ALLY PHARMA OPTIONS P.LTD,MUMBAI vs. DCIT 8(1), MUMBAI

The Assessing Officer (hereinafter referred to as the AO) levied the impugned penalty of Rs.2,13,870/- on account of the following disallowance/additions made: I. Preoperative Expenses of Rs.6,15,600/- out of Rs.8,05,729/-, II. Donation of Rs.5,846/-, III. Late payment of Employees Contribution to Provident Fund Rs.8,759/-, IV. TDS Expenses of Rs.5,166/-

The Ld. CIT(A) has also confirmed the said penalty.

We have heard the rival contentions and have also gone through the records. The Ld. A.R. of the assessee, before us, has stated that the major item of disallowance is preoperative expenses. He, while inviting our attention to the impugned orders of the lower authorities as well as the balance sheet of the assessee, has stated that the disallowance on account of preoperative expenses has been made by the AO by applying the provisions of section 35D of the Act. He has further stated that the assessee had claimed Rs.8.05 lakh as preoperative expenses which were as per the tax audit report by the auditor. The AO, while making the disallowance, observed that the assessee’s issued share capital was at Rs.1,90,12,900/- and that as per the provisions of section 35D deduction in respect of aggregate amount of the expenditure for the relevant year would not exceed an amount calculated at 5% of the cost of project or capital employed in the business of the company. However, the AO ignored the provisions of section 35D as to what constitute the capital employed. He, inviting our attention to the provisions of section 35D(iii) has stated that a capital employed in the business of company is the aggregate of the issued share capital, debentures and long term borrowings. The AO has not taken into consideration the long term borrowings while calculating the 5% of the capital applied. He has further invited our attention to page 10 of the paper book to show that even the tax auditor has worked out the allowable expenditure at Rs.8,05,729/-. He has stated that though in the quantum additions the assessee did not carry the matter to the Tribunal, however, it was apparent from the record that the assessee had neither furnished any inaccurate particulars of income nor had concealed its income. The disallowance, in this respect, was made because of the difference of opinion regarding the calculation/working of the allowable expenditure under section 35D of the Act. Regarding the other disallowances, the Ld. A.R. has stated that the amounts involved in relation to those disallowances are very small and there was no intention of the assessee to avoid any tax liability in this regard. The disallowance on account of donation inadvertently could not be added back in

The Ld. D.R., on the other hand, has relied upon the findings of the lower authorities.

We have considered the rival submissions. We find justification in the submissions of the Ld. Counsel for the assessee that it is not a case of furnishing of inaccurate particulars of income or concealment of income which may warrant the levy of penalty under section 271(1)(c) of the Act. The assessee has duly explained that it had plausible reasons to claim the said expenditure which were based on bonafide reasoning and belief. Though, the AO’s view differed from the assessee and he disallowed certain expenditure, but, it cannot be said to be a case of furnishing of inaccurate particulars of income or concealment of income warranting levy of penalty under section 271(1)(c) of the Act. We, therefore, delete the penalty so levied/confirmed by the lower authorities.

In the result, the appeal of the assessee is hereby allowed.