NAPROD LIFE SCIENCE P.LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 5797/MUM/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1120 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 28-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN K SINGH
• Keywords: Revenue expenditure
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.5797/MUM/2015 (ASSESSMENT YEAR: 2011-12) M/S. NAPORD LIFE SCI E NCES P. LTD. 304, TOWN CENTER ANDHERI KURAL ROAD ANDHERI (E), MUMBAI 400059 VS. DCIT, RANGE - 8(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAACN1291N APPELLANT RESPONDENT APPELLANT BY: SHRI K. GOPAL & MS. NEHA PARANJPE RESPONDENT BY: SHRI CHAUDHARY ARUN K. SINGH DATE OF HEARING: 01.10.2018 DATE OF PRONOUNCEMENT: 30.11.2018 O R D E R PER SAKTIJIT DEY, JM THIS APPEAL ARISES OUT OF THE ORDER DATED 16.11.201 5 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -17, M UMBAI CONFIRMING THE PENALTY IMPOSED OF ` 31,85,292/- UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER 'THE ACT') FOR ASSESSMEN T YEAR (A.Y.) 2011-12. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COMPANY, FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR O N 25.10.2011 DECLARING TOTAL INCOME AT ` 9,97,26,850/-. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (AO), WHILE EXAMI NING THE COMPUTATION OF TOTAL INCOME FILED BY THE ASSESSEE NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION @ 200% UNDER SECTION 35(2AB) OF THE ACT O N ACCOUNT OF EXPENDITURE INCURRED TOWARDS RESEARCH AND DEVELOPME NT (R&D). ON VERIFICATION OF THE AUDIT REPORT HE FOUND THAT THE AFORESAID DEDUCTION CLAIMED UNDER SECTION 35(2AB) OF THE ACT COMPRISES OF CAPITAL AS WELL AS REVENUE EXPENDITURE. ACCORDINGLY, HE CALLED UPON TH E ASSESSEE TO JUSTIFY ITA NO. 5797/MUM/2015 M/S. NAPORD LIFE SCINCES P. LTD. 2 THE DEDUCTION CLAIMED UNDER SECTION 35(2AB) OF THE ACT BY FURNISHING PROPER DOCUMENTARY EVIDENCE. IN RESPONSE TO THE QUE RY RAISED BY THE AO THE ASSESSEE FURNISHED THE DETAILS OF RESEARCH & DE VELOPMENT (R&D) EXPENDITURE WITH APPROVAL FROM DEPARTMENT OF SCIENT IFIC AND INDUSTRIAL RESEARCH (DSIR), MINISTRY OF SCIENCE AND TECHNOLOGY , GOVERNMENT OF INDIA. THE ASSESSEE ALSO SUBMITTED THAT ALL THE CONDITIONS OF SECTION 35(2AB) OF THE ACT HAVE BEEN FULFILLED. THUS, THE CLAIM IS TO BE ALLOWED. AFTER VERIFYING THE DETAILS FURNISHED BY THE ASSESSEE, THE AO FOUND THAT AS PER THE CERTIFICATE DATED 12 TH NOVEMBER, 2007 ISSUED BY THE DSIR IN FORM NO. 3CL CERTAIN EXPENDITURE CLAIMED UNDER SECTION 35(2AB) B Y THE ASSESSEE IN RESPECT OF IN-HOUSE R&D UNIT WAS DISALLOWED. IN THI S REGARD THE ASSESSEE ALSO MADE FURTHER SUBMISSIONS BEFORE THE AO STATING THAT AN AMOUNT OF ` 93,68,000/- HAVING WRONGLY BEEN CLAIMED SHOULD BE D ISALLOWED. ON THE BASIS OF THE AFORESAID SUBMISSION OF THE ASSESSEE T HE AO DISALLOWED AN AMOUNT OF ` 93,68,000/- OUT OF THE DEDUCTION CLAIMED UNDER SECT ION 35(2AB) OF THE ACT. ON THE BASIS OF THE AFORESAID D ISALLOWANCE THE AO INITIATED PROCEEDINGS FOR IMPOSITION OF PENALTY UND ER SECTION 271(1)(C) OF THE ACT ALLEGING FURNISHING OF INACCURATE PARTICULA RS OF INCOME AND CONCEALMENT OF INCOME. THOUGH, THE ASSESSEE OBJECTE D TO THE INITIATION OF THE PENALTY PROCEEDINGS BY STATING THAT THE EXCESS CLAIM OF DEDUCTION UNDER SECTION 35(2AB) OF THE ACT WAS DUE TO A BONAF IDE AND INADVERTENT ERROR, HOWEVER, THE AO REJECTED THE EXPLANATION OF THE ASSESSEE AND IMPOSED PENALTY OF ` 31,85,292/- UNDER SECTION 271(1)(C) OF THE ACT. BEI NG AGGRIEVED OF THE AFORESAID PENALTY ORDER, THOUGH, T HE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), HOWEVER, THE CIT(A) ALSO UPHELD IMPOSITION OF PENALTY. BEING AGGRIEVED OF THE AFORESAID ORDER OF THE LEARNED CIT(A) ASSESSEE IS BEFORE US CHALLENGING THE IMPOSITION OF PENALTY BOTH ON MERIT AS WELL ON LEGAL GROUNDS RAISED BY WAY OF ADDITIONA L GROUND. 3. THE LEARNED AUTHORISED REPRESENTATIVE (A.R.) SUBMIT TED, WHILE FILING THE RETURN OF INCOME THE ASSESSEE HAS CLAIMED DEDUC TION UNDER SECTION 35(2AB) OF THE ACT AS PER THE AUDIT REPORT OF THE A UDITOR. HE SUBMITTED, EVEN IN THE APPLICATION FILED BEFORE THE DSIR THE A SSESSEE HAS SOUGHT APPROVAL FOR THE R&D EXPENDITURE AS PER THE AUDIT R EPORT AND AS CLAIMED IN ITA NO. 5797/MUM/2015 M/S. NAPORD LIFE SCINCES P. LTD. 3 THE RETURN OF INCOME. HE SUBMITTED, DURING THE COUR SE OF ASSESSMENT PROCEEDINGS ONLY THE ASSESSEE RECEIVED THE CERTIFIC ATE DATED 12 TH NOVEMBER 2013 ISSUED BY THE DSIR DISALLOWING PART OF THE EXP ENDITURE CLAIMED UNDER SECTION 35(2AB) OF THE ACT. THUS, HE SUBMITTED, WHE N THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT IT COULD NOT HAVE FORESEEN THE DISALLOWANCE OF PART OF THE EXPENDITURE BY THE DSIR WHILE APPROVING THE R&D EXPENDITURE IN THE CERTIFICATE ISSUED IN FORM N O. 3CL. THE LEARNED A.R. SUBMITTED, THE ASSESSEE HAS CLAIMED THE DEDUCT ION UNDER SECTION 35(2AB) OF THE ACT AS PER THE AUDIT REPORT ISSUED B Y THE AUDITOR. THUS, WHEN THE ASSESSEE RECEIVED THE CERTIFICATE OF DSIR SUBSEQUENTLY, IT REVISED ITS CLAIM BY VOLUNTARILY DISALLOWING EXPENDITURE OF ` 93.64 LAKHS. THUS, IT WAS SUBMITTED, NEITHER THERE IS CONCEALMENT OF INCO ME NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. FURTHER, THE LEAR NED A.R. SUBMITTED, ALL NECESSARY DETAILS RELATING TO THE DEDUCTION CLAIMED UNDER SECTION 35(2AB) AS WELL AS THE DETAILS OF EXPENDITURE WERE FILED/FU RNISHED BY THE ASSESSEE IN THE RETURN OF INCOME AS WELL AS IN THE CASE OF A SSESSMENT PROCEEDINGS. HE SUBMITTED, IN THAT VIEW OF THE MATTER THE ASSESS EE HAS NOT VIOLATED THE CONDITIONS OF SECTION 271(1)(C) OF THE ACT. THE LEA RNED A.R. SUBMITTED, THE DEDUCTION CLAIMED BY THE ASSESSEE IS NEITHER FALSE NOR INELIGIBLE. HE SUBMITTED, THE ASSESSEE IS OTHERWISE ELIGIBLE TO CL AIM DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. HE SUBMITTED, THE DISPU TE IS ONLY ON THE QUANTUM OF DEDUCTION AND NOT WITH REGARD TO ALLOWAB ILITY. THUS, HE SUBMITTED, IN ANY CASE OF THE MATTER THE ASSESSEE H AS CLAIMED CERTAIN DEDUCTION PART OF WHICH WAS DISALLOWED BY THE AO. H OWEVER, THAT BY ITSELF WOULD NOT LEAD TO IMPOSITION OF PENALTY UNDER SECTI ON 271(1)(C) OF THE ACT. IN THIS CONTEXT HE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS 322 ITR 150. FURTHER HE RELIED UPON THE DECISION OF THE ITAT MUMBAI BENCH IN THE C ASE OF MRS. INDRANI SUNIL PILLAI VS. ACIT IN ITA NO. 1339/ MUM/2016 DAT ED 19.01.2018. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE (D.R.) STRO NGLY RELYING UPON THE OBSERVATIONS OF THE DEPARTMENT AUTHORITIES SUBMITTED, BY CLAIMING EXCESSIVE DEDUCTION WHICH IS NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT, THE ASSESSEE HAS NOT ONLY CONCEALED PAR TICULARS OF INCOME BUT ITA NO. 5797/MUM/2015 M/S. NAPORD LIFE SCINCES P. LTD. 4 CONCEALED ITS INCOME. THEREFORE, IMPOSITION OF PENA LTY UNDER SECTION 271(1)(C) OF THE ACT IS JUSTIFIED. IN SUPPORT OF HI S CONTENTION THE LEARNED D.R. RELIED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SAMSON MARITIME LTD. VS. CIT IN ITA NO. 171 8 OF 2014 DATED 9 TH MARCH, 2017. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. BEFORE WE DECIDE THE ISSUE WHETHER THE PROV ISIONS OF SECTION 271(1)(C) OF THE ACT IS ATTRACTED TO THE FACTS OF T HE PRESENT CASE, IT IS NECESSARY TO BEAR IN MIND CERTAIN CRUCIAL FACTS. IT IS A FACT ON RECORD THAT THE ASSESSEE HAS IN-HOUSE R&D FACILITY APPROVED BY THE DSIR. IT IS ALSO A FACT ON RECORD THAT THE ASSESSEE HAS INCURRED BOTH CAPITAL AND REVENUE EXPENDITURE ON THE R&D FACILITY. IN THE RETURN OF I NCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR ASSESSEE HAD CLAIMED DEDUC TION UNDER SECTION 35(2AB) OF THE ACT FOR AN AMOUNT OF ` 3,28,32,148/- BEING 200% OF THE ACTUAL EXPENDITURE INCURRED OF ` 1,64,16,073/-. ON A PERUSAL OF THE TAX AUDIT REPORT OF THE ASSESSEE FOR THE IMPUGNED ASSES SMENT YEAR, IT IS NOTICED THAT THE AFORESAID CLAIM OF DEDUCTION BY TH E ASSESSEE IS AS PER THE AMOUNT OF DEDUCTION CERTIFIED BY THE AUDITOR IN NOT E NO. 15 OF FORM NO. 3CD. IT IS ALSO RELEVANT TO NOTE THAT ON THE BASIS OF THE AMOUNT OF DEDUCTION UNDER SECTION 35(2AB) OF THE ACT MENTIONE D IN THE TAX AUDIT REPORT THE ASSESSEE ALSO FILED ITS APPLICATION FOR APPROVAL OF EXPENDITURE BEFORE THE DSIR. IT IS EVIDENT FROM THE IMPUGNED AS SESSMENT ORDER THAT THE AO VIDE ORDER SHEET ENTRY DATED 04.08.2013 AND 29.0 8.203 CALLED UPON THE ASSESSEE TO FURNISH DETAILS OF R&D EXPENDITURE AND OTHER DOCUMENTARY EVIDENCES TO JUSTIFY ITS CLAIM OF DEDUCTION UNDER S ECTION 35(2AB) OF THE ACT. IT IS ALSO EVIDENT THAT THE ASSESSEE IN ITS REPLY D ATED 22.11.2013 HAS INTIMATED THE AO ABOUT THE RECEIPT OF APPROVAL OF D SIR IN FORM NO.3CL DATED 12 TH FEBRUARY, 2013 AND ALSO ACCEPTED THE FACT THAT THE DSIR HAS DISALLOWED A PART OF THE EXPENDITURE CLAIMED OF ` 1,64,16,073/-. ACCORDINGLY, VIDE LETTER DATED 02.12.2013 ASSESSEE VOLUNTARILY DISALLOWED AN AMOUNT OF 93,68,000/- OUT OF THE DEDUCTION CLAIM ED UNDER SECTION 35(2AB) OF THE ACT WHICH THE AO ALSO ACCEPTED. THUS , FROM THE AFORESAID FACTS IT CAN BE SEEN THAT DEDUCTION ORIGINALLY CLAI MED UNDER SECTION ITA NO. 5797/MUM/2015 M/S. NAPORD LIFE SCINCES P. LTD. 5 35(2AB) OF THE ACT BY THE ASSESSEE WAS UNDER A BONA FIDE BELIEF THAT IT IS ELIGIBLE TO CLAIM SUCH DEDUCTION IN VIEW OF THE TAX AUDIT REPORT. THIS FACT BECOMES CLEARER AS THE ASSESSEE HAS ALSO SOUGHT APP ROVAL OF THE VERY SAME AMOUNT TOWARDS R&D EXPENDITURE IN THE APPLICATION F ILED BEFORE THE DSIR. ONLY IN THE COURSE OF ASSESSMENT PROCEEDINGS WHEN T HE AO WAS MAKING ENQUIRY WITH REGARD TO ASSESSEES CLAIM, ASSESSEE R ECEIVED THE APPROVAL OF DSIR IN FORM NO. 3CL DATED 12 TH NOVEMBER, 2013 DISALLOWING A PART OF THE EXPENDITURE. THUS, ONLY AFTER RECEIVING THE APPROVA L OF THE DSIR THE ASSESSEE COULD COME TO KNOW THAT PART OF THE EXPEND ITURE HAS NOT BEEN APPROVED. ACCORDINGLY, IT REVISED THE CLAIM OF DEDU CTION UNDER SECTION 35(2AB) OF THE ACT BEFORE THE AO. THE AFORESAID FAC TS CLEARLY PROVE THAT THE ASSESSEE HAS NOT CLAIMED EXCESSIVE DEDUCTION UNDER SECTION 35(2AB) OF THE ACT KNOWINGLY OR DELIBERATELY. RATHER, THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE IS ON THE BASIS OF TAX AUDIT REPORT. THERE FORE, THE CONTENTION OF THE ASSESSEE THAT EXCESSIVE DEDUCTION CLAIMED WAS D UE TO A BONAFIDE AND INADVERTENT ERROR CANNOT BE DISBELIEVED AND DISPELL ED. IN ANY CASE OF THE MATTER, IT IS NOT THE CASE OF THE DEPARTMENT THAT T HE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. IN FACT, THE DSIR HAS NOT ONLY RECOGNISED THE R&D FACILITY OF THE ASS ESSEE BUT ALSO APPROVED THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF THE R&D FACILITY. THE DISPUTE ARISES ONLY WITH REGARD TO THE QUANTUM OF DEDUCTION CLAIMED ON ACCOUNT OF PART DISALLOWANCE OF EXPENDITURE BY T HE DISR. AS OBSERVED EARLIER, THE CERTIFICATE OF THE DSIR IN FORM NO. 3C L DISALLOWING PART OF THE EXPENDITURE WAS RECEIVED BY THE ASSESSEE IN NOVEMBE R, 2013, I.E. AT A MUCH LATER STAGE, EVEN AFTER THE AO HAS STARTED ENQ UIRY WITH REGARD TO ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 35(2 AB ) OF THE ACT. THUS, UPON CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCE S OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE CANNOT BE ALLEGED OF EITHER FURNISHING INACCURATE PARTICULARS OF INCOME OR CONC EALMENT OF INCOME. THEREFORE, NONE OF THE CONDITIONS OF SECTION 271(1) (C) OF THE ACT IN THE INSTANT CASE ARE SATISFIED. ACCORDINGLY WE HAVE NO HESITATION IN DELETING THE PENALTY IMPOSED OF ` 31,85,292/-. ITA NO. 5797/MUM/2015 M/S. NAPORD LIFE SCINCES P. LTD. 6 6. IN VIEW OF OUR AFORESAID DECISION ON MERITS, THE LE GAL ISSUE RAISED IN THE ADDITIONAL GROUND BEING OF MERE ACADEMIC IMPORT ANCE DOES NOT REQUIRE ADJUDICATION. HENCE, DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2018. SD/ - SD/ - (MANOJ KUMAR AGGARWAL) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30 TH NOVEMBER, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -17, MUMBAI 4. THE PR. CIT- 10, MUMBAI 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.