2014 (4) TMI 1245 - HC - Income Tax

Penalty u/s 271(1)(c) - undue deduction under section 35(2AB) in the return of income even though it did not receive the requisite certificate in the Form 3CD from the prescribed authority - penalty proceedings as distinct and separate from the quantum proceedings - HELD THAT - No indulgence is necessary in the reasonings arrived at by both the CIT(Appeals) and the Tribunal who have rightly held that this is not a question of furnishing inaccurate particulars or concealing income. In the scrutiny assessment under section 143(3) of the Act, respondent withdrew such claim since it had failed in such challenge before the CIT(Appeals) by then. On a bona fide belief that the letters issued by Ministry of Science and Technology were valid for it to claim deduction under section 35(2AB), if expenses incurred genuinely had been claimed in the return, rejecting the claim may not result into penalty proceedings nor would the withdrawal of claim in scrutiny proceedings in the afore mentioned background can be said to be concealment. - Decided against revenue

Summary

Issues involved:
1. Whether the Tribunal was justified in deleting the penalty levied under section 271(1)(c) without considering the fact that the assessee consciously made a claim of undue deduction under section 35(2AB) without the requisite certificate?

Detailed Analysis:
1. The High Court addressed the substantial question of law raised by the Revenue regarding the deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961. The respondent, a manufacturer of active pharmaceutical ingredients, had claimed a deduction under section 35(2AB) in the return of income. However, the claim was disallowed by the Assessing Officer as the prescribed format approval letter was not furnished. Penalty proceedings were initiated based on this disallowance.

2. The Assessing Officer initiated penalty proceedings on the grounds that the assessee had made adjustments in the claim resulting in the addition of income due to inaccurate particulars being furnished. The CIT(Appeals) held in favor of the assessee, emphasizing that penalty proceedings are separate from quantum proceedings. The respondent withdrew the claim during scrutiny assessment after the CIT(Appeals decision went against them.

3. The Tribunal upheld the CIT(Appeals) decision, noting that while it would have been ideal to furnish the certificate from the Ministry of Science and Technology, the genuineness of the expenses for Scientific Research and Development was not in question. The Tribunal found that the claim was made on a bona fide belief based on the certificates/letters provided, and there was no indication of failure to furnish requisite particulars by the assessee.

4. The High Court concurred with the findings of the CIT(Appeals) and the Tribunal, stating that the case did not involve furnishing inaccurate particulars or concealing income. The respondent had withdrawn the claim during scrutiny assessment after failing before the CIT(Appeals), based on a genuine belief in the validity of the letters issued by the Ministry of Science and Technology for claiming the deduction under section 35(2AB).

5. Ultimately, the High Court dismissed the Tax Appeal, concluding that no substantial question of law arose in the case. The court upheld the decisions of the lower authorities that the penalty proceedings were not warranted as there was no concealment of income or furnishing of inaccurate particulars by the assessee.