TaxTMI 
TaxTMI 
2018 (10) TMI 487
X X X X Extracts X X X X
X X X X Extracts X X X X
....der, which is wholly unsustainable in law and on facts and as such the appellant could not be charged with any guilt of furnishing inaccurate particulars of income or concealing particulars of income within mischief of Section 271(1)(c) of the Act : (a) Disallowance of provisions for Doubtful Debts amounting to Rs. 10,52,773/- (b) Disallowance of Foreign Exchange Fluctuation Loss amounting to Rs. 86,77,000/- (c) Disallowance of penalty of Rs. 2,000/- (d) Addition of Rs. 3,10,08,567/- u/s 2(22)(e) of the Act. (e) Disallowance of deduction of Rs. 10,74,790/- claimed u/s 80G/37 of the Act. 2. The levy of penalty being without jurisdiction and totally uncalled for, deserves to 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 fra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was selected under scrutiny and accordingly notice u/s 143(2)/142(1) was served upon the assessee. The assessment was framed by the AO after making various additions to the total income of the assessee u/s 143(3) r.w.s. 144C of the Act of the Act at Rs. 37,38,27,848/- only vide order dated 23-2-2011. 5.2 The AO during the assessment proceedings initiated penalty proceedings u/s 271(1)(c) of the Act on account of furnishing inaccurate particulars of income as well as concealment of income. 5.3 Subsequently, the AO issue a notice u/s 274 r.w.s. 271(1)(c) of the Act dated 23-02-2011 proposing the penalty in respect of certain items of the additions made during the assessment proceedings on account of concealment of particulars 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 Addi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n off individually in the account of respective sundry debtors. The assessee also submitted that writing off doubtful debts against the sundry debtors is sufficient enough for claiming the deduction 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 Rs. 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 Rs. 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, n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reference to the following disallowances/addition is upheld. 1. Provision for doubtful debts. 2. Foreign Exchange difference loss. 3. Penalty expenses. 4. Addition u/s.2(22)(e) 5. Disallowance of deduction u/s.80G Penalty levied with 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 - Rs. 10,52,773/-: * It is submitted that assessee had debited provision for doubtful debts and the same was credited under the head Pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he said transaction could not have been taken within the purview of TP provisions. * In any case, all material facts were disclosed by the assessee. * AO made TP adjustment of 11.12,88,512/- out of which, major TP addition was deleted and merely Rs. 28,46,489/- came to be confirmed by Hon'ble the ITAT in quantum appeal. * 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 - Rs. 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, Rs. 7,22,725/- is to be allowed as deduction (P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....addition has been made, penalty cannot be levied. Reliance is placed on ''Reliance PetroproductsPvt. Ltd.'' - 322 ITR 158 (SC). Under such circumstances, penalty deserves to be deleted. Penalty on disallowance u/s 40(a)(i) - Rs. 1,56,69,776/- * Hon'ble the ITAT has deleted such disallowance of Rs. 1,56,69,776/- made u/s.40(a)(i) of the Act (Para 48-53, Pgs. 39-41 of the order). * Hence, penalty on the same deserves to be deleted. Penalty on ''Disallowance u/s 10B - Rs. 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 ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of any facts material to the computation of the total income of any person, such person fails to offer an explanation or offers an explanation which is found to be false or he offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income, have been disclosed by him, 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)(c) 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....law." As the quantum addition has been set aside to the AO, we therefore are inclined to set aside the impugned issue of penalty to the file of AO for fresh adjudication in accordance with the provision of the law. Thus the ground of appeal is allowed for statistical purposes. iii. Penalty on Penalty expenses:- In the present case, the penalty was levied by the AO due to the fact that the assessee has claimed deduction 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)(c) 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar 2006-07, we have considered similar transactions between the assessee and the SDBPL. When the issue travelled to the Hon'ble High Court in earlier year, then it was pointed out that these were not simplicitor loan transactions, rather these are the business transactions whereby the current amount is being maintained. Both parties have given amounts to each other and these are adjustment entries. 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 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 Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us 1% is at market rate or it has given some undue benefit to its AEs and thus, its rate could not be considered as arm's length price. The ld.TPO has not made much discussion on this aspect. He harboured a belief that since one of the AEs. borrowed funds from European bank and paid higher rate of interest, thus funds given by the assessee should also carry that very rate of interest. In our opinion, the ld.TPO failed to appreciate the fact that the assessee is the tested 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty in the order of ld CIT(A). Hence, the ground of appeal of the Revenue is dismissed. vii The prior period income: 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: "25. With the assistance of ld. representatives, we have gone through the record carefully. It is pertinent to note that along with this appeal, we have heard appeals for the assessment year 2005-06 and 2006-07. In the assessment year 2006-07, the assessee has prior period income at Rs. 46,50,648/- and it has debited prior period expenditure of Rs. 43,11,114/-. The net differential amount of Rs. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s by the High Court in CIT v. S.P. Bhatt [1974] 97 ITR 440(Guj.), an assessee can discharge this onus on the basis of preponderance of probabilities. In other words it is a burden akin to that in a civil case where the determination is made upon preponderance of probabilities. It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. The assessee may claim to have discharged the burden by relying 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 additi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessment year 2009-10: In these grounds of appeal, assessee is aggrieved by the Action of the Revenue authorities in confirming disallowance of Rs. 1,56,69,776 (Asstt.Year 2007-08), Rs. 82,92,297/- (Asstt.Year 2008-09) and Rs. 44,58,072/- (Asstt.Year 2009-10) under section 40(a)(i) of the Act and disallowance of Rs. 25,78,986 out of reimbursement of administrative expenditure. 49. Though facts on vital points are common in all three years on this issue, we are taking facts from Asstt.Year 2007-08 for 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 di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deducted. Keeping in view this decision in mind, let us examine the nature of payment made by the assessee. 81. Let us take first category of payment made towards professional charges. According to 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 ....