TaxTMI 
TaxTMI 
2015 (5) TMI 678
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....er amounting to Rs. 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 Rs. 7,15,46,157/- as against Rs. 7,83,31,945/- claimed by the assessee as well as made an addition on account of transfer pricing adjustment of Rs. 52,04,068/-. Both these additions having confirmed by the Ld. CIT(A) as well as by this Tribunal vide order dated 08.01.14, therefore the addition made by the AO has attained the finality. The AO initiated the penalty proceedings under section 271(1)(c) in respect of these two additions and levied the penalty of Rs. 40,82,000/- being 100% of the tax sought to be 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 disall....
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.... asserted that since the claim of the assessee is not a bogus claim but it is a bonafide claim of the assessee and mere disallowance of the claim would not tantamount to concealment of income nor any inaccurate particulars of income. 6. As regards the allocation of directors' remuneration against the income eligible for deduction under section 10B, 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 basis. Though the disallowance has been accepted by the assessee after confirmation by the Ld. CIT(A) however, the claim of the assessee is a bonafide claim and there is no concealment of income nor any inaccurate particulars of income furnished by the assessee. The Ld. A.R. has further submitted that the assessee did not allocate the directors' ....
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....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 271(1)(c) of the Act. 8. The second aspect of the transfer pricing adjustment is regarding the addition of actual expenditure of Rs. 15,49,880/- incurred by the assessee for securing bank guarantee for the AE. The Ld. A.R. has submitted that the transaction entered into is not an international transaction. The payment was made for a subsidiary AE out of business exigency. The payment was made to the bank and therefore it cannot be treated as a separate international transaction once an adjustment 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 Rs. 15,49,880/- is concerned, it is a double addition over and above the addition for providing bank guarantee and therefore it would not amou....
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....ty in this respect. He has relied upon the orders of the authorities below. 11. We have considered the rival submissions as well as the evident material on 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 other two additions on account of disallowance of deduction under section 10B in respect of weigh bridge receipts and allocation of directors' remuneration were not challenged by the assessee before this Tribunal. The transfer pricing adjustment challenged by the assessee before this Tribunal but the Tribunal has confirmed the addition made by the authorities below. Therefore all these issues on which the penalty has been levied by the AO has attained finality in quantum proceedings. There is no quarrel on the proposition that merely beca....
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....efinition of Income from Profits and Gains' incorporated in Sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in ITA No.428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No.447/2007 is answered in favour of the 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 deduction under section 10B in respect of the interest on deposit with MSEB deposit disallowed by the AO would not ipso facto lead t....
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....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 claim for the assessment year under consideration is based on good faith and due diligence and therefore the disallowance of the same would not attract the penalty under section 271(1)(c). Transfer Pricing Adjustment 15. The first adjustment was made by the TPO/AO is regarding bank guarantee provided by the assessee to its associated enterprises. The TPO has made an adjustment of Rs. 35,98,244/- by determining the arms length bank guarantee commission at the rate of 2.08%. The assessee did not 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 incurr....
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....y the revenue authorities, without finding any specific reasons for inapplicability of the TNMM and simply on the ground that a direct method is more appropriate to the particular fact situation, it cannot at all be a fit case for imposition of penalty inasmuch as it cannot be said that in a such situation, and despite the findings - contested or uncontested - to the effect that 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, therefore, it is not even necessary whether in doing that thing the assessee has been negligent or not. There is no way that an assessee can prove his honesty, because honesty, in practical terms, only implies lack of dishonesty, and proving not being dishonest is essentially proving a negative, which, as Hon'ble Supreme Cou....