TaxTMI 
TaxTMI 
2026 (9) TMI 1241
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.... on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in deleting penalty u/s 271(1)(c) on disallowance of assessee's claim of deduction of provision for leave encashment amounting to Rs. 23,64,785/-. 4. That on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in deleting penalty u/s 271(1)(c) on disallowance of deduction of legal claim fees amounting to Rs. 76,36,600/- u/s 48(i) from income computed under the head 'long term capital gains. 5. That on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in deleting penalty u/s 271(1)(c) by disregarding the facts that: (a) In quantum appeals, the aforesaid additions/ disallowances had already been confirmed by the Ld.CIT(A) as well as Hon'ble ITAT, after considering the relevant facts, evidences and explanation of the assessee and (b) The assessee had failed to discharge the onus cast upon it under Explanation 1 to section 271(1)(c) in so far as it offered an explanation on aforesaid additions/disallowances which it was not able to substantiate and failed to prove that such explanation was bona fide and all the....
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....elf selected base metal as a search criteria. Copper and steel both are base metal category and companies engaged in manufacturing of either product could be considered as comparable. Hence the assessee submission on this ground is not tenable. 2. The assessee's contention that the TPO has notionally computed guarantee fee in respect of aforesaid transaction and made transfer pricing adjustment whereas guarantee fee is not required to be recovered in case such guarantee is in nature of shareholders activity is not accepted. The assessee contention in this issue is not accepted as the assessee has neither provided funds to the AE in the form of equity nor has treated it as shareholder activity. 3. The assessee's contention that the company has applied a CUP method for benchmarking the interest receivable from its group company whereas TPO applied an interest rate of 15.5% as against 7.5% considered by the company is not accepted. The assessee contention in this issue is not accepted as the there are huge difference in the terms and condition of the two-transaction considering the additional risk for the reason of economic turmoil in the region which affecte....
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....eads was not admissible and the action of the assessee in claiming the expenses/deductions was deliberate and with willful intention to evade Tax. As already stated there is no specific mention in the account statement as to which of the provision was applicable expenses/deduction. In other words, the computation of income under the head "Business was incorrect on facts as well as in the eye of law". Nothing was made apparent on the records as to the bona fide basis for making the claim as expenses/deduction or for not adding back the expenses/deduction/adjustment in to profit and loss account while preparing the statement of total income. The assessee has failed to satisfactorily explain as to the basis and bonafide on which he made above claim. The failure to adjust expenses/deduction/adjustment in the computation of income cannot be claimed to be either of ignorance of law or on any sound factual or legal basis. This definitely amounts to furnishing of inaccurate particulars of income within the meaning of Explanation to section 271(1) (c) of the Act. Hence, on the facts and circumstances of the case, it is held that the contention of the assessee is not tenable in law ....
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....e completely different products as copper is a non-ferrous metal whereas steel being a ferrous metal. Also, the price realization of copper is around Rs. 3.5 lac per MT vis-à-vis steel having a realization of Rs. 40,000 per MT. In addition, the appellant also submitted that HCL is a government company enjoying certain specific rights and benefits which other companies fail to enjoy being in the same industry, therefore HCL should be rejected from the final comparable companies. Assessee also pointed out that in subsequent assessment year(s), i.e., AY 2008-09 to AY 2013-14, the TPO himself has not selected HCL as a comparable for the purpose of benchmarking this transaction. Accordingly, the assessee relying on the following decisions has urged that even though the Ld. TPO has arbitrarily selected a different comparable and made an adjustment to the arm's length price of international transaction by adopting an approach that contradicts TPO's own approach in subsequent years, it cannot be said that the appellant has furnished inaccurate particulars of income so as to levy penalty u/s 271(1)(c) of the Act. This view was followed in following cases: Ranbaxy Lab....
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....f the decision of the Hon'ble Kolkata High Court in the case of Exide Industries Ltd. Vs UOI reported in 292 ITR 470 wherein the Hon'ble High court has held that clause (f) of Section 43B of the Act is ultra vires the constitution and therefore, such provision is an admissible expenditure. Though, the revenue has filed an SLP against the said order of the Hon'ble Kolkata High Court, the matter is pending adjudication before the Hon'ble Supreme Court. Further, the Hon'ble Supreme Court while granting stay on the judgment of the Hon'ble Kolkata High Court has held that the assessee can claim the provision for leave encashment in the return of income after paying taxes. Accordingly, the appellant submitted that the claim of deduction for leave encashment on provision basis is backed by the direction of the Hon'ble Apex Court's stay order in the case of Exide Industries ltd. (supra), hence, the same will not result in furnishing of inaccurate particulars of income. 7. On the imposition of penalty under Section 271(1)(c) of the Act on the disallowance in respect of expenditure claimed towards legal fees of Rs. 76,36,600 in the computation of capital ga....
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....ound as under: "I have carefully considered the submission of the appellant. The appellant submitted all relevant document/information before the Ld. TPO during the course of transfer pricing proceedings and the computation of arm's length price by the appellant has been supported based on the principles of law, OECD guidelines, UN TP manual and judicial precedents and hence there cannot be an instance of furnishing of inaccurate particulars of income. Further, where a transaction has been adequately documented in Chartered Accountant's Report/transfer pricing study report then mere difference in determination of arm's length price and consequent addition would not warrant initiation of penalty proceedings. Further, Penalty not to be levied for transfer pricing adjustments where Company has used method prescribed in section 92C for determining arms' length price as contemplated in Explanation 7 to section 271(1). Hence respectfully following the above quoted decisions and also relying on the decisions in the case of TNS India Pvt. Ltd. vs. ACIT (TS-21-ITAT-2014(HYD)); in the case of DCIT va. Vertex Customer Service India Pvt. Ltd. 34 SOT 532; in the case of....
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....to the loan transaction, including the loan agreements, the conditionality of not charging interest more than the rate charged by the Bank, and other essential documents, were duly disclosed in the return of income as well as in the transfer pricing documentation, applying the prescribed method u/s 92C i.e. CUP which the Ld. TPO also applied. The learned CIT(A) has also affirmed this position by holding that the Appellant had furnished all material facts in a true and correct manner. (Refer to Para 6.6 of page 56-57 of the CIT(A) order). The relevant extract has been attached below: "Further where a transaction been adequately documented in the Chartered Accountants Report/ transfer pricing study report then mere difference in determination of arm's length price and consequent addition would not warrant initiation of penalty proceedings. Further, Penalty not leviable on transfer pricing adjustments where Company has made adequate section 92C for determining arm's length price as prescribed under Explanation 7 to section 271 (1). Hence respectfully following the quoted decisions and also relying on the decisions in the case of DCTV vs. Vertex Customer Services Pvt. Ltd. vs.....
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....y issue of imputing any interest even under TP provisions. However, what was the extent of the investment in equity / quasi equity has not been elaborated however, the contention of the assessee is that it has given partly that capital loan out of its own funds and has also justified the reasons for not imputing interest, then such explanation can be said to be not bonafide and does not lead to inference that assessee has furnished inaccurate particulars. Accordingly, penalty levied by the ld. AO in both the years are deleted." 10. It is a settled position in law that where the addition arises solely on account of a difference in estimation, without any finding of wilful default, malafide intention, or furnishing of inaccurate particulars, penalty provisions under the Act cannot be invoked. 11. The Mumbai ITAT has reiterated this principle in the case of Zee Entertainment Enterprises Ltd [TS-76-ITAT-2022(Mum)-TP]. The relevant extract is as follows: "3. ......Thus, more or less, it is a case of estimation. Thus, in our view such addition cannot lead to the conclusion that the assessee has either concealed or furnished inaccurate particulars of income." ....
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....t in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT (2012) 348 ITR 306 (SC) has held that where the error is bona fide and the explanation of the assessee is plausible, penalty should not be imposed. Relevant extract has been attached below: "..............in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. 20. We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars." 17. Therefore, since the assessee has offered adequate explanation and has also disclosed all the material facts to substantiate the explanation offered by it, the provisions of section 271(1)(c) of the Act are not applicable. 11. We have considered the submissions made by the assessee and the impugned order. We find that this Bench while deciding the quantum appeal for the same A.Y 2007-08 has already held as under: - "W....
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....t the assessee can claim the provision for leave encashment in the return of income after paying taxes. Accordingly, the appellant submitted that the claim of deduction for leave encashment on provision basis is packed by the direction of the Hon'ble Apex Court's stay order in the case of Exide Industries ltd. (supra), hence, the same will not result in furnishing of inaccurate particulars of income. We have considered this ground and we find no infirmity in the order of the ld. CIT(A) as he has deleted the penalty on account of provision for leave encashment by following the Hon'ble Apex Court stay order in the case of Exide Industries Ltd. (supra), therefore, the order of the ld. CIT(A) is upheld on this ground. 13. The Assessing Officer imposed penalty on the ground that the payment made by the assessee on account of legal claim fees amounting to Rs. 76,36,600/- on the ground that this expense was not ascertainable and therefore, disallowed by the Assessing Officer during the proceedings under Section 143(3) of the Act. Since the assessee failed to furnish any credible and satisfactory explanation to explain the said expense, the assessee is guilty of furnishing i....
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....ection with computation of capital gain as well as details of expenditure in connection with transfer of assets before the Assessing Officer. It is found that this expense was allowed by this Bench while deciding the issue in assessee's own case for the A.Y. 2008-09 in ITA No. 272/Ran/2017 order dated 29/07/2026. Since the quantum addition has already been deleted by this Bench, the ground of imposition of penalty does not arise and hence the same is deleted. 16. Now for invoking Explanation (7) of Section 271(1)(c) of the Act, the Assessing Officer has held that the assessee's contention that there was neither any concealment nor furnishing of any inaccurate particulars of income for which the provisions of section 271 (1) (c) can be attracted, is not accepted. It was stated by him that if the return been accepted on the basis of the computation of income, such inadmissible claim leading to under assessment would have escaped the due treatment under the law and therefore, he has rightly imposed penalty u/s 271 (1) (c) of the I. T. Act for furnishing inaccurate particulars of income. He has further stated that the legislature has not used the words 'concealed his income.....
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....T(A) does not result in automatic levy of penalty under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income. It is a settled law that mere addition to the taxable income does not automatically lead to the imposition of penalty. Reliance was also placed on following decisions: 1. The Hon'ble Apex Court in the case of CIT v Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) has held that mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee and thus will not attract the penalty under section 271(1)(c). 2. Hon'ble Bombay High Court in the case of CIT v Nayan Builders and Developers [2015] 368 ITR 722 wherein the High Court has held that where the issue on which penalty has been levied is a question of law, then penalty cannot be levied. Similar view has been held by the Hon'ble Delhi High Court in the case of PCIT vs. Harsh International (P.) Ltd. [2021] 431 ITR 118 (Delhi). 3. Hon'ble Mumbai Tribunal in the case of ACIT v G.M. Finance & Trading Co. [2017] 82 taxmann.com 51 (Mum Trib.) has held that where High Court has admi....
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....ted by the AO. (Refer to para 17 of the ITAT order). . Pursuant to the said direction, the Transfer Pricing adjustment on account of interest on the dispute pertains merely to the determination of an appropriate interest rate which is a matter of estimation and not to any suppression or concealment of income. 6. Without prejudice to the contention that the interest charged by the Appellant is at arm's 6 ength, the Appellant respectfully submits that it was bound by the contractual terms arrangement. As evident from the loan agreement, (Refer to governing the lending samen categorically provided that the interest to be charged on Clause 6.2(c)), the agreement clause o.z(ch, we agreethe adres hediy providers Commercial Bank, Thus, the Appellant had no discretion to unilaterally increase the rate of interest, even if it so desired Any deviation from the agreed contractual stipulations would have constituted a breach of the binding agreement, thereby rendering the performance of such an act impossible in law as well as in fact. 7 . Further, it is respectfully submitted that the Appellant has furnished no inaccurate particulars of income. All particulars relating to the lo....
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....on 271(1)(c) was deleted. The relevant extract is as follows : "4. Apart from that, assessee has also cited certain decisions wherein in such cases it was held that nonheresigrate of interest @11.96%, however, in made upwardsceedings, the matter has been settled by applying LIBOR a quandaccordingly. the addition has been reduced to Rs. 22.11. 203 as in the A. Y.2010-11. against Rs.66,28,068/- in the A. Y.2009-10 and similar reduction was made 8. ...... Apart from that, assessee has disclosed all the particulars of income neuding AL P of interest in the TP study report, by claiming that no interest ncluding ALP in ir lepen ang langres chargeable oporu dochhowever the same has not been accepted. The before the ld. jag dal the reasons for not charging of interest due to assessee has experience the important explanations was that these various reasons ano borome P equity / quasi equity then in that case there could not have been any issue or vent of the investment in equity / quasi of imputing any interest even under TP provisions, Hother, lars however, the contention of the assessee is equity not been altacapital that it has given partly that capital loan out of its own funds and has ....
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....ITAT-2015(Mum)] (Refer page 168 to 173 at Page 171 of compendium to case laws) DCIT vs. Vertex Customer Service India Pvt. Ltd. 34 SOT 532; Composites India (P) Ltd. vs DCIT reported in 178 ITJ 490, ITS-193-1TAT- 2016(DEL) 15. It is a recognised principle under law that mens rea (guilty mind or intent) is a fundamental requirement for the imposition of Penalty de withdue diligence, and interpretation. in good faith, penalty cannot be levied merely on the basis of a difference in opinion or 16. Further the Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT [(2012) 348 ITR 306 (SC) has held that where the error is bona fide and the explanation of the assessee is plausible, penalty should not be onand extract has been attached below: is guilty of either furnishing inaccurate particulars or attempting to conceal its ............. in a case such as the present, does not mean that the assessee income. 20. We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assesses is not justned, we are salisned that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to ....