SRINI PHARMACEUTICALS PRIVATE LIMITED,HYDERABAD V. DCIT., CENTRAL CIRCLE-2(3), HYDERABAD

ITA 1121/HYD/2025

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The case involves Srini Pharmaceuticals Private Limited, which claimed a weighted deduction under section 35(2AB) of the Income Tax Act, 1961, for R&D expenditures. The company filed its return for the assessment year 2012-2013, claiming a deduction based on Form-3CM issued by the DSIR, but did not have Form-3CL, which quantifies the eligible deduction. The Assessing Officer disallowed the deduction and levied a penalty for furnishing inaccurate particulars of income. The CIT(A) upheld the penalty, leading the company to appeal to the Tribunal. The Tribunal found that the company had not furnished inaccurate particulars of income as it had disclosed all necessary facts and the claim was based on a legitimate expectation of receiving the required form from DSIR.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775684 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2012-2013
• Appeal Filed On: 30-06-2025
• Other Referred Cases: CIT vs. SSA's Emerald Meadows [2016] 73 taxman.com 248 (SC), CIT vs. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka), CIT, Ahmedabad vs. Reliance Petroproducts (P.) Ltd., [2010] 322 ITR 158 (SC), Akums Drugs and Pharmaceuticals Ltd. vs. Asst./DCIT [2025] 175 taxman.com 135 (Delhi-Trib.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIN KUMAR
• Assessee Lawyers: MV PRASAD
• Keywords: Invalid notice; Competent authority
• Section: 143(3); 271(1)(c)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “B” BENCH: HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER ITA.No.1121/Hyd./2025 Assessment Years 2012-2013 Srini Pharmaceuticals Private Limited, Hyderabad – 500 033. . Telangana. PAN AACCS8456P vs. The DCIT, Central Circle-2(3), Hyderabad. Telangana. (Appellant) (Respondent) For Assessee : CA, MV Prasad For Revenue : Dr. Sachin Kumar, Sr. AR Date of Hearing : 04.09.2025 Date of Pronouncement : 12.09.2025 ORDER PER MANJUNATHA G. : The above appeal has been filed by the assessee against the Order dated 16.06.2025 of the learned Commissioner of Income Tax-(Appeals)-12, Hyderabad, relating to the assessment year 2012-2013. 2. The assessee has raised the following grounds in the instant appeal : Printed from counselvise.com 2 ITA.No.1121/Hyd./2025 1. “On the facts and circumstance of the case, Learned CIT(A) is erred in both law and facts while passing the order. 2. On the facts and circumstance of the case, Learned CIT(A) is not justified in dismissing the ground that penalty notice was issued for AY 2013-14 and not for the AY 2012-13. Accordingly penalty levied on invalid notice or without notice is not valid in law. 3. Without prejudice to the above ground, 4. On the facts and circumstance of the case, Learned CIT(A) is not justified in not considering the ground that notice did not specify which particular limb of Section 271(1)(c) was invoked for levy of penalty. 5. On the facts and circumstance of the case, Learned CIT(A) failed to consider that mere claim of deduction, would result in levy of penalty under Section 271(1)(c). 6. On the facts and circumstance of the case, Learned CIT(A) erring in confirming the penalty of Rs.50,00,000/-- 7. On the facts and circumstance of the case, Learned CIT(A) erred in concluding that furnishing Inaccurate particulars of income would result in concealment of income. 8. Any other ground or grounds that may be urged at the time of hearing of the appeal.” 3. Brief facts of the case are that, the appellant company is engaged in the business of manufacturing and sale of bulk drugs and intermediates, filed it's return of income for the assessment year 2012-2013 on 28.11.2012 declaring loss of Rs.10,29,71,338/-. The appellant company is having R & D facility and duly registered with DSIR, New Delhi and the Certificate from DSIR in Form 3CM was available for the assessment year under consideration. Printed from counselvise.com 3 ITA.No.1121/Hyd./2025 Based on the Form-3CM, the appellant company has claimed deduction u/sec.35(2AB) of the Income Tax Act, 1961 [in short “the Act”] towards R & D expenditure incurred at Rs.1,21,32,203/- @ 200% and claimed total deduction of Rs.2,42,64,406/-. The case was selected for scrutiny and the assessment has been completed under section 143(3) of the Income Tax Act, 1961 [in short “the Act”] by making addition of Rs.1,21,32,203/- towards disallowance of weighted deduction claimed u/sec.35(2AB) of the Act, on the ground that, the appellant company could not furnish Form-3CL. 4. The appellant-company has challenged the addition made by the Assessing Officer towards disallowance of weighted deduction u/sec.35(2AB) of the Act before the CIT(A). The appeal filed by the assessee company has been subsequently withdrawn on the ground that, the Competent Authority i.e., DSIR has rejected the application filed by the assessee company in Form-3CK and not issued Form-3CL, quantifying the amount eligible for deduction u/sec.35(2AB) of the Act. Printed from counselvise.com 4 ITA.No.1121/Hyd./2025 5. Subsequent to completion of assessment proceedings, the Assessing Officer has initiated penalty proceedings under section 271(1)(c) of the Act, for furnishing in accurate particulars of income and thereby, concealed the income and accordingly, a show cause notice under section 274 read with section 271(1)(c) of the Act was issued requiring the assessee company to furnish it’s explanation, if any. In response, the assessee company submitted that, the company was registered with DSIR, New Delhi, for carrying in house R & D activities and to this effect DSIR issued Form-3CM which is valid for the assessment year under consideration. Further, based on Form-3CM, the assessee company has claimed deduction u/sec.35(2AB) of the Act for Rs.2,42,64,406/- @ 200% on a total expenditure incurred for R & D purposes at Rs.1,21,32,203/-. At the time of filing the return of income, the appellant company was anticipating Form-3CL from the DSIR. However, subsequently, the Competent Authority has rejected the claim of the assessee company and not issued Form-3CL. Therefore, on the basis of rejection of claim by the DSIR, the Printed from counselvise.com 5 ITA.No.1121/Hyd./2025 assessee company has withdrawn the appeal filed before the learned CIT(A). However, it has furnished relevant particulars with regard to claim of deduction towards R & D expenditure u/sec.35(2AB) of the Act which is evident from the deduction allowed by the Assessing Officer @ 100% towards the said expenditure. Therefore, it cannot be said that, it is a case of furnishing inaccurate particulars of income. 6. The Assessing Officer after considering the relevant submissions of the assessee company and also taking note of various facts including the non-submission of relevant Form-3CL from the DSIR observed that, the assessee company has made an incorrect or in-eligible claim of deduction u/sec.35(2AB) of the Act @ 200% of expenditure incurred for R & D purpose, even though, it does not had relevant Form-3CL issued by the Competent Authority. Therefore, rejected the explanation of assessee company and levied penalty of Rs.50 lakhs u/sec.271(1)(c) of the Act for furnishing inaccurate particulars of income and thereby, concealing of income, in respect of excess Printed from counselvise.com 6 ITA.No.1121/Hyd./2025 deduction claimed for Rs.1,21,32,203/- u/sec.35(2AB) of the Act. 7. Aggrieved by the penalty order, the assessee company preferred appeal before the learned CIT(A). Before the CIT(A), the assessee company challenged the order passed by the Assessing Officer imposing penalty u/sec.271(1)(c) of the Act on two folds. The assessee company has challenged the validity of the order passed by the Assessing Officer u/sec.271(1)(c) of the Act, in light of show cause notice issued under section 274 read with section 271(1)(c) of the Act and argued that, the Assessing Officer has not specified under which limb, he proposed to levy penalty u/sec.271(1)(c) of the Act i.e., whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. In absence of specific charge, penalty livid by the Assessing Officer is invalid and liable to be quashed. The Assessing Officer had also levied the penalty u/sec.271(1)(c) of the Act for incorrect claim of weighted deduction u/sec.35(2AB) of the Act. Learned Counsel for the Assessee argued that, mere making a claim Printed from counselvise.com 7 ITA.No.1121/Hyd./2025 does not leads to an inference of furnishing inaccurate particulars of income. 8. The learned CIT(A) after considering the relevant submissions of the assessee company and also taking note of relevant facts, rejected the legal ground taken by the assessee company challenging the validity of the order passed by the Assessing Officer u/sec.271(1)(c) of the Act, in light of show cause notice issued under section 274 read with sec.271(1)(c) of the Act, on the ground that, the Assessing Officer has rightly initiated penalty proceedings u/sec.271(1)(c) of the Act, for furnishing inaccurate particulars of income and thereby, concealing the income in the assessment year and the same is validated by issue of show cause notice under section 274 read with sec,271(1)(c) of the Act. Further, the Assessing Officer had also levied penalty u/sec.271(1)(c) of the Act for furnishing inaccurate particulars of income. Therefore, there is no merit in the ground taken by the assessee company and thus, rejected. Printed from counselvise.com 8 ITA.No.1121/Hyd./2025 9. In so far as levy of penalty u/sec.271(1)(c) of the Act for furnishing inaccurate particulars of income towards disallowance of weighted deduction claimed u/sec.35(2AB) of the Act, the CIT(A) observed that, although, the assessee company was aware of the fact that, it does not have valid Form-3CL issued by the Competent Authority i.e., DSIR for claiming weighted deduction u/sec.35(2AB) of the Act, but, the assessee company has claimed deduction on incorrect facts, which leads to a conclusion that, the assessee company has furnished inaccurate particulars of income and thereby, concealed the particulars of it’s income. Therefore, the learned CIT(A) observed that, it is a fit case for levy of penalty and thus, the Assessing Officer has rightly levied penalty for furnishing inaccurate particulars of income. 10. Aggrieved by the order of the learned CIT(A), the assessee company is now, in appeal before the Tribunal. 11. CA, MV Prasad, Learned Counsel for the Assessee submitted that, the learned CIT(A) was erred in dismissing the ground taken by the assessee company challenging the Printed from counselvise.com 9 ITA.No.1121/Hyd./2025 validity of penalty order passed by the Assessing Officer in light of vague notice issued under section 274 read with section 271(1)(c) of the Act. Learned Counsel for the Assessee further submitted that, the Assessing Officer has not specified the limb, under which, he proposed to levy the penalty u/sec.271(1)(c) of the Act i.e., whether it is for concealment of particulars of income or for furnishing inaccurate particulars of income. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of CIT vs., SSA’s Emerald Meadows [2016] 73 taxman.com 248 (SC) and the decision of Hon’ble High Court of Karnataka in the case of CIT vs., Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka). Learned Counsel for the Assessee further submitted that, the learned CIT(A) has erred in sustaining the penalty levied by the Assessing Officer u/sec.271(1)(c) of the Act for furnishing inaccurate particulars of income, even though, the assessee company has disclosed necessary facts with regard to claim of weighted deduction u/sec.35(2AB) of the Act in the return of income furnished for the relevant assessment year, which is Printed from counselvise.com 10 ITA.No.1121/Hyd./2025 evident from the deduction allowed by the Assessing Officer by allowing 100% deduction towards expenditure incurred for R & D facility. Therefore, he submitted that, mere making of claim which is unsubstantiated, cannot be considered as furnishing of inaccurate particulars of income. In this regard, he relied upon decision of Hon’ble Supreme Court in the case of CIT, Ahmedabad vs., Reliance Petroproducts (P.) Ltd., [2010] 322 ITR 158 (SC) and the decision of ITAT, Delhi Bench, Delhi in the case of Akums Drugs and Pharmaceuticals ltd., vs., Assessment./DCIT [2025] 175 taxman.com 135 (Delhi-Trib.). 12. Dr. Sachin Kumar, learned Sr. AR for the Revenue, on the other hand, supporting the order of the learned CIT(A) submitted that, the assessee company has claimed an incorrect claim of weighted deduction u/sec.35(2AB) of the Act without getting proper approval from the Competent Authority i.e, DSIR, New Delhi. The arguments of the Learned Counsel for the Assessee that, mere claiming of any deduction does not lead to an inference of furnishing in accurate particulars of income Printed from counselvise.com 11 ITA.No.1121/Hyd./2025 and thereby, leads to concealment of particulars of income, cannot be accepted in the given facts of the case. He submitted that, in the present case, the assessee company has filed requisite Form before DSIR for quantifying the amount of deduction to be eligible for claiming deduction in it’s return of income. He submitted that, since the DSIR has not issued relevant Form for claiming deduction, the assessee company ought not to have claim the weighted deduction u/sec.35(2AB) of the Act. Therefore, the Assessing Officer rightly levied penalty on weighted deduction made by the assessee u/sec.35(2AB) of the Act. Further, during the course of appellate proceedings before the learned CIT(A), the assessee company had withdrawn the appeal on the very same ground that, it could not get approval from the Competent Authority quantifying the amount of eligible weighted deduction u/sec.35(2AB) of the Act. Therefore, in absence of approval from the Competent Authority i.e, DSIR, the disallowance made by the Assessing Officer is final, on which, penalty u/sec.271(1)(c) of the Income Tax Act, 1961 has been rightly levied. Printed from counselvise.com 12 ITA.No.1121/Hyd./2025 13. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that, the appellant company was engaged in the business of manufacturing and sale of bulk drugs and intermediates and claimed deduction @ 200% u/sec.35(2AB) of the Act towards R & D expenditure incurred for Rs.1,21,32,203/-. It is also not in dispute that, the assessee company has made claim of weighted deduction in the return of income filed for the year under consideration on the basis of relevant Form 3CM issued by the competent authority i.e., DSIR. Further it does not had relevant Form-3CK issued by the DSIR quantifying the amount eligible for deduction. The Assessing Officer has disallowed the weighed deduction claimed u/sec.35(2AB) of the Act and made addition of Rs.1,21,32,203/-. Although, the assessee company has challenged the said addition before the learned CIT(A), but, subsequently withdrawn the appeal on the basis of rejection of claim by the assessee company by the Competent Authority i.e., DSIR, which is evident from the order passed Printed from counselvise.com 13 ITA.No.1121/Hyd./2025 by the learned CIT(A) dated 31.05.2017. Therefore, it is necessary for us to examine the arguments of the Learned Counsel for the Assessee to decide, whether the assessee company has furnished inaccurate particulars of income, which attracts provisions of sec.271(1)(c) of the Income Tax Act, 1961. 14. The appellant company was recognised for the purpose of carrying-out in-house R & D activities, which is evident from relevant Form-3CM issued by the Competent Authority i.e., DSIR which is valid for the assessment year under consideration. It also not in dispute that, at the time of filing the return of income, making a claim of weighted deduction u/sec.35(2AB) of the Act, the application filed by the assessee company in Form-3CK was pending before the DSIR for consideration. The assessee company made the claim of weighted deduction on the bonafide and legitimate expectation that, claim made, by filing Form-3CK will be considered by the Competent Authority i.e., DSIR. Although, the assessee has challenged the disallowance made by the Assessing Officer before the learned CIT(A), but, Printed from counselvise.com 14 ITA.No.1121/Hyd./2025 subsequently, the assessee company has withdrawn the appeal because, the Competent Authority i.e., DSIR has not issued relevant Form-3CL and quantified the amount eligible for deduction. Further, though the Assessing Officer has disallowed the weighted deduction claimed u/sec.35(2AB) of the Act for Rs.1,21,32,203/-, but, has allowed deduction of 100% of expenditure incurred for R & D purpose on the ground that, the expenditure incurred by the assessee company towards scientific and research purpose is genuine in nature, which is supported by necessary evidences. Therefore, in our considered view, the claim made by the assessee company for weighted deduction u/sec.35(2AB) of the Act, for not furnishing relevant Form-3CL, cannot be construed as furnishing of inaccurate particulars of income, which attracts provisions of sec.271(1)(c) of the Act, because, the Assessing Officer never disputed the expenditure incurred for the purpose of scientific and research. The only ground, on which, disallowance was made by the Assessing Officer is, for non- submission of relevant Form-3CL. In our considered view, Printed from counselvise.com 15 ITA.No.1121/Hyd./2025 once the assessee company was having valid approval u/sec.35(2AB) of the Act and in possession of relevant Form 3CM which is valid for the relevant assessment year and further, when the assessee company has made a claim for weighted deduction u/sec.35(2AB) of the Act, on the basis of legitimate expectation that, it's application filed in Form 3CK will be considered by the Competent Authority i.e., DSIR, then, mere rejection of said claim by the Competent Authority cannot be considered as furnishing of inaccurate particulars of income. 15. In the present case, the assessee company has furnished complete particulars with regard to nature of expenditure incurred for R & D purposes and also furnished relevant approval from the Component Authority. The only reason for the assessee company could not substantiate it's claim is, non-submission of Form-3CL from the Competent Authority. Therefore, in our considered view, once the claim made by the assessee company is based on approval from the Competent Authority and further, at the time of making the said claim, it was a legitimate expectation of the Printed from counselvise.com 16 ITA.No.1121/Hyd./2025 assessee company that, it would get an approval from the Competent Authority, then, the subsequent rejection of approval by the Competent Authority cannot leads to an inference that, the assessee company has furnished inaccurate particulars of income. Therefore, we are of the considered view that, the Assessing Officer has erred in levying penalty u/sec.271(1)(c) of the Income Tax Act, 1961. This legal proposition is supported by the decision of ITAT, Delhi Bench, Delhi in the case of Akums Drugs and Pharmaceuticals Ltd., vs., Asst./Deputy CIT (supra), where it was clearly held that, “where Assessing Officer made disallowances u/sec.35(2AB) and levied penalty on assessee, since assessee disclosed all particulars of above disallowances in its ITR and no details mentioned in ITR were found to be incorrect or erroneous, penalty under section 270A was not leviable for under-reporting of income”. This legal proposition is further supported by the decision of Hon’ble Supreme Court in the case of CIT vs., Reliance Petroproducts (P.) Ltd., (supra), where it has been held that, “making an incorrect claim in law cannot be tantamount of Printed from counselvise.com 17 ITA.No.1121/Hyd./2025 furnishing of inaccurate particulars of income. Merely because the assessee claim of deduction of interest expenditure, has not been accepted by the Revenue, the penalty u/sec.271(1)(c) of the Act is not attracted. If the contention of Revenue is accepted, then, assessee would be liable to penalty u/sec.271(1)(c) of the Act in every case where the claim made by an assessee is not accepted by the Assessing Officer for any reason. The Court held that, this cannot be the intention of the legislature. 16. In the present case, there is no dispute with regard to the fact that, there is no observation by the Assessing Officer with regard to incorrectness of claim made by the assessee company towards weighted deduction claimed u/sec.35(2AB) of the Act. However, the Assessing Officer disallowed weighted deduction only for non- submission of Form-3CL from the Competent Authority i.e., DSIR. Therefore, we are the considered view that, mere making of claim cannot lead to an inference to furnishing of inaccurate particulars of income. The learned CIT(A) without appreciating the relevant facts, has simply sustained the Printed from counselvise.com 18 ITA.No.1121/Hyd./2025 penalty levied by the Assessing Officer. Thus, we set-aside the order of the learned CIT(A) and direct the Assessing Officer to delete the penalty levied u/sec.271(1)(c) of the Act. 17. In the result appeal of the assessee is allowed. Order pronounced in the open Court on 12.09.2025. Sd/- Sd/- [VIJAY PAL RAO] [MANJUNATHA G] VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 12th September, 2025 VBP Copy to 1. Srini Pharmaceuticals Private Limited, Plot No.10C, Road No.8, Film Nagar, Jubilee Hills, Hyderabad. Telangana. PIN – 500 033. 2. The DCIT, Central Circle-2(3), Aayakar Bhawan, Opp. LB Stadium, Basheerbagh, Hyderabad – 500 004. 3. The CIT(A)-12, 6th Floor, Aayakar Bhawan, Basheerbagh, Hyderabad – 500 004. 4. Pr. CIT-(Central), Hyderabad. 5. The DR ITAT “B” Bench, Hyderabad. 6. Guard File. //By Order// //True Copy// Printed from counselvise.com "