2022 (9) TMI 406 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - concealing/furnishing inaccurate particulars of income - excess deduction claimed u/s 80IA of non allocation of R D expenses of the same amount to its unit in Silvassa eligible to such deduction - quantum of deduction so claimed had been reduced by allocation of R D expenses to the said units in the assessment framed for the impugned year u/s 143(3) - HELD THAT - Allocation is not based on any such nexus being directly and clearly established but merely on the basis of admission of a technical person of the assessee that too to the effect that 10% of the R D expenses can be said to have been incurred for the formulation activity. Of course the assessee has since then accepted allocation of R D expenses to this extent. But despite all the above it cannot still be said that the assesses claim was found to be totally unfounded. Mere statement of a technical person is not sufficient to hold the claim of the assessee as being totally incorrect in law. The same has to be established from the facts of the case whether the R D expenses actually had nexus with the manufacturing activity of the units. For the same reason the acceptance by the assessee of the allocation in preceding years does not establish that its claim was totally unfounded. Further even the said technical personnel has only stated that 10% expenses are in relation to formulation activity. The assessee therefore having furnished all particulars of the R D expenses , the allocation of such expenses to units eligible to deduction u/s 80IA of the Act by the Revenue not having been done on the parameters laid down by judicial decisions , there being no factual basis for establishing that the expenses needed to be allocated and the expenses so allocated being only estimated, the assesses claim of not allocating such expenses to the eligible units cannot be said to have been proved to be not bonafide. The assessee cannot therefore, in such circumstances be charged with having concealed/furnished any inaccurate particulars of income so as to attract levy of penalty u/s 271(1)(c) of the Act. It is simply a case where all particulars of income have been truly disclosed and it is only the assesses claim which has been denied ,which cannot be the basis for levying penalty u/s 271(1)(c) of the Act as laid down by the Hon ble apex court in the case of CIT vs Reliance Petro Products 2010 (3) TMI 80 - SUPREME COURT The penalty so levied is directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
Levy of penalty under section 271(1)(c) of the Income Tax Act for concealing/furnishing inaccurate particulars of income related to excess deduction claimed under section 80IA due to non-allocation of R&D expenses to eligible units.

Detailed Analysis:

1. Levy of Penalty on Reduction in Deduction u/s 80IA:
The appellant challenged the penalty levied by the Assessing Officer for not allocating R&D expenses to units eligible for deduction under section 80IA. The appellant argued that the issue was debatable, and the expenses were allocated on an adhoc basis. The appellant also contended that there was no direct nexus between R&D expenses and eligible units, citing legal precedents. The appellant relied on judicial decisions to support its claim that the expenses were not required to be allocated.

2. Arguments of the Assessee:
The appellant's counsel argued that all R&D expenses were disclosed, and the claim for non-allocation was based on bonafide reasons and legal interpretations. The counsel emphasized that the issue was debatable and penalty should not be imposed for an estimation. The appellant cited relevant case laws to support its arguments.

3. Contentions of the Department:
The Department argued that the appellant's claim was unfounded as its own expert had recommended allocating a portion of R&D expenses to the formulation business. The Department highlighted that the appellant's actions were intentional to claim more deduction under section 80IA. The Department referred to findings of the CIT(A) to support the penalty imposition.

4. Judicial Analysis and Decision:
The tribunal considered both parties' arguments and examined the facts of the case. It noted that the appellant had disclosed R&D expenses accurately and that the claim was not entirely unfounded. The tribunal emphasized the importance of establishing a direct nexus between R&D expenses and manufacturing units for allocation. It was observed that the allocation was based on estimation and not on a clear nexus. The tribunal concluded that the appellant's claim was not proved to be non-bonafide, and therefore, the penalty under section 271(1)(c) was not justified.

5. Conclusion:
The tribunal ruled in favor of the appellant, stating that the penalty levied was not warranted as all income particulars were disclosed truthfully, and the appellant's claim was not found to be incorrect in law. The tribunal referred to legal precedents to support its decision. The penalty was directed to be deleted, and the appeal of the appellant was allowed.

In summary, the tribunal overturned the penalty imposed under section 271(1)(c) of the Income Tax Act, citing lack of bonafide intent and a debatable issue regarding the allocation of R&D expenses to eligible units under section 80IA. The decision was based on a thorough analysis of the legal arguments presented by both parties and relevant judicial precedents.