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TMI Blog2024 (1) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... es of natural justice and hence is bad in law. 3. The learned Commissioner of Income Tax (Appeals) has erred in not considering and understanding the rationale behind the economic adjustments carried out by the appellant for the purpose of benchmarking with respect to manufacturing segment. 4. The learned Commissioner of Income Tax (Appeals) failed to appreciate that charging entire depreciation of Tank 3 (100%) to the profit and loss of the appellant company was in accordance with the provisions of companies Act and hence appropriate adjustments would need to be made to determine the economic profitability of the appellant from a transfer pricing perspective. 5. The learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact there was underutilization of capacity in Tank 3 during FY 2006-07 and hence economic adjustments were necessary to eliminate the differences in the economic circumstances of comparable and the Appellant Company. 6. The learned Commissioner of Income Tax (Appeals) has ignored the fact that the underutilization of capacity in Tank 3 was only in FY 2006-07 and hence the costs related to underutilization of capacity were extraordinary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer has finalized the assessment on the basis of the draft order referred in sub-section (1) of Sec. 144C of the Act, after making addition of Rs. 8,59,31,291/- pertaining to upward adjustment to the arm's length price as recommended by the TPO. The AO has also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income/concealment of income. 5. The assessee has made economic adjustment on the issue of excess depreciation, foreign exchange fluctuation and under utilized capacity. The assessee has selected only one comparable i.e. Triveni Glass Ltd. and the most appropriate method used by the assessee for benchmarking its international transaction was TNMM and profit level indicator used was operating profit/sales. The TPO has also considered the single comparable i.e. Triveni Glass as opted by the assessee and there was no dispute in respect of most appropriate method/PLI or comparable. The international transaction reported by the assessee with its associate enterprises were as follows: Sr. No. Nature of service F.Y. 2006-07 Method Adopted 1. Import of raw materials and spares 14,698,635 TNMM 2. Import of Fini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appellate proceeding before us the ld. Counsel submitted that the manner in which the transfer pricing officer has computed the disallowance was incorrect. In this regard, the ld. Counsel further submitted that without prejudice even the transfer pricing adjustment computed by the TPO at Rs. 859,31,291/- was wrong and the correct computation as per working comes to Rs. 111,57,259/- . The ld. Counsel has also filed the computation sheet showing that adjustment in the arms length price come to Rs. 111,57,259/-. The ld. Counsel further submitted that TPO has not considered the economic adjustment as required under Rule 10B(1)(e)(iii) of the IT Rule. The ld. Counsel has also placed reliance on the decision of Bangalore Bench of the Income-tax Appellate Tribunal in the case of DCIT Vs. Novell Software Development India Pvt. Ltd. (ITA No. 1491/Bang/2014) dated 04.09.2019 and decision of Hyderabad bench of the Tribunal in the case of Qual Core Logic Ltd. Vs. DCIT (ITA No. 893/Hyd/2011) dated 31.05.2012. In respect of economic adjustment relating to capacity utilization the ld. Counsel referred the following decision. "(i) CIT Vs. Petro Araldite P. Ltd. (2018) 93 taxmann.com 438. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Rules for accounting of economic adjustment for the purpose of determination of arm's length price. The assessee also referred Rule 10B(1)(e)(iii) of the Income Tax Rules in support of such adjustment and also relied upon the judicial pronouncements as referred above. The provision of rule 10B(1)(e) of the IT Rule in respect of transactional net margin method which is reproduced as under: (i) the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base, (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation from operating costs of assessee as well as comparables. Ld.CIT DR placed reliance upon orders passed by Ld.AO/TPO. 12. We have perused submissions advanced by both sides in the light of the records placed before us. It has been submitted by the Ld.AR that for assessment year 2005- 06 in assessee's own case when this issue was remanded by this Tribunal is Ld.TPO/AO had inter alia granted the adjustment on depreciation after taking into consideration the detailed working submitted by assessee. Placing reliance upon page 892-898 of paper book, it has been submitted that for year under consideration detailed working is already available before authorities below. Ld.CIT (A) observed as under: "14.5.(v) Depreciation Adjustment 14.5.1. An extract of my predecessor's order is reproduced as under; During the appellate proceedings, it is submitted that the appellant company as a policy of charging a higher rate of depreciation as compared to the Companies selected by the TPO, therefore, there is need for making an adjustment to eliminate the difference in the accounting policies for the tested parties and the comparable companies. Having heard the contention of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of arriving at the profit margin of comparable uncontrolled transactions to enable determination of the Arms Length Price (ALP) of the Respondent Assessee's transactions with its Associated Enterprises, had invoked Rule 10-B(1) (e) (iii) of the Income Tax Rules, 1962 (the Rules). Thus, taking into account the capacity utilization as factor which could affect the extent of the profit margin of the comparable for the purposes of determining the ALP of the Respondent-Assessee's transactions (ii) The impugned order of the Tribunal reproduced Rule 10-B (1) (e) (m) of the Rules, which reads as under- "(e) transactional net margin method, by which (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base, (ii) the net profit margın realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spects/difference between the international transactions and the comparable uncontrolled transactions which materially affects the net profit margin had to be taken into account so as to have the fair comparison while determining the ALP of the tested party's transaction. (vi) Therefore, this question does not give rise to any substantial question of law as Rule 10-B (1)(e)(iii) of the Rule is self evident Thus, not entertained." 12. In the light of the facts, judicial pronouncements and provisions of section 10B of the Act as discussed supra in this order we consider it appropriate to restore the issue to the file of the AO for deciding the same denovo after considering the economic adjustments and working of correct computation of adjustment provided by the assessee. Therefore, the case is restored to the file of the AO for deciding a fresh as directed above in this order after affording adequate opportunity to the assessee. Accordingly, this appeal of the assessee is allowed for statistical purposes. ITA No.7356/Mum/2014 "1. On the facts and in the circumstances of the case and in law, the LD. CIT(A) erred in upholding the action of Ld. Assessing Officer ('LD. AO& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessing officer has also disallowed claim of deduction u/s 35D amounting to Rs. 456,959/- after relying on the earlier years orders in the assessee's own case. The assessing officer has also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income/concealment of income. Thereafter vide order u/s 271(1)(c) of the Act dated 25.03.2013 the assessing officer has levied penalty of Rs. 290,26,451/-. 14. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 15. During the course of appellate proceedings before us at the outset the ld. Counsel submitted that in the notice issued u/s 274 dated 07.01.2011 the assessing officer has not specified under which limb of Sec. 271(1)(c) the penalty proceedings have been initiated which resulted the entire penalty proceedings being bad in law. The ld. Counsel has also placed reliance on the following decisions: "i. PCIT Vs. Golden Peace Hotels and Resorts (P) Ltd. (2021) 124 taxmann.com 249 (SC). ii. PCIT Vs. Jehangir H.C. Jehangir (2023) 155 taxmann.com 209. iii. Mohd. Farhan A. Shaikh Vs. DCIT (2021) 434 ITR 1 (Bom) iv. Ganga Iron & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we have also perused the decision of coordinate Bench of the ITAT, Mumbai in the case of M/s Bhavya Shashank Shanbhag Vs. DCIT in ITA No. 4630Mum/2019 vide order dated 09.07.2021, wherein the co-ordinate Bench in identical issue and similar facts has deleted the penalty after following the decision of Hon'ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh (supra). The relevant part of the decision of coordinate Bench is reproduced as under:- "3. We have heard rival submissions and perused the materials available on record. We find that assessee for both the assessment years vide ground No.1(e) had raised the preliminary technical ground that in the show-cause notice issued by the ld. AO u/s. 274 r.w.s. 271(1)(c) of the Act, he had not struck-off the irrelevant portion and that the ld. AO had not specified the specific offence committed by the assessee by stating as to whether the assessee has concealed his particulars of income or had furnished inaccurate particulars of income. 3.1. We find that this issue is no longer res-integra in view of the Full Bench decision of the Hon'ble Jurisdictional High Court in the case of Mohd. Farhan A Shaikh vs. DCIT reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forming the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done". 185. No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Smt. Kaushalya case (supra). In fact, for one assessment year, it set aside the penalty proceedings on the grounds of nonapplication of mind and prejudice. 186. That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff Case (supra) on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off? 187. In Dilip N. Shroff case (supra), for the Supreme Court, it is of "some significance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held ultra vires Article 14 of the Constitution. 191. As a result, we hold that Dilip N. Shroff Case (supra) treats omnibus show-cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. 3.2. Respectfully following the aforesaid decision, we hold that the penalty levied by the ld. AO for both the assessment years is hereby directed to be deleted. 3.3. Since the relief is granted to the assessee on this aspect by adjudicating the ground No.1(e), the other grounds raised by the assessee for both the years on legality of levy penalty as well as on merits of the case are not adjudicated herein and the same are hereby left open." 18. In the light of the decision of the co-ordinate Bench as elaborated above, there is nothing before us on hand to differs from the issue raised in the cases cited (supra) so as to take a different view on this issue. Therefore, since the issue on hand being squarely covered following the principle of consistency, we find merit in the submission of the assessee and direct the Assessing Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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