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TMI Blog2024 (1) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... port. Thus, for the purpose of levying penalty u/s. 271(1)(c) finding given in quantum proceedings cannot be conclusive for the purpose of penalty proceedings, because the assessee claim was based on auditor s report and the earlier year claim made from the basis of audit report of 10CCB has not been disturbed. Thus, there cannot be case of furnishing of inaccurate particulars and accordingly, penalty levied by the ld. AO is deleted. Deduction claimed as based on Auditor s report in Form 10CCAC and only issue is of the other income of which was not considered for deduction by the assessee - This other income was in the form of foreign exchange having direct nexus with its operating business income. Since it is a debatable issue and assessee s claim was based on Auditor s report, therefore, penalty cannot be levied for furnishing of inaccurate particulars of income. Accordingly, the same is deleted. Levy of penalty u/s. 80HHC by reducing the profits determined u/s. 80IB - This issue decided in favour of the assessee by the Tribunal held Section 80IA(9) of the Act curtails the allowance of deduction and not the computation of deduction under any other provisions under Headi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest, miscellaneous income, etc. GROUND III: The CIT(A) erred in upholding the penalty levied by the AO on account of deduction claimed by reducing the profits determined u/s 80IB from the profits of the business compute purpose of deduction u/s 80HHC by invoking the provisions of Section 80IB(13) r.w.s 80IA(9). GROUND IV: The CIT(A) erred in upholding the penalty levied by the AO under Section 271(1(c) of the adjustment made by the Transfer Pricing Officer in respect of international transaction. export of finished goods. 3. Besides this, assessee has also raised following additional ground reads as under:- Additional Ground No. V On the facts and in the circumstances of the case and in law the Ld. Assessing Officer (the AO) erred in initiating the penalty proceedings without specifying the reason for penalty initiation under section 274 r.w.s. 271(1) (c) of the Act. The Appellant prays that the notice initiating penalty is ambiguous in the absence of clear mention of the limb under which penalty is initiated, the notice is therefore invalid, and the penalty is unsustainable hence the penalty proceedings ought to be dropped. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d [Para3.3(v)-(vii)] (Page 26) Ground I Reduction in claim of deduction u/s 80 IB by reducing the profits of the undertakings by disregarding certain incomes amounting to Rs. 331.98 lakhs Disallowance upheld by the CIT(A) Dismissed (Para 9.1 - 9.6) Penalty deleted [Para3.3(viii) (ix)] (Page 27) Reduction in claim of deduction u/s, 80IB by allocating certain head office expenses like salary, depreciation, interest on turnover basis to profits derived from Honda unit and Kundaim unit Disallowance upheld by the CIT(A) Allowed (Para 8.1 - 8.7) Penalty deleted [Para3.3(viii) (ix)] (Page 27) - Disallowance in respect of depreciation tin left behind assets at vicks vaporub unit location at Honda Location amounting to Rs. 9.83 Lakhs 983,147 Disallowance upheld by the CIT(A) Allowed (Para 7. 1-7.5) Penalty deleted [Para 3.3(x] (Page 28) - Reduction on claim u/s 80HHC by reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r restricted the claim to 30% on the ground that the new unit is nothing but extension of the existing unit. The same was also upheld by the ld. CIT (A). Before the Tribunal in the quantum proceedings assessee furnished form 10 CCB for the existing unit as well as the new unit and was also submitted that the new unit was set up in 2001-02 and that some plant and machinery was commonly used between the existing and new unit but new unit was made our of new machinery. However, the Tribunal upheld the disallowance after observing as under:- 6.8. We have given thoughtful consideration to the rival submission and perused the material on record. We find that that the Assessee has claimed that Vaporub-10 gm Unit was set up as a new unit during the Financial Year relevant to the Assessment Year 2001-02. However, this position has been disputed by the Revenue. 6.9. On perusal of Audit Report in Form 10CCB filed by the Assessee in support of its claim for deduction at the rate of 100% in respect of Vaporub-10 gm Unit, we find that it has been stated as under (a) Paragraph 8. Date of Commencement of Operation by the Undertaking: 01/04/2000 (b) Paragraph 18 (a) Has the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions are assumed to be satisfied, the Assessee would not be able to claim deduction under Section 80IB of the Act at the rate of 100% since the Assessee has failed to establish that the unit has been set up by transfer of old plant and machinery of less than threshold limit of 20%. While we agree with the Learned Authorised Representative of the Assessee that the threshold limit is to be tested in the year of set-up and the building cost cannot be included in computing the aforesaid threshold limit, there is nothing on record to show that the aforesaid eligibility condition was met in the initial assessment year or the year of set-up. There is nothing on record from which it could be established or inferred that plant machinery of specified value was deployed/used to set-up Vaporub- 10 gm Unit as claimed by the Assessee. The Assessing Officer had returned a finding that the Assessee had merely bifurcated the written down value of plant and machinery amongst the units on a pro-rata basis and the same has gone uncontroverted during the appellate proceedings. Though, the Vaporub-10 gm Unit is claimed to set-up during the Assessment Year 2001-02, it cannot be said that the claim ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry less than threshold limit of 20% however, assessee s claim was based on audit report certifying the plant and machinery which was set up in A.Y. 2001-02 though the bills were not available at the time of assessment proceedings for A.Y. 2004-05. Thus, it cannot be claimed that assessee has furnished any inaccurate particulars of income when the claim was based on audit report. Thus, for the purpose of levying penalty u/s. 271(1)(c) finding given in quantum proceedings cannot be conclusive for the purpose of penalty proceedings, because the assessee claim was based on auditor s report and the earlier year claim made from the basis of audit report of 10CCB has not been disturbed. Thus, there cannot be case of furnishing of inaccurate particulars and accordingly, penalty levied by the ld. AO is deleted. 10. In so far as levy of penalty on account of deduction claimed u/s. 80HHC by reducing the profit determined u/s. 80IIB, the assessee s case has been that while calculating deduction u/s. 80HHC, 90% of the other income of Rs. 11,84,04,966/- which comes to Rs. 10,65,64,469/- has been reduced relying upon Annexure B to Form 10CCAC issued by the Auditor. On the other hand, the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had, inter alia, exported finished goods (predominantly comprising of the product - Vicks Vaporub - Apophatic variant) to its AE, for the AE to market and sell the products in its own market and therefore, qua the said transaction, the assessee acted as a low-risk manufacturer. 14. The assessee also sold a similar product (Vicks Vaporub - Ayurvedic variant) in the domestic market. However, in the domestic market, the assessee was undertaking the marketing and distribution functions and also undertaking significant marketing risks and therefore, was acting as an entrepreneur Further, the formulation of the product (Vicks Vaporub) sold in the domestic market was very different than the product sold in the export market. Since internal method of comparability could not be applied, the assessee benchmarked the aforesaid international transaction of export of finished goods by using external Transactional Net Margin Method (TNMM ) as the most appropriate method instead of Internal TNMM. 15. However, the Ld. TPO preferred to use Internal TNMM instead over external TNMM applied by the assessee and benchmarked the transaction by comparing the international transaction of export of V ..... X X X X Extracts X X X X X X X X Extracts X X X X
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