2019 (1) TMI 643 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - expenditure incurred on scientific research - Held that - If the claim besides being incorrect in law is mala fide, Explanation 1 to Section 271(1)(c) would come into play. Therefore, the precise question before us is to give a finding whether the claim of the assessee is bonafide or not. As we have already mentioned that in this case, the claim of the assessee that it incurred expenditure on scientific research has already been accepted by the learned CIT(A), so there is no question of claim being malafide. The position remains after the order of the CIT(A) is that the assessee s claim that it incurred expenditure on scientific research stood accepted but the deduction is allowed at the rate of 100% instead of 150% as claimed by the assessee. In our opinion, merely because the rate of deduction is reduced by the CIT(A), it cannot be said that the claim of the assessee is malafide or incorrect. That Hon ble Jurisdictional High Court in a recent decision in the case of Samtel India Ltd. 2018 (7) TMI 660 - DELHI HIGH COURT has reexamined the decision of Reliance Petroproducts Pvt.Ltd. 2010 (3) TMI 80 - SUPREME COURT and held that unless the details supplied in the return of income are not accurate, not exact or correct, not according to truth or erroneous, it cannot be said to be inaccurate particulars. In the case under appeal before us, admittedly, the particulars of expenditure incurred by the assessee have been accepted to be true and accurate by the Assessing Officer himself because he has not doubted the genuineness of the expenditure incurred. He only disputed whether the expenditure was incurred for normal business of manufacturing or for research work. This claim is also accepted by the learned CIT(A) that the expenditure was incurred for research purposes. The disallowance was made only because the deduction was allowed at a lesser rate than what was claimed by the assessee no inaccurate particulars deemed to be given - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Assessment of deductions under Sections 35(1)(iv) and 35(2AB) of the Income-tax Act, 1961.
3. Determination of whether the assessee furnished inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c)
Summary:
The primary issue in this case was whether the penalty of ?22,57,083/- levied under Section 271(1)(c) of the Income-tax Act, 1961, was justified. The penalty was imposed on the grounds that the assessee had concealed income and furnished inaccurate particulars by claiming deductions that were not allowable under Section 35(2AB).

Analysis:
The Tribunal examined whether the assessee had indeed furnished inaccurate particulars of income or concealed income. The Tribunal referred to the Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), which held that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income. The Tribunal also considered the Delhi High Court's decisions in Principal CIT Vs. Neeraj Jindal [2017] 393 ITR 1 (Del) and Principal CIT Vs. Samtel India Ltd. ITA No.43/2017, which supported the assessee's position.

2. Assessment of Deductions under Sections 35(1)(iv) and 35(2AB)
Summary:
The assessee claimed deductions for research and development expenses under Section 35(2AB) at the rate of 150%. The Assessing Officer (AO) allowed only 40% depreciation on capital expenditure and 100% on revenue expenditure, disallowing the weighted deduction claimed. The CIT(A) partially allowed the appeal, permitting deductions under Section 35(1)(iv) instead of 35(2AB).

Analysis:
The Tribunal noted that the CIT(A) accepted the genuineness of the expenditure but allowed the deduction under Section 35(1)(iv) at 100%, rather than the 150% claimed under Section 35(2AB). The Tribunal observed that the CIT(A)'s decision had become final, and the only issue was the rate of deduction. The Tribunal found that the assessee's claim was bona fide and not mala fide, as the expenditure was genuinely incurred for research purposes.

3. Determination of Whether the Assessee Furnished Inaccurate Particulars of Income
Summary:
The Tribunal had to determine if the assessee had furnished inaccurate particulars of income by claiming a higher rate of deduction.

Analysis:
The Tribunal referred to the Supreme Court's interpretation in Reliance Petroproducts Pvt. Ltd., which clarified that inaccurate particulars must be factually incorrect or false. The Tribunal found that the assessee's claim, although disallowed in part, was not found to be inaccurate or false. The Tribunal also cited the Delhi High Court's decision in Samtel India Ltd., which emphasized that a mere disallowance of a claim does not constitute furnishing inaccurate particulars.

Conclusion:
The Tribunal concluded that the assessee had disclosed all particulars of income correctly and that the disallowance was only due to the rate of deduction claimed. Therefore, the penalty under Section 271(1)(c) was not justified. The Tribunal allowed the appeal, canceling the penalty.

Decision:
The appeal of the assessee was allowed, and the penalty levied under Section 271(1)(c) was canceled. The decision was pronounced in the open Court on 09.01.2019.