ENEM NOSTRUM REMIDIES P. LTD, MUMBAI V. ACIT 8(1), MUMBAI

ITA 77/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55107 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 05-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: ARVIND V SONDE SHRI ANIL SATHE
• Keywords: Depreciation; Income from undisclosed sources; Opportunity of being heard; Bonafide belief; Wrong claim; Difference of opinion; Benefit of exemption; Capital expenditure
• Section: 154; 15; 115JB; 80IB; 10B

Judgement Text

1 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE R. S. SYAL (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NOS. 77 TO 80/MUM/2010 ASSESSMENT YEARS- 2002-03 TO 2005-06 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. UNIT NO.201 TO 203, GAYATRI COMMERCIAL COMPLEX, MITTAL INDL. ESTATE, MAROL, ANDHERI (E), MUMBAI-400 059 PAN: AAACE 8766G VS. A.C.I.T 8(1), M.K. ROAD, AAYAKAR BHAVAN, MUMBAI 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND V. SONDE / SHRI ANIL SATHE RESPONDENT BY: SHRI SANJIV DUTT DATE OF HEARING: 03.08.2011 DATE OF PRONOUNCEMENT: O R D E R PER ASHA VIJAYARAGHAVAN (JM) THESE FOUR APPEALS PREFERRED BY THE ASSESSEE ARE DI RECTED AGAINST THE ORDERS DATED 09.11.2009 PASSED BY THE LD. CIT(A)-16, MUMBA I FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06 2. THE ASSESSEE COMPANY IS ENGAGED IN THE RESEARCH AND DEVELOPMENT OF NOVEL DRUG DELIVERY SYSTEMS AS WELL AS CONVENTIONAL FORMU LATIONS WHICH IS A SEGMENT OF PHARMACEUTICAL, BIO MEDICAL ENGINEERING AND ANALYTI CAL CHEMISTRY. DURING THE COURSE 2 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. OF ASSESSMENT PROCEEDINGS U/S.143(3) FOR THE ABOVE YEARS, THE ASSESSING OFFICER MADE ADDITIONS U/S.35 IN RESPECT OF EXPENSES DEBITE D UNDER THE HEAD SCIENTIFIC RESEARCH IN THE P & L ACCOUNT AND DISALLOWANCE U/S. 10B. SUBSEQUENTLY, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A ) SUSTAINED THE ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE U/S. 35 THE INCOME TAX ACT IN RESPECT OF SCIENTIFIC RESEARCH AND U/S.10B SINCE THE ASSESSEE IS NOT SELLING ANY C OMPUTER SOFTWARE OR IS NOT IN THE BUSINESS OF DATA PROCESSING. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAD PREFERRED AN APPEAL BEFORE THE HON'BLE ITAT. TH E HON'BLE ITAT HAS DISMISSED THE APPEAL FILED BY THE ASSESSEE VIDE ITS ORDER DATED 2 8.08.2008 RELYING ON THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO SHOW CAUSE WHY PENALTY U/S. 271(1)(C) S HOULD NOT BE IMPOSED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HEN CE, A FRESH OPPORTUNITY OF BEING HEARD WAS OFFERED TO THE APPELLANT. IN RESPONSE TO THE ABOVE REMINDER, THE ASSESSEE REQUESTED THAT THE REPLY FILED FOR ASSESSMENT YEAR 2003-04 MAY BE TREATED AS REPLY FILED FOR THE ABOVE ASSESSMENT YEARS AS THE ISSUES INVOLVED ARE IDENTICAL FOR ALL THE YEARS. AFTER CONSIDERING THE REPLY OF THE ASSESSEE AND RELYING ON VARIOUS DECISIONS OF THE HON'BLE COURTS, THE ASSESSING OFFICER HAD LEVIE D PENALTY U/S. 271(1)(C) OF THE I.T. ACT. 3. ON APPEAL BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS A 100% EXPORT ORIENTED UNDERTAKING EARNING CONVERTI BLE FOREIGN EXCHANGE FROM FOREIGN COMPANY AND HAD THEREFORE, CLAIMED EXEMPTIO N U/S.10B. THE ASSESSING OFFICER HAS REJECTED THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S.10B ON THE GROUND THAT ACCORDING TO HIM, THE ASSESSEE CANNOT BE SAID TO BE ENGAGED IN THE MANUFACTURE OF COMPUTER SOFTWARE IN THE LIGHT OF THE DEFINITION OF THAT TERM IN SECTION 10-B OF THE ACT. THE ASSESSEE SUBMITTED THAT PENALTY U/S. 271(1 )(C) OF THE ACT HAS BEEN LEVIED FOR WRONG CLAIM OF EXEMPTION U/S.10B WHICH HAS BEEN CHA LLENGED SINCE THE ASSESSEE HAD BONA FIDE REASONS TO CLAIM EXEMPTION UNDER SECTION 35(1)(IV) AND SEC. 10B AND THE CLAIM OF THE ASSESSEE IS A LEGALLY JUSTIFIED CLAIM. MERELY BECAUSE THE DEPARTMENT DID 3 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. NOT AGREE WITH THE INTERPRETATION OF THE ASSESSEE T HE PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED. ALSO FROM THE FACT THAT THE ASSE SSEE HAS NOT APPEALED ON MERITS TO THE HIGHER AUTHORITIES IT CANNOT BE CONCLUDED THAT THE ASSESSEE HAS CONCEALED INCOME OR FURNISHED INACCURATE PARTICULARS. 4. IT WAS FURTHER SUBMITTED BEFORE THE LD. CIT(A) T HAT THE PENALTY PROCEEDINGS ARE DIFFERENT FROM ASSESSMENT PROCEEDINGS. THE FIND INGS OF THE ASSESSMENT PROCEEDINGS ARE NEITHER CONCLUSIVE NOR BINDING ON T HE PENALTY PROCEEDINGS. DISALLOWANCE OF A CLAIM CANNOT LEAD TO AN INFERENCE THAT THE ASSESSEE HAS CONCEALED ANY INCOME. ALL PARTICULARS IN REGARD TO THE DEDUCT ION CLAIMED WERE SUBMITTED INCLUDING RELEVANT DOCUMENTS SUPPORTING THE ASSESSE ES VIEW DURING THE ASSESSMENT PROCEEDINGS. IT WAS FURTHER ARGUED THAT THE MACHINE RY PURCHASED IS REQUIRED FOR TESTING AND DOCUMENTING THE PROCESS OF FORMULATION AND HENCE IT IS A CAPITAL EXPENDITURE. AS REGARDS THE DEDUCTION U/S. 10B, IT WAS SUBMITTED THAT THE ASSESSEES ACTIVITY AMOUNTS TO MANUFACTURING HENCE DEDUCTION I S ALLOWABLE. THEREFORE, IN THIS CASE, THE DEDUCTION CLAIMED UNDER SECTION 10B CANNO T BE SAID TO BE FALSE OR FRIVOLOUS SINCE THE ASSESSEE HAD SUBSTANTIATED ITS CLAIM WITH ENOUGH MATERIAL AND HENCE IN SUCH A SITUATION THE QUESTION OF CONCEALMENT OR FURNISHI NG OF INACCURATE PARTICULARS DOES NOT ARISE AND THEREFORE PENALTY CANNOT BE LEVIED. T HE LD. AR STATED THAT THE FACTORY IS SITUATED AT SEZP AND THE SURROUNDING CIRCUMSTANCES W OULD REVEAL THAT THERE HAS BEEN EXPORT OF SOFTWARE. 5. THE LD. CIT(A) HELD AS FOLLOWS: IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THIS CASE , IT IS NOTICED THAT THE HON'BLE TRIBUNAL HAS HELD THAT THE ASSESSEE COMPANY IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S.35(1)(IV) AND DEDUCTION U/S.10B OF TH E INCOME TAX ACT, 1961. IN OTHER WORDS, THE ASSESSEE COMPANY HAD MADE A PATENT LY WRONG CLAIM TO DEDUCTION U/S.35(1)(IV) AND SECTION 10B OF THE I.T. ACT. SINCE, THE HON'BLE ITAT IS THE LAST FACT FINDING AUTHORITY, THEREFORE, IT I S HELD THAT THE ASSESSEE COMPANY HAS MADE WRONG CLAIM OF DEDUCTION WHICH MEANS SUBMI TTED INACCURATE PARTICULARS WHICH HAS RESULTED INTO CONCEALMENT OF INCOME. THE ARGUMENTS OF 4 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. THE ASSESSEE THAT HE HAS A BONA-FIDE CLAIM AND IT I S A MATTER OF DIFFERENCE OF OPINION AND PENALTY IS NOT LEVIABLE, CANNOT BE ACCE PTED. THE DECISIONS RELIED ON BY THE ASSESSEE OF VARIOUS COURTS ARE NOT HELPFUL T O HIM AS THE FACTS OF THIS CASE ARE DISTINGUISHABLE. THE ASSESSEE COMPANY HAS PATENTLY MADE WRONG CLAIM OF DEDUCTION U/S.35(1)(IV) AND SECTION 10B AS IT IS CLEAR FROM THE FINDING OF THE HON'BLE ITAT. THE OTHER ARGUMENT OF THE ASSE SSEE THAT ASSESSMENT AND PENALTY ARE DIFFERENT PROCEEDINGS IS TRUE, BUT THE PENALTY PROCEEDINGS ARE BASED ON THE FINDINGS GIVEN IN THE ASSESSMENT ORDER . IT IS HELD IN NUMBER OF DECISIONS THAT PATENTLY WRONG CLAIM OF DEDUCTION TA NTAMOUNT TO SUBMITTING OF INACCURATE PARTICULARS WHICH RESULTED IN THE CONCEA LMENT OF INCOME AND PENALTY LEVIED U/S. 271(1)(C) OF THE ACT.(1)(C) IS CORRECT. EVEN HON'BLE SUPREME COURT IN CASE OF DHARMENDRA TEXTILES HAS HELD THAT PENALT Y IS A CIVIL OFFENCE, THEREFORE, MENS REA IS NOT REQUIRED, WILLFUL CONCEA LMENT AND BONA-FIDE INTENTION ARE NOT THE ESSENTIAL INGREDIENTS. SOME OF THE DECI SIONS RELEVANT TO THE FACTS OF THIS CASE ARE DISCUSSED AS UNDER: IN THE CASE OF ITO GEEP INDUSTRIAL SYNDICATE LTD. 23 ITD 448 (ALL) WHERE IT IS HELD THAT WRONG CLAIM OF DEPRECIATION WILL AMOUNT T O FURNISHING INACCURATE PARTICULARS OF INCOME. SIMILARLY, THE ASSESSEE HAS ALSO SUBMITTED INACCURATE PARTICULARS BY CLAIMING WRONG DEDUCTION U/S.35(1)(I V) OF THE I.T. ACT. ON THIS ISSUE, THE DECISION IN THE CASE OF I.T.O. VS. MOLIC HAND GUPTA 110 ITD 89 IS APPLICABLE WHERE IT IS HELD THAT WRONG CLAIM OF DED UCTION TOWARDS PAYMENT OF HOUSING LOAN AND INTEREST, PENALTY WAS UPHELD. AFTER THE INTRODUCTION OF EXPLANATION W.E.F. 01.04.1 964, THE ONUS IS ALWAYS ON THE ASSESSEE FOR PROVING THAT UNDISCLOSED INCOME IS Y NOT ON ACCOUNT OF ANY FRAUD OR GROSS OR WILLFUL NEGLIGENCE ON THE PART OF THE ASSESSEE. IT IS HELD IN CASE OF CIT VS. ZEKOO SHOE FACTORY [127 ITR 837 (AL L.)] AND IN CASE OF BANARAS TEXTORIUM VS. CIT 169 ITR 782 (ALL). FURTHER, THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. LALCHAND TIRTHRAM 2 25 ITR 675 HAS HELD THAT MERE OFFERING EXPLANATION IS NOT SUFFICIENT EXPLAN ATION TO BE SUBSTANTIATED BY COGENT AND RELIABLE EVIDENCE. IN THE CASE OF CIT VS . SOMNATH WINE MILLS 214 ITR 32, THE HON'BLE GUJARAT HIGH COURT HELD THAT TH E FINDING OF THE TRIBUNAL THAT THE ASSESSEES INCOME FROM UNDISCLOSED SOURCES , CONCEALMENT-PENALTY IS LEVIABLE. FURTHER THE RELIANCE IS ALSO PLACED ON TH E FOLLOWING DECISIONS WHERE IT IS HELD THAT FALSE INFLATION OF EXPENSES/ANY DEDUCT IBLE ITEM FOR COMPUTING INCOME-FALSITY OF ENTRIES-PENALTY IS LEVIABLE. I) CIT VS. GATES FOAM & RUBBER CO. 91 ITR 464 (KE R.) II) ANAND LIQUORS VS. CIT 232 ITR 35 (KER.) III) ACIT VS. MELOOD RUSSEL (I) LTD. 101 ITD 39 ( KOL) IV) ACIT VS. HINDUSTAN CONDUCTORS (P) LTD. 58 ITD 410 (MUM) 5 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. KEEPING IN VIEW THAT THE ASSESSEE HAS CLAIMED PATEN TLY WRONG DEDUCTION, THEREFORE, IT IS HELD THAT HE HAS SUBMIT TED INACCURATE PARTICULARS. THE HON'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE 314 ITR 114 (SC) HAS HELD THAT MENS-REA I S NOT ESSENTIAL FOR SECTION 271(1)(C) AND THERE IS NO DISCRETION WITH T HE ASSESSING OFFICER FOR LEVYING OF PENALTY U/S. 271(1)(C) OF THE ACT.(1 )(C). THE PENALTY U/S. 271(1)(C) IS CIVIL LIABILITY, WILLFUL CONCEALMENT I S NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING THE CIVIL LIABILITY AS IN THE CASE OF PROSECUTION U/S. 276C. IN THE TOTALITY OF THE FACTS AND CIRCUMS TANCES, IT IS HELD THAT THE ASSESSING OFFICER HAS RIGHTLY LEVIED PENALTY U/ S. 271(1)(C) OF THE I.T. ACT. THUS, ALL THE ORDERS ARE CONFIRMED AND THE GRO UNDS OF APPEAL ARE DISMISSED. 6. THE LD. SR. COUNSEL FOR THE ASSESSEE SHRI SONDE SUBMITTED THAT IN THE QUANTUM APPEAL, THE TRIBUNAL HAD DISCUSSED AND INTERPRETED FINE DISTINCTION BETWEEN THE ASSESSEE ITSELF BEING ENGAGED IN PHARMACEUTICAL BU SINESS AS AGAINST THE ASSESSEE WHO IS ENGAGED IN DEVELOPMENT OF FORMULATION AS PER THE ORDERS PLACED BY ITS PARENT COMPANY. THIS SCUTTLE DISTINCTION WAS BROUGHT OUT BY THE TRIBUNAL AFTER MUCH DELIBERATION WHICH ITSELF PROVES THAT THE ISSUE IS A DEBATABLE ONE. THE TRIBUNAL HAS DISCUSSED IN DETAIL AT PARA-11 OF THE ORDER, WHICH IS AS FOLLOWS: LEARNED COUNSEL FOR THE ASSESSEE HAS ARGUED THAT I T IS COVERED UNDER SECTION 35(1)(IV), READ WITH SECTION 43(4)(III)(A). WE WILL, THEREFORE, RESTRICT OUR DISCUSSION TO THESE PROVISIONS ONLY. IT WAS STATED ON BEHALF OF THE ASSESSEE THAT THE SCIENTIFIC RESEARCH, INSOFAR AS IT IS AP PLICABLE TO THE ASSESSEE, MEANS ANY SCIENTIFIC RESEARCH WHICH MAY LEAD TO OR FACILI TATE AN EXTENSION OF THAT BUSINESS OR, AS THE CASE MAY BE, ALL BUSINESSES OF THAT CLASS. HE FURTHER ASSERTED THAT THE EXPRESSION SCIENTIFIC RESEARCH R ELATED TO THE BUSINESS AS USED IN SECTION 35(1)(IV) IS SIMILAR TO SCIENTIFIC RESEARCH RELATED TO A BUSINESS AS EMPLOYED IN SECTION 43(4)(III) AND WHEN BOTH ARE SEEN IN JUXTAPOSITION TO EACH OTHER, IT IMPLIES THAT IF THE SCIENTIFIC RESEA RCH LEADS TO AN EXTENSION OF THE ASSESSEES BUSINESS, THEN THE DEDUCTION CANNOT BE DENIED. IN THIS BACKGROUND OF THE FACTS THE LEARNED AUTHORISED REPRESENTATIVE STATED THAT THE ASSESSEE HAS BEEN BENEFITED WITH THE RESULTS OF ITS RESEARCH IN ASMUCH AS ITS BUSINESS OF SCIENTIFIC RESEARCH HAS INCREASED. WE ARE NOT CONV INCED WITH THE INTERPRETATION GIVEN BY THE LEARNED AUTHORISED REPRESENTATIVE TO THE STATUTORY PROVISIONS. PRIMARILY THERE IS A DIFFERENCE IN THE LANGUAGE OF CLAUSE (IV) OF SECTION 35(1) AND SECTION 43(4)(III)(A) BECAUSE THE REFERENCE IN THE FORMER SECTION IS TO SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRI ED ON BY THE ASSESSEE AND IN 6 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. THE DEFINITION CLAUSE OF SECTION 43 THE LANGUAGE U SED IS SCIENTIFIC RESEARCH RELATED TO A BUSINESS OR CLASS OF BUSINESS TO INC LUDE ANY SCIENTIFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AN EXTENSION OF TH AT BUSINESS OR, AS THE CASE MAY BE, ALL BUSINESSES OF THAT CLASS. THE HARMONI OUS CONSTRUCTION OF THESE PROVISIONS CLEARLY INDICATES THAT THERE SHOULD BE A BUSINESS CARRIED ON BY THE ASSESSEE AND THE SCIENTIFIC RESEARCH SHOULD RELAT E TO THAT BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE. IT NOWHERE SUGGESTS TH AT THE BUSINESS OF CARRYING ON SCIENTIFIC RESEARCH IS COVERED WITHIN THE AMBI T OF THIS PROVISION. AGAIN THE REFERENCE TO THE EXTENSION OF THAT BUSINESS IN S ECTION 43(4)(III) CLEARLY DIVULGES THAT THE SCIENTIFIC RESEARCH SO DONE BY T HE ASSESSEE SHOULD CONTRIBUTE IN THE EXTENSION OF BUSINESS CARRIED ON BY IT. IT IS NOT AKIN TO THE EXTENSION OF THE BUSINESS OF SCIENTIFIC RESEARCH. FOR EXAMPLE, A PHARMACEUTICAL COMPANY MAY BE SELLING A PARTICULAR TABLET MEANT FOR CURING HEADACHE WITHIN AN HOUR FROM ITS CONSUMPTION. WHEN IT UNDERTAKES SCIENTIFIC RESEARCH AND INVENTS A FORMULA BY WHICH THE NEW TABLET WOULD CURE THE HEAD ACHE WITHIN 10 MINUTES, THE SCIENTIFIC RESEARCH LEADING TO THE INVENTION OF SUCH NEW TABLET WOULD CERTAINLY LEAD TO OR FACILITATE IN THE EXTENSION OF THE BUSINESS OF THE SALE OF MEDICINE OF CURING HEADACHE. IT IS THIS TYPE OF RES EARCH THAT WOULD BE COVERED WITHIN THE AMBIT OF SECTION 43(4)(III)(A). NOWHERE IT IS CONTEMPLATED THAT SCIENTIFIC RESEARCH SHOULD LEAD TO THE GROWTH OF TH E BUSINESS OF SCIENTIFIC RESEARCH ITSELF IN TERMS OF MORE ORDERS FOR RESEARC H AND DEVELOPMENT. HERE IS A CASE BEFORE US IN WHICH THE ASSESSEE IS ENGAGED IN THE DEVELOPMENT OF FORMULATION AS PER THE ORDERS PLACED BY ITS PARENT COMPANY. IT MEANS THAT THE ASSESSEE HAS TO KEEP ON TRYING VARIOUS PERMUTATIONS AND COMBINATIONS TILL THE DESIRED RESULT IS ACHIEVED AND FORMULA SO DEVELOPE D ACCORDS WITH THE REQUIREMENTS OF THE PARENT COMPANY. IT IS OBVIOUS THAT NOTHING MORE OR LESS THAN THE ORDER GIVEN BY THE PARENT COMPANY WOULD BE ACCEPTABLE AS THE END PRODUCT OF THE ASSESSEE'S RESEARCH IN THE FORM OF THE NEW FORMULATION MUST NECESSARILY MATCH WITH THE ORDER PLACED. THE FORMU LA SO DEVELOPED BY THE ASSESSEE IS, THEREAFTER, UTILIZED BY NOSTRUM, USA I N THE EXTENSION OF ITS BUSINESS. THE CONTRIBUTION OF THE ASSESSEE'S ACTIV ITY IS FACILITATING THE EXTENSION OF BUSINESS OF NOSTRUM, USA AND NOT THAT OF ITS OW N. THE SITUATION WOULD HAVE BEEN OTHERWISE IF THE ASSESSEE HAD BEEN ENGAGED IN THE PHARMACEUTICAL BUSINESS AND HAD UTILIZED THE SCIENTIFIC RESEARCH CARRIED OUT BY IT IN ITS BUSINESS OF PRODUCING TABLETS, ETC., IN WHICH CASE IT WOULD HAVE BEEN QUALIFIED FOR DEDUCTION WITHIN FOUR CORNERS OF THIS CLAUSE. IN O UR CONSIDERED OPINION THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CORR ECTLY PROCEEDED IN HOLDING THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UN DER SECTION 35(1)(IV). WE, THEREFORE, APPROVE THE VIEW TAKEN BY HIM ON THIS IS SUE. THIS GROUND IS NOT ALLOWED. 7 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. 7. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON VARIO US CASE LAWS WHICH ARE AS FOLLOWS: 1. CIT VS NALWA SONS INVESTMENT LTD. (327 ITR 543) WHE REIN IT HAS BEEN CONCLUDED AS FOLLOWS: CIT(A) AS WELL AS THE TRIBUNAL HAVING HELD THAT TH E CLAIM FOR DEDUCTION OF PAYMENT OF PROVIDENT FUND CONTRIBUTION MADE BEYO ND THE DUE DATE WAS DEBATABLE, PENALTY U/S. 271(1)(C) IS NOT LEVIAB LE IN RESPECT OF THE ADDITION MADE BY THE AO ON THIS ACCOUNT. 1) ACIT VS VIP INDUSTRIES LTD., 122 TTJ 289 2) EQUEST INDIA (P) LTD. VS ITO 3) PFIZER PHARMACEUTICALS (INDIA)(P) LTD. VS DCIT 135 TTJ 337 8. THE LD. COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON CIT VS RELIANCE PETRO PRODUCTS (P) LTD., WHEREIN IT HAS BEEN HELD THAT M ERELY BECAUSE THE ASSESSEE CLAIMED DEDUCTION WHICH HAS BEEN NOT ACCEPTED BY THE REVENU E, PENALTY U/S. 271(1) CANNOT BE ATTRACTED. IT WAS FURTHER HELD THAT READING THE WORDS INACCURATE AND PARTICULARS IN CONJUNCTION, THEY MUST MEAN THE DE TAILS SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDI NG TO TRUTH OR ERRONEOUS. IN THIS CASE, THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. SUCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVITING THE PENALTY U/S. 271(1)(C). A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOU NT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM M ADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. THEREFORE THE LD. C OUNSEL CONCLUDED THAT THE PENALTY PROCEEDINGS OUGHT TO BE QUASHED. 9. WITH RESPECT TO DENIAL U/S. 10B IN THE QUANTUM APPEAL, IT WAS THE DEPARTMENTS CASE THAT THE ASSESSEE WAS NOT MANUFAC TURING OR EXPORTING ANYTHING AS SUCH AND THE ASSESSEES BUSINESS WAS OF MERELY PROV IDING LABORATORY SERVICES ON 8 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. CONTRACT BASIS AND THE RESULTS OF THE LABORATORY TE STS WERE FORWARDED TO THE PARENT COMPANY I.E. NOSTRUM PHARMACEUTICAL INC. USA. IT WAS ALSO NOTED BY THE AO THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF DEVELOPMENT OR SALE OF COMPUTER SOFTWARE. ACCORDINGLY HE DENIED THE BENEFIT OF EXEMPTION. IN THE FIRST APPEAL, THE LD. CIT(A) NOTED THAT ON A REFERENCE MADE BY THE AO TO THE DEP ARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, HE WAS INTIMATED VIDE LETTER D T. 13.9.2006 BY THE MINISTRY OF COMMUNICATION AND INFORMATION TECHNOLOGY, DEPARTMEN T OF INFORMATION TECHNOLOGY, THAT THE ACTIVITIES OF THE ASSESSEE WERE NOT COVERE D UNDER IT/ITES. CONSIDERING THE DECISION OF THE MINISTRY OF COMMUNICATION AND INFOR MATION TECHNOLOGY AS ALSO OF THE DSIR, WHICH DID NOT ENTITLE THE ASSESSEE TO THE CLA IM OF EXEMPTION U/S. 10B, THE LD. CIT(A) ECHOED THE ACTION OF THE AO ON THIS COUNT. 10. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE TRIB UNAL HELD THAT THE BENEFIT OF EXEMPTION UNDER SEC. 10B WAS DENIED TO THE ASSESSEE ON THE BASIS OF LETTER OF THE DEPARTMENT OF INFORMATION & TECHNOLOGY ENABLED SERVI CES. HENCE UPHELD THE ORDER OF THE LD. CIT(A) IN REJECTING THE BENEFIT OF EXEMPTIO N U/S.10B. 11. IN THE HEARING BEFORE US, THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED AS FOLLOWS: THE ASSESSEE IS A 100% EOU AND ELIGIBLE FOR EXEMPTI ON U/S. 10B OF THE ACT FOR EXPORT OF ARTICLE/THING OR COMPUTER SOFTWAR E. THE DEFINITION OF COMPUTER SOFTWARE HAS BEEN EXPANDED BY INCLUDING TH EREIN IT ENABLED SERVICES AS NOTIFIED BY THE BOARD. THE EACH OF THE PROCESSE S AN SERVICES RENDERED BY ASSESSEE COMPANY INVOLVE EXTENSIVE USE OF IT AND TH US THESE SERVICES ARE DEFINITELY IT ENABLED SERVICES. THE ASSESSEE HAS AL SO BEEN REGISTERED BY NASCOM AS A COMPANY PROVIDING IT ENABLED SERVICES. HOWEVER, THE AO DID NOT AGREE WITH THE ASSESSEE AND REJECTED THE CLAIM OF EXEMPTION U/S. 10B OF THE I.T. ACT. IN ANY EVENT THE DENIAL OF THE DEDUC TION/EXEMPTION IS NOT ON ACCOUNT OF ANY CONCEALMENT BUT DUE TO A DIFFERENCE IN INTERPRETATION OF THE LAW BETWEEN ASSESSEE AND THE DEPARTMENT. THE SECOND LI MB OF THE PROVISIONS OF SEC. 271(1)(C) STANDS ATTRACTED ONLY IF THE ASSESSE E HAS CONCEALED INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF. THE ASSE SSEE HAS FURNISHED AUDIT REPORT U/S. 44AB AND AUDIT REPORT FOR CLAIM OF EXEM PTION U/S. 10B ALONGWITH RETURN OF INCOME. 9 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. 12. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED ON THE DECISION IN THE CASE OF IDBI VS DCIT WHEREIN IT HAS BEEN HELD AS FOLLOWS: WHEN A LEGAL CLAIM IS MADE BY THE ASSESSEE, IT IS OBVIOUSLY OPEN TO THE AO TO ACCEPT OR REJECT THE INTERPRETATION CANVASSED BY THE ASSESSEE, BUT THEN IT DOES NOT FOLLOW THAT WHEN THE CLAIM IS REJECTED, IT WOULD IMPLY THAT THERE HAS BEEN A CONCEALMENT OF INCOME ON THE PART OF THE ASS ESSEE KANBAY SOFTWARE INDIA (P) LTD. VS DCIT 122 TTJ (PUNE) 721: 22 DTR ( PUNE)(TRIB) 481. 13. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI SANJIV DUTT RELIED ON THE DECISION IN THE CASE OF CIT VS ZOOM COMMUNICATION (P) LTD. 327 ITR 510 & DCIT VS CHAMPALAL K. VARDHAN 128 ITD 309 WHEREIN IT HAS BEEN HELD AS FOLLOWS: A CAREFUL CIRCUMSPECTION OF THE ABOVE EXPLANATION ( 1) DIVULGES THAT WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPU TATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, SUCH PERSON FAILS TO OFF ER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AN D FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DI SCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL I NCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C ) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THE EFFECT OF THIS EXPLANATION IS THAT IF THE NECESSARY CRITERIA AS STATED HEREIN ARE SATISFIED, VIZ., (I) THE PERSON F AILS TO OFFER THE EXPLANATION, OR (II) HE OFFERS THE EXPLANATION WHICH IS FOUND BY TH E AUTHORITIES TO BE FALSE, OR (III) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THA T ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM, THEN THE AMOUNT DI SALLOWED IN COMPUTING THE TOTAL INCOME SHALL FOR THE PURPOSES OF CLAUSE ( C) OF THIS SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH THE PAR TICULARS HAVE BEEN CONCEALED. IF THE CASE FALLS IN ANY OF THESE THREE CRITERIA, THEN THE DEEMING PROVISION COMES INTO PLAY AND THE AMOUNT ADDED OR D ISALLOWED IN COMPUTING THE TOTAL INCOME IS CONSIDERED AS THE INCOME IN RES PECT OF WHICH PARTICULARS HAVE BEEN CONCEALED FOR THE PURPOSES OF CLAUSE (C) OF SECTION 271(1) AND THE PENALTY FOLLOWS. PER CONTRA, IF THE ASSESSEE SUCCES SFULLY COMES OUT OF THE ABOVE THREE CRITERIA THEN IT CANNOT BE DEEMED THAT HE HAS CONCEALED THE PARTICULARS OF HIS INCOME WITH REFERENCE TO THE AMOUNT ADDED OR DI SALLOWED IN COMPUTATION OF TOTAL INCOME. ONE CANNOT LOOSE SIGHT OF THE FACT TH AT PENALTY UNDER SECTION 271(1)(C) IS ALWAYS THE OUTCOME OF CONCEALMENT OF I NCOME OR FURNISHING OF 10 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. INACCURATE PARTICULARS OF INCOME. IT MAY BE A CASE OF CONCEALMENT OF INCOME, WHERE SOME INCOME EARNED BY THE ASSESSEE IS TAKEN B ACK AND NOT OFFERED FOR TAXATION. IT MAY BE A CASE OF FURNISHING OF INACCUR ATE PARTICULARS OF INCOME, WHERE THOUGH INCOME EARNED WAS OFFERED, BUT SOME OT HER MEANS WERE ADOPTED FOR REDUCING TAX BURDEN, SUCH AS, WRONG CLA IM OF EXPENSES OR DEDUCTIONS OR EXEMPTIONS ETC. IT IS FUNDAMENTAL THA T BOTH THE CASES OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME, EVENTUALLY LEAD TO EVASION OF TAX, WHICH IS INTENDE D TO BE CURBED BY THE PENALTY PROVISION. EVERY CASE OF PENALTY PRE-SUPPOSES THAT T HERE HAS BEEN THE REJECTION OF ASSESSEES STAND QUA SOME DISALLOWANCE OR ADDITI ON ETC. IN THE QUANTUM PROCEEDINGS. WHEREAS PENALTY IS ALWAYS THE OUTCOME OF ADDITION ETC., BUT ITS CONVERSE IS NOT TRUE, THAT IS, ADDITION ETC. DOES N OT ALWAYS LEAD TO PENALTY. SO EVERY REJECTION OF A CLAIM MAY OR MAY NOT INVITE PE NALTY. IF THE ASSESSEE MAKES A BONA FIDE CLAIM, WHICH IS NEGATIVED AND ADDITION IS MADE, THEN PENALTY CANNOT FOLLOW. IF HOWEVER THE CLAIM ITSELF IS MALA FIDE, THAT IS, IT LACKS GOOD FAITH OR SOME SORT OF DECEPTION IS INHERENT, THEN PENALTY WOULD BE JUSTIFIED. WHEREAS CASES INVOLVING REJECTION OF BONA FIDE CLAIMS WOULD FALL WITH IN THE CLASS OF CASES AS CONSIDERED IN RELIANCE PETROPRODUCTS (P.) LTD. (SUPRA) HELD TO BE NOT ATTRACTING PENALTY UNDER SECTION 271(1)(C), THE CAS ES INVOLVING REJECTION OF MALA FIDE CLAIMS WOULD BE CAUGHT WITHIN THE MISCHIEF OF SECTION 271(1)(C). THE POSITION HAS BEEN SET STRAIGHT BY THE SUPREME COURT IN RELIANCE PETROPRODUCTS (P.) LTD.S CASE (SUPRA) BY HOLDING THAT : WHEN SU CH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. IT, THEREFO RE, TRANSPIRES THAT IF INFORMATION GIVEN IN THE RETURN TURNS OUT TO BE INACCURATE AND INTENTIONALLY GIVEN TO GAIN SOME TAX ADVANTAGE, WHICH IS OTHERWISE NOT DUE, THE N THE ASSESSEE CANT BE SPARED FROM THE PENALTY. 14. THE LD. DR ON THE OTHER HAND VEHEMENTLY ARGUED THAT THERE WAS NO JUSTIFICATION FOR THE CLAIM AS NO NOTES WERE GIVEN FOR THE COMPUTATION AND THE INTERPRETATION GIVEN BY 35(1)(IV) COULD NOT HAVE B EEN DIFFERENT FROM THAT GIVEN BY THE TRIBUNAL. FURTHER THE CLAIM WOULD NOT HAVE BEE N FOUND OUT IN THE ABSENCE OF SCRUTINY AND THE ASSESSEE WOULD HAVE GOT AWAY WIT H ERRONEOUS AND INACCURATE PARTICULARS GIVEN BY HIM TO THE AO ALSO THAT THE E XPLANATION IS FANCIFUL AND IMAGINARY HAVING NO ONUS BELIEF IN THE SAME. HE RELIED ON TH E DECISION IN THE CASE OF CIT VS ZOOM COMMUNICATION (P) LTD. 327 ITR 510 (SUPRA) & DCIT VS CHAMPALAL K. VARDHAN 128 ITD 309 (SUPRA). 11 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. 15. WE HEARD BOTH THE PARTIES. IN THE CASE OF VIP INDUSTRIES IT HAS BEEN HELD AS FOLLOWS: THE NECESSARY ELEMENTS FOR ATTRACTING THIS EXPLANATI ON ARE THREE-FOLD. (A) THE PERSON FAILS TO OFFER THE EXPLANATION, OR (B) H E OFFERS THE EXPLANATION WHICH IS FOUND BY THE AUTHORITIES TO BE FALSE, OR (C) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO P ROVE THAT SUCH EXPLANATION IS BONAFIDE AND THAT ALL THE FACTS RELATING TO THE SAM E HAVE BEEN DISCLOSED BY HIM. IT IS VIVID THAT THE FIRST ELEMENT IS NOT SATISFIED BECAUSE THE ASSESSEE HAS OFFERED THE EXPLANATION ABOUT THE CLAIM OF DEDUCTIO N. THE CASE OF THE ASSESSEE ALSO DOES NOT FALL IN THE SECOND CATEGORY. HE MADE A CLAIM FOR DEDUCTION AT ONE HUNDRED PERCENT U/S.35 IN RESPECT OF THE CAR USED B Y IT FOR THE PURPOSES OF RESEARCH AND DEVELOPMENT AND THE ASSESSING OFFICER HAS NOT FOUND THAT SUCH CAR WAS NOT USED FOR THE PURPOSE OF R&D. FURTHER SE CTION 35(1)(IV) STATES THAT THE DEDUCTION IN RESPECT OF ANY EXPENDITURE OF A C APITAL NATURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE, SHALL BE ALLOWED. THUS IF CAPITAL EXPENDITURE IS INCURRED ON SCIENTIF IC RESEARCH RELATING TO THE BUSINESS CARRIED ON BY THE ASSESSEE, THE ENTIRE AMO UNT IS DEDUCTIBLE U/S.35(1)(IV). ALBEIT THE ASSESSEE HAS LOST ITS CLA IM UNDER THIS SECTION AT HUNDRED PER CENT DEDUCTION ON THE MOTOR CAR PURCHAS ED AND USED BY IT FOR SCIENTIFIC RESEARCH AND DEVELOPMENT BUT THE AO HAD ALLOWED DEPRECIATION AT 20% ON THE COST OF CAR PURCHASED. IT HAS NOT BEEN D ENIED BY THE AO THAT THE CAR WAS NOT USED IN CONNECTION WITH THE ACTIVITIES RELATING TO R&D. THUS IT IS CLEAR THAT THE ASSESSEE OFFERED EXPLANATION, WHICH WAS NOT FOUND TO BE FALSE BY THE AO. THE THIRD INGREDIENT FOR THE APPLICABILITY OF THE DEEMING PROVISION IS THAT THE PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONAFIDE. T HE ASSESSEES CASE DOES NOT FALL WITHIN THE PARAMETERS OF THIS PROVISION ALSO F OR THE REASON THAT HE OFFERED EXPLANATION THAT THE CAR WAS USED FOR THE PURPOSES OF SCIENTIFIC RESEARCH AND DEVELOPMENT. HIS EXPLANATION IS BONAFIDE AND THIS F ACT HAS NOT BEEN REFUTED BY THE ASSESSING OFFICER. SIMPLY BECAUSE THE ASSESSING OFFICER CHOSE TO NEGATIVE THE ASSESSEES CLAIM IN ENTIRETY IT WOULD NOT IPSO FACTO MEAN THAT THE EXPLANATION IS NOT BONAFIDE. WHETHER AN EXPLANATION IS BONAFIDE OR NOT DEPENDS ON THE CUMULATIVE EFFECT OF THE ATTENDING CIRCUMSTA NCES PREVAILING IN EACH CASE. NO STRAITJACKET FORMULA CAN BE DEVISED FOR ASCERTAI NING WHETHER OR NOT THE EXPLANATION OFFERED BY THE ASSESSEE IS BONA FIDE. W E ARE DEALING WITH A CASE IN WHICH THE ASSESSEE IS UNDISPUTEDLY ENGAGED IN THE R &D ACTIVITY, FOR WHICH DEDUCTION U/S.35 WAS CLAIMED AT RS.47.40 LAKHS, WHI CH INCLUDED A SUM OF 12 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. RS.3.23 LAKHS TOWARDS PURCHASE OF MARUTI CAR FOR TH E R&D STAFF. THE ASSESSING OFFICER ALLOWED THE DEDUCTION U/S.35 IN ENTIRETY EX CEPT FOR DISALLOWING 80% OF RS.3.23 LAKHS BY TREATING IT AS NOT USED FOR R&D AC TIVITY. THE FACTS THAT THE ASSESSEE HAD CARRIED OUT R&D ACTIVITY AND THE CAR W AS ALSO PURCHASED BY IT FOR THE USE BY THE R&D STAFF HAVE NOT BEEN DENIED BY TH E AO. THE EXPLANATION OF THE ASSESSEE FOR CLAIMING FULL DEDUCTION U/S.35 CAN NOT BE SAID TO BE FANCIFUL. FURTHER THE ASSESSEE DISCLOSED ALL THE FACTS RELATI NG TO ITS CLAIM BY WAY OF STATEMENT NO. 6 ANNEXED TO THE AUDIT REPORT, WHICH FORMS PART AND PARCEL OF THE RETURN OF INCOME, IN WHICH IT HAS BEEN SPECIFIC ALLY MENTIONED ABOUT THE R&D EXPENSES DEBITED TO THE P&L ACCOUNT `(INCLUDING DEPRECIATION). HENCE THE CASE OF THE ASSESSEE CANNOT BE COVERED IN THE THIRD CATEGORY ALSO. UNDER THESE CIRCUMSTANCES IT IS PATENT THAT THE NECESSARY COND ITIONS FOR INVOKING EXPLANATION 1 TO SECTION 271(1)(C) ARE LACKING. IT IS AUSTERE FROM THE LANGUAGE OF SECTION 271(1)(C) THAT THE PENALTY IS IMPOSABLE FOR THE CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF SUCH INCOME. THE LITERAL MEANING OF THE WORD `CONCEAL IS `TO HI DE. BE THAT AS IT MAY, IN ORDER TO BE COVERED WITHIN THE MISCHIEF OF THIS SEC TION, THE ACT (INTENTIONAL OR UNINTENTIONAL) OF THE ASSESSEE SHOULD RESULT INTO T HE CONCEALMENT OF INCOME. WHERE AN ASSESSEE GENUINELY MAKES CLAIM FOR A PARTI CULAR DEDUCTION BY DISCLOSING ALL THE NECESSARY FACTS RELATING TO THE SAME, THAT WILL NOT AMOUNT TO CONCEALMENT EVEN IF THE ASSESSEES CLAIM IS REJECTE D. THERE MAY BE A SITUATION IN WHICH THE ASSESSEE EARNS INCOME BUT UNINTENTIONA LLY FAILS TO DISCLOSE THE SAME IN THE RETURN. SUCH TYPES OF CASES ARE COVERED BY THE JUDGMENT IN DHARAMENDRA TEXTILES (SUPRA). SO THE SCOPE OF THIS JUDGMENT EXTENDS TO ROPING IN THE CASES OF CONCEALMENT OF INCOME EVEN I F THE ASSESSEE DID NOT HAVE THE GUILTY MIND BUT STILL THERE IS FAILURE TO DISCL OSE THE INCOME. FOR EXAMPLE AN ASSESSEE MAY HAVE TEN BANK ACCOUNTS FROM WHICH INTE REST INCOME IS RECEIVED. THE ASSESSEE FILES A RETURN BY DECLARING INTEREST I NCOME FROM NINE BANK ACCOUNTS BUT OMITS TO INCLUDE SUCH INTEREST INCOME FROM THE TENTH BANK ACCOUNT AND FURTHER THIS OMISSION IS AND NOT WILLF UL. SUCH WOULD BE THE CASES CAUGHT WITHIN THE SWEEP OF THE RATIO LAID DOWN IN T HE CASE OF DHARMENDRA TEXTILES PROCESSORS AND ORS. (SUPRA). IN THIS CASE THE CONCEALMENT OF INCOME BY NOT OFFERING THE INTEREST INCOME FOR TAXATION FR OM THE TENTH BANK ACCOUNT IS THERE, EVEN THOUGH INADVERTENTLY, AND THE PENALTY W ILL FOLLOW NOTWITHSTANDING THE FACT THAT THE ASSESSEE WAS NOT AWARE OF HAVING EARNED INTEREST INCOME FROM THE TENTH BANK ACCOUNT. BUT IN A CASE WHERE A GENUINE CLAIM IS MADE FOR DEDUCTION WHICH IS NOT ACCEPTED BY THE REVENUE BUT ALL THE NECESSARY 13 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. PARTICULARS ARE DECLARED BY THE ASSESSEE IN THE RET URN OF INCOME, IT CANNOT BE SAID BY ANY STRETCH OF IMAGINATION THAT THE ASSESSE E HAS CONCEALED HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME IN RE SPECT OF THE CLAIM OF DEDUCTION WHICH STANDS REPELLED BY THE AUTHORITIES. IF PENALTY IS IMPOSED UNDER SUCH CIRCUMSTANCES ALSO THEN PROBABLY THERE WILL RE MAIN NO COURSE OPEN TO THE ASSESSEE FOR GENUINELY CLAIMING A DEDUCTION WHICH I N HIS OPINION IS ADMISSIBLE, BECAUSE THE FEAR OF SUCH CLAIM BEING REJECTED IN EV ENTUALITY WILL EXPOSE HIM TO THE RIGOR OF PENALTY. OBVIOUSLY SUCH A PROPOSITION IS BEYOND ANY RECOGNIZED CANON OF LAW. THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDINGS AND HENCE IT BECOMES AMPLY CLEAR THAT A NY ADDITION MADE DOES NOT AUTOMATICALLY LEAD TO THE IMPOSITION OF PENALTY U/S.271(1)(C). IN THE PENALTY PROCEEDINGS THE ASSESSEE IS GIVEN A CHANCE TO EXPLA IN HIS CASE. 16. WE FIND THAT THE CASE OF VIP INDUSTRIES (SUPRA) IS VERY SIMILAR TO THE PRESENT CASE AND HENCE WE ARE INCLINED TO FOLLOW THE RATIO OF THE DECISION. THE APEX COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS (P) LTD. (322 ITR 158) HAS HELD THAT IN ORDER TO ATTRACT PROVISIONS OF SEC. 271(1)(C) THERE HAS TO BE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME. AS REGARDS THE CLAIM FOR DEDUCTION U/S. 10B, THE DEPARTMENT HAD REFERRED THE MATTER TO THE MINISTRY OF SCIENCE & TECHNOLOGY. THE MINISTRY HAD REPLIED VIDE THEIR LE TTER DT. 13.9.2006 THAT ACTIVITIES OF THE ASSESSEE WILL NOT BE COVERED BY ITES. THE ASSES SEE ASKED FOR A REVIEW WHICH WAS AGAIN CONFIRMED BY THE MINISTRY VIDE LETTER DT. 2.2 .2007. FURTHER IN THE LETTER DT. 2.2.2007 FROM THE MIN. OF SCIENCE & TECHNOLOGY IT H AS BEEN OBSERVED HOWEVER INDISPENSIBLE USE OF INFORMATION TECHNOLOGY AND ITS APPLICATIONS THROUGH ALL STAGES OF YOUR WORK IN DEVELOPMENT OF DRUG FORMULATIONS INVOL VING LARGE VOLUME OF DATA, RETRIEVAL, STORAGE, UPDATING, CONVERSION AND GENERA TION IN R&D PROCESS THROUGH USE OF INFORMATION & TECHNOLOGY IS NOT DENIED. WHEN THE MINISTRY ITSELF HAS ACCEPTED THE R&D PROCESS OF THE ASSESSEE, THE DISALLOWANCE OF EX PENDITURE U/S. 35 (BUT ALLOWING DEPRECIATION THE SAME U/S. 32) CANNOT LEAD TO LEVY OF PENALTY. 14 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. 18. TO CONCLUDE IN OUR OPINION ALL THE FACTS WERE GIVEN AT THE TIME OF FILING THE RETURN IN THE PRESENT CASE AND THEREFORE THOUGH THE ASSESSEE MIGHT HAVE MADE AN INCORRECT CLAIM IN LAW IT CANNOT TANTAMOUNT TO FURN ISH INACCURATE PARTICULARS. THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 35(1)(IV) ON ON E OF THE PLAUSIBLE WAY OF INTERPRETING THE SECTION. SIMILARLY, THE CLAIM U/S . 10B WAS UNDER HIS BONAFIDE BELIEF. IN BOTH THE CLAIMS FOR DEDUCTION, THE ASSESSEE CANN OT BE ACCUSED OF FILING INACCURATE PARTICULARS. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2002-03, 2003-04 AND 2004-05 ARE ALLOWED. ASSESSMENT YEAR 2005-06 20. IN THE ASSESSMENT YEAR 2005-06, THE PENALTY ORD ER STATES AS FOLLOWS: FROM THE ABOVE IT IS SEEN THAT THE ASSESSEE HAD REC EIVED THE ABOVE REFERRED LETTER DT. 4.2.2004, IN THE PREVIOUS YEAR 2003-04 RELEVANT TO THE A.Y. 2004-05. THE ASSESSEES CLAIM FOR DEDUCTION U/S. 8 0IB (8A) WAS REJECTED IN THE A.Y. 2004-05. FOR THE REASONS AS DISCUSSED IN THE ASSESSMENT ORDER PASSED U/S.143(3) DT. 27.11.2006 IN DETAIL THE ASSESSEES CLAIM OF DEDUCTION U/S. 80IB (8A) IS REJECTED FOR A.Y. 2005-06 ALSO. IN VIEW OF THE ABOVE DISCUSSION, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80IB (8A) IS ALSO FOUND UNTENABLE AND IS THEREFORE, REJECTED. THEREFORE AN AMOUNT OF RS. 46,24,403/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 21. WE FIND THAT THE TRIBUNAL HAS HELD IN THE QUANT UM APPEAL AS FOLLOWS: ON GOING THROUGH THE SCHEME OF SECTION 80IB IN TO TALITY, WE OBSERVE THAT THE FOUR CONDITIONS STIPULATED UNDER SUB-SECTI ON (2) ARE TO BE FULFILLED ONLY IF THE ELIGIBLE ASSESSEE IS AN INDUSTRIAL UNDERTAKI NG WITHIN THE MEANING OF SUB- SECTIONS (3) TO (5), AS THE CASE MAY BE. IF THE ASS ESSEE IS NOT AN INDUSTRIAL UNDERTAKING BUT IS OTHERWISE ELIGIBLE FOR DEDUCTIO N UNDER ANY OF OTHER SUB- SECTIONS DISCUSSED ABOVE, THEN THERE IS NO REQUIREM ENT FOR IMPORTING THE CONDITIONS STIPULATED IN SUB-SECTION (2) WHICH ARE APPLICABLE TO INDUSTRIAL UNDERTAKINGS, AND REQUIRING THEIR SATISFACTION. SIN CE THE INSTANT ASSESSEE IS ENGAGED IN THE BUSINESS OF CARRYING OUT SCIENTIFIC RESEARCH AND DEVELOPMENT AND HAS BEEN APPROVED BY THE GOVERNMENT OF INDIA FO R THE BENEFIT OF DEDUCTION U/S.80IB(8A), IN OUR CONSIDERED OPINION T HE CONDITIONS OF SUB-SECTION 15 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. (2) ARE NOT REQUIRED TO BE FULFILLED BY IT. THE LD. CIT(A) HAS INTERPRETED SECTION 80IB IN AN INCONSISTENT MANNER SO AS TO CAST SUCH O BLIGATIONS ON THE ASSESSEE WHICH HAVE NOT BEEN IMPOSED BY THE STATUTE. WE, THE REFORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND DIRECT THE ASSESSI NG OFFICER TO ALLOW DEDUCTION. 22. SINCE IN THE QUANTUM APPEAL, THE AO HAS BEEN DI RECTED TO ALLOW THE DEDUCTION U/S. 80IB (8A), THE PENALTY LEVIED HAS NO LEGS TO STAND AND IS DELETED . A.Y. 2004-05 & 2005-06 23. FOR THE A.Y. 2004-05 BY ORDER UNDER SEC. 154 OF THE I.T. ACT, 1961 DT. 22.6.2010 IT HAS BEEN HELD AS FOLLOWS: THE ASSESSEE HAS FURTHER POINTED OUT THAT WHILE CO MPLETING THE ASSESSMENT U/S. 143(3), THE DEPRECIATION ON WDV OF ASSETS WHICH WERE ACQUIRED IN THE F.Y. 2001-02 RELEVANT TO A.Y. 2002- 03 AND IN THE F.Y. 2002-03 RELEVANT TO THE A.Y. 2003-04, HAS NOT BEEN GIVEN IN THE ASSESSMENT FOR A.Y. 2004-05. THIS CONTENTION OF TH E ASSESSEE HAS BEEN CAREFULLY GONE THROUGH AND FROM VERIFICATION OF REC ORDS OF A.Y. 2002-03, 2003-04 AND 2004-05, IT IS SEEN THAT THE DEPRECIATI ON ON WDV OF ASSETS WHICH WERE ACQUIRED IN A.Y. 2002-03 AND 2003-04 HAS NOT BEEN GIVEN. THIS BEING A MISTAKE APPARENT FROM RECORDS IS RECTI FIED VIDE HIS ORDER AND DEPRECIATION IS ACCORDINGLY ALLOWED TO THE ASSE SSEE. 24. FURTHER IT HAS BEEN HELD AS FOLLOWS: BOOK PROFIT U/S. 115JB RS. 1,87,77,012/- (AS PER ORDER DT. 19.3.2010 GIVING EFFECT TO THE ORDER OF THE ITAT DT. 28.8.2008.) 25. PENALTY PROCEEDINGS HAVE BEEN THEREAFTER INITIA TED FOR CONCEALMENT U/S. 271(1)(C). THE CONCEALMENT ALLEGED IS WITH RESPECT TO COMPUTATION AS PER THE NORMAL PROVISION. THE BOOK PROFIT HAS BEEN DETERMINED AT R S. 1,87,77,012/- GIVING EFFECT TO THE ORDER OF ITAT DT. 28.8.2008. 16 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. 26. SIMILARLY FOR THE ASSESSMENT YEAR 2005-06 BOOK PROFIT U/S. 115JB OF THE I.T. ACT AS PER ORDER DT. 24.6.2010 HAS BEEN ARRIVED AT RS. 6,88,65,914/-. HENCE THE ASSESSEE RELIED ON THE DECISION IN THE CASE CIT VS USHDEVE I NTERNATIONAL LTD., WHEREIN IT HAS BEEN HELD AS FOLLOWS: WHERE THE ASSESSMENT UNDER THE REGULAR PROVISIONS OF THE ACT, IN WHICH ADDITIONS WERE MADE, HAS BEEN SUBSTITUTED WITH THAT UNDER SEC. 115JB, AND IN THE LATER CASE, SUCH ADDITIONS WERE EITHER NOT MADE OR FINALLY DELETED BY THE TRIBUNAL, THERE CANNOT BE ANY QUESTION OF IMPOSING PENALTY U/S. 271(1) QUA THESE ADDITIONS, EVEN ON MERITS, PENALTY CANNOT BE SUSTAINED WHERE THE ASSESSEE HAD MADE THE CLAIM OF DEDUCTION BY MAKING COMPLETE DISCLOSURE AND BY FOLLOWING ONE OF THE TWO SUSTAINABLE VIEWS. 27. THE ASSESSEE ALSO RELIED ON THE DECISION IN THE CASE OF RUCHI STRIPS & ALLOYS LTD. VS DCIT WHERE SIMILAR VIEW HAS TAKEN AS OF CIT VS USHDEVE INTERNATIONAL LTD.,(SUPRA). 28. RESPECTFULLY FOLLOWING THE DECISION OF THE CO O RDINATE BENCH , WE ALLOW THE ASSESSEES APPEAL FOR THE A.Y. 2004-05 & 2005-06. 29. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED FOR ALL THE YEARS. ORDER PRONOUNCED ON THIS 30 TH DAY OF AUGUST, 2011 SD/- SD/- ( R. S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI, DATED :30 TH AUGUST, 2011 RJ 17 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, E - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI 18 ITA NO. 77 TO 80/MUM/2010 M/S. ENEM NOSTRUM REMEDIES PVT. LTD. DATE INITIALS DRAFT DICTATED ON 0 2 3 /08/2011 DRAFT PLACED BEFORE THE AUTHOR 0 26 /08/2011 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER AM/JM DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM APPROVED DRAFT COMES TO THE SR. PS KEPT FOR PRONOUNCEMENT ON. FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK DATE ON WHICH FILE GOES TO THE AR DATE OF DISPATC H