2019 (2) TMI 980 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - excessive deduction claimed u/s 35(2AB) - quantum of deduction claimed on account of part disallowance of expenditure by the DIS - Held that - In any case of the matter, it is not the case of the department that the assessee is not eligible for claiming deduction under section 35(2AB) of the Act. In fact, the DSIR has not only recognised the R&D facility of the assessee but also approved the expenditure incurred by the assessee in respect of the R&D facility. The dispute arises only with regard to the quantum of deduction claimed on account of part disallowance of expenditure by the DISR. As observed earlier, the certificate of the DSIR in Form No. 3CL disallowing part of the expenditure was received by the assessee in November, 2013, i.e. at a much later stage, even after the AO has started enquiry with regard to assessee s claim of deduction under section 35(2 AB) of the Act. Thus, upon considering the overall facts and circumstances of the case we are of the considered opinion that the assessee cannot be alleged of either furnishing inaccurate particulars of income or concealment of income. None of the conditions of Section 271(1)(c) of the Act in the instant case are satisfied. Accordingly we have no hesitation in deleting the penalty imposed - Decided in favour of assessee.

Summary

Issues Involved:
Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2011-12 based on excessive deduction claimed under section 35(2AB) for Research and Development (R&D) expenditure.

Analysis:

Issue 1: Excessive Deduction Claimed Under Section 35(2AB)
The appellant, a company, filed its return of income for the assessment year, claiming a deduction under section 35(2AB) of the Act for R&D expenditure. The Assessing Officer (AO) disallowed part of the claimed deduction based on a certificate from the Department of Scientific and Industrial Research (DSIR). The AO initiated penalty proceedings under section 271(1)(c) alleging inaccurate particulars of income. The appellant contended that the excessive deduction was due to a bonafide error and voluntarily revised the claim upon receiving the DSIR's disallowance certificate. The appellant argued that all necessary details were provided, and the dispute was only on the quantum of deduction, not the eligibility. The Departmental Representative (D.R.) argued that by claiming an excessive deduction, the appellant concealed income, justifying the penalty.

Issue 2: Adjudication on Penalty Imposition
The Tribunal examined crucial facts, noting the appellant's in-house R&D facility, approval by DSIR, and the claim based on the tax audit report. The appellant revised the claim upon receiving the DSIR's disallowance certificate, demonstrating a bonafide belief in eligibility for the deduction. The Tribunal found that the appellant did not knowingly or deliberately claim an excessive deduction and that the DSIR approved the R&D facility and expenditure. The Tribunal concluded that the appellant did not furnish inaccurate particulars of income or conceal income, as the conditions of section 271(1)(c) were not satisfied. Consequently, the penalty of ?31,85,292 was deleted.

Additional Legal Issue
The Tribunal dismissed the legal issue raised in the additional ground as of academic importance, given the decision on merits. The appeal by the appellant was partly allowed, with the penalty being deleted.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the bonafide error in claiming the excessive deduction and the absence of deliberate concealment or inaccurate particulars of income. The penalty imposed under section 271(1)(c) was deleted, and the appeal was partly allowed.