AEONX DIGITAL TECHNOLOGY LIMITED,MUMBAI vs. DCIT, CIRCLE 1(1)(1), MUMBAI

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ITA 2406/MUM/2024Status: DisposedITAT Mumbai14 October 2024AY 2016-175 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the mistake was genuine and not a case of concealment of income. It was noted that the expenditure incurred on research and development was not disputed as non-genuine. The Tribunal observed that the claim was allowed under Section 37(1) of the Act, and the disallowance pertained only to the weighted deduction due to the absence of approval under Section 35(1)(ii) for M/s. Ashapura Minechem Ltd. Therefore, it was not considered a case of concealment of income, and the penalty under Section 271(1)(c) was deleted. The appeal was allowed, and the penalty was deleted.

What were the facts?

The assessee, Aenox Digital Technology Limited, filed an appeal against the order of the CIT(A) confirming a penalty of Rs. 38,93,400/- imposed by the AO under Section 271(1)(c) of the Income-tax Act, 1961, for Assessment Year 2016-17. During assessment proceedings under Section 143(3), the AO made an addition of Rs. 1,12,50,000/-. This addition arose from the assessee claiming weighted deduction under Section 35(1)(ii) for R&D expenditure paid to M/s. Ashapura Minechem Ltd. The assessee was asked to furnish the requisite notification for M/s. Ashapura Minechem Ltd. The assessee later submitted an approval which was found to be under Section 35(2AB), not Section 35(1)(ii). The assessee then withdrew the claim. The AO initiated penalty proceedings, alleging concealment of income, and the CIT(A) confirmed the penalty.

What were the issues?

1. Whether the penalty imposed by the AO under Section 271(1)(c) of the Income-tax Act, 1961, amounting to Rs. 38,93,400/-, is sustainable, considering the assessee's claim of weighted deduction under Section 35(1)(ii) for R&D expenditure paid to M/s. Ashapura Minechem Ltd. was withdrawn upon discovering the approval was under Section 35(2AB)? Assessee's contentions: The assessee argued that the claim was made under a bonafide belief that the approval was under Section 35(1)(ii). It was submitted that only the weighted deduction part was disallowable, not the entire expenditure, and there was no concealment of income but rather an inadvertent oversight and misunderstanding. The assessee also noted that M/s. Ashapura Minechem Ltd. had applied for approval under Section 35(1)(ii) in 2014 but had not received it. Revenue's contentions: The Ld. DR submitted that the claim for weighted deduction was withdrawn only after its detection as a wrong claim by the Ld. AO, and therefore, the penalty was rightly imposed.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 35(1)(ii),Section 35(2AB),Section 37(1),Section 250,Section 143(3)

AI-generated summary — verify with the full judgment below

Before: SHRI AMIT SHUKLA & SMT RENU JAUHRI

For Appellant: Shri Gaurang Sanghavi
For Respondent: Shri Manoj Kumar Sinha (SR. D.R.)
Hearing: 29.08.2024Pronounced: 14.10.2024

आदेश / O R D E R PER RENU JAUHRI [A.M.] :-

1.

The present appeal has been filed against the order dated 31.03.2024 of the Learned Commissioner of Income-tax (Appeals), Mumbai-32/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Years [A.Y.] 2016-17 confirming the penalty imposed by the Ld. AO u/s. 271 (1) (c) of the Act.

(A.Y. 2016-17) Aenox Digital Technology Limited 2. The assessee has raised following grounds of appeal: i. That, the Hon'ble CIT(A) has grievously erred in confirming the penalty imposed by the Ld. AO u/s 271(1)(c) amounting to Rs.38,93,400/-. ii. That, the appellant craves for leave to add, amend and/or modify the grounds of appeal.”

3. The brief facts of the case are that the assessment was made u/s. 143(3) at an income of Rs.19,40,92,800/- after making an addition of Rs.1,12,50,000/-. The assessee had incurred an expenditure towards research and development for which a sum of Rs.1,12,50,000/- was paid to M/s. Ashapura Minechem Ltd. The assessee claimed weighted deduction u/s. 35(1)(ii) of the Act. During the course of assessment proceedings, the assessee was required to furnish the notification u/s. 35(1)(ii) of the Act in respect of M/s. Ashapura Minechem Ltd. which is a pre-requisite for claiming deduction u/s. 35(1)(ii) of the Act. The assessee informed that M/s. Ashapura Minechem Ltd. has submitted an application and is in the process of obtaining the requisite approval. Subsequently, a copy of the approval was submitted which was found to be u/s. 35(2AB) of the Act and not u/s. 35(1)(ii) of the Act. The assessee thereupon withdrew the said claim of Rs.1,12,50,000/-, by informing the Ld. AO in writing as the time for filing the revised return had lapsed by then.

4. During the penalty proceedings, Ld. AO observed that the assessee had not furnished any response despite repeated opportunities and it had also withdrawn the appeal filed before the Ld. CIT(A) on this issue. He, Page 2 of 5 (A.Y. 2016-17) Aenox Digital Technology Limited therefore, held that it was a fit case for levy of penalty as the assessee had concealed his income by way of furnishing inaccurate particulars of income and proceeded to levy the penalty.

5. Before the Ld. CIT(A), detailed submissions were made by the assessee claiming that deduction was claimed under bonafide belief that the approval to M/s. Ashapura Minechem Ltd. was granted u/s. 35(1)(ii) of the Act. However, Ld. CIT(A) dismissed the appeal.

6.

We have heard the rival submissions. Before us, Ld. A.R. has contended that it was a genuine mistake and bonafide belief that deduction u/s. 35(1)(ii) was allowable. Moreover, only weighted deduction part is disallowable and not the entire sum paid to M/s. Ashapura Minechem Ltd. As such there is no concealment by way of furnishing inaccurate particulars of income by the assessee as it is a simple case of inadvertent oversight and misunderstanding. It was further submitted that the application for approval u/s. 35(1)(ii) of the Act was filed by M/s. Ashapura Minechem Ltd. in 2014 but the approval had not been received. a. On the other hand, Ld. D.R. submitted that the claim of weighted deduction was withdrawn only after detection of wrong claim by the Ld. AO and therefore penalty had been rightly imposed.

Page 3 of 5 (A.Y. 2016-17) Aenox Digital Technology Limited 7. After careful consideration of the material available before us, we are of the view that the mistake was genuine and it was not the revenue’s case that the expenditure incurred on research and development was non genuine. Since the said claim has been allowed u/s. 37(1) of the Act, it is only the claim of weighted deduction that was required to be disallowed due to the fact that approval u/s. 35(1)(ii) of the Act was not granted to M/s. Ashapura Minechem Ltd. As such it cannot be said to be a case of concealment of income. We, therefore, are of the view that it is not a fit case for levy of penalty u/s. 271 (1) (c) of the Act and the penalty is accordingly deleted.

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