IN INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J , MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA No.339/M/2015 Assessment Year: 2007-08 M/s. Ally Pharma Options P. Dy. Commissioner of Income Ltd., Tax, 301, 3rd Floor, Circle-8(1), Maxheal House, Vs. Room No.210/260, Bangur Nagar, A, 2nd Floor, Goregaon W, Aayakar Bhavan, Mumbai 400 090 M.K. Road, PAN: AAECA 0450D Mumbai - 400020 (Appellant) (Respondent) Present for: Assessee by : Shri Ishwar Prakash Rathi, A.R. Revenue by : Shri Alok Johari, D.R. Date of Hearing : 26.07.2016 Date of Pronouncement : 30.09.2016 ORDER Per Sanjay Garg, Judicial Member: present appeal has been preferred by assessee against order dated 29.10.2014 of Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)] agitating confirmation of levy of penalty under section 271(1)(c) of Act. 2. Assessing Officer (hereinafter referred to as AO) levied impugned penalty of Rs.2,13,870/- on account of following disallowance/additions made: I. Preoperative Expenses of Rs.6,15,600/- out of Rs.8,05,729/-, II. Donation of Rs.5,846/-, III. Late payment of Employees Contribution to Provident Fund Rs.8,759/-, IV. TDS Expenses of Rs.5,166/- 3. Ld. CIT(A) has also confirmed said penalty. 2 ITA No.339/M/2015 M/s. Ally Pharma Options P. Ltd. 4. We have heard rival contentions and have also gone through records. Ld. A.R. of assessee, before us, has stated that major item of disallowance is preoperative expenses. He, while inviting our attention to impugned orders of lower authorities as well as balance sheet of assessee, has stated that disallowance on account of preoperative expenses has been made by AO by applying provisions of section 35D of Act. He has further stated that assessee had claimed Rs.8.05 lakh as preoperative expenses which were as per tax audit report by auditor. AO, while making disallowance, observed that assessee s issued share capital was at Rs.1,90,12,900/- and that as per provisions of section 35D deduction in respect of aggregate amount of expenditure for relevant year would not exceed amount calculated at 5% of cost of project or capital employed in business of company. However, AO ignored provisions of section 35D as to what constitute capital employed. He, inviting our attention to provisions of section 35D(iii) has stated that capital employed in business of company is aggregate of issued share capital, debentures and long term borrowings. AO has not taken into consideration long term borrowings while calculating 5% of capital applied. He has further invited our attention to page 10 of paper book to show that even tax auditor has worked out allowable expenditure at Rs.8,05,729/-. He has stated that though in quantum additions assessee did not carry matter to Tribunal, however, it was apparent from record that assessee had neither furnished any inaccurate particulars of income nor had concealed its income. disallowance, in this respect, was made because of difference of opinion regarding calculation/working of allowable expenditure under section 35D of Act. Regarding other disallowances, Ld. A.R. has stated that amounts involved in relation to those disallowances are very small and there was no intention of assessee to avoid any tax liability in this regard. disallowance on account of donation inadvertently could not be added back in 3 ITA No.339/M/2015 M/s. Ally Pharma Options P. Ltd. computation of income. other two disallowances are relating to late payment of PF and TDS expenses and that it was not case of AO that assessee had not incurred these expenses. Though assessee did not agitate additions by way of appeal before Tribunal, however looking at nature of expenses and smallness of amounts it cannot be said that assessee had any intention to conceal particulars of its income or to furnish inaccurate particulars of income. 5. Ld. D.R., on other hand, has relied upon findings of lower authorities. 6. We have considered rival submissions. We find justification in submissions of Ld. Counsel for assessee that it is not case of furnishing of inaccurate particulars of income or concealment of income which may warrant levy of penalty under section 271(1)(c) of Act. assessee has duly explained that it had plausible reasons to claim said expenditure which were based on bonafide reasoning and belief. Though, AO s view differed from assessee and he disallowed certain expenditure, but, it cannot be said to be case of furnishing of inaccurate particulars of income or concealment of income warranting levy of penalty under section 271(1)(c) of Act. We, therefore, delete penalty so levied/confirmed by lower authorities. 7. In result, appeal of assessee is hereby allowed. Order pronounced in open court on 30.09.2016. Sd/- Sd/- (D. Karunakara Rao) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 30.09.2016. Kishore, Sr. P.S. Copy to: Appellant 4 ITA No.339/M/2015 M/s. Ally Pharma Options P. Ltd. Respondent CIT, Concerned, Mumbai CIT (A) Concerned, Mumbai DR Concerned Bench //True Copy// [ By Order Dy/Asstt. Registrar, ITAT, Mumbai. M/s. Ally Pharma Options P. Ltd. v. Dy. Commissioner of Income-tax, Circle-8(1), Mumbai