2020 (4) TMI 708 - AT - Income Tax

Penalty u/s. 271(1)(c) - Incorrect claim of deduction u/s. 35 - HELD THAT - Bona fide claim made by the assessee which is disallowed due to lack of compliance shall not lead to concealment of the particulars of income or furnishing inaccurate particulars of such income for the purpose of levying penalty U/s. 271(1)(c) of the Act. Therefore, we hereby direct the Ld. AO to delete the penalty levied - Decided in favour of assessee.

Summary

Issues:
- Delay in filing the appeal before the Tribunal
- Levy of penalty under section 271(1)(c) of the Income Tax Act
- Disallowance of R&D expenditure and subsequent penalty imposition

Delay in filing the appeal before the Tribunal:
The appeal was filed by the assessee against the order of the Ld. CIT(A)-5, Hyderabad, with a delay of 20 days. The assessee sought condonation of the delay, attributing it to waiting for a consequential order from the DCIT, which was not issued due to the dismissal of the appeal before CIT(A)-5. The Tribunal, while not appreciating the reasons for the delay, decided to condone it in the interest of justice to proceed with adjudicating the appeal on its merits.

Levy of penalty under section 271(1)(c) of the Income Tax Act:
The case involved the disallowance of R&D expenditure by the Ld. AO, leading to the invocation of penalty proceedings under section 271(1)(c) of the Act. The penalty was imposed on the grounds that the assessee failed to offer explanations regarding the computation of total income and did not prove the disclosure of all relevant facts. The Ld. CIT (A) upheld the penalty, prompting the appeal before the Tribunal.

Disallowance of R&D expenditure and subsequent penalty imposition:
The assessee, engaged in pharmaceutical manufacturing, had claimed R&D expenditure, which was disallowed by the Ld. AO for lack of supporting documentation. The assessee argued that even if not allowable under section 35, the expenditure should be considered under section 37. The Tribunal noted that the claim, though incorrect, did not amount to furnishing incorrect particulars of income. Citing relevant case laws, including the decision in ACIT vs. VIP Industries Limited, the Tribunal concluded that the disallowance of the claim did not constitute concealment of income or furnishing inaccurate particulars. Consequently, the Tribunal directed the deletion of the penalty imposed by the Ld. AO.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that a bona fide claim, even if disallowed due to non-compliance, does not warrant the imposition of penalties under section 271(1)(c) of the Income Tax Act. The decision was pronounced in the open court on 18th February 2020.