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2014 (12) TMI 47 - AT - Income TaxValidity of assessment of penalty proceedings - Additional ground adjudicated or not - whether during the subsistence of the assessment order, it is open to the assessee to challenge the validity of assessment in the penalty proceedings Held that - The penalty is assailed by the assessee on the ground that assessment order passed in the case of assessee was time barred and, therefore, was void-ab-initio and for that reason penalty cannot be levied - assessee has not challenged the assessment order by way of filing any appeal against that order relying upon S.S.Ratanchand Bholenath vs. CIT 1994 (4) TMI 65 - MADHYA PRADESH High Court - parties cannot seek to re-open an assessment order which has become final in the penalty proceedings thus, assessment order having not been challenged in an appeal or in other proceedings, it cannot be said to be a void order in a collateral proceedings Decided against assessee. Effect of Explanation 7 to section 271(1) Held that - The explanation raises presumption that in a case where addition has been made as per TP provisions then the same will be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the satisfaction of the AO that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C of the Act and in the manner prescribed under that section, in good faith and with due diligence - Thus, the exception to the deemed concealment is the satisfaction of AO regarding international transaction that the same is computed in accordance with the TP provisions in good faith with due diligence - it cannot be said that the computation made by the assessee was not in good faith and not with due diligence - on the date of filing the return for the year under consideration the assessee was having benefit of orders passed by TPO in respect of AYs 2002-03, 2003-04 and 2004-05 - Thus, it cannot be said that the assessee s action was not in good faith or it was not with due diligence - even applying the provisions of Explanation-7 to section 271(1)(c) of the Act, it cannot be said that levy of concealment penalty warranted thus, the order of the CIT(A) for deleting the penalty is upheld Decided against revenue.
Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. 2. Non-adjudication of the additional ground regarding the assessment order being time-barred. Detailed Analysis: Issue 1: Deletion of Penalty under Section 271(1)(c) The Revenue appealed against the deletion of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, by the CIT(A). The penalty was imposed due to an addition made by the Transfer Pricing Officer (TPO) regarding commission payments to Mr. Manfred Giloy, which were not considered at arm's length for the assessment year 2006-07. Key Points: - Explanation 7 to Section 271(1)(c): The Revenue argued that as per Explanation 7, any amount added or disallowed in computing total income under Section 92C(4) shall be deemed to represent concealed income unless the assessee proves that the transaction was computed in accordance with Section 92C in good faith and with due diligence. - Assessee's Argument: The assessee contended that the commission payments were made as per an agreement from 1998 and had been consistently accepted as at arm's length by the TPO for previous years (2002-03, 2003-04, and 2004-05). The assessee also argued that the commission payments were disclosed in the annual accounts and audit reports, and the non-contestation of the addition did not imply concealment. - CIT(A)'s Findings: The CIT(A) found that the commission payments were bona fide and consistent with the history of the case. The CIT(A) noted that the TPO had accepted similar transactions as at arm's length in previous years and that there was no material change in facts for the year under consideration. The CIT(A) also observed that the assessee's explanation was bona fide and that the penalty proceedings are separate from assessment proceedings. Tribunal's Decision: - The Tribunal upheld the CIT(A)'s decision, noting that the commission payments had been consistently accepted in previous years and that the assessee had acted in good faith and with due diligence. The Tribunal found no error in the CIT(A)'s conclusion that the explanation furnished by the assessee was bona fide and that the penalty was not warranted under Explanation 7 to Section 271(1)(c). Issue 2: Non-adjudication of Additional Ground (Assessment Order Time-Barred) The assessee's cross-objection contended that the assessment order was passed beyond the statutory time limit, making it void ab initio, and thus, the penalty could not be levied. Key Points: - Assessee's Argument: The assessee argued that the assessment order was passed on February 2, 2010, beyond the statutory time limit of December 31, 2009, as prescribed under the second proviso to Section 153(1). The assessee relied on the Supreme Court decision in National Thermal Power Co Ltd vs. CIT, which allows legal issues to be raised for the first time before appellate authorities. - Revenue's Argument: The Revenue contended that the assessment order was subsisting and had not been challenged by the assessee. The Revenue cited the Madhya Pradesh High Court decision in Ratanchand Bholenath vs. CIT, which held that a final assessment order cannot be reopened in penalty proceedings. Tribunal's Decision: - The Tribunal dismissed the cross-objection, holding that the assessment order, having not been challenged in appeal or other proceedings, could not be considered void in collateral proceedings. The Tribunal relied on the Madhya Pradesh High Court decision and similar rulings from other courts, concluding that the penalty could not be challenged on the ground of the assessment order being time-barred. Conclusion: The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection. The penalty under Section 271(1)(c) was deemed not applicable due to the bona fide nature of the assessee's transactions, consistent with previous years' assessments. The additional ground regarding the assessment order being time-barred was not upheld, as the assessment order was subsisting and had not been challenged in the appropriate proceedings.
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