D.C.I.T CIR - 11,KOLKATA, KOLKATA vs. M/S SHALIMAR PAINTS LIMITED, KOLKATA

In this appeal the revenue has challenged the order of CIT(A) whereby the CIT(A) cancelled the order of AO imposing penalty on the assessee u/s 271(1)(c) of the Act.

The facts and circumstances under which penalty was imposed on the assessee by the AO are as follows :- The Assessee is a company engaged in the business of manufacturing of paints and varnishes. In the return of income filed for AY 2004-05, the Assessee while computing income from business claimed 100% depreciation on software acquired for Research and Development Division (R & D Division). The bill in support of the purchase of software showed that software was lactor made programme developed to enable the Assessee to develop more than 1000 shades.

It was the plea of the Assessee that it got installed software costing Rs.1.25 crores for its R & D Units which software was developed and installed by M/s Cross Border IT (India)Ltd and other scientific equipments for balance of Rs.31,43,224/- totaling to Rs. 1,56,43,224/. The software had been developed for the R & D Units and the other equipments were also installed in the R & D Units. Detailed note and related bills were given to the Assessing Officer. It was the further plea of the Assessee that the above addition by acquisition of software made for the R & D Units was extremely necessary for the development of new products and to get a competitive edge in the market and achieve cost effectiveness. On similar capital expenditures 100% deduction was claimed as deduction by the Assessee and had been allowed by the Department in the earlier years. However during the previous year relevant to AY 04-05, the Assessing Officer took a different view and treated it as a normal capital expenditure and allowed 60% depreciations on the capital expenditure during the year and in subsequent years did M/s. Shalimar Paints Ltd. A.Y.2004-05 3 not consider depreciation on W.D.V. It was the plea of the Assessee that as against the disallowance of depreciation the Assessee preferred appeal before CIT(A) but the CIT(A) confirmed the order of the AO. It was also pointed out by the Assessee that the Assessee did not file further appeal as 100% depreciation would stand allowed in subsequent years and there was no loss/gain to the Assessee or to the Department as all the years the Assessee was having taxable income. It was the plea of the Assessee that it neither submitted any wrong particulars nor concealed any income or facts. Mere change of opinion of the Assessing Officer cannot attract penal provisions of section 271 ( 1 ) (c ). Disallowance of expenses will not per se amount to furnishing in accurate particular of income. "Merely" because Assessee had claimed [expenditure] which claim was not accepted or was not acceptable to the revenue that by itself would not attract penalty u/s 271 ( 1 ) (c) of the Income Tax Act. The Assessee relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petro products (P) Ltd civil appeal no. 2463 of 2010 dtd. 17.03.2010 (S.C) (2010) 189 Taxman 322/322 - ITR- 158 (S.C).

The CIT(A) after considering the submissions of the assessee cancelled the order of the AO imposing penalty on the assessee for the following reasons :- “4. I have considered the finding of the A.O. in his penalty order dt. 22-01-2008 and written submission filed by the A.R. during the appellate proceeding. Appeal on ground no. 1 and 2 are against the imposition of penalty u/s. 271 (1) (c ) of the I.T. Act. 1961. Facts of the case is that the assessee claimed 100% depreciation on software treating it as plant and machinery for research and development work the company. The AO. did not accept assessee's claim and allowed 60% depreciation treating the software as a normal software used for the day to day functioning of the company. The AO. also initiated penalty proceeding for filing of inaccurate particulars by the assessee. During the appellate proceeding the AR. has filed a written submission wherein he has cited the case of ClT s. Reliance Petro Products Pvt. Ltd. (2010), 189 Taxman 322 ITR 158 (SC). In this order the Hon'ble Supreme Court has observed “mere M/s. Shalimar Paints Ltd. A.Y.2004-05 4

Aggrieved by the order of CIT(A) the revenue has filed the present appeal before the Tribunal.

We have heard the submissions of the ld. DR, who relied on the order of the AO. We are of the view that order of the CIT(A) is just and proper and calls for no interference. All primary facts relating to the claim of the assessee on account of claim of depreciation at 100% on computer software were duly disclosed by the assessee in its return of income. It was only a difference of opinion as to whether the assessee would be entitled to claim the entire expenditure as capital expenditure u/s 35(2)(ia) or whether the assessee would be entitled to 60% on the computer software under Rule 5 of the IT Rules. The fact that the assessee made a claim of deduction 100% of the computer software cannot be regard or cannot give raise to any inference that the assessee concealed particulars of income or furnished inaccurate particulars of income. In this regard we also take note of the fact that the assessee was in fact engaged in research and development and was also allowed deduction u/s 35(2) of the Act. The claim of the Assessee that the software was used in such research and development activities was not believed by the revenue. The claim made by the assesee in the given circumstances is a bona fide claim. In respect of such bona fide claim which was disallowed, there cannot be any imposition of penalty u/s 271(1)(c) of the Act. We therefore are of the view that the order of M/s. Shalimar Paints Ltd. A.Y.2004-05 5 CIT(A) on this issue has to be confirmed. Accordingly the appeal of the revenue is dismissed.

In the result the appeal by the revenue is dismissed. Order Pronounced in the Open Court on 2.12.2016