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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य, राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार/ PER Rajendra A.M.- अनुसार Challenging the orders dated 01.12.2014 of the CIT(A)-22,Mumbai the Assessing officer (AO) have filed appeals for the above mentioned two AY.s.The assessee has filed appeals for the AY.Assessee-company is engaged in the business of manufacturing and trading of pharmaceutical products. Details of assessed income,dates of penalty orders,penalty levied etc.can be summarised as under: AY. Returned income Assessed income Penalty levied on Penalty Amount 2004-05 Rs.32,80,89,390/- Rs.79,21,68,940/- Rs.25,17,00,000/- Rs.9,19,97,375/- 2005-06 Rs.46,24,24,283/- Rs.72,61,37,925/- Rs.6,58,45,411/- Rs.2,58,57,493/- ITA/1397/Mum/2015-AY.2004-05: 2.Effective Ground of appeal is about levy of penalty u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income.During the assessment proceedings,the AO found that the assessee had made payment to Khorakiwala Foundation (KF) amounting to Rs.20.00 lakhs during the year under consideration,that KF was not approved as scientific institutions after 31/03/2003,that it had applied for the approval of the institution. He disallowed the amount claimed as deduction by the assessee and initiated penalty u/s. 271(1)(c )of the Act for the dis -allowance.He further found that the assessee had claimed research and development (R&D) expenditure of Rs.16.78 crores under the head ‘Inhouse Division R&D Expenditure’, that it
1397+2/M/15-Wockhardt Ltd. had claimed weighted deduction u/s.35(2AB) of the Act, that the AO had disallowed the claim made by the assessee and also initiated penalty for concealing the particulars of income.In response to the penalty notice the assessee filed submissions before the AO.After considering the submission, he levied penalty of Rs.7.17 lakhs on account of payment made to KF and of Rs.9.02 crores on account of claim of weighted deduction.
3.Aggrieved by the penalty order the assessee preferred an appeal before the First Appellate Authority (FAA). Before him it was argued that the assessee had furnished full and correct particulars of income in the return filed by it, that confirmation of the disallowances by the appellate authority would not mean that the assessee had concealed its income or had furnished inaccurate particulars, that the assessee had made the claim on a bonafide belief. After considering the detailed submission of the assessee and the penalty order ,the FAA held that in the earlier years the payments made to KF were allowed, that foundation was approved u/s. 35(1)(ii) of the Act as approved Scientific Institution by the Central Govt., that the approval was upto 31.1.2003 that the assessee had applied for renewal, that the approval was not received for the year under consideration, that it had made a bonafide claim, that the AO had rightly made disallowance in quantum proceedings. He referred to the judgment of Reliance Petroproducts (189taxmann322) and held that if the assessee had claimed an expenditure which was not accepted/was not acceptable would not be a factor in itself to levy penalty u/s. 271(1)(c ) of the Act, the disallowance made by the AO could not be equated to filing of inaccurate particulars or concealment of income.
3.1.With regard to disallowance of weighted deduction u/s. 235AB of the Act, the FAA held that disallowance was made on the ground that expenses were in respect of activities carried outside the assessee’s premises, that the disallowance was confirmed by FAA and the Tribunal, that the Hon'ble Bombay High Court had admitted a substantial question of law in that regard vide its order No.1280 of 2012, dated 24/09/2014 .He further held that if any issue was admitted as substantial question of law same had to be considered as debatable issue and penalty should not be levied in such cases.He referred to the case Nayan Builders & Developers Pvt. Ltd.(ITA2379/M/2009 ) that was affirmed by the Hon'ble Bombay High Court vide its order dated 08/07/2014 in of 2012. The penalty levied by the AO on account of disallowance of weighed deduction was also deleted.
ITA 1398/M/2015,AY-2005-06:
1397+2/M/15-Wockhardt Ltd.
4.During the assessment proceedings the AO found that the assessee had claimed deduction of Rs.6.58 crores u/s.35(2AB) of the Act. The AO levied a penalty of Rs.2.58 crores invoking provisions of Section 271(1)(c ) for concealing particulars of income.
4.1.In the appellate proceedings, the FAA deleted the penalty following the order of the Tribunal delivered in the case of Nayan Builders & Developers Pvt. Ltd. (supra).
4.2.During the course of hearing before us, the DR argued that at the time of making the payment to KF the assessee did not have requisite approval from the Central Govt., that the assessee did not withdraw the claim during the assessment proceedings, that the Tribunal had dismissed the appeal filed by the assessee with regard to weighted deduction . The AR submitted that the notice was issued in a mechanical manner, it was not clear as to whether penalty proceedings were initiated for concealing particulars of income or filing inaccurate particulars of income, that Hon'ble Jurisdictional High Court had admitted substantial question of law, that where two view are possible penalty could not be levied, that merely because assessee had claimed expenditure, would not attract penalty, that weighted deduction u/s. 35(2AB) had to be allowed on clinical trials. He referred to cases of Manjunatha Cotton and Ginning Factory (359ITR565); Nayan Builders and Developers Pvt. Ltd.-Hon'ble Bombay High Court ; Durga Kamal Rice Mill (265ITR25);Reliance Petroproducts Ltd. (322 ITR158).
ITA/1450/Mum/2015-(AY-2004-05)- 5.The effective Ground of appeal, filed by the assessee pertains to the direction given by the FAA to the AO to recompute penalty u/s. 271(1)(c ) of the Act on account of weighted deduction u/s. 35(2AB) of the Act.
6.We have heard the rival submission and perused the material before us.We find that the AO had levied penalty for the two additions made under the heads payment to KF and claim made u/s.35(2AB) of the Act,that the assessee had applied for renewal of KF as the earlier approval was up to 31.03.2003 only.In our opinion,AO may be justified in quantum proceedings for making the addition.But,as far as penalty proceedings are concerned his stand cannot be endorsed.It is said the assessment and penalty proceedings are different and the decision taken during first proceedings should not influence the second proceedings.Levy of penalty has to be decided independently.What is to be seen is the explanation filed by the 1397+2/M/15-Wockhardt Ltd. assessee during penalty proceedings.In the case before us,all the details were made available to the AO and an explanation was also filed about the claim.It was not a very fanciful or unbelievable explanation. Rejection of a claim made by the assessee should not result in automatic levy of peanlty.Therefore,in our opinion,the FAA had rightly deleted the penalty referring to the judgment of Reliance Petroproduct Ltd.(supra). Now,we would like to discuss the other addition.It is found that the assessee had claimed deduction u/.35(2AB),that the claim was rejected by the AO and the FAA as well as by the ITAT,that the Hon’ble jurisdictional High Court has admitted a substantial question of law with regard to the said disallowance,that there is difference of opinion about the claim.In the case of Nayan Builders and Developers(supra)the Hon’ble Bombay High Court has held that if a substantial question of law is admitted by the Court penalty u/s.271 (1)(c)of the Act should not be levied.Respectfully,following the above judgment,we hold that the order of the FAA does not suffer from any legal infirmity.Confirming his order,we dismiss all the grounds raised by the AO for the year under consideration. In the subsequent AY.only issue is about levy of penalty about claim made u/s.35(2AB). Following our order for the earlier year,we decide the effective ground of appeal against the AO. As we have decided the issue of levy of penalty with regard to claim made u/s. 35 (2AB) against the AO,the appeal filed by the assessee is treated as infructuous. As a result,appeals filed by the AO for both the AY.s.stand dismissed and the appeal of the assessee is treated infructuous. फलतःिनधा�रती अिधकारी �ारा दािखल क� गई दोन� िनधा�रण वष� क� अपील� नामंजूर क� जाती ह# और िनधा�रती क� अपील िन%&भावी मानी जाती है. Order pronounced in the open court on 11th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 11 जनवरी, 2017 को क� गई । Sd/- Sd/- (अमरजीत �सह / Amarjit Singh ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांकDated : 11.01 .2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ�
2. Respondent /��यथ� 4
1397+2/M/15-Wockhardt Ltd.