2014 (5) TMI 78 - AT - Income Tax

Rate of profits Held that - The facts have been completely ignored by the AO while applying flat rate of profit, even in a case where the net profit has to be applied, the same has to be reasonable - it shall be reasonable to apply flat net profit rate of 1.25% on the gross receipts of the assessee as against the profit rate of 4,7% applied by the AO the AO is directed to determine the taxable income accordingly Decided partly in favour of Assessee. Penalty u/s 271G of the Act Quantum addition Bonafide submissions made by assessee - Assessee did not submit any information or documentation as required under section 92D(3) of the I.T. Act - Held that - From the Affidavit of the director of the Assessee submitted the Assessee in connection with the condonation of delay, it is seen that the Branch operations of the Assessee closed down in the month of December 2006 and no further business activities have stated to have taken place in the Branch - during the course of assessment proceedings, Assessee had submitted that it was not liable to tax in view of the provisions of section 9 of the Act and since it was not liable to tax it was also not required to maintain the documents required for Transfer Pricing - The submissions made by the Assessee appears to be bona-fide more so when the same has not been controverted by Revenue by bringing any contrary material on record - the Assessee was having a reasonable believe of not being liable to tax which has not been controverted by Revenue thus, the Assessee is not liable for penalty u/s 271G of the Act Decided in favour of Assessee.

Summary

Issues:
1. Condonation of delay in filing the appeal against penalty and quantum addition.
2. Taxability of income in the case of a foreign company engaged in export.
3. Application of net profit rate for determining taxable income.
4. Levy of penalty under section 271G for failure to furnish information.

Issue 1: Condonation of Delay
The appellant filed an appeal against the order of CIT(A) with a delay of 31 days. The appellant submitted a petition for condoning the delay, supported by a sworn affidavit explaining the reasons for the delay. The Tribunal, after considering the affidavit, found reasonable cause for the delay and decided to condone it, allowing the appeal to be admitted.

Issue 2: Taxability of Income
The appellant, a foreign company engaged in exporting pharmaceutical products from India, contested the taxability of income for A.Y. 2005-06. The Assessing Officer (A.O.) determined the total income based on operations beyond purchasing and exporting goods, leading to a transfer pricing adjustment. The CIT(A) upheld the A.O.'s order. The Tribunal, considering similar facts in the appellant's case for the previous year, directed the A.O. to apply a net profit rate of 1.25% on gross receipts, resulting in a partial allowance of the appeal.

Issue 3: Application of Net Profit Rate
In a separate appeal for the same assessment year, the Transfer Pricing Officer (TPO) initiated penalty proceedings under section 271G due to the appellant's failure to furnish required information. The A.O. levied a penalty, which was upheld by the CIT(A). The Tribunal noted the appellant's belief that income not accruing or arising in India was not taxable, supported by the closure of Indian branch operations. Considering the reasonable cause shown by the appellant and lack of contrary evidence from the Revenue, the Tribunal deleted the penalty under section 271G, allowing the appeal.

This judgment addressed issues related to the condonation of delay, taxability of income, application of net profit rate, and levy of penalty under section 271G. The Tribunal, after detailed analysis and consideration of facts and legal provisions, made decisions that impacted the appellant's tax liabilities and penalties, ensuring a fair and just outcome based on the circumstances presented in each case.