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TMI Blog2015 (5) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... our of assesse. Weigh Bridge Receipts - Held that:- There is no dispute regarding the fact that weigh bridge is situated in the undertaking itself and therefore the income earned from such asset claimed as profit of business of the undertaking is a bonafide claim of the assessee. Mere disallowance of the claim under section 10B would not constitute concealment of income or furnishing inaccurate particulars of income when the assessee has disclosed all relevant facts and details in the return of income and also furnished the relevant material explaining the facts and source of the income. Accordingly in view of our observation on the issue of levy of penalty in respect of the interest income on MSEB deposit, we hold that the disallowance of claim under section 10B in respect of the income earned from weigh bridge will not attract the penalty provisions under section 271(1)(c) when the assessee has brought on record and explained to the AO the nature of income and source of income.- Decided in favour of assesse. Allocation of Directors’ remuneration - Held that:- When for the last six years the assessee was under the impression that no allocation of expenditure is required whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 by the Assessing Officer, on interest on MSEB Deposit, Rent Receipt and Weigh-bridge receipts, on which deduction u/s 10B was claimed. 2. The Ld. CITA) erred in law and on facts in confirming the penalty levied u/s 271(1)(c) by the Assessing Officer in respect of upward adjustment of Arms Length price by the Transfer Pricing Officer amounting to ₹ 52,24,068/-. The Appellant prays that reliefs on the above Grounds of Appeal bellowed and the Appellate order be modified accordingly. The Appellant craves leave to add, alter or amplify the above Grounds of Appeal. 2. In the assessment completed under section 143(3) vide order dated 10.12.10 the Assessing Officer (AO) inter-alia restricted the deduction under section 10B in respect of yarn division at ₹ 7,15,46,157/- as against ₹ 7,83,31,945/- claimed by the assessee as well as made an addition on account of transfer pricing adjustment of ₹ 52,04,068/-. Both these additions having confirmed by the Ld. CIT(A) as well as by this Tribunal vide order dated 08.01.14, therefore the addition made by the AO has attained the finality. The AO initiated the penalty proceedings under section 271(1)(c) in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome on MSEB deposit, the Ld. A.R. has submitted that the claim of the assessee is bonafide claim and based on good faith and due diligence. The assessee has disclosed all the relevant particulars of income and other details along with the return of income, therefore no concealment of income nor any inaccurate particulars of income were furnished by the assessee. He has asserted that since the claim of the assessee is not a bogus claim but it is a bonafide claim of the assessee and mere disallowance of the claim would not tantamount to concealment of income nor any inaccurate particulars of income. 6. As regards the allocation of directors remuneration against the income eligible for deduction under section 10B, the Ld. A.R. of the assessee has submitted that since the assessment year 2001-02 the assessee has not allocated the directors remuneration while computing the income of eligible undertaking under section 10B and the AO for all the earlier assessment years has accepted the claim of the assessee while passing the assessment order under section 143(3). Only for the year under consideration, first time the AO has disallowed the claim by allocating the directors remunerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 271(1)(c) of the Act is not applicable in the case of the assessee. He has relied upon the decision of this Tribunal in the case of RBS Equities India Ltd. dated 26.08.11 in ITA No.2570/M/2010. The Ld. A.R. has further submitted that even after the retrospective amendment to section 92B the Delhi Benches of this Tribunal in the case of Bharti Airtel 161 TTJ 428 as well as the decision of this Tribunal in the case of Videocon International Ltd. has held that the bank guarantee provided to the AE is not an international transaction. Therefore this is a highly debatable issue which does not attract the penalty under section 271(1)(c) of the Act. 8. The second aspect of the transfer pricing adjustment is regarding the addition of actual expenditure of ₹ 15,49,880/- incurred by the assessee for securing bank guarantee for the AE. The Ld. A.R. has submitted that the transaction entered into is not an international transaction. The payment was made for a subsidiary AE out of business exigency. The payment was made to the bank and therefore it cannot be treated as a separate international transaction once an adjustment is made in respect of the bank guarantee itself. Onc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (supra) are not relevant and help to support the claim of the assessee. The assessee has provided/rendered the service of furnishing of bank guarantee to its AE which itself is an international transaction even prior to the insertion of the explanation to section 92B. Thus the Ld. D.R. has submitted that it is not a bonafide claim of the assessee and the AO is justified in levying the penalty in this respect. He has relied upon the orders of the authorities below. 11. We have considered the rival submissions as well as the evident material on record. The penalty under section 271(1)(c) has been levied by the AO in respect of the disallowance of deduction under section 10B as well as addition on account of transfer pricing adjustment in respect of bank guarantee provided by the assessee to its AE. The disallowance of deduction under section 10B was confirmed by the Ld. CIT(A) and the assessee has accepted the order of the Ld. CIT(A) by not pressing the ground in respect of interest income on MSEB deposit before this Tribunal and the other two additions on account of disallowance of deduction under section 10B in respect of weigh bridge receipts and allocation of directors re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of Income from Profits and Gains' incorporated in Sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in ITA No.428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No.447/2007 is answered in favour of the assessee and against the revenue. 12. A similar view has been taken by the Hon ble Delhi High Court in the case of Hritnik Exports Pvt. Ltd. (supra). Therefore it cannot be said that the claim of the assessee is an absolute im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understanding and bonafide belief to the assessee that no allocation of expenditure of directors remuneration is required while computing income of eligible undertaking. Though for the year under consideration the claim of the assessee is disallowed and has attained finality, however merely making a claim which has been disallowed by the AO does not constitute concealment of income or furnishing of inaccurate particulars of income as held by the Hon ble Supreme Court in the case of Reliance Petro Products (P) Ltd. (supra). Therefore, we are of the considered opinion that when for the last six years the assessee was under the impression that no allocation of expenditure is required while computing the income of eligible undertaking because the AO has accepted the computation of income for deduction under section 10B without any allocation of directors remuneration then the claim for the assessment year under consideration is based on good faith and due diligence and therefore the disallowance of the same would not attract the penalty under section 271(1)(c). Transfer Pricing Adjustment 15. The first adjustment was made by the TPO/AO is regarding bank guarantee provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TNMM on the ground that CUP method could be applied to the facts of this case. Whatever be the legal merits of this approach and the judicial precedents by the co-ordinate benches on this issue, it is certainly a highly contentious issue whether a priority in the methods of determining ALPs can be said to exist, even implicitly, giving an edge to CUP over other methods. In a situation, therefore, when the TNMM is rejected by the revenue authorities, without finding any specific reasons for inapplicability of the TNMM and simply on the ground that a direct method is more appropriate to the particular fact situation, it cannot at all be a fit case for imposition of penalty inasmuch as it cannot be said that in a such situation, and despite the findings - contested or uncontested - to the effect that a direct method is preferable, the ALP has not been computed by the assessee under the scheme of section 92C of the Act. As to the scope of connotations of expression 'in good faith' appearing in Explanation 7, we find guidance from section 3(22) of General Clauses Act which states that a thing shall be deemed to be done in 'good faith' where it is in fact done honesty, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is only an expenditure incurred to effectuate the international transaction of bank guarantee and therefore the belief of the assessee that it is not an international transaction by itself is a bonafide one. The Ld. A.R. of the assessee has invited our attention to the assessment order for the assessment year 2008-09 wherein the AO/TPO has not made any addition in respect of the bank guarantee but disallowed the actual expenditure incurred by the assessee in furnishing bank guarantee on behalf of the AE under section 37 of the Act. It is clear that the AO himself has not treated the actual expenditure incurred by the assessee for furnishing bank guarantee on behalf of the AE as an international transaction but it was disallowed under section 37. In view of the fact that AO has not treated it as an independent and separate international transaction while passing the assessment order for A.Y. 2008-09 the addition of transfer pricing adjustment on this account for the year under consideration does not attract the penalty under section 271(1)(c). 19. In view of the above discussion as well as facts and circumstances of the case, we delete the penalty levied under section 271(1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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