TMI Blog2018 (4) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in such cases. Therefore, penalty is directed to be deleted. - I.T.A. No.852/Ahd/2015, I.T.A. No.651/Ahd/2015 - - - Dated:- 4-4-2018 - Shri Mahavir Prasad, Judicial Member And Shri Manish Borad, Accountant Member Assessee By : Shri Bandish Soparkar, AR Revenue By : Shri Mudit Nagpal, Sr. DR ORDER Per Mahavir Prasad, Judicial Member These two captioned appeals have been filed at the instance of the revenue and assessee against the separate appellate order of the Commissioner of Income Tax(Appeals)-1, Ahmedabad [CIT(A) in short] dated 05/01/2015 arising in the penalty order passed under s.271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 27/02/2013 relevant to Assessment Year (AY) 2004-05. 2. Following grounds have taken by the revenue: (1) The CIT(A) has erred in law and on facts in deleting the penalty levied u/s.271(1)(c) on additions/disallowances of ₹ 4,42,73,956/- except penalty levied on disallowance of prior period expenses of ₹ 10,83, 885/-despite the fact that the assessee had wrongly claimed expenses/deductions in contravention of the provisions of the Income Tax Act 1961 in the return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before Hon'ble CIT(A), who vide his order dated 02/03/2012 confirmed the following additions/disallowances : Disallowance of deduction u/s. 80HHC 18,85,093 Disallowance of prior period expenses 10,83,885 Addition due to Arms Length Price 38,14,000 Disallowance of Loss due to Foreign Exchange Fluctuations 42,66,137 Disallowance of deduction u/s. 35(2)(AB) 5,34,000 Disallowance of deduction u/s. 80G 3,50,000 TOTAL INCOME 4,42,73,956 It is seen that the disallowance made u/s.35(2AB) was not contested by the assessee in appeal; therefore the same has attained finality. 4.3 In view of the confirmation of disallowance by the Ld. CIT(A), penalty notice u/s.271(1)(c) was issued on 12/02/2013. In response, the assessee submitted its submission dated 18/02/2013 as under: We refer to the subject and at the outset we have to state that the subject proceedings are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statement giving our say, issue wise, on each of the disallowances which to the extent are not in our favour in the assessed situation - ie. points 4 6 above. (B) Disallowances u/s. 43B towards As regards the PF/ESI, the assessee within the grace periods/ where the payments are made by cheque the payments have realized within 15 days of the due date, thus the deduction is very much eligible and such precedence exists in the assessee company's own cases of past, that the appellate authorities have cancelled similar disallowance. It is pertinent to note that 43B disallowances normally results into denial of a particular expenditure in one year but the same gets allowed in another year when there the liability is actually paid, thus there is no revenue loss arising out of this hence no scope of penalty at all. (C) Disallowance of Prior Period expenses During the course of assessment proceedings the assessee company had provided details explanation that the liabilities of these expenses have been crystallized in current year only. Moreover, the AO's dispute here that relates to the year in which the expenses should have been claimed (Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available deduction as per assessee's own working came to NIL. Since the assessee was not eligible for any deduction u/s.80HHC, the whole claim of deduction u/e. 80HHC of the assessee was hereby disallowed and the same was added back in the income of the assessee for the year under consideration. The addition was confirmed by CIT(A) with the observation that there was no eligible positive profit for deduction. 5.2 Disallowance of weighted deduction of ₹ 5,34,000/- u/s.35(2AB) of the I.T. Act. During the year under consideration the assessee claimed deduction of ₹ 10,41,64,966/- @ 150% at ₹ 15,62,47,449/- u/s.35(2)(AB) for Scientific Research done by it. It is seen that assessee is registered with the Department of Scientific Industrial Research, New Delhi who in turn certifies the actual allowable expense in these regards after carrying out physical verification of the scientific work done and facilities of the assessee. For the year under consideration the DSIR has approved Scientific expenditure of ₹ 10,38,08,966/- only. Vide this office show-cause dated 13/12/2006 the assessee was asked why its additional claim of ₹ 3,56,000/- u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts on record passed her order on 31/05/2006 making an upward adjustment of ₹ 38,14,000/-. Vide this office show- cause dated 13/12/06 the assessee was asked why as per the order of the TPO addition of ₹ 38,14,000/- should not be made in the income of the assessee for the year under consideration. In its reply the assessee has submitted that: During the year under consideration, your assessee company had entered into with Associate Companies as defined under the Income Tax Act, various transactions. Your assessee company has followed the correct method based on the facts of the case for arriving at Arms Length Price. Your assessee company has obtained the Auditors' Report to the effect accordingly and also filed with the Return of Income. As you may kindly observe from the said report, the Auditors have also endorsed and confirmed the method for arriving at the Arms Length Price. However, during the assessment proceedings under Transfer Pricing Rules, the Transfer Pricing Officer-1, Mumbai, for its own reasons and in ad-hoc manner adopted the different method for arriving at the Arms Length Price and accordingly made an addition of ₹ 3814000/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office show-cause dated 13/12/06 the assessee was required to justify with all the supporting evidences that how these expenses are admissible as revenue expenses during the year under consideration. The assessee was also required show-cause why as per the Mercantile system of accountancy followed by it, the same should not be disallowed. In reply the assessee submitted that its claim was justice as they were debited in the books of accounts in the current assessment year. Assessee also contended that the corresponding bills have been received during the year under review or the same have been disputed and such dispute settled under consideration . Various case laws have been relied upon by the assessee. Assessee's contentions were considered in detail. A perusal of the above details and the submissions in this regard indicate that these expense of previous year other than that under consideration were claimed on the ground that they were crystallized in this year only. Other than making the generic observations about the possible reasons for debiting these expenses in the current year, no specific evidence was placed before the under signed to establish its case in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets such as stocks, debtors etc. As you may kindly appreciate, money is a fungible asset and therefore loses its character once it is deposited into the Bank Account. The source of the funds is not relevant thereafter. We would like to further mention that the net current assets of ₹ 127.09 Crores have been funded partially by the Working Capital Loans from the Bankers and balance by the term loans as explained above. The term loans (in foreign currency) which have been used for the funding of current assets, when swapped or repaid resulted into the foreign exchange loss. In view of the above, the foreign exchange loss has been incurred on account of the revenue transactions only and is therefore fully deductible. The submission of the assessee were carefully perused. In fact the submission of the assesses were found misleading. It was seen that as on 31/03/2004 the net fixed assets of the assessee stood at 189.31 crores where as Long term loans stood at ₹ 191.93 crores. It was very naturally that all most all the long term loans were employed to create fixed assets. It was also very natural that Terms loan taken in foreign exchange we used to acquire fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have gone through the relevant record and impugned order. In quantum proceedings, assessee went in appeal before the ITAT in ITA No.1117/Ahd/2012, in which co-ordinate bench gave relief to the assessee with following observation: 7. We have heard rival submissions. Both the lower authorities are fair enough in not disputing assessee's basic plea that it had received the impugned bills only in the relevant previous year. The assessee's case therefore is that all the said expenses have crystallized in the impugned assessment year. The Assessing Officer holds that there is no such evidence of crystallization of the expenses in question. We observe in these peculiar facts that the assessee could not have paid or claimed the impugned bills without receiving the same from its payees. Non receipt of the corresponding earlier assessment years forms a sufficient reason on assessee's part in not raising its claim in earlier years. Both the lower authorities admittedly do not doubt genuineness of the above expenses. There is further no denial of the fact that the assessee has all along been taxed at uniform rate in said earlier as well as in the impugned assessment year. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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