TMI Blog2018 (11) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... the same loans, and failed to record any specific finding as to how in such circumstances the loss could be denied, we deem it appropriate to set aside this issue to the file of the AO for re-adjudication. Penalty on Penalty expenses - Held that:- It is fact on record that the penalties are not allowable for the deduction. But the assessee has claimed the deduction for the same despite the fact that these are not allowable for the deduction. Thus we confirm the penalty in view of the judgment of the Hon’ble Delhi High Court in the case of Zoom Communication Pvt. Ltd [2010 (5) TMI 34 - DELHI HIGH COURT] on account of inaccurate particulars of income furnished in the income tax return. Accordingly we hold that the assessee is liable for penalty under Section 271(1)© of the Act. Deemed dividend under Section 2(22)(e) - Held that:- Considering the current account and number of transactions, and since the Hon’ble High Court has upheld the finding of the Tribunal in earlier years that these are not loans, which could be brought in the ambit of section 2(22)(e) of the Act for the purpose of treating it as deemed dividend, we respectfully following the order of the ITAT in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charging the depreciation on the assets - Held that:- We find support and guidance from the judgment of Lala Harbhagwan Das & Memorial & Dr. Prem Hospital (P.) Ltd. Vs. CIT [2013 (12) TMI 1674 - ITAT DELHI] held that where higher depreciation was wrongly claimed under bona fide belief in respect of nature of equipment and its professional use, no penalty would be leviable. We do not want to disturb the finding of ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed. Disallowances u/s. 14A - Held that:- Hon’ble Supreme Court in the case of Reliance Petro Products Ltd.[2010 (3) TMI 80 - SUPREME COURT] has held that no penalty will be levied in case the addition is made on account of disallowance made u/s 14A of the Act. Disallowance u/s 40(a)(i) - Held that:- These are simply reimbursement of administrative expenses incurred by Dr.Henk Pluim outside India. They did not involve any element of income and TDS was not required to be deducted. As far as second party is concerned, the AO failed to bring any material on record to justify the administrative expenses required to be incurred for availing services of Dr.Henk. It is totally in the domain of the businessman an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be quashed. 3. In any case, the impugned penalty order is barred by limitation and thus without jurisdiction and illegal. 4. In any case, quantification of the penalty is erroneous and excessive. 5. The learned CIT(A) has erred in law and on facts in confirming the action of AO in initiating and levying penalty under section 271(1)(c) of the Act without recording mandatory satisfaction as contemplated under the Act at the time of framing the assessment order. 6. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 3. The grounds of appeal raised by the Revenue in ITA No.205/Ahd/2014 pertaining to the Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of income/furnishing inaccurate particulars of income. 5.4 The additions in respect of which penalty was initiated among other additions are detailed as under: Amount (Rs.) 1 Provision for bad debts 10,52,773 2 Foreign Exchange Fluctuation Loss 18,77,000 3 Penalty Expenses 2000 4 Deemed Dividend u/s 2(22)(e) 3,10,08,567 5 Deduction u/s 80G 10,74,790 6 Transfer Pricing Addition 74,72,426 7 Prior Period Income 40,11,972 8 Misc. Exp. Written off 25,00,000 9 Excess Depreciation on Electric Installation 56,096 10 Disallowance u/s 14A 3,93,000 11 Disallowance u/s 40(a)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 36(2) of the Act. The assessee in support of his claim relied on the judgment of Hon ble Supreme Court in the case of Vijay Bank Vs. CIT reported in 190 Taxman 257. ii. Foreign Exchange Fluctuation Loss of ₹ 86,77,000/- The assessee submitted that the issue is covered by the judgment of Hon ble Supreme Court in the case of Oil Natural Gas Crop. Ltd. Vs. CIT reported in 322 ITR 180 and CIT vs. Woodword Governor of India. Pvt. Ltd. reported in 312 ITR 254. The assessee also submitted that the provisions of Income Tax Act require converting its liability involving Foreign Exchange into rupees on the last day of previous year. As a result, if losses arise to the assessee then the same should be allowed as deduction. iii Penalty Expenses of ₹ 2000/- There was no inaccurate particular furnished by the assessee in its profit and loss accounts. It is because the penalty was duly claimed in the profit and loss account. Therefore, no penalty can be levied on the disallowance of the expenses. iv. Disallowances u/s 14A for ₹ 3,93,000/- The assessee submitted that no inaccurate particulars were furnished for the expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h reference to the following balance disallowances/additions is cancelled. 1. Transfer pricing addition. 2. Addition of prior period income. 3. Miscellaneous expenses written off. 4. Disallowance of depreciation on electrical installation. 5. Disallowance u/s.14A. 6. Disallowance u/s.40(a)(ia) 7. Disallowance of deduction u/s.10B 6.2 Being aggrieved by the order of ld. CIT(A) both the assessee and Revenue are in appeal before us. 7. The assessee is in appeal against the penalty order confirmed by the Ld. CIT(A) whereas the Revenue is in appeal against the penalty deleted by the Ld. CIT(A). 8. The Ld. A. R. before us submitted as under:- Penalty on Provision for doubtful debts ₹ 10,52,773/-: It is submitted that assessee had debited provision for doubtful debts and the same was credited under the head Provision for Doubtful Debts from the sundry debtors in Balance-sheet and not individually from respective debtors. The said fact was evident from the grouping of Balance-sheet, profit Loss a/c and relevant ledgers. Hence, such deduction was allowable in light of decision in the case of Vijaya Bank Vs. CT -190 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is merely a case of TP adjustment which has been made on account of difference of opinion as to ALP (i.e. Arms Length Price) which is very much possible since it very unlikely that two persons would adopt similar method and approach for determining ALP. Also there is neither any concealment of income nor any inaccurate particulars of income have been furnished. Merely because an addition has been made, penalty can't be levied. Reliance is placed on Reliance Petroproducts Pvt. Ltd. - 322 1TR 158 (SC). Under such circumstances, penalty deserves to be deleted. Penalty on Prior Period income ₹ 40,11,972/-: ITAT held that PPI is to be set-off against PPE and only net differential sum is to be brought to tax. Accordingly, ₹ 7,22,725/- is to be allowed as deduction (Para 22-25 @ 25, Pgs. 28-30 of the Order). Penalty on Misc. expenses written off-Rs.25,00,000/- Hon ble ITAT restricted such disallowance to ₹ 10,00,000/- on adhoc basis (Para 31-34 @ 34 Pg.31 of the order). It transpires that the addition has been eventually estimated at ₹ 10,00,000/- by Hon ble ITAT on adhoc basis. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order). Hence, penalty on the same deserves to be deleted. Penalty on Disallowance u/s 10B ₹ 6,68,63,318/-. Hon ble the ITAT has deleted such disallowance made u/s.10B of the Act (Para 61-63 @ 63, Pgs. 47-53 of the order) Hence, penalty on the same deserves to be deleted. 9. On the other hand, the Ld. D. R. submitted that the addition was made by the A.O. in respect of several items and accordingly penalty was initiated on account of concealment of particulars of income and inaccurate particulars of incomes for different kinds of addition. 9.1 Both the parties before us relied on the order of authorities below as favorable to them. 10. We have heard the rival contentions and perused the materials available on record. The facts of the case are not in dispute. Therefore we are not inclined to repeat the same for the sake of brevity, convenience and adjudication. 11. Now we proceed to adjudicate the issue raised by the assessee as well as by the revenue independently. i. Provision for doubtful debts of ₹ 10,52,773/- In the present case, the penalty was levied by the AO due to the fact that the assessee has claimed pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the amount added or disallowed in computing total income of such person, as a result thereof, shall for the purpose of clause (c) be deemed to represent the income in respect of which particulars have been concealed. After having regard to the facts of the above case, in our considered view, the assessee has furnished inaccurate particulars of income and accordingly liable for penalty under Section 271(1) of the Act. Thus, we do not find the any reason to interfere in the order of Ld. CIT(A). Thus, the ground of the appeal is dismissed. ii. Disallowances on Foreign Exchange Fluctuation Loss: At the outset, we note that the Hon ble ITAT in the own case of the assessee in ITA no. 955/AHD/2012 others vide order dated 20/06/2018 has set aside the proceedings for fresh adjudication to the AO as per the provision of the law. The relevant extract of the order is reproduced as under: 42. We have duly considered rival contentions and gone through the record carefully. Assessment order as well as order of the ld.CIT(A) are silent on the submissions made by the assessee. The assessee has contended that being company, it is required to prepare its accounts by followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction for the penalty expenses claimed in the income tax return. The view taken by the AO was subsequently confirmed by the Ld CIT(A). It is fact on record that the penalties are not allowable for the deduction. But the assessee has claimed the deduction for the same despite the fact that these are not allowable for the deduction. Thus we confirm the penalty in view of the judgment of the Hon ble Delhi High Court in the case of Zoom Communication Pvt. Ltd (Supra) on account of inaccurate particulars of income furnished in the income tax return. Accordingly we hold that the assessee is liable for penalty under Section 271(1) of the Act. Thus, we do not find the any reason to interfere in the order of Ld. CIT(A). Thus, the ground of the appeal is dismissed. iv. Deemed dividend under Section 2(22)(e) of the Act: At the outset, we note that the above addition was deleted by the Hon ble ITAT in the own case of the assessee in ITA No. 955/AHD/2012 others. The relevant extract of the order is reproduced below: 58. So far as grounds of assessee are concerned, the ld.counsel for the assessee submitted that inter corporate deposits made by the assessee-company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions, and since the Hon ble High Court has upheld the finding of the Tribunal in earlier years that these are not loans, which could be brought in the ambit of section 2(22)(e) of the Act for the purpose of treating it as deemed dividend, we respectfully following the order of the ITAT in the assessment year 2006-07 as well as judgment of the Hon ble High Court in earlier years, are of the view that advance given to M/s.Bhadra Raj Holdings P.Ltd. cannot be treated as deemed dividend. We allow this ground of appeal. Once the quantum addition has been deleted then in our considered view the question of levying the penalty does not arise. Hence, the ground of appeal of the assessee is allowed. v. Deduction under Section 80(G) for ₹ 10,74,790/- At the outset, we note that the above addition was deleted by the Hon ble ITAT in the own case of the assessee in ITA No. 955/AHD/2012 others. The relevant extract of the order is reproduced below: 30. We have duly considered rival contentions and gone through the record. This expenditure was incurred by the assessee in order to perform its corporate social responsibility. Expenditure was given to Municipal C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party and not the AE. The factum of business requirement in a foreign country at what rate of interest funds are being borrowed by the AE is totally irrelevant aspects. The question before the TPO was at what rate an Indian concern should provide loans in dollar denomination to an unrelated party from India. The AE has obtained loans from European market, which is altogether a different currency and the requirement of AE could be different for that. There may be higher rate of interest prevailing for borrowing funds, but at what rate the loan could be made from India in dollar denomination? The assessee has pointed out that LIBOR is the prevailing rate and it has charged LIBOR plus 1%. No defect has been pointed out in this rate. Only thing is that one of the AEs has obtained loan from European market, therefore, the ld.TPO has applied that rate. To our mind this action of the ld.TPO could be justified if he has pointed out that a tested party in India has granted loan to its AE in dollar denomination at a higher rate than the LIBOR plus 1%. It is also pertinent to note the cost of the funds to the assessee. The assessee has contended that it has raised funds by issuing of FCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 2005-06 and 2006-07. In the assessment year 2006-07, the assessee has prior period income at ₹ 46,50,648/- and it has debited prior period expenditure of ₹ 43,11,114/-. The net differential amount of ₹ 3,39,534/- has been credited to profit loss account and offered for taxation. The AO did not allow set off prior period expenditure and taxed the gross income. The issue came up before the Tribunal. We have upheld taxability of net differential amount. The Tribunal observed that once the assessee has been offering income of prior period as an entity, then its prior period expenditure cannot be disallowed simply by observing that it is not ascertainable whether this expenditure were incurred for earning a particular receipts offered under the head prior period income . According to the Tribunal, if an assessee is offering prior period income, then the expenditure which were incurred under different heads and crystalilised in this year ought to be set off against hat income. Considering our finding in the assessment year 2006-07, we partly allow all the grounds and direct the AO to tax only net differential amount. In other words, in any particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying on the material which is on record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. If it can be said on a preponderance of probabilities that the failure to return the total assessed income has not arisen on account of any fraud or any gross or willful neglect on the part of the assessee, the legal fiction enacted in the Explanation cannot arise and the revenue must fail in its attempt to impose penalty upon the assessee. From the above, it is clear that the penalty on account of ad hoc disallowances cannot be made. Thus the ground of appeal of the Revenue is dismissed. ix. Disallowances of depreciation In the instant case, the addition was made on account of rate applied by the assessee for charging the depreciation on the assets. The assessee has charged depreciation at the higher rate than the rate applied by the AO. Thus, the addition was made. We note that the Hon ble Courts in such kind of addition has deleted the penalty levied u/s 271(1)(c) of the Act. In this regard, we find support and guidance from the judgment of Lala Harbhagwan Das Memorial Dr. Prem Hospital (P.) Ltd. Vs. CIT reported in 40 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of reference. The AO on perusal of the details noticed that assessee has debited following expenditure Sr. No. Particulars Amount a) Reimbursement of Administrative Services to Dishman Europe Ltd. 1,47,37,061/- b) Advertisement expenses 7,71,512/- c) Conference charges 1,32,282/- d) List Fees 28,921/- Total 1,56,69,776/- 50. The ld.AO was of the view that the assessee has remitted the above amount to non-resident without deducting TDS under section 195 of the Act, which according to the assessee, it was not supposed to do so in view of section 195 r.w. DTAA of those countries. The ld.AO did not accept this submissions of the assessee and disallowed an amount of ₹ 1,56,69,776/- under section 40(a)(ia) of the Act, which was confirmed by the ld.CIT(A). 51. It has been brought to ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, nonresident was not having any permanent establishment in India or any business connection. Thus, such sum is not taxable in India and no question of deducting TDS would arise. Reference to circular no.786 dated 7.2.2000 is being made. The AO failed to bring on record any material showing that recipient is taxable in India. With regard to other two items i.e. reimbursement of administrative charges and reimbursement of insurance and foreign travel expenses are concerned, these expenses have been reimbursed to Dr.Henk Pluim who was responsible for procurement, chemical development and technological up gradation etc. These amounts have been calculated on the basis of services rendered and time devoted by him to three concerns viz. Dishman UK, Dishman India and Dishman USA. The AO was of the view that allocation of expenditure was on higher side. He also observed that in subsequent year such expenses have been allocated amongst these concerns in the ratio of 40:40:20 based on advice given by the group chairman. On the basis of that ratio, the ld.AO has allocated this expenditure in this year also and worked out allowance expenditure out of ₹ 81,02,622/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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