while in the original return of

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income filed with the Revenue, the same was allowed. It was submitted that this denial of claim of deduction u/s. 80IC has nothing to do with the search carried out against the assessee by Revenue u/s. 132(1). It was submitted that the assessee has one manufacturing unit at Daman which was operational while manufacturing at Baddi,HP was entirely outsourced to Vaibhav Healthcare Private Limited, Baddi, HP which is also an associated/sister concern of the assessee for which job charges were paid to Vaibhav Healthcare Private Limited . It was submitted that assessee never claimed that manufacturing was done by the assessee so far as Baddi, HP unit was concerned. It was submitted that a legal claim is raised by the assessee wherein it is contended that manufacturing was done in the Baddi, HP unit of Vaibhav Healthcare Private Limited which was done under the control and supervision of the assessee and the assessee is entitled for deduction under Section 80IC. The learned counsel for the assessee relied upon the decision of Hon’ble Bombay High Court in the case of CIT v. Penwalt India Limited (1992)196 ITR 813(Bom. HC), decision of Hon’ble Bombay High Court in the case of CIT V. Nee Pharma Private Limited (1982) 137 ITR 879(Bom.) as well the case of CIT v. Anglo French Drug Co.(Eastern) Limited reported in (1991) 191 ITR 92(Bom) . The learned counsel for the assessee also relied upon the decision of ITAT, Mumbai in the case of Sunrise Metal Industries v. ITO reported in (2004) 89 ITD 406(Mum.). It was submitted that there was a loan licence agreement with Vaibhav Healthcare Private Limited and complete details were submitted before the authorities below . It was submitted that the AO erred in holding that there is no loan license agreement entered into by the assessee. It was submitted that it was only that the assessee claim which was rejected by the AO but that will not mean that the assessee has filed a claim which was patently wrong as the manufacturing was done at the unit of the Vaibhav Healthcare Private Limited which is a sister concern of the assessee located at Baddi, Himachal Pradesh and the assessee was entitled for deduction u/s. 80IC . It was submitted that belief of the assessee while claiming deduction u/s 80IC was a bonafide belief. It was submitted that the said unit of Vaibhav was proposed to be merged with the assessee with effect from 01.01.2006 which was later changed to be with effect from 01.04.2006 and the said scheme of merger was approved by Hon’ble Bombay High Court. It was submitted that no inaccurate particulars of income were furnished by the assessee while the

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AO may differ with the legal claim made by the assessee but that is not sufficient to fasten liability for levy of penalty u/s 271(1)(c) of the 1961 Act. The Ld. AR would rely on the appellate order passed by learned CIT-A. It was submitted that the AO invoked second limb of Section 271(1)(c) of the 1961 Act and penalty was levied for furnishing of inaccurate particulars of income. It was submitted by learned counsel for the assessee that its sister concern Vaibhav Healthcare Private Limited was entitled for Section 80IC benefits and no undue advantage has been taken by the assessee . It was submitted that there was no incorrect statements made by the assessee and the manufacturing was infact done at the unit of Vaibhav Healthcare Private Limited at Baddi (Himachal Pradesh) under the control and supervision of assessee. It was submitted that no inaccurate particulars of income were furnished by the assessee. It was also submitted that penalty on additions of Rs. 7 lacs has no connection with the disallowance u/s 80IC of the 1961 Act. It was submitted that disallowance of claim u/s 80IC has nothing to do with search conducted by the Revenue u/s 132(1) and explanation 5 to Section 271(1)(c) has no relevance so far as disallowance u/s 80IC of the 1961 Act is concerned. It was submitted that no undue utilisation of deduction u/s 80IC was claimed as in any case sister concern Vaibhav Healthcare Private Limited was entitled for deduction u/s 80IC. It was submitted that in computation of income filed with the Revenue, it was clearly reflected that the deduction u/s 80IC to the tune of Rs.9.99 crore was claimed . Our attention was also drawn to page no. 4 to 39 wherein the annual report of the assessee for financial year 2005-06 is placed. It was submitted that there was proper disclosure by the assessee in the financial statements and manufacturing of pharma product was done on contract basis at the unit of the sister company of the assessee Vaibhav Healthcare Private Limited located at Baddi , HP which was later merged with the assessee on 01.04.2006 . It was submitted that said Vaibhav was duly entitled for deduction u/s 80IC of the 1961 Act. Our attention was also drawn to page no. 11 and 15 of paper book and it was submitted that was a legal claim made by the assessee for claiming deduction u/s. 80IC which did not found favour with the revenue . Our attention was also drawn to page no. 40 and 41 of the paper book wherein the job charges paid to Vaibhav Healthcare Private Limited unit at Baddi,HP was reflected. In the said unit wise P&L statement , the profits of the Daman unit and Baddi units are separately

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reflected. It was submitted that depreciation has been claimed with respect to the Baddi unit only on the car as the Plant & Machinery was not installed. It was submitted that Drug Controller has issued loan licence in the name of the assessee for carrying manufacturing at the premises of Vaibhav Healthcare Private Limited unit at Baddi, HP. Our attention was also drawn to the contract manufacturing agreement which is placed in paper book page no. 44 to 55 and it was submitted by drawing attention to the clauses of contract manufacturing agreement that the entire manufacturing was done under the assessee supervision and control. It was submitted that there is no requirement u/s. 80IC for ownership of plant & machinery before claiming deduction u/s 80IC . Our attention was also drawn to the decision in the case of ITO v. Techdrive (India) Private Limited reported in (2010)124 ITD 249(Del-trib.). It was submitted that the department is unnecessarily putting a condition that undertaking should be owned by the assessee while requirement to get deduction u/s. 80IC is only with respect to manufacturing . Our attention was also drawn to provisions of Section 10B and it was submitted that there is no requirement to own undertaking before claiming deduction u/s. 10B. It was submitted that the present proceedings are penalty proceedings u/s. 271(1)(c) and a plausible claim is made by the assessee after relying on judicial precedents which did not found favour with the Revenue. It was submitted that it is not an appeal against the quantum assessment . It was submitted that since explanation was bona-fide and hence assessee should be granted relief in the penalty proceedings. The assessee relied upon decision in the case of CIT v. Reliance Petroproducts Private Limited (2010) 322 ITR 158 (SC) and claimed that the case of the assessee is squarely covered by the aforesaid decision of Hon’ble Supreme Court. The Bench at this stage directed the assessee to file proof that Vaibhav Healthcare Private Limited was entitled for deduction u/s. 80IC with respect to the Baddi unit . It was also directed by the Bench to the assessee to bring on record who is responsible for making excise payment to which the Ld. Counsel for the assessee submitted that assessee will be submitting written submissions in due course and copy will be marked and handed over to the Ld. CIT-DR for his perusal and records. The Ld. Counsel for the assessee also relied upon the decision of the Hon’ble Bombay High Court in the case of CIT v. Aditya Birla Novo Limited in ITA No. 3899 of 2010, judgment dated 14-08-2012 . The ld. Counsel for the assessee submitted

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that in respect of the decision of Hon’ble Karnataka High Court in the case of CIT v. Sree Valliappa Textiles(supra) relied upon by the Ld. CIT-DR was a case wherein bogus claim was lodged and the machinery was never put to use by the taxpayer as it was not even dispatched by the seller and hence penalty was confirmed under those circumstances and hence the said case was distinguishable on facts. In the case of Hon’ble Delhi High Court decision in the case of Kanchanjunga Advertising Private Limited(supra), the ld. Counsel for the assessee distinguished the case relied upon by the learned CIT-DR by submitting that the taxpayer in that case did not brought on record correct and complete facts on record and hence penalty was confirmed. It was submitted that in the case of CIT v. Sree Valliappa Textiles(supra) relied upon by the learned CIT-DR , it was submitted by Ld. Counsel for the assessee that in this case machinery was received after the end of the previous year and a wrong claim was filed by the tax-payer which was factually incorrect. It is also submitted that in the case of CRN Investments Private Limited(supra) bogus claim was filed by the taxpayer and in the revised return , the taxpayer withdrew the claim. It was submitted that in the case of ACIT v. Khanna & Annadhanam(supra) , It was submitted that receipt received by the taxpayer was a revenue receipt and there was no doubt about its chargeability to tax while the taxpayer claimed the same to be capital receipt without any basis whatsoever. The learned counsel also distinguished the case of Chadha Sugars Private Limited(supra) relied upon by the learned CIT DR by submitting that claim of expenses towards ROC fee for increase in authorised capital was held by Hon’ble Supreme Court in the case of Brooke Bond India Limited v. CIT (1997) 225 ITR 798(SC) and also in PSIIDC v. CIT reported in (1997) 225 ITR 792(SC) to be capital expenditure while the same was claimed by the taxpayer in this case to be revenue expenditure based on CA opinion and it was submitted that this was a claim which was ex-facie wrong in view of aforesaid Hon’ble Supreme Court decisions in the case of PSIIDC(supra) and Brooke Bond India Limited|(supra) and in those circumstances, penalty was levied u/s 271(1)(c) which was confirmed by the tribunal. The learned counsel for the assessee also distinguished other case laws relied upon by the learned CIT DR. 9. The Ld. CIT DR in rejoinder submitted that in the case of Penwalt India Limited(supra) some manufacturing activity was done by the taxpayer but in

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the instant case no manufacturing was done by assessee . It was submitted by learned CIT DR that it is claimed that there was an opinion taken by the assessee from professionals but no such opinion was brought on record as it was not filed before the authorities below and not even before the tribunal. It was also submitted that provisions of Section 10B and 80IC are different which operate in altogether different field wherein Section 80IC clearly requires manufacturing . Thus, learned CIT DR strongly supported the levying of penalty u/s 271(1)(c) of the 1961 Act and contended that the appellate order of learned CIT(A) is erroneous which needed to be reversed and penalty levied by the AO be confirmed. 10. The assessee during the course of hearing was directed by the Bench to file documents to prove that Baddi, HP unit of Vaibhav Healthcare Private Limited was entitled for deduction u/s. 80IC during relevant previous year under consideration . The assessee was also directed by the Bench to file copies of excise returns/compliances made under Excise Act by assessee as well by said Vaibhav Healthcare. The assessee was also directed to file copy of the opinion given by the counsel , wherein it was claimed that advice was furnished to the assessee that it was entitled for claiming deduction u/s. 80IC. The assessee in compliance had filed written submissions along with paper book-2 which runs from page 57-126 and we will see later in our order as to what documents are filed by the assessee in compliance to our directions by the assessee in the said paper book no. 2. 11. We have heard rival contentions and perused the material on record including case laws cited before us and orders of the authorities below. There was a search & seizure action u/s. 132(1) of the 1961 Act carried out by Revenue in the case of Ankur Group on 26.04.2007 in which the assessee was also covered by the said action of Revenue u/s 132(1). The assessee company is the main concern of the Ankur group and is engaged in the manufacturing of pharmaceutical products . During the previous year relevant to the impugned assessment year, the assessee had one industrial unit at Daman for manufacturing of pharmaceutical products which was operational while the other industrial unit was being set up by the assessee at Baddi, HP for manufacturing of pharmaceutical products. The assessee originally filed return of income with Revenue u/s. 139(1) on 27.11.2006 declaring total income of Rs. 3,81,37,586/-. Pursuant to search u/s 132(1),

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notices u/s. 153A dated 08.10.2007 were issued by the AO and served on the assessee. The assessee in response thereof to the notice u/s 153A filed return of income on 19.06.2009 declaring total income of Rs. 3,81,78,610/- . The assessee was outsourcing manufacturing of pharmaceutical products to its sister/ associated concern Vaibhav Healthcare Private Limited by availing capacity utilisation of Vaibhav’s industrial unit situated at Baddi, HP for manufacturing of pharmaceutical products. The assessee availed deduction to the tune of Rs.9,99,96,772/- u/s. 80IC of the 1961 Act for manufacturing activity carried out by assessee at the unit of sister/associated concern Vaibhav Healthcare Private Ltd. at Baddi, Taluka Nalagarh, District Solan, Himachal Pradesh. The assessee had one manufacturing unit at Daman which was operational , while manufacturing at Baddi,HP was entirely outsourced by the assessee to the unit of associated/sister concern namely Vaibhav Healthcare Private Limited, Baddi, HP for which job charges to the tune of Rs. 3.87 crores were paid by the assessee to Vaibhav Healthcare Private Limited during the impugned assessment year. The assessee also deducted income-tax at source on the aforesaid job charges paid to the said Vaibhav which is not disputed by Revenue. The assessee achieved sales to the tune of Rs. 75.67 crores during relevant previous year under consideration w.r.t. pharma products manufactured at Vaibhav’s Baddi unit. The assessee made disclosures in audited financial statement that its own manufacturing unit at Baddi, HP which was under installation will start functioning from financial year 2006-07.The assessee also made disclosure in the said audited financial statement that major production was out- sourced from Vaibhav’s unit located at Baddi, HP. Thus, the Plant & Machinery of unit of the assessee at Baddi had not become operational till the end of relevant previous year as the same was under installation and all the manufacturing activities at Baddi, HP were outsourced to the unit of Vaibhav Healthcare Private Limited. The assessee was sourcing all the raw materials for manufacturing at Vaibhav unit at Baddi, HP under assessee’s supervision and control for which job charges were paid by the assessee to Vaibhav. The contract manufacturing agreement was entered into by the assessee with Vaibhav to use its spare capacity and the said contract manufacturing agreement is placed on record in the paper book filed by the assessee with the tribunal. Vaibhav was also manufacturing pharma products in the said unit at Baddi, HP for other customers , thus it is

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undisputed that the assessee was not the sole customer of said Vaibhav while the assessee was utilising the capacity of Vaibhav for getting its pharma products manufactured under its supervision and control on job charge basis wherein raw materials and packing material was also supplied by the assessee to Vaibhav. The assessee received orders from the customers, purchased raw material and packing material , recruited and deputed staff for supervision and control of production at Vaibhav’s unit and also effected the sales w.r.t. manufacturing done at Vaibhav’s unit at Baddi, HP. The sales were carried out by the assessee for which delivery outward instructions were issued from time to time by assessee to Vaibhav.The Drug controller cum licensing authority, Simla , HP has granted drug license on loan license basis in favour of the assessee to manufacture Pharma products at Vaibhav unit at Baddi, HP which was valid from 28-04-2005 to 27-04-2010 . The copies of said loan licenses held by the assessee in its own name to manufacture pharma products at Vaibhav’s Baddi unit are placed in paper book filed by the assessee with tribunal. The said Vaibhav has only one unit at Baddi, HP and the said unit was eligible for deduction u/s 80IC which is evident from the assessment framed by Revenue u/s 143(3) for AY 2007-08. The assessment order passed by Revenue u/s 143(3) for AY 2007- 08 in the case of Vaibhav is placed on record wherein deduction u/s 80IC was allowed by Revenue to Vaibhav , while for the AY 2006-07 in view of losses no deduction u/s 80IC were claimed by the said Vaibhav . The assessment orders for AY 2006-07 and 2007-08 u/s 143(3) of Vaibhav passed by Revenue and also tax audit report u/s 44AB as well certificate by auditor in form no 10CCB for both the assessment years 2006-07 and 2007- 08 in the case of Vaibhav are placed on record by the assessee. There was a proposal underway to merge said sister/associate concern namely Vaibhav Healthcare Private Limited with the assessee w.e.f. 01-01-2006 which falls within the relevant previous year but later on the date of merger was advanced to 01-04-2006. These facts are borne from audited financial statement of the assessee placed on record for financial year 2005-06 in paper book filed with the tribunal. The said merger of Vaibhav with the assessee was done under a scheme approved by Hon’ble Bombay High Court. The assessee in the impugned assessment year filed claim for deduction u/s 80IC to the tune of Rs. 9,99,96,772/- w.r.t. manufacturing done at Vaibhav’s unit at Baddi, HP which was disallowed by the AO . The

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said claim was based on audit report issued by the auditors as well it is claimed to be based on the basis of opinion obtained by the assessee from counsel. However, the copy of opinion is not placed before us but it is claimed that the said opinion was furnished duly before the authorities below. The assessee accepted quantum assessment wherein the AO had disallowed deduction u/s 80IC w.r.t. manufacturing done by the assessee at Vaibhav unit and the assessee did not file any appeal with learned CIT(A) challenging disallowance of deduction u/s 80IC w.r.t manufacturing done at sister concern Vaibhav unit at Baddi,HP. The AO levied penalty u/s 271(1)(c) against the assessee for furnishing of inaccurate particulars of income w.r.t. claim of deduction u/s 80IC for manufacturing done by the assessee at Vaibhav unit, which penalty u/s 271(1)(c) was deleted by learned CIT(A). The assessee relied on several decisions wherein deduction u/s. 80IC was allowed keeping in view part manufacturing being done at premises of job contractors but in the instant case no part of manufacturing was done at assessee’s unit as the same was under installation and infact the complete manufacturing was done by the assessee at Vaibhav’s industrial unit at Baddi, HP albeit under supervision and control of the assessee. The assessee has also submitted that Baddi , Himachal Pradesh being an area notified as exempt from excise duty , there were no return filed with the excise department as there was exemption from excise duty . In our considered view keeping in view entire factual matrix of the case , we are of the considered view that assessee has given a bona-fide explanation as to the filing of the claim for deduction u/s. 80IC by the assessee w.r.t. manufacturing done by the assessee at the unit of sister concern Vaibhav at Baddi, HP under contract manufacturing agreement wherein raw materials and packing material was supplied by the assessee . The said belief for being entitled for deduction u/s 80IC w.r.t. manufacturing done by the assessee at Vaibhav’s unit at Baddi, HP under assessee’s supervision and control on the strength of several case laws cited by the assessee which are detailed in preceding para’s of this order as well audit report issued by the auditors wherein the auditors certified that the assessee will be entitled for deduction u/s 80IC w.r.t. manufacturing done by assessee at vaibhav’s unit at Baddi, HP under its supervision and control . However, allowability of the said claim u/s 80IC ultimately did not found favour with the Revenue which was accepted by the assessee . The making of a legal claim which was ultimately

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rejected by the Revenue does not entail automatic levy of penalty u/s. 271(1)(c) of the Act unless it is shown that the claim was ex-facie wrong or was made with an intent to defraud revenue and the assessee is unable to offer any bonafide explanation to substantiate making of the said claim. In the instant case in our considered view , the assessee has been able to demonstrate that although claim for deduction u/s. 80IC as lodged by the assessee with the revenue was not tenable but the assessee made a bona- fide claim as the loan license issued by Licesning authority was held in the name of the assessee to manufacture pharma products at Vaibhav’s unit at Baddi, HP, manufacturing was done under assessee’s supervision and control to utilise the spare capacity of Vaibhav unit at Baddi, HP under contract manufacturing agreement, raw material and packing material was supplied by the assessee to Vaibhav and even sale orders were issued by it . Ultimately it was also proposed to merge the said sister/associated concern namely M/s Vaibhav with assessee under a scheme of merger approved by Hon’ble Bombay High Court w.e.f. 01-01-2006 which falls within the impugned assessment year, which date of merger was later advanced to 01- 04-2006 . It is also demonstrated by the assessee that Vaibhav unit at Baddi, HP was entitled for deduction u/s 80IC . Thus , it is a case where legal claim was raised by the assessee as to deduction u/s 80IC w.r.t. manufacturing done by the assessee at Vaibhav’s unit at Baddi, HP which ultimately did not found favour with the Revenue and the issue is squarely covered by decision of Hon’ble Supreme Court in the case of Reliance Petroproducts Private Limited(supra) wherein it is held that just making of legal claim which does not found favour with Revenue will not make the taxpayer automatically liable for penalty. We have observed that assessee has made all the due declarations/disclosures with the Revenue in the return of income filed with the revenue and in the audited financial statements w.r.t its claim for deduction u/s 80IC with respect to manufacturing done by the assessee at Vaibhav’s Baddi, HP unit, thus, it cannot be said that assessee has either furnished inaccurate particulars of income or had concealed particulars of income from revenue . Under these circumstances, we are directing deletion of the penalty levied by the Revenue u/s. 271(1)(c) and we uphold/confirm the well reasoned order of the learned CIT-A deleting penalty levied by the AO u/s 271(1)(c), in which we do not find any infirmity. The learned CIT DR has relied upon the

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decision of Hon’ble Supreme Court in the case of Mak Data Private Limited(supra) but in our considered view, this decision is of no help to Revenue as in this case there was surrender of income during the assessment proceedings while the return of income was filed even after 10 months of the survey and the tax-payer never had the intention to declare the income in the return of income filed by it , on that basis the Hon’ble Supreme Court held that penalty is exigible u/s 271(1)(c). The learned CIT DR also relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. HCIL Kalindee ARSSPL(supra) but the facts in the said case are different as the tax-payer never executed the work awarded to it by Rail Vikas Nigam Limited and M/s Rites Limited but sub-contracted the work to M/s HCIL which infringed explanation to section 80IA(13) which clearly stipulates that the tax-payers engaged in the execution of work contract is not entitled for deduction u/s 80IA. The learned CIT DR also relied upon decision in the case of Heavy Heart Hospitals Limited(supra) which is distinguishable as in this case the tax-payer claimed certain business expenses while undisputedly no business was carried out by the tax-payer during the previous year relevant to the impugned assessment year as it had already sold all the assets to M/s Harvey Health Care Limited and on that ground the ITAT confirmed the penalty levied u/s 271|(1)(c). Similarly , the reliance on the case of SBI DFHI Limited(supra) by learned CIT DR is also of no help as the tax-payer in this case did not offer any bonafide explanation for lodging excessive claim of unabsorbed depreciation while computing book profits u/s 115JB while in the instant case, bonafide explanation is forthcoming from the assessee as to lodging of claim for deduction u/s 80IC w.r.t. manufacturing done at Vaibhav’s unit under its supervision and control. Similarly, the reliance in the case of Chadha Sugars Private Limited(supra) by learned CIT DR is of no help as in this case the chartered accountant gave opinion for accounting expenditure in financial statements and not for the purposes of claiming the same as Revenue expenditure within the provisions of the 1961 Act, while the assessee claimed the said expenditure being ROC fee paid for increase in authorised capital as revenue expenditure which was directly infringing upon the decision of Hon’ble Supreme court in the case of PSIIDC (supra) and Brooke Bond India Limited(supra) and under those circumstances, it was held by ITAT that the penalty u/s 271(1)(c) is exigible while in the instant case before us the

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assessee has made a claim for deduction u/s 80IC for manufacturing done under its supervision and control at the industrial unit at Baddi, HP belonging to its sister concern Vaibhav and the said unit was eligible for deduction u/s 80IC. In the case of CRN Investments Private Limites(supra) an ex-facie false claim was lodged by the tax-payer wherein lease transaction entered into by the tax-payer was found by Revenue to be bogus and was entered into only to avail 100% depreciation . There was no delivery of steel rollers and no use of steel rollers by the tax-payer but in the instant case before us , it is not brought on record that claim of the assessee was ex-facie bogus/sham rather a legal claim was filed which did not found favour with Revenue. Again in the case of Sree Valliappa Textiles(supra) an ex-facie wrong claim for depreciation was lodged as no machinery was even dispatched by the sellers till the closure of the previous year and false certificate from factory manager was furnished and under those circumstances, it was held that penalty is exigible. Similarly , reliance of learned CIT DR on the case of Kuttookaran Machine Tools(supra) is of no help as again in this case ex-facie wrong/bogus claim of investment allowance and depreciation was filed w.r.t. machineries which were never purchased , installed or commissioned during the previous year and it was held that penalty is exigible u/s 271(1)(c) of the 1961 Act under those circumstances. The learned CIT DR also relied upon decision of Hon’ble Delhi High Court in the case of Kanchenjunga Advertising Private Limited (supra) wherein the tax-payer did not made complete disclosure of the facts and omission to bring vital facts to the notice of the Revenue made the particulars filed in support of the claim inaccurate liable to the leviability of penalty u/s 271(1)(c) while in the instant case , complete disclosure was made by the assessee and bonafide explanation was offered to take it out of clutches of penalty provisions as are contained in Section 271(1)(c) . In the case of Zoom Communications (supra) relied upon by learned CIT DR, the tax payer claimed income tax paid as revenue expenses which was ex-facie wrong claim lodged by the tax-payer which was contrary to provisions of Section 40(ii) of the 1961 Act and no such advice could have been given by the chartered accountants which was ex-facie wrong claim contrary to the provisions of the 1961 Act and hence penalty u/s 271(1)(c) was held to be exigible. The assessee also made an ex-facie wrong claim for depreciation which is contrary to provisions of the 1961 Act and under those

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circumstances penalty u/s 271(1)(c) was held exigible. The case law relied upon by the learned CIT DR in the case of Coromondal Indag Products Private Limited (supra) was again distinguishable as in that case, the tax- payer filed wrong claim for entire cost paid for property for claiming deduction u/s 35(1)(iv) while only part cost was paid , similarly wrong claim was filed to contend that the building was used for scientific research while the building was used onlu for administrative purposes and w.r.t. second property shown to be purchased by the tax-payer, the tax-payer had only paid advance to middleman who agreed to purchase land for the tax payers from adivasis and claim was made that property was purchased which was an ex-facie wrong claim and under those circumstances, penalty was held to be exigible u/s 271(1)(c). The learned CIT DR relied upon decision of ITAT Delhi in the case of Khanna and Annadhanam(supra) wherein the ITAT held that penalty is exigible as the tax payer credited certain revenue receipts which were chargeable to tax to capital account by treating the same as capital receipts instead of offering the same to tax and in those circumstances , it was held that penalty is exigible u/s 271(1)(c) despite opinion given by tax-experts but the facts of the instant case before us are different as the assessee was getting manufacturing done under its supervision and control at the manufacturing unit owned by its sister concern M/s Vaibhav located at Baddi HP which was other wise eligible for deduction u/s 80IC, the loan licenses were held in the name of the assessee, raw material and packing material was supplied by the assessee and finished products were sold under order of the assessee. The case of Mahesh M Gandhi(supra) decided by ITAT, Mumbai as relied upon by the learned CIT DR is also distinguishable as in this case the tax-payer omitted to disclose income chargeable to tax in the return of income filed with the Revenue and no taxes were paid . It was only when cornered and confronted by Revenue, the tax-payer came forward and paid taxes. Similarly in the case of N G Technologies Limited(supra) relied upon by learned CIT DR is a case where the tax-payer claimed capital loss on sale of fixed assets in the Profit and Loss account and the same was claimed as deduction from the income wherein the Hon’ble Delhi High Court held that capital loss on sale of fixed assets is not allowable as revenue expenses even going by the basic tenets of accountancy and it was an ex-facie wrong claim which made the tax-payer liable for penalty u/s 271(1)(c). Thus, keeping in view our aforesaid

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detailed discussions as above , we hold that Revenue fails in this appeal and the appeal filed by the Revenue stood dismissed. We order accordingly. 12. In the result appeal of the Revenue in I.T.A. No. 7529/Mum/2011 for assessment year 2006-07 is dismissed.

Order pronounced in the open court on 27.02.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 27.02.2018 को की गई । Sd/- Sd/- (JOGINDER SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, dated: 27.02.2018 Nishant Verma Sr. Private Secretary

copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, 6. Master File // Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI