2020 (2) TMI 508 - AT - Income Tax

Exemption u/s 35(2AB) denied - Penalty u/s 271(1)(c) - there was no approval in form No. 3CM - Addition on the ground that, although, the R D facilities were recognized by the DSIR, but for the purpose of tax exemption it has to be approved by the competent authority i.e The Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Govt. of India. - HELD THAT - The recognition was valid from 01.04.2001, and which was available during this period. Assessee facility was approved by the competent authority i.e the Secretary DSIR, but there was no approval in form No. 3CM for the impugned Assessment year. From the settled legal position of the law by the various cases of High Courts as discussed what is relevant to decide eligibility for weighted deduction u/s 35(2AB) is existence of R D facility and recognition of such facility by the competent authority. Once the facility has been approved by the competent authority, then there is no cut off date is prescribed for approval of such facility and the benefit of deduction u/s 35(2AB) of the Act, should be given to the assessee as long as the recognition is in force. A.O as well as Ld. CIT(A) were incorrect in denying the benefit of weighted deduction claimed u/s 35(2AB) of the. Hence, we direct the A.O to allow weighted deduction claimed u/s 35(2AB) Penalty u/s 271(1)(c) - once addition on which penalty levied u/s 271(1)(c) of the Act, has been finally deleted by the appellate authorities, then there is nothing survives to levy penalty u/s 271(1)(c) of the Act. Hence, we are of the considered view that the penalty levied by the A.O u/s 271(1)(c) of the Act, cannot survive in the eyes of law. CIT(A) although confirmed additions made by the A.O towards disallowance of weighted deduction claimed u/s 35(2AB) of the Act, but deleted the penalty levied u/s 271(1)(c) on the ground that mere making a claim which was not accepted by the A.O cannot leads to a conclusion that the assessee has furnished inaccurate particulars of income which warrants levy of penalty U/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:

1. Denial of exemption claimed under Section 35(2AB) of the Income Tax Act, 1961.
2. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Denial of Exemption Claimed under Section 35(2AB) of the Income Tax Act, 1961:

The assessee, engaged in manufacturing enzymes, had set up in-house Research & Development (R&D) labs and claimed a weighted deduction of ?10,22,18,588/- under Section 35(2AB) of the Income Tax Act, 1961. The R&D facilities were recognized by the Department of Scientific and Industrial Research (DSIR). However, the Assessing Officer (A.O) denied the deduction on the grounds that the necessary approval in form 3CM from the Secretary, DSIR, was not available for the assessment year in question.

The CIT(A) upheld the A.O's decision, emphasizing that approval from the Secretary, DSIR, in form 3CM is mandatory for claiming the deduction under Section 35(2AB). The CIT(A) noted that the initial recognition by DSIR was not sufficient for tax exemption purposes without the form 3CM approval.

Upon appeal, the Tribunal considered the arguments and judicial precedents provided by the assessee. The Tribunal noted that the assessee's R&D facilities were initially recognized by DSIR and that the assessee had continuously claimed and been granted deductions from A.Y 2002-03 to 2008-09. The Tribunal also observed that the competent authority had neither rejected the application for renewal nor communicated any decision regarding the application.

The Tribunal referred to various judicial precedents, including decisions by the Gujarat High Court and the Delhi High Court, which held that once an R&D facility is recognized, subsequent renewals or approvals should not affect the eligibility for deductions. The Tribunal concluded that the initial recognition and the genuine expenditure incurred were sufficient to claim the deduction under Section 35(2AB), despite the absence of form 3CM for the specific period.

The Tribunal directed the A.O to allow the weighted deduction claimed by the assessee under Section 35(2AB).

2. Deletion of Penalty Levied under Section 271(1)(c) of the Income Tax Act, 1961:

The Revenue appealed against the deletion of penalty levied under Section 271(1)(c) on the disallowance of the weighted deduction claimed under Section 35(2AB). The A.O had initially imposed the penalty, but the CIT(A) deleted it, stating that merely making a claim that was not accepted by the A.O does not constitute furnishing inaccurate particulars of income.

Since the Tribunal allowed the deduction under Section 35(2AB) in favor of the assessee, it held that the basis for the penalty no longer existed. Therefore, the penalty levied under Section 271(1)(c) could not survive, and the Tribunal upheld the CIT(A)'s decision to delete the penalty.

Conclusion:

The appeal filed by the assessee was allowed, granting the weighted deduction under Section 35(2AB). The appeal filed by the Revenue regarding the penalty under Section 271(1)(c) was dismissed. The Tribunal's decision emphasized the importance of initial recognition and genuine expenditure over procedural delays in form approvals.