Case Law Details
Pranav Vikas India Pvt Ltd Vs DCIT (ITAT Delhi)
In the case of Pranav Vikas India Pvt Ltd Vs DCIT (ITAT Delhi), the tribunal addressed the issue of penalty under section 270A(9) of the Income Tax Act for misreporting income. The appeal was filed against a penalty imposed by the Assessing Officer (AO) for claiming excessive deductions under section 35(2AB). The AO had initially levied a penalty of Rs. 1,09,39,526, which was later reduced to 100% of the tax payable by the CIT(A)/NFAC. The tribunal found that the penalty was unjustified as the misreporting was not driven by malafide intentions but was a result of an inadvertent error, exacerbated by a delay in receiving necessary approvals from the DSIR. The ITAT Delhi noted that the taxpayer had acted on the basis of available documentation and revised claims upon discovering discrepancies. Consequently, the tribunal directed that the penalty be deleted, emphasizing that penalties should not be imposed if there is no evidence of deliberate misreporting.
FULL TEXT OF THE ORDER OF ITAT DELHI
The Assessee has filed this Appeal against the Order of the Ld. CIT(A)/ National Faceless Appeal Centre (NFAC), Delhi dated 26.02.2024 relating to assessment year 2018-19 on the following grounds:-
1. That on the facts and in the circumstances of the case and in law the authorities below palpably erred in levying penalty u/s. 270A(9) of the I.T. Act, 1961 on variegated pleas which order being contrary to facts and repugnant to law.
2. That on the facts and in the circumstances of the case and in law the Ld. CIT(A) at NFAC, Delhi erred on facts and in law in not deleting the penalty imposed by the AO u/s. 270(9) of the Act on the allegation of mis-reporting of income and in directing the AO to impose penalty at 100% of the tax payable on alleged excess claim of ineligible expenditure u/s. 35(2AB) of the Act.
The above actions being arbitrary, fallacious, unwarranted and illegal must be quashed with directions for appropriate relief.
2. Briefly stated facts, are that assessee filed its return of income for the assessment year 2018-19 on 11.10.2018 declaring an income of Rs. 1,78,00,877/- from house property. The assessee had claimed the business loss of Rs. 3,28,29,990/-. After set-off loss, the assessee had admitted total loss of Rs. 2,50,29,113/-. The assessee’s case was selected for scrutiny under CASS. The Assessing Officer (AO) issued notice u/s. 143(2) of the Act and completed the assessment by disallowing difference of Rs. 1,73,57,717/- on account of expenditure claimed u/s. 35(2AB) amounting to Rs. 19,73,52,248/-, whereas the expenditure allowed by the DSIR vide Form 3CL amounting to Rs. 17,99,94,531/-. The AO assessed the total loss at Rs. 1,92,43,204/- and book profit u/s. 115JB at Rs. 14,07,69,338/-. Subsequently, the AO initiated penalty proceedings u/s. 270A of the Act for misreporting of income. The assessee during the course of penalty proceedings filed his reply and also relied on various case laws. The AO was not satisfied with explanation offered by the assessee and imposed penalty of Rs. 1,09,39,526/- u/s. 270A(9) of the Act being 200% of tax payable for misreporting of income. Against the aforesaid action of the AO, assessee preferred appeal before the Ld. CIT(A). Ld. CIT(A)/NFAC, Delhi vide his order dated 26.02.2024 has restricted the penalty to 100% by partly allowing the appeal of the assessee.
3. Aggrieved with the aforesaid action of the Ld. CIT(A)/NFAC. Delhi, Assessee is in appeal before us.
4. At the time of hearing, Ld. AR has submitted that assessee filed a return of income declaring a net loss of Rs. 2,50,29,113/- under the normal scheme. Simultaneously, it also reported income of Rs. 14,07,69,338/- u/s. 115JB of the Act for the book profits and paid taxes on the same. It was further submitted that loss included claim for weighted deduction u/s. 35(2AB) of the Act which was pruned by the DSIR. As to the difference between the claim made by the Assessee and allowed in assessment as per the DSIR mandate, the Assessment Unit (AU) penalised the assessee u/s. 270A(9) of the Act by way of imposing penalty of Rs. 1,09,39,526/- being 200% of tax payable for mis-reporting of income. In appeal, the Ld. Commissioner of Income Tax (Appeals) reduced the penalty to 100% as against 200% imposed by the AU. In support of his contention, he submitted that the assessment has been concluded not on the basis of normal income but on the basis of book profits u/s. 1 15JB of the Act at the very same figure as has been returned by the Assessee in its original return of income filed on 11.10.2018 and the normal income assessed by the AU is just the same as was disclosed by the Assessee in its revised statement of income filed on 20.12.2019 much before assessment. It was the further say of the Ld. AR that none of the stipulations as contained in clauses (a) to (f) of Sec. 270A (9) of the Act are attracted in the facts of the case and in the case of sister concern in identical circumstances viz., Subros Ltd. (placed at pages 19 to 23 of the Paper Book) similar penalty u/s. 271(1)(c) of the Act has been quashed by the Tribunal; in the case of another sister concern in identical circumstances viz., Sanden Vikas India Ltd. the penalty u/s. 271(1)(c) of the Act levied for the same default has been quashed by the Tribunal (Order is placed at pages 24 to 27 of the Paper Book.) and further it was submitted that in the case of a third sister concern viz., Ecocat India Pvt Ltd. ( copy of order placed at pages 28 to 38 of the Paper Book) penalty proceedings u/s. 270A has been dropped by the AU itself after finding similar explanation as mentioned aforesaid. In view of aforesaid submissions, Ld. AR has submitted that the penalty as confirmed by the CIT(Appeals) at 100%, needs to be quashed, as Ld. CIT(A) in para 5.2 has admitted that the assessee cannot be alleged of mis-reporting of income as it was not made with a bonafide or malafide intention.
4.1 Per contra, Ld. DR relied upon the order of the Ld. CIT(A)/NFAC and submitted that the same does not require any interference, hence, the same may be confirmed.
5. We have heard rival contentions and perused the relevant records. We find that in the instant case the penalty levied u/s. 270A(9) of the Act by the Assessing officer. It is noted that the AO imposed penalty with reference to the amount of deduction claimed u/s.35(2AB) of the Act. It is further noted from the assessment order that the assessee claimed deduction u/s. 35(2AB) of the Act of Rs.19,73,52,248/- and in support of the same the assesee filed copy of order of approval of in house Research and Development facility under section 35(2AB) of the Act dated 31.03.2017 issued by the DSIR. Further, the DSIR vide Form 3CL dated 05.12.2019 approved capital expenditure of Rs.8,52,82,000/- and the revenue expenditure at Rs.3,47,82,000/- both aggregating to Rs.11,99,97,000/-. After careful consideration of the details filed, the AO allowed capital expenditure of Rs.8,52,82,000/- and Revenue expenditure of Rs.3,47,82,000/- totaling to Rs.11,99,96,354/- and allowable weighted deduction @ 150% of Rs.11,99,96,354/- comes to Rs.17,99,94,531/-. Thus, there was difference of Rs.1,73,57,717/- (Rs.19,73,52,248 – Rs.17,99,94,532/-. The AO disallowed the difference of Rs.1,73,57,717/- by allowing expenditure of Rs.1,15,71,811/- (4,63,53,811 – 3,47,82,000) as expenditure u/s. 35(1)(i) or u/s.37(1) of the Act. On the difference of Rs.1,73,57,717/-, AO levied penalty Rs.1,09,39,526/- @ 200% of tax payable stating that the assessee mis-reported its income. It is noted that the assessee has sought approval of the very same amount towards R&D expenditure in the application filed before the DSIR. Only in the course of assessment proceedings when the AO was making enquiry with regard to assessee’s claim, assessee received the approval of DSIR in Form No. 3CL dated 05.12.2019 disallowing a part of the expenditure. Thus, only after receiving the approval of the DSIR the assessee could come to know that part of the expenditure has not been approved. Accordingly, it revised the claim of deduction under section 35(2AB) of the Act before the AO vide its mail dated 20.12.2019 during the course of assessment proceedings. Therefore, Ld. CIT(A) has himself observed that assessee has not claimed excessive deduction under section 35(2AB) of the Act knowingly or deliberately. Rather, the claim of deduction made by the assessee is on the basis of tax audit report. Hence, Ld. CIT(A) was of the view that the contention of the assessee that excessive deduction claimed was due to a bonafide and inadvertent error cannot be disbelieved and dispelled. In fact, the DSIR has not only recognised the R&D facility of the assesee 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 on 05.12.2019, 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(2AB) of the Act. We further noted that Ld. CIT(A)/NFAC in its order vide para 5.2 has observed that in view of the facts the assessee cannot be alleged of mis-reporting of income, as it was not made with a malafide intention. Therefore, in our considered opinion, the penalty restricted to 100% of tax payable by the Ld. CIT(A)/NFAC is not justified, as he himself admitted in his order that the assessee cannot be alleged of mis-reporting of income as it was not made with a malafide intention. In view of the aforesaid discussions, in our view, the penalty in dispute deserves to be deleted. Hence, we hold and direct accordingly.
6. In the result, the Assessee’s appeal is allowed.
Order pronounced on 07/08/2024.
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