ACIT 14(3)(1), MUMBAI V. WOCKCHARDT LTD, MUMBAI

ITA 1397/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8962 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 06-12-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 09-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNITA BILLADR
• Keywords: Bonafide belief; Question of law; Difference of opinion

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./1397/MUM/2015, / ASSESSMENT YEAR: 2004-05 ./I.T.A./1398/MUM/2015, / ASSESSMENT YEAR: 2005-06 DCIT-14(3)(1), 453, AAYAKAR BHAVAN, 4 TH FLOOR M.K. MARG, MUMBAI-20. VS. M/S. WOCKHARDT LTD. WOCKHARDT TOWER BANDRA KURLA COMPLEX BANDRA EAST,MUMBAI-400 051. PAN:AAACW 2472 M ( /APPELLANT ) ( / RESPONDENT) ./I.T.A./1450/MUM/2015, / ASSESSMENT YEAR: 2004-05 M/S. WOCKHARDT LTD. MUMBAI-400 051. VS. DCIT-14(3)(1), MUMBAI-20. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI SUNITA BILLA-DR /ASSESSEE BY: SHRI RONAK DOSHI -AR / DATE OF HEARING: 06.12.2016 / DATE OF PRONOUNCEMENT: 11/ 01/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - 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.25,1 7,00,000/- 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 ASSESSM ENT 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 INHO USE DIVISION R&D EXPENDITURE, THAT IT 1397+2/M/15-WOCKHARDT LTD. 2 HAD CLAIMED WEIGHTED DEDUCTION U/S.35(2AB) OF THE A CT, THAT THE AO HAD DISALLOWED THE CLAIM MADE BY THE ASSESSEE AND ALSO INITIATED PENAL TY FOR CONCEALING THE PARTICULARS OF INCOME.IN RESPONSE TO THE PENALTY NOTICE THE ASSESS EE 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 PREFERR ED 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, TH AT CONFIRMATION OF THE DISALLOWANCES BY THE APPELLATE AUTHORITY WOULD NOT MEAN THAT THE ASSESSE E 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 AS SESSEE 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 SCIE NTIFIC INSTITUTION BY THE CENTRAL GOVT., THAT THE APPROVAL WAS UPTO 31.1.2003 THAT THE ASSESSEE H AD 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 PROCEED INGS. HE REFERRED TO THE JUDGMENT OF RELIANCE PETROPRODUCTS (189TAXMANN322) AND HELD THA T IF THE ASSESSEE HAD CLAIMED AN EXPENDITURE WHICH WAS NOT ACCEPTED/WAS NOT ACCEPTAB LE WOULD NOT BE A FACTOR IN ITSELF TO LEVY PENALTY U/S. 271(1)(C ) OF THE ACT, THE DISALLOWANC E 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 EXPEN SES WERE IN RESPECT OF ACTIVITIES CARRIED OUTSIDE THE ASSESSEES PREMISES, THAT THE DISALLOWA NCE WAS CONFIRMED BY FAA AND THE TRIBUNAL, THAT THE HON'BLE BOMBAY HIGH COURT HAD A DMITTED A SUBSTANTIAL QUESTION OF LAW IN THAT REGARD VIDE ITS ORDER NO.1280 OF 2012, DATED 2 4/09/2014 .HE FURTHER HELD THAT IF ANY ISSUE WAS ADMITTED AS SUBSTANTIAL QUESTION OF LAW SAME HA D TO BE CONSIDERED AS DEBATABLE ISSUE AND PENALTY SHOULD NOT BE LEVIED IN SUCH CASES.HE REFER RED TO THE CASE NAYAN BUILDERS & DEVELOPERS PVT. LTD.(ITA2379/M/2009 ) THAT WAS AFFI RMED BY THE HON'BLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 08/07/2014 IN ITA NO.41 5 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. 3 4. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THA T 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 CONCE ALING PARTICULARS OF INCOME. 4.1. IN THE APPELLATE PROCEEDINGS, THE FAA DELETED THE P ENALTY 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 ARGU ED THAT AT THE TIME OF MAKING THE PAYMENT TO KF THE ASSESSEE DID NOT HAVE REQUISITE A PPROVAL FROM THE CENTRAL GOVT., THAT THE ASSESSEE DID NOT WITHDRAW THE CLAIM DURING THE ASSE SSMENT PROCEEDINGS, THAT THE TRIBUNAL HAD DISMISSED THE APPEAL FILED BY THE ASSESSEE WITH RE GARD TO WEIGHTED DEDUCTION . THE AR SUBMITTED THAT THE NOTICE WAS ISSUED IN A MECHANICA L MANNER, IT WAS NOT CLEAR AS TO WHETHER PENALTY PROCEEDINGS WERE INITIATED FOR CONCEALING P ARTICULARS 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 P ENALTY 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 ASSESS EE 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 A PPLIED FOR RENEWAL OF KF AS THE EARLIER APPROVAL WAS UP TO 31.03.2003 ONLY.IN OUR OPINION,A O MAY BE JUSTIFIED IN QUANTUM PROCEEDINGS FOR MAKING THE ADDITION.BUT,AS FAR AS P ENALTY PROCEEDINGS ARE CONCERNED HIS STAND CANNOT BE ENDORSED.IT IS SAID THE ASSESSMENT AND PE NALTY 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. 4 ASSESSEE DURING PENALTY PROCEEDINGS.IN THE CASE BEF ORE US,ALL THE DETAILS WERE MADE AVAILABLE TO THE AO AND AN EXPLANATION WAS ALSO FILED ABOUT T HE 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 HONBLE 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 ABO VE JUDGMENT,WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.CONFIR MING HIS ORDER,WE DISMISS ALL THE GROUNDS RAISED BY THE AO FOR THE YEAR UNDER CONSIDE RATION. IN THE SUBSEQUENT AY.ONLY ISSUE IS ABOUT LEVY OF PE NALTY 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 WIT H REGARD TO CLAIM MADE U/S. 35 (2AB) AGAINST THE AO THE APPEAL FILED BY THE ASSESSEE IS TREATED AS INFR UCTUOUS. AS A RESULT,APPEALS FILED BY THE AO FOR BOTH THE AY .S.STAND DISMISSED AND THE APPEAL OF THE ASSESSEE IS TREATED INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY, 2017. , 2017 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11.01 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 1397+2/M/15-WOCKHARDT LTD. 5 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.