TMI Blog2020 (3) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of professional fees - we find that the additions made by the A.O towards disallowance of professional fees to S.K Gupta Group of Companies has been finally deleted by the ITAT in quantum proceedings in [ 2017 (4) TMI 1489 - ITAT MUMBAI] where the additions made by the A.O towards disallowance of profession fees has been deleted. Once the addition on which the penalty levied has been deleted by the appellate authorities, then penalty levied on said addition cannot survive. Therefore, we are of the considered view that there is no error in findings recorded by the Ld. CIT(A) while deleting penalty levied in respect of disallowance of professional fees and hence, we reject the ground taken by the Revenue. Penalty levied on additions towards transfer pricing adjustment u/s 92C - towards interest on loans to subsidiaries, we find that although the A.O has levied penalty for furnishing inaccurate particulars of income, but fact remains that the assessee has disclosed necessary facts required for computation of total income in the return of income filed for the year which is evident from the fact that detailed note has been annexed to statement of total income filed for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue Penalty u/s 271(1)(c) - income tax payable on the total income as computed under normal provisions of the Act, is less than the tax payable on the book profits u/s 115JB - HELD THAT:- As clarified that where the income tax payable on the total income as computed under the normal provisions is less than the tax payable on the book profits computed u/s 115JB of the Act, then penalty u/s 271(1)(c) of the Act is not attracted with reference to additions / disallowances made under normal provisions of the Income Tax Act, 1961. In this case, it is an admitted fact that, as per the order of the A.O u/s 154 of the Act, dated 20.07.2016 the assessee was assessed to tax under provisions of 115JB of the Income Tax, 1961, although the A.O has made various additions towards total income computed under normal provisions of the Income Tax Act, 1961. Therefore, We are of the considered view that penalty u/s 271(1)(c) of the Act cannot be levied with reference to additions / disallowances made to income computed under normal provisions of the Income Tax Act, 1961. Identical issue has been considered by the coordinate Bench of the ITAT Mumbai in the case of Kapil Rayon India Pvt Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifested that professional fees paid by the appellant was bogus, as no relevant services were rendered by such companies? 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the penalty levied u/s 271(1)(c) of the Act, on account of addition made u/s 92C of the Act even though assessee furnished inaccurate particulars of income and concealed the particulars of income, and did not submit any new facts / material to substantiate its claim for nonlevy of penalty. 5. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty u/s 271(1)(c) of the Act even though the A.O duly substantiated that assessee had knowingly and deliberately made false claims and furnished inaccurate particulars of his income? 3. The assessee, has more or less raised common grounds of cross objection for all assessment years. Therefore, for the sake of brevity grounds of cross objections filed for the A.Y 2008-09 in cross objection No. 244/Mum/2019 are reproduced as under: 1. Whether, on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in applying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come at ₹ 9033,85,80,777/- under normal provisions of the Act, and ₹ 23069,36,91,462/- under the provisions of Sec. 115JB of the Act, by making various additions, including additions towards disallowance of depreciation on steel purchases, disallowance out of professional fees paid to various parties and additions towards transfer pricing adjustment u/s 92C of the Act, towards interest on loan to subsidiaries. 5. Thereafter, the A.O has initiated penalty proceedings u/s 271(1)(c) of the Act, with reference to additions / disallowance made in the assessment order, and called upon the assessee to explain as to why penalty shall not be levied for concealment of particulars of income and for furnishing inaccurate particulars of income. In response, the assessee vide letter dated 14.03.2014 has filed a detailed written submissions and explained that concealment of penalty provided u/s 271(1)(c) is not attracted in respect of additions made towards disallowance of depreciation on steel purchase, additions towards disallowance out of professional charges paid to various parities and additions towards transfer pricing adjustment u/s 92C of the Act, in respect of interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the assessee submitted that the issue is debatable, because there are divergent views where, some courts and tribunals have held in favoure of the assessee that said transactions are not an international transactions, consequently transfer pricing adjustment cannot be made on loans to subsidiaries, whereas, in some cases the issue has been decided in favoure of the revenue and held that transaction requires transfer pricing adjustment in respect of loans to subsidiaries. Therefore, from the above it is very clear that, the matter is debatable and always two views are possible, therefore, on such issues penalty cannot be levied u/s 271(1)(c) of the Act, when the assessee has declared necessary facts for computation of income in the return filed for the relevant assessment years. 7. Ld. CIT(A) after considering the submissions of the assessee and also taken note of the fact that the ITAT has deleted penalty levied on disallowance of depreciation on steel purchase for A.Y 2003-04 to 2006-07 in ITA No. 7219 to 7221/Mum/2011, vide order dated 11.12.2013, has deleted penalty levied on additions towards depreciation on steel purchases. In so far as, additions towards disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as furnished inaccurate particulars of income and concealed the particulars of income and also did not submit any new facts / materials to substantiate its claim for non levy of penalty. Therefore, he submitted that the Ld. CIT(A) has deleted penalty without considering relevant facts and hence the penalty levied by the A.O should be upheld. 9. The Ld. AR for the assessee, on the other hand, strongly supporting the order of the Ld. CIT(A), submitted that, in so far as, penalty levied on additions towards depreciation on steel purchases, the issue has been covered in favoure of the assessee by the decision of the ITAT in assessee s own case for A.Y 2003-04 to 2006-07 in ITA Nos. 7219 to 7221/Mum/2011, where under identical set of facts the penalty levied has been deleted. In so far as, additions towards disallowance of professional fees paid to Shri S.K Gupta Group of Companies, the ITAT has deleted quantum disallowances made by the A.O in ITA No. 4361/Mum/2012, vide order dated 12.04.2017 and once additions has been deleted, penalty levied on said addition cannot survive in the eyes of law. As regards penalty levied towards transfer pricing adjustment on loans to subsidiaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. It is submitted that as narrated in our case, the Assessee had also lent money to its AE on account of business expediency. It is further submitted that admission of this appeal indicates that the question is an arguable point in law on which two views are possible and therefore it is not a case of penalty u/s 271(1)(c) of the Act. On similar lines, the Delhi Tribunal in the case of Perot Systems TSI (India) Pvt Ltd v/s ACIT [ITA No. 2200 and 2201/De1/2011] has deleted the penalty and held that since the TP adjustment on the issue of interest free loan is admitted as substantial question of law no penalty can be levied. That is further fortified by the jurisdictional High Court in the case of The Pr. Commissioner of Income Tax vs. Dhariwal Industries Ltd. [INCOME TAX APPEAL NO. 1133/1136/1129 OF 2016] that when question of law is admitted, there is no question of levying penalty. c) It is submitted that the return of income u/s 139(1) for A.Y. 200809 was filed on 30-09-2008. The issue whether TP adjustment can be made in respect of interest free loan to a subsidiary is a subject matter which falls into debatable issue. This is evident from the fact that the ITAT had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd., reported in 243 ITR 48. d) It is further submitted that even post retrospective amendment, the Hon'ble Tribunal in the case of Siro Clinpharm Pvt. Ltd., ITA 2618/M12014 has held that the retrospective amendment to the definition of international transaction by the Finance Act, 2012 would be applicable only post 2012 and not prior thereto. This also shows that even after the retrospective amendment the issue is highly debatable. e) It is submitted that the Petitioner had Dusiiic5.5 rciationchip with its AE, RIME DMCC since the Petitioner had sold high-speed diesel, aviation turbine fuel and motor spirit as evident from pgs 203, 204, 214, 216 and 218. It is submitted that if an interest free loan is given to its subsidiary with whom the assessee has business relationship then the parameters relevant for making adjustment on account of pure lending would not be applicable because even in case of business relationship with non-related parties, a businessman would give interest free loan looking at his business interests. Therefore, no TP adjustment could be made as held by the Ahmadabad Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exercise of TP adjustment, has initiated penalty. It is, therefore, submitted that in such a scenario penalty cannot be levied by the AO when the adjustment is made by the TPO and no satisfaction is recorded by the TPO. The AG will have power to levy penalty, if he himself does the exercise of TP adjustment u/s 92G. Reliance is placed on the decision of the Hon'ble Gujarat High Court in the case of Pankajbhai Shah v. ACIT reported in 110 taxmann.com 51 where the reassessment notice was issued by an officer who did not record the reasons but the reasons were recorded by another officer, and the Hon1ble Gujarat High Court quashed the reassessment proceedings on the ground that the person recording the reasons for escapement of income should be the same person who can issue reassessment notice. Further the legislature itself has provided for levy of penalty by the TPO under section 271G when the TP reference to the TPO is made by the AO and the Assessee fails to furnish information/documentation under section 92D(3). i) It is further submitted that in the assessment order at pg 51 of the paper book no satisfaction can be said to have been recorded merely because the offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 7.5% is incorrect because the said interest rate of 7.5% is adopted by the TPO by taking the controlled transaction as a comparable. i. It is further submitted that based on the above submissions, the assessee has discharged its onus cast by Explanation 7 to section 271(1)(c) of the Act which states that if the assessee acted in good faith and with due diligence then no penalty should be levied. m) In any view of the matter and without prejudice to above, it is submitted that the AG was not justified in levying penalty on TP adjustment of ₹ 9.22 cr. since the adjustment sustained after the Tribunal's order was ₹ 7.64 Cr. only. n. Reliance is placed on following decisions where the penalty u/s Explanation 7 r/w 271(1)(c) was deleted on similar grounds as stated above: I. Giesecke and Devrient (I) Pvt. Ltd. v. DCIT reported in 53 CCH 240 (Del). ii. Harlcrow Consulting India Pvt. Ltd. vs. DCIT reported in 51 CCH 644 (Del). iii. Verizon Communication India P. Ltd. vs. DCIT reported in 33 CCH 277 (Del). o) The show cause notice at page 6 of the paperbook shows that the AO has not struck off either of the limbs of Section 271(1)(c). He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellate authorities, then penalty levied on said addition cannot survive. Therefore, we are of the considered view that there is no error in findings recorded by the Ld. CIT(A) while deleting penalty levied in respect of disallowance of professional fees and hence, we reject the ground taken by the Revenue. 10.2 As regards, the penalty levied on additions towards transfer pricing adjustment u/s 92C of the Act, towards interest on loans to subsidiaries, we find that although the A.O has levied penalty for furnishing inaccurate particulars of income, but fact remains that the assessee has disclosed necessary facts required for computation of total income in the return of income filed for the year which is evident from the fact that detailed note has been annexed to statement of total income filed for the year and explained the facts with regard to loans to subsidiaries. We further noted that whether transfer pricing adjustments can be made in respect of loans to subsidiaries when such loan has been given to the AE to increase and expand the business of the assessee is a debatable issue, which is evident from the fact that the Jurisdictional High Court of Bombay in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... highly debatable. Therefore, we are of the considered view that, once there are divergent views on the issue by various Courts and Tribunals, then it clearly shows that the said issue is debatable issue and always two views are possible. When the issue is debatable and always two views are possible, then on such issues the penalty provided u/s 271(1)(c) of the Act cannot be invited for furnishing inaccurate particulars of income. 10.3 It is settled position of law, has held by the Hon ble Supreme Court in CIT Vs. Onkar Saran and Sons reported in 120 ITR 01 (SC) and CIT Vs. Onkar Saran Sons reported 195 ITR 01 (SC) that law on the date of filing the return should be seen for adjudicating whether penalty should be levied. It is therefore, necessary to examine the position of law as prevailed at the time of filing of return of income to decide the issue whether said adjustment is required to be made and also it comes under the purview of the provisions of Sec. 271(1)(c) of the Act to levy of penalty for furnishing inaccurate particulars of income. It is an admitted fact that, at the time of filing of return of income the issue is debatable and which has attained finality much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T and the ITAT has adopted LIBOR+150 basis to bench mark the transaction. Therefore, on this issue when there is a difference of opinion, no penalty can be levied u/s 271(1)(c) of the Act. We further noted that the assessee has disclosed complete details in respect of loans to subsidiaries and reasons for non-charging of interest on said loans. Therefore, the allegation of the A.O that the assessee has concealed particulars of income or furnished inaccurate particulars of income in respect of loans to subsidiaries is incorrect. Therefore, we are of the considered view that the assessee has discharged its onus cast upon by explanation 271(1)(c) of the Act, which states that, if the assessee acts with good faith and due diligence then no penalty should be levied. Hence, we are of the considered view that the A.O was erred in levied penalty u/s 271(1)(c) of the Act, in respect of transfer pricing adjustment made u/s 92C of the Act, towards interest on loan to subsidiaries. The Ld. CIT(A) after considering the relevant facts has rightly deleted penalty levied by the A.O, and hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the Revenue. 11. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act, 1961 by the Finance Act 2015, which provides for method of calculation of amount of tax sought to be evaded for situations, where the income determined under the normal provision is less than the income declared for the purpose of MAT provision u/s 115JB of the Act. Accordingly, it has clarified that where the income tax payable on the total income as computed under the normal provisions is less than the tax payable on the book profits computed u/s 115JB of the Act, then penalty u/s 271(1)(c) of the Act is not attracted with reference to additions / disallowances made under normal provisions of the Income Tax Act, 1961. In this case, it is an admitted fact that, as per the order of the A.O u/s 154 of the Act, dated 20.07.2016 the assessee was assessed to tax under provisions of 115JB of the Income Tax, 1961, although the A.O has made various additions towards total income computed under normal provisions of the Income Tax Act, 1961. Therefore, We are of the considered view that penalty u/s 271(1)(c) of the Act cannot be levied with reference to additions / disallowances made to income computed under normal provisions of the Income Tax Act, 1961. 15. We further no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be levied with reference to additions/ disallowances made to total income computed under normal provisions of the Act. Hence, we direct the Ld. AO to delete penalty levied u/s 271(1)(c) of the I.T.Act, 1961 16. In this view of the matter and by following the decision of Coordinate Bench at ITAT, Mumbai in the case of Kapil Royan India Pvt Ltd., Vs ITO (Supra), we are of the considered view that the Ld. CIT(A) was right in deleting penalty levied u/s 271(1)(c) of the Act for A.Ys 2007-08 2009-10. Hence, we are inclined to uphold the findings of the Ld. CIT(A) and dismissed appeal filed by the Revenue for both assessment years. 17. As a result, appeal filed by the revenue for A.Y 2007- 08, 2008-09 and 2009-10 are dismissed. CO Nos. 243, 244 245/Mum/2018 18. The assessee has filed these cross objections in support of order of the Ld. CIT(A). Although, the assessee has filed one more ground challenging validity of penalty proceedings initiated u/s 271(1)(c) of the Act, in light of show cause notice issued by the A.O u/s 274 r.w.s 271 of the Act, but fact remains that the penalty levied by the A.O u/s 271(1)(c) has been deleted for all assessment years. Therefo ..... 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