TaxTMI 
TaxTMI 
2024 (1) TMI 1399
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....d before making additions which is opposed to the principles 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 20....
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....essee has not filed any objection within the period specified before the Dispute Resolution Panel, therefore, the 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....
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....as incorporated the aforesaid adjustment in Arm's Length Price in the assessment order passed u/s 143(3) dated 07.01.2011. 6. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 7. During the course 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 c....
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....by the assessee are as under: Adjustments "i. Depreciation on Tank 3 Furnace Rs. 4,94,64,366.00 ii. Costs in relation to under utilized capacity Rs. 5,91,46,5890.95 iii. Unrealized loss on foreign exchange Rs. 1,73,83,241.00 The assessee was relied on Rule 10B of the Income 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 reg....
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....s to be made to eliminate difference between assessee and comparables. Placing reliance upon decision of this Tribunal as well as Pune Tribunal in Honeywell Technology solutions Lab Pvt. Ltd in ITA No. 1344/Bang/2011 and E-Gain Communications Pvt. Ltd vs ITO reported in (2008) 23 SOT 385, she submitted that Ld.CIT (A) rightly directed Ld.TPO to exclude depreciation 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 reprodu....
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....e case of CIT-8 Vs. Petro Araldite (P) Ltd. (2018) 93 taxmann.com 438 (Bomba) wherein it is held that capacity utilization of the comparable would be required to be made to the profit margin of the comparable on account of difference in capacity utilization in terms of Rule 10B(1)(e)(iii) of the I.T Rule. The relevant operating part of the decision is reproduced as under: "(i) The impugned order of the Tribunal for purposes 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 tran....
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....the Rules. (v) Revenue is not disputing before us that capacity utilization of a comparables manufacturing unit would impact the net profit margin of the comparable (v) In the above view, taking into account the capacity utilization of the comparable, in the present facts, as it materially affects the profit margin, the invocation of Rule 10-B (1) (c) (m) of the Rules, cannot be found fault with This is self evident position from the reading of the aforesaid provision that all aspects/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....
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....s and surmises. 7. The Appellant submits that the impugned order levying penalty u/s. 271(1)(c) of the Income-tax Act, 1961 be struck down. 8. Each of the above ground is independent and without prejudice to one another. 9. The Appellant reserves the right to add alter or amend any of the above grounds of appeal." 13. Fact in brief is that in pursuance to TPO order u/s 92CA(3) dated 29.10.2010 the assessing officer has mad upward adjustment to the arm's length price by Rs. 859,31,291/- in relation to international transaction vide order passed u/s 143(3) of the Act on 07.01.2011. 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....
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....r other, or both grounds mentioned in section 271(1)(c), a mere defect in notice- not striking off irrelevant matter would vitiate penalty proceedings - Held, yes - Whether since penalty proceedings culminate under a different statutory scheme that remains distinct from assessment proceedings, therefore, assessee must be informed of grounds of penalty proceedings only through statutory notice - Held, yes - Whether even if notice contains no caveat that inapplicable portion be deleted, it is in interest of fairness and justice that notice must be precise, it should give no room for ambiguity - Held, yes [Paras 181 and 188][In favour of assessee]" 17. Further, 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 materi....
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....e assessee, stresses Kaushalya, "fully knew in detail the exact charge of the Revenue against him". For Kaushalya, the statutory notice suffered from neither non-application of mind nor any prejudice. According to it, "the socalled ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Smt. Kaushalya case (supra) closes the discussion by observing that the notice issuing "is an administrative device for informing 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....
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.... 271(1)(c) is one such provision. With calamitous, albeit commercial, consequences, the provision is mandatory and brooks no trifling with or dilution. For a further precedential prop, we may refer to Rajesh Kumar v. CIT [2007] 27 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei AIR 1967 SC 1269. According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed. In such an event, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be 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 ....