2021 (3) TMI 261 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - disallowance in deduction claimed u/s 35(2AB) - HELD THAT - Since the quantum addition is also deleted by the Tribunal 2019 (1) TMI 20 - ITAT BANGALORE there is no question of levying of any penalty and the CIT(A) has rightly deleted the penalty on the basis of the order of the Tribunal of quantum additions. Accordingly, we confirm the finding of Ld. CIT(A) in deleting the penalty. Appeal filed by the revenue is dismissed.

Issues Involved:
1. Whether the non-submission of Form 3CL disentitles the assessee from claiming deduction under Section 35(2AB) of the Income-tax Act.
2. Whether the assessee furnished inaccurate particulars of income by not submitting Form 3CL.
3. Whether the penalty under Section 271(1)(c) of the Income-tax Act was rightly levied.

Issue-wise Detailed Analysis:

1. Non-submission of Form 3CL and Deduction under Section 35(2AB):
The revenue contended that the non-submission of Form 3CL to the prescribed authority should disentitle the assessee from claiming the deduction under Section 35(2AB). The Tribunal noted that the assessee's in-house R&D facilities were approved by the DSIR, Government of India, Ministry of Science and Technology for the relevant assessment year. The approval was valid from 1.4.2009 to 31.3.2012. The Tribunal observed that there is no statutory provision in the Income-tax Act that mandates the submission of Form 3CL as a condition for claiming the deduction under Section 35(2AB). The Tribunal referred to various judicial precedents, including decisions by the Pune ITAT, Hyderabad ITAT, and the Hon'ble Delhi High Court, which held that the deduction cannot be denied merely on the ground of non-submission of Form 3CL. It was concluded that prior to the amendment effective from 1.7.2016, Form 3CL had no legal sanctity, and the deduction should be allowed based on the approval of the R&D facility and the incurrence of expenditure.

2. Furnishing Inaccurate Particulars of Income:
The revenue argued that by not submitting Form 3CL, the assessee attempted to mislead the revenue and furnished inaccurate particulars of income. The Tribunal noted that the assessee had complied with all the requirements for the issue of Form 3CL and had applied for the same. However, the DSIR did not issue Form 3CL for the relevant assessment year, possibly due to the late submission of audited accounts. The Tribunal emphasized that the absence of Form 3CL did not imply furnishing inaccurate particulars of income, especially when the R&D facility was duly approved, and the expenditure was incurred as per the guidelines.

3. Penalty under Section 271(1)(c):
The Assessing Officer had levied a penalty of ?11,00,00,000 under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) deleted the penalty based on the Tribunal's order on quantum addition. The Tribunal, in its earlier order, had allowed the assessee's appeal on quantum addition, holding that the deduction under Section 35(2AB) should be allowed at 200% of the expenditure. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the penalty, as the quantum addition itself was deleted. The Tribunal confirmed that there was no basis for levying the penalty once the deduction was rightly allowed.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming that the non-submission of Form 3CL did not disentitle the assessee from claiming the deduction under Section 35(2AB), and there was no furnishing of inaccurate particulars of income. The penalty under Section 271(1)(c) was rightly deleted by the CIT(A) based on the Tribunal's order on quantum addition. The appeal by the revenue was dismissed, and the order pronounced in the open court on 3rd Mar, 2021.

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