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TMI Blog2020 (3) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced as under: "1. Whether, on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in applying the CBDT Circular 25/2015 dated 31.12.2015 even though the assessee was assessed to pay tax under the normal provisions of the Act in original assessment order?. 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the penalty levied u/s 271(1)(c) of the Act on account of disallowance of depreciation on steel purchase even though the AO, in assessment order, held already capitalized assets to be nongenuine? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the penalty levied u/s 271(1)(c) of the Act on account of disallowance of professional fees paid to Shri S.K. Gupta Group of Companies, even though the documentary evidence regarding rendering of services seized during search operation manifested that professional fees paid by the appellant was bogus, as no relevant services were rendered by such companies? 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty u/s 271(1)(c) of the Act even though the A.O duly substantiated that assessee had knowingly and deliberately made false claims and furnished inaccurate particulars of his income? 4. The brief facts of the case extracted from ITA No. 6268/Mum/2018 for the A.Y 2008-09 are that, the assessee is a public limited company, engaged in the business of oil exploration, manufacturing and trading of petro chemicals, polyester, fiber intermediate textiles, generation and distribution of power and operation of jetties and related infrastructure and investment activities. The assessee has filed its return of income for the A.Y 2008-09 on 30.09.2008 declaring total income at Rs. 7846,22,57,374/- under normal provisions of the Income Tax Act, 1961, and Rs. 22944,76,85,176/- under the provisions of Sec. 115JB of the Act. The assessment has been completed u/s 143(3) of the Act, on 31.08.2010 determining the total income at Rs. 9033,85,80,777/- under normal provisions of the Act, and Rs. 23069,36,91,462/- under the provisions of Sec. 115JB of the Act, by making various additions, including additions towards disallowance of depreciation on steel purchases, disallowance out of professional fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it has neither concealed particulars of income nor furnished inaccurate particulars of income, but the additions made during assessment proceedings in respect of disallowance of depreciation on steel purchases was only on account of different view taken on same set of facts which could be at best be termed as difference of opinion and certainly not furnishing of inaccurate particulars of such income. The assessee, further, submitted that in respect of other additions made by the A.O towards disallowance of professional fees, the Ld. CIT(A) has set said the issue to the file of the A.O to decide the matter afresh after hearing the assessee, therefore, once the issue has been set aside, the penalty thereto cannot be levied for furnishing inaccurate particulars of income. In so far as, additions towards transfer pricing adjustment u/s 92C of the Act, towards interest on loan to subsidiaries, the assessee submitted that the issue is debatable, because there are divergent views where, some courts and tribunals have held in favoure of the assessee that said transactions are not an international transactions, consequently transfer pricing adjustment cannot be made on loans to subsidiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowance of depreciation on steel purchases, even though the A.O has brought out clear facts to the effect that steel purchase has been capitalized into fixed asset with a non-genuine transactions and the said additions has been finally confirmed by the Tribunal. The Ld. DR further submitted that, the Ld. CIT(A) has erred in deleting penalty in respect of disallowance of professional fees paid to Shri S.K. Gupta Group of Companies, even though the documentary evidence regarding rendering of services seized during the search operation manifested that the professional fees paid by the assessee was bogus, as no relevant services were rendered by such companies. He further submitted that, as regards additions towards transfer pricing adjustments, the Ld. CIT(A) has failed to appreciate the facts in right perspective of provisions of Sec. 92C of the Act, even though the assessee has furnished inaccurate particulars of income and concealed the particulars of income and also did not submit any new facts / materials to substantiate its claim for non levy of penalty. Therefore, he submitted that the Ld. CIT(A) has deleted penalty without considering relevant facts and hence the pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays two views are possible. Once the matter is debatable and two views are possible, then on such issues penalty provided u/s 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars of income cannot be levied. In this regard, he has filed a detailed written submissions which has been reproduced as under: "7. Our submissions, in the alternative and without prejudice to each other, on why the penalty deleted by CIT(A) should not be reinstated are as under: a) It is respectfully submitted that the Hon'ble Bombay High Court vide its latest order dated 8th November 2019 in the case of Piramal Glass Limited vs The Deputy Commissioner of Income Tax (INCOME TAX APPEAL NO. 1255 OF 2017) has admitted the question of law on whether transfer pricing adjustment is required to be made on loans given to the AE to increase and expand the business of the Assessee. It is submitted that as narrated in our case, the Assessee had also lent money to its AE on account of business expediency. It is further submitted that admission of this appeal indicates that the question is an arguable point in law on which two views are possible and therefore it is not a case of pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the issue is a debatable issue, penalty u/s 271(1)(c) should not be levied. d) The assessee had advanced interest free loan to RIME DMCC for expanding itself in the international market through acquisition of majority stake in GAPCO Group which was engaged in marketing of petroleum products in African countries. (Refer pgs 230-231 of the paper book.) The said explanation has not been disputed by the Revenue authorities. This transaction amounts to capital financing and the said capital financing was brought within the definition of "international transaction" by inserting Explanation to section 92B by the Finance Act, 2012 w.r.e.f. 01-04-2002. It is submitted that no penalty should be levied on account of retrospective amendment which amendment was not available at the time of filing the return and the assessment order. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd., reported in 243 ITR 48. d) It is further submitted that even post retrospective amendment, the Hon'ble Tribunal in the case of Siro Clinpharm Pvt. Ltd., ITA 2618/M12014 has held that the retrospective amendment to the definition of " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of section 271(1)(c) and section 92C, the penalty u/s section 271(1)(c) can be levied only if the exercise of transfer pricing adjustment is done by the AO and not when the said exercise is done by the TPO u/s 92CA, and the AO under the scheme of the Act has merely adopted what is stated by the TPO in his order. This is also fortified by Explanation 7 to section 271(1)(c) where the reference is to section 92C(4) which provides for adjustment to be made by the AO whereas the TPO makes adjustment u/s 92CA. It is submitted that it is the TPO who has done the exercise of TP adjustment, who can form a satisfaction on the ingredients of penalty. In the instant case, the exercise of TP adjustment is made by the TPO, and on a reading of the TPO's order the ingredients of satisfaction cannot be ascertained. However the AO, who has not done the exercise of TP adjustment, has initiated penalty. It is, therefore, submitted that in such a scenario penalty cannot be levied by the AO when the adjustment is made by the TPO and no satisfaction is recorded by the TPO. The AG will have power to levy penalty, if he himself does the exercise of TP adjustment u/s 92G. Reliance is placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction whereas the same was rejected by the ITAT and the has adopted LIBOR plus 150 to benchmark the transaction. It is submitted that on such an issue where there is a difference of opinion no penalty can be levied under section 271(1)(c) of the Act. It is further submitted that there has been a complete disclosure in the course of the assessment proceedings of the reasons for non-charging of interest and therefore the allegation of suppression, concealment or furnishing of inaccurate particulars does not arise. The initiation if at all was on the basis of ALP adjustment of 7.5% made by the TPO which has totally been rejected by the Tribunal who adopted LIBOR plus 150 bps. It is submitted that the AO/TPO have not recorded any satisfaction on LIBOR plus 150 bps and therefore penalty is bad in law. Even otherwise the approach of 7.5% is incorrect because the said interest rate of 7.5% is adopted by the TPO by taking the controlled transaction as a comparable. i. It is further submitted that based on the above submissions, the assessee has discharged its onus cast by Explanation 7 to section 271(1)(c) of the Act which states that if the assessee acted in good faith and with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Coordinate Bench, in assessee's own case for earlier years, we are of the considered view that the Ld. CIT(A) was right in deleting penalty on additions towards disallowance of depreciation on steel purchases and hence, we are inclined to uphold the finding and reject the ground taken by the Revenue. 10.1 In so far as, penalty levied on additions towards disallowance of professional fees, we find that the additions made by the A.O towards disallowance of professional fees to S.K Gupta Group of Companies has been finally deleted by the ITAT in quantum proceedings in ITA No. 4361/Mum/2012 vide order dated 12.04.2017, where the additions made by the A.O towards disallowance of profession fees has been deleted. Once the addition on which the penalty levied has been deleted by the appellate authorities, then penalty levied on said addition cannot survive. Therefore, we are of the considered view that there is no error in findings recorded by the Ld. CIT(A) while deleting penalty levied in respect of disallowance of professional fees and hence, we reject the ground taken by the Revenue. 10.2 As regards, the penalty levied on additions towards transfer pricing adjustment u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The Special Bench after deliberating in depth various arguments in the case of Instrumentarium Corp. Ltd., Vs. ADIT reported in (2016) 71 taxman.com 193 (Kol Trib) (SB), held that such a transition requires transfer pricing adjustment. Further, the Hon'ble Bombay High Court in the case of Tooltech Global Engineering Pvt Ltd., Vs. ACIT reported in [2018] 254 taxman 241 (Bombay) also held that such a transaction requires transfer pricing adjustment. Further, the ITAT, in the case of Siro Clinpharma Pvt. Ltd., in ITA No. 2618/Mum/2014 has held that the retrospective amendment to the definition of international transaction by the Finance Act 2012 would be applicable only post 2012 and not prior thereto. This is also shows that even after retrospective amendment the issue is highly debatable. Therefore, we are of the considered view that, once there are divergent views on the issue by various Courts and Tribunals, then it clearly shows that the said issue is debatable issue and always two views are possible. When the issue is debatable and always two views are possible, then on such issues the penalty provided u/s 271(1)(c) of the Act cannot be invited for furnishing inaccurate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Financial Act 2012 with retrospective effect from 01.04.2002 is applicable only post 2012 and not prior thereto. Therefore, we are of the considered view that the matter involved in the present case i.e transfer pricing adjustment towards loan to subsidiaries is a debatable issue and there is always two views are possible. Once the issue is debatable and two views are possible and also said issue has been admitted by the Hon'ble High Court for deciding the question of law, then the same cannot be considered for the purpose of levying penalty u/s 271(1)(c) of the Act, for furnishing inaccurate particulars of income. We, further, noted that in any case the TPO adopted 7.5% rate of interest for bench marking the transaction, whereas the same was rejected by the ITAT and the ITAT has adopted LIBOR+150 basis to bench mark the transaction. Therefore, on this issue when there is a difference of opinion, no penalty can be levied u/s 271(1)(c) of the Act. We further noted that the assessee has disclosed complete details in respect of loans to subsidiaries and reasons for non-charging of interest on said loans. Therefore, the allegation of the A.O that the assessee has concealed part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Delhi High Court in the case of CIT Vs. Nalwa Investments Ltd., [2010] 327 ITR 543 (Del) had considered on identical issue and after considering the relevant provisions of the Act, held that when tax payable on income computed under normal provisions of the Act is less than tax payable under the provisions of Sec. 115JB of the Act, then penalty u/s 271(1)(c) of the Act could not be imposed with reference to additions / disallowances made under normal provisions of the Income Tax Act 1961. The CBDT had issued a circular No. 25/2015 dated 31.12.2015, where it has accepted the judgment of Hon'ble Delhi High Court and accordingly issued a circular explaining the position of law before insertion of explanation 4 to sub Sec. (1) of Sec. 271(1)(c) of the Income Tax Act, 1961 by the Finance Act 2015, which provides for method of calculation of amount of tax sought to be evaded for situations, where the income determined under the normal provision is less than the income declared for the purpose of MAT provision u/s 115JB of the Act. Accordingly, it has clarified that where the income tax payable on the total income as computed under the normal provisions is less than the tax payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has clarified that where the income tax payable on the total income as computed under the normal provisions of the Act is less than the tax payable on the book profits u/s 115JB of the Act, then penalty u/s 271(1)(c) of the Act is not attracted with reference to additions/disallowances made under normal provisions of the Act. In this case, it is an admitted fact that the Ld. AO has made additions towards unexplained cash credit u/s 68 of the Act to income computed under normal provisions of the Act. Further, even after additions, the tax payable under normal provisions of the Act is less than, the tax payable under the provisions of section 115JB of the I.T.Act, 1961. Therefore, we are of the considered view that penalty u/s 271(1)(c) of the Act, cannot be levied with reference to additions/ disallowances made to total income computed under normal provisions of the Act. Hence, we direct the Ld. AO to delete penalty levied u/s 271(1)(c) of the I.T.Act, 1961 16. In this view of the matter and by following the decision of Coordinate Bench at ITAT, Mumbai in the case of Kapil Royan India Pvt Ltd., Vs ITO (Supra), we are of the considered view that the Ld. CIT(A) was right in deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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