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2015 (5) TMI 678 - ITAT MUMBAI

2015 (5) TMI 678 - ITAT MUMBAI - TMI - Penalty levied u/s 271(1)(c) - Disallowance of deduction under section 10B in respect of interest income on MSEB deposit- Held that:- It cannot be said that the claim of the assessee is an absolute impermissible claim and does not fall in the category of bonafide claim. It is pertinent to note that in view of the various judgments as relied upon by the assessee there are certainly two possible views on this issue. Thus, we are of the considered opinion that .....

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f disallowance of deduction under section 10B on interest income from deposit with MSEB. - Decided in favour of assesse.

Weigh Bridge Receipts - Held that:- There is no dispute regarding the fact that weigh bridge is situated in the undertaking itself and therefore the income earned from such asset claimed as profit of business of the undertaking is a bonafide claim of the assessee. Mere disallowance of the claim under section 10B would not constitute concealment of income or furnishi .....

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(c) when the assessee has brought on record and explained to the AO the nature of income and source of income.- Decided in favour of assesse.

Allocation of Directorsí remuneration - Held that:- When for the last six years the assessee was under the impression that no allocation of expenditure is required while computing the income of eligible undertaking because the AO has accepted the computation of income for deduction under section 10B without any allocation of directorsí remunerat .....

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ent to section 92B vide Finance Act, 2012 whereby the explanation has been inserted with retrospective effect from 01.04.2002 the claim of the assessee is based on good faith and due diligence and therefore we do not find it a fit case for levy of penalty under section 271(1)(c).- Decided in favour of assesse.

Transfer pricing adjustment made by the TPO/AO in respect of actual expenditure incurred for securing bank guarantee and towards notional interest - Held that:- It is clear that .....

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(c). - Decided in favour of assesse. - ITA No. 6685/M/2014 - Dated:- 29-4-2015 - Shri G. S. Pannu And Shri Vijay Pal Rao,JJ. For the Petitioner : Shri Vijay Mehta, A.R. For the Respondent : Shri N.K. Chand, D.R. ORDER Per Vijay Pal Rao, Judicial Member: This appeal by the assessee is directed against the order dated 19.08.2014 of CIT(A) arising from transfer pricing adjustment passed under section 271(1)(c) for the assessment year 2007-08. The assessee has raised the following grounds: The Lea .....

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ength price by the Transfer Pricing Officer amounting to ₹ 52,24,068/-. The Appellant prays that reliefs on the above Grounds of Appeal bellowed and the Appellate order be modified accordingly. The Appellant craves leave to add, alter or amplify the above Grounds of Appeal. 2. In the assessment completed under section 143(3) vide order dated 10.12.10 the Assessing Officer (AO) inter-alia restricted the deduction under section 10B in respect of yarn division at ₹ 7,15,46,157/- as agai .....

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evaded vide order dated 21.03.13. The assessee challenged the action of the AO for levy of the penalty under section 271(1)(c) before the Ld. CIT(A) but could not succeed. 3. Before us, the Ld. A.R. of the assessee has submitted that in the issue of disallowance of deduction under section 10B three aspects are involved viz. i) interest income on MSEB deposit held to be not derived from business of eligible undertaking, ii) weigh bridge receipts held to be not derived from business of eligible un .....

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the case of CIT vs. Hritnik Exports Pvt. Ltd. . Thus the Ld. A.R. has submitted that though the issue has been decided against the assessee by this Tribunal, however, there are two possible views on this issue and therefore the rejection of claim of deduction under section 10B on the interest income on MSEB deposit is not attracted the penalty provisions of section 271(1)(c). He has further submitted that the assessee has disclosed all the particulars along with the return of income, therefore t .....

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ed that the same forms part of the undertaking and income earned from such asset was claimed by the assessee as profits of business of the eligible undertaking, therefore reiterating the contention as advance in respect of the claim of deduction under section 10B on interest income on MSEB deposit, the Ld. A.R. has submitted that the claim of the assessee is bonafide claim and based on good faith and due diligence. The assessee has disclosed all the relevant particulars of income and other detai .....

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the Ld. A.R. of the assessee has submitted that since the assessment year 2001-02 the assessee has not allocated the directors remuneration while computing the income of eligible undertaking under section 10B and the AO for all the earlier assessment years has accepted the claim of the assessee while passing the assessment order under section 143(3). Only for the year under consideration, first time the AO has disallowed the claim by allocating the directors remuneration on pro-rata turn over ba .....

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allocation of expenditure and the basis of allocation is a debatable issue as section 10B does not stipulate such appropriation of expenditure. He has relied upon judgment of Hon ble Supreme Court in the case of Reliance Petro Products (P) Ltd. 322 ITR 158 and submitted that merely making claim does not constitute concealment of income nor any furnishing of inaccurate particulars of income when the claim of the assessee is based on good faith and bonafide one. Transfer Pricing Adjustment in resp .....

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B by Finance Act, 2012 with retrospective effect from 01.04.2002 there was no reason to the assessee to report the bank guarantee furnished to the AE as an international transaction. Thus under the bonafide belief, the assessee has not made any transfer pricing adjustment for the bank guarantee at the relevant time because such transaction was not treated as international transaction. Though the explanation to section 92B has been introduced subsequently with retrospective effect to cover the ba .....

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of RBS Equities India Ltd. dated 26.08.11 in ITA No.2570/M/2010. The Ld. A.R. has further submitted that even after the retrospective amendment to section 92B the Delhi Benches of this Tribunal in the case of Bharti Airtel 161 TTJ 428 as well as the decision of this Tribunal in the case of Videocon International Ltd. has held that the bank guarantee provided to the AE is not an international transaction. Therefore this is a highly debatable issue which does not attract the penalty under section .....

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tment is made in respect of the bank guarantee itself. Once the TPO/AO has made an addition for providing bank guarantee for the AE at the rate of 2.08% there is no justification to make further addition of actual expenditure incurred. Thus the Ld. A.R. has contended that so far as the amount of ₹ 15,49,880/- is concerned, it is a double addition over and above the addition for providing bank guarantee and therefore it would not amount to concealment of income or furnishing of inaccurate p .....

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penalty under section 271(1)(c) is not attracted on an addition based on presumption as well as hypothetical income not actually earned by the assessee. 10. Per contra the Ld. D.R. has submitted that the claim of deduction under section 10B in respect of the interest income as well as other items of income is contrary to the provisions of law and therefore such a claim cannot be treated as a bonafide claim. There is no nexus of the income of interest as well as weigh bridge receipts with the ex .....

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ection 271(1)(c) is attracted in case of absolutely impermissible claim of the assessee. On the issue of transfer pricing adjustment the Ld. D.R. has submitted that it is not a case of no financial effect of the bank guarantee provided to the AE but the assessee has incurred the expenses to the tune of ₹ 15,49,880/- and therefore the decisions relied upon by the assessee in case of Bharti Airtel (supra) as well as Videocon International Ltd. (supra) are not relevant and help to support the .....

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record. The penalty under section 271(1)(c) has been levied by the AO in respect of the disallowance of deduction under section 10B as well as addition on account of transfer pricing adjustment in respect of bank guarantee provided by the assessee to its AE. The disallowance of deduction under section 10B was confirmed by the Ld. CIT(A) and the assessee has accepted the order of the Ld. CIT(A) by not pressing the ground in respect of interest income on MSEB deposit before this Tribunal and the .....

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quarrel on the proposition that merely because a claim is made by the assessee and the same was rejected by the AO does not ipso facto lead to the conclusion that the assessee has concealed particulars of income or furnished inaccurate particulars of income when the assessee has made out a case that the claim so made by the assessee was a bonafide claim and based on good faith and due diligence. We will deal with each item of disallowance/addition as under: Disallowance of deduction under sectio .....

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d the disallowance made by the AO and confirmed by the Ld. CIT(A), however, it cannot be said that the claim of the assessee of deduction under section 10B in respect of interest income on deposits made with the MSEB is a bogus claim or an absolutely impermissible false claim. In support of its contention of bonafide claim the assessee placed reliance on the judgment of Hon ble Karnataka High Court in the case of Motorola India Electronics (P) Ltd. (supra). The Hon ble High Court has observed in .....

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interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of Income from Profits and Gains' incorporated in .....

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assessee and against the revenue. 12. A similar view has been taken by the Hon ble Delhi High Court in the case of Hritnik Exports Pvt. Ltd. (supra). Therefore it cannot be said that the claim of the assessee is an absolute impermissible claim and does not fall in the category of bonafide claim. It is pertinent to note that in view of the various judgments as relied upon by the assessee there are certainly two possible views on this issue. Thus, we are of the considered opinion that the claim of .....

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e of deduction under section 10B on interest income from deposit with MSEB. Weigh Bridge Receipts: 13. There is no dispute regarding the fact that weigh bridge is situated in the undertaking itself and therefore the income earned from such asset claimed as profit of business of the undertaking is a bonafide claim of the assessee. Mere disallowance of the claim under section 10B would not constitute concealment of income or furnishing inaccurate particulars of income when the assessee has disclos .....

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AO the nature of income and source of income. Allocation of Directors remuneration: 14. There is no dispute that since 2001-02 the assessee has been claiming deduction under section 10B without allocating the directors remuneration towards the income eligible for section 10B deduction. Only for the year under consideration, the AO has made the allocation on the basis of pro-rata turnover and thereby disallowed/restricted the claim of deduction under section 10B. It is undisputed fact that since .....

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furnishing of inaccurate particulars of income as held by the Hon ble Supreme Court in the case of Reliance Petro Products (P) Ltd. (supra). Therefore, we are of the considered opinion that when for the last six years the assessee was under the impression that no allocation of expenditure is required while computing the income of eligible undertaking because the AO has accepted the computation of income for deduction under section 10B without any allocation of directors remuneration then the cl .....

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report the transaction of providing bank guarantee to its AE as an international transaction, however in the form No.3CEB submitted before the AO the assessee has disclosed the fact of giving bank guarantee as well as incurring the expenditure for providing the bank guarantee. Once the assessee has disclosed the fact of providing bank guarantee to its AE which has not been disputed by the AO then the addition made on account of transfer pricing adjustment by determining the ALP of the bank guar .....

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rovided in the Act as international transaction. 16. We find that the assessee has given the particulars of the bank guarantee and the charges paid on behalf of the associated enterprises in Annexure-III of form No.3CEB. In the case of DCIT vs. RBS Equities India Ltd. (supra) identical issue has been considered by this Tribunal regarding levy of penalty under section 271(1)(c) in respect of addition on account of transfer pricing adjustment. The Tribunal after considering the provisions of secti .....

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e prescribed method under section 92C(1) and the Assessing Officer has not found any faults in computation of ALP in accordance with transaction net margin method. In fact, he has rejected the TNMM on the ground that CUP method could be applied to the facts of this case. Whatever be the legal merits of this approach and the judicial precedents by the co-ordinate benches on this issue, it is certainly a highly contentious issue whether a priority in the methods of determining ALPs can be said to .....

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t a direct method is preferable, the ALP has not been computed by the assessee under the scheme of section 92C of the Act. As to the scope of connotations of expression 'in good faith' appearing in Explanation 7, we find guidance from section 3(22) of General Clauses Act which states that "a thing shall be deemed to be done in 'good faith' where it is in fact done honesty, whether it is done negligently or not". A thing done in good faith is a thing done honestly, and, .....

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with 'due diligence', which refers to 'proper care, it is also essential that not only the action of the assessee should be in good faith, i.e., honestly, but also with proper care. An act done with due diligence, in our humble understanding, would mean an act done with as much as care as a prudent person would take in such circumstances. In view of these discussions, in our considered view, as long as no dishonesty is found in the conduct of the assessee and as long as he has done w .....

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whereby the explanation has been inserted with retrospective effect from 01.04.2002 the claim of the assessee is based on good faith and due diligence and therefore we do not find it a fit case for levy of penalty under section 271(1)(c). 18. The next point of dispute is the addition on account of transfer pricing adjustment made by the TPO/AO in respect of actual expenditure of ₹ 15,49,880/- incurred for securing bank guarantee and ₹ 75,944/- towards notional interest on the said a .....

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