Genesis Organics Private Limited, Vadodara V. The Income Tax Officer, Ward-1(1)(3), Vadodara

ITA 691/AHD/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6023 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 21-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V.K. SINGH
• Keywords: Set aside
• Section: 37; 271(1)(c); 143(3)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘C’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD (Conducted Through Virtual Court) ] ] BEFORE MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.691/Ahd/2019 Assessment Year : 2006-07 Genesis Organics P.Ltd. 284/1,2,3, GIDC Estate Makarpura, Vadodara. PAN : AABCG 5635 R Vs ITO, ward-1(1)(3) Vadodara. अपीलाथ / (Appellant) यथ / (Respondent) Assessee by : Shri Surendra Modiani, CA Revenue by : Shri V.K. Singh, Sr.DR स ु नवाई क तार ख/Date of Hearing : 10/03/2022 घोषणा क तार ख /Date of Pronouncement: 25/03/2022 आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the assessee against order dated 5.2.2019 passed by the ld.Commissioner of Income-tax (Appeals)-1, Vadodra in appeal no.CIT(A)-1/Vadodara/10199/2017-18 relating to the assessment year 2006-07. 2. Only ground raised by the assessee is that the ld.CIT(A) has erred in restricting levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) to the extent of 50% of addition i.e. Rs.4,29,000/- 3. Brief facts of the case is that the assessee is a private limited company engaged in the business of trading in intermediate drugs, chemicals and pharmaceuticals for the Asst.year 2006-07. The assessee filed its return of income on 13.12.2006 declaring a loss of ITA No.691/Ahd/2019 2 Rs.11,89,310/-. During the regular assessment made under section 143(3) of the Act, the ld.AO disallowed a sum of Rs.25,48,883/- in respect of R&D expenses on the ground that R&D activities were not carried out by the assessee during the assessment year even though it has furnished a copy of certificate issued by the Department of Scientific and Industrial Research, New Delhi. This issue of R&D Expenditure was travelled upto the Tribunal, and the Tribunal set aside the issue back to the file of AO for fresh consideration on the issue. In the set aside appellate proceedings, the ld.CIT(A) observed that it was clear that the result of the R&D have actually been utilized by the group concerns and there was no evidence that the same was used exclusively for the purposes of products purchased by the assessee and not for the purchases made by any other concern from the manufacturing entity. It was also not established as to whether after incurring the expenditure on R&D the assessee has purchased products from the sister concern at lower rate. Under these circumstances, it emerged that the benefits of R&D facility have also been reaped by the group companies and not exclusively by the assessee-company. Under these circumstances, the ld.CIT(A) held that entire expenditure incurred on R&D could not be allowed as business expenditure under section 37(1), and further held that 50% of the RD expenditure shall be treated as pertained to the assessee-company and directed the AO to allow 50% of the R&D Expenditure accordingly. Following the above order, the ld.CIT(A) in penalty proceedings has reduced the amount of penalty to 50% and directed the AO to re-compute the penalty accordingly. Aggrieved against this penalty order restricting penalty to 50%, the assessee is in appeal before the Tribunal. ITA No.691/Ahd/2019 3 4. Before us, the ld.counsel for the assessee has placed on record copy of decision of the ITAT dated 9.12.2021 in assessee’s own case in ITA No.991/Ahd/2019 for the Asstt.Year 2005-06 wherein the balance 50% of the penalty was also deleted, and therefore prayed that applying the same ratio, similar penalty in the present Asstt.year 2006-07 may also be deleted. However, there is no serious objection by the assessee on the above decision cited by the assessee. 5. We have given our thoughtful consideration on the above facts and Co-ordinate Bench decision. Operative portion of the decision cited (supra) in the assessee’s own case for the Asst.Year 2005-06 read as follows: “8. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the assessee has claimed an expenditure of Rs. 28,48,709/- relating to the research and development activity carried out by it under section 37 of the Act. The AO has made the disallowance of 100% of the expenses claimed by the assessee which was restricted to 50% amounting to Rs. 14,24,354/- by the learned CIT (A) on the reasoning that the other associated/sister concern of the assessee also availed the benefit of research and development activity carried out by the assessee. Accordingly, the learned CIT (A) was of the view that the assessee is not entitled to claim 100% deduction of such expenses. As such, 50% of such expenses was allowed to the assessee on adhoc basis which was subsequently confirmed by the ITAT. 8.1 Thus the issue in the given facts and circumstances revolves whether the assessee has furnished inaccurate particulars of income with respect to research and development activity carried out by it to the tune of 50% of the total claim. 8.2 The word ‘inaccurate particulars’ has not been defined under the provisions of the Act. Thus we refer the dictionary meaning of inaccurate which denotes ‘not accurate’, something incorrect or wrong, not exact, in error. Admittedly, the claim of the assessee with respect to research and development activity to the tune of 50% was not acknowledged by the ITAT. Thus it can be concluded that the claim of the assessee to the tune of 50% of research and development expenses was inaccurate. Accordingly, it appears that the penalty provisions under section 271(1)(c) have to be invoked. Thus, if we apply this logic, then any addition made by the AO in the assessment would lead either to concealment of the particulars of income or furnishing inaccurate particulars of income. In other words the assessee furnishes the particulars of income in his income tax return which is subsequently verified by the revenue. If in the process of verification of ITA No.691/Ahd/2019 4 the income of the assessee, the AO calculates different total income than the income declared by the assessee, the difference between incomes declared by assesses and assessed by the AO would amount to furnishing of inaccurate particulars of income or concealment of income. However, we note that the Hon’ble Supreme Court in the case of Dilip N Shroff vs. JCIT reported in 161 taxman 218 has discussed the term inaccurate by observing that the word inaccurate signifies a deliberate act or omission on the part of the assessee. Thus, to arrive at the conclusion that, the assessee has furnished inaccurate particulars of income, it has to be tested whether it has been done so with the dishonest intent which cannot be regarded as an innocent act. In other words the element of consciousness in furnishing inaccurate particulars of income coupled with circumstantial evidences should be present in the particular case. Unless, the characters of inaccurate particulars of income as discussed above are present in any particular case, the penalty provisions under section 271(1)(c) of the Act cannot be attracted. 8.3 Moving further, there is an explanation 1 to section 271(1)(c) of the Act which provides deemed concealment of income. Under the explanation 1 to section 271(1)(c) of the Act, there are 2 situations. In situation (A), if the assessee failed to offer an explanation or offers an explanation which is found to be false with respect to any fact material to the computation of income, then the amount added or disallowed shall be deemed as concealment of income. In situation (B), if the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides and that all the facts relating such explanation and material to the computation of income have been disclosed by him, then the amount added or disallowed to the total income of the assessee shall be deemed as concealment of income. 8.4 Coming to the present case, we have to test whether the case of the assessee falls under the main provisions of section 271(1)(c) of the Act or explanation 1 attached with it. 8.5 As regards the main provisions of section 271(1)(c) of the Act, we find that the genuineness of the expenses were not doubted by the learned CIT (A). It was only alleged that the associated concern /sister concern have availed the benefit of the expenditures incurred by the assessee out of research and development activity. Therefore, the entire expenses cannot be allowed as deduction to the assessee. As per the learned CIT (A) the impugned expenses should also be allocated to the other units of the assessee group concern which availed the benefit of research and development activity carried out by it. 8.6 There was no doubt raised by the authorities below as far as genuineness of the expenses is concern. Undeniably research and development facility maintained by the assessee was approved by DSIR. What was doubted the quantum of the expenses by the learned CIT (A) which has led to the present penalty proceedings. Thus, to our considered view, the claim of the assessee at the most can be regarded as inaccurate claim which cannot be equated with the inaccurate particulars of income. It is for the reason that nothing has been brought on record by the authorities ITA No.691/Ahd/2019 5 below suggesting that the assessee has furnished the particulars of income with dishonest intent. 8.7 As regards the explanation 1 to section 271(1)(c) of the Act, there was no iota of evidence suggesting that the explanation offered by the assessee was false. Since the research and development facility was maintained by the assessee and the expenditures were also incurred by it, claim of the assessee cannot be said amounting to concealment of particulars of income. Likewise, there was no finding of the authorities below qua the fact that the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides with respect to material facts relating to the computation of total income. Thus in our considered view the provisions of expression 1 to section 271(1)(c) of the Act cannot be attracted in the given facts and circumstances. In view of the above and after considering the facts in totality, we set aside the finding of the learned CIT (A) and direct the AO to delete the penalty levied by him under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is allowed 9. In the result, the appeal of the assessee is allowed.” 6. Following the decision of the Co-ordinate Bench of the Tribunal in the assessee’s own case for the Asstt.Year 2005-06 cited (supra), we have no hesitation in deciding the issue in favour of the assessee therefore, we cancel levy of penalty under section 271(1)(c) of the Act and allow the appeal filed by the assessee. 7. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 25 th March, 2022 at Ahmedabad. Sd/- Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER (T.R. SENTHIL KUMAR) JUDICIAL MEMBER Ahmedabad, dated 25/03/2022 vk*