Dishman Pharmaceuticals & Chemicals Ltd., Ahmedabad V. The Asstt. Commissioner of Income Tax, Central Circle-2(2), Ahmedabad

ITA 138/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1437 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 17-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: T P HEMANI
• Keywords: Depreciation; Transfer pricing; Earning of tax free income; Difference of opinion
• Section: 14A; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA.NOS.138 & 189/AHD/2017 / ASSTT. YEAR: 2009-2010 DISHMAN PHARMACECUTICALS & CHEMICALS LTD., 2 ND FLOOR, BHADRARAJ CHAMBERS, NAVRANGPURA, AHMEDABAD-380009. PAN : AAACD4164D VS A .C.I.T , CENTRAL CIRCLE-2(2), AHMEDABAD ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI T.P. HEMANI, A.R REVENUE BY : SHRI S.K. DEV, SR. D.R / DATE OF HEARING : 05/09/2018 / DATE OF PRONOUNCEMENT: 07/09/2018 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE AND REVENUE ARE IN CROSS APPEALS AGAIN ST THE ORDER OF LD.CIT(A) DATED 29/11/2016, PASSED FOR ASSTT.YEAR 2 009-10. 2. THE COMMON ISSUE INVOLVE IN BOTH THE APPEALS REL ATES TO WHETHER ASSESSEE DESERVES TO BE VISITED WITH PENALTY U/S.27 1(1)(C) OF THE ACT, IF YES THAN WHAT SHOULD BE AMOUNT OF PENALTY IMPOSABLE UPO N THE ASSESSEE. 3. WITH THE ASSISTANCE OF LD.REPRESENTATIVE WE HAVE GONE THROUGH THE RECORD CAREFULLY, IT EMERGES OUT FROM THE RECORD TH AT ASSESSEE HAS FILED ITS RETURN OF INCOME ON 29/11/2011, DECLARING TOTAL INC OME OF RS.2,54,05,015/- ITA NOS.138&189/AHD/2017 A.Y. 2009-10 2 .ASSESSMENT ORDER WAS PASSED U/S.143(3) R.W.S 144C ON 21/03/2013. THE LD.AO HAS DETERMINED THE TAXABLE INCOME OF THE ASSE SSEE AT RS.19,67,00,320/- AFTER MAKING FOLLOWING DISALLOWAN CES/ADDITIONS. (A) TRANSFER PRICING ADDITION RS. 14,94,92,409/- (B) PRIOR PERIOD INCOME RS 2,60,695/- (C) DEPRECIATION ON ELECTRICAL INSTALLATION RS. 8,502/- (D) FOREIGN EXCHANGE DIFFERENCE LOSS RS. 11,27,589 (E) DISALLOWANCE U/S.14A RS. 1.21.423/- (F) DISALLOWANCE FOR NON DEDUCTION OF TDS 40(A) RS. 44,58,072/- (G) DISALLOWANCE U/S.10B RS. 1,58,26,608/- 4. ON APPEAL, LD.CIT(A) HAS PARTLY DELETED THE DIS ALLOWANCES/ADDITIONS. LD.AO IN THE PENALTY ORDER TOOK NOTE OF THE ADDITIO N WHICH HAVE BEEN DELETED BY LD.CIT(A). SUCH DETAILS READ AS UNDER: (A) TRANSFER PRICING ADDITION (INTEREST ON LOAN) RS. 34,86,035/- (B) PRIOR PERIOD INCOME RS. 2,60,696/- (C) EXCESS CLAIM OF DEPRECIATION ON ELECTRICAL INSTALLATION RS. 8,502/- (D) FOREIGN EXCHANGE DIFFERENCE LOSS RS. 11,27,589/- (E) DISALLOWANCE U/S 14A RS. 1,21,423/- (F) NON-DEDUCTION OF TDS U/S.40(A)(IA) RS. 44,58,072/- (G) DISALLOWANCE U/S.10B RS. 44,90,967/- ITA NOS.138&189/AHD/2017 A.Y. 2009-10 3 5. LD.AO HAS ISSUED SHOWCAUSE NOTICE U/S.271(1)(C) OF THE ACT R.W.S 274, INVITING AN EXPLANATION OF THE ASSESSEE AS TO WHY PENALTY BE NOT IMPOSED UPON IT. AFTER HEARING, PENALTYWAS IMPOSED OF RS.47 ,46,721/-. DISSATISFIED WITH THE PENALTY ORDER DATED 31/03/2015, ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE FIRST APPELLATE AUTHORITY. THE FIRST APPELLA TE AUTHORITY DELETED THE PENALTY AMOUNTING RS.43,59,454/- ON THE TOTAL ADDIT ION CONFIRM BY LD.CIT(A) IN QUANTUM APPEAL OF RS.1,28,25,695/- HE CONFIRM TH E PENALTY ON AN ADDITION OF RS.11,27,589/- 6. THE ASSESSEE IN ITS APPEAL IS IMPUGNING THE PENA LTY CONFIRMED BY THE LD..CIT(A). ON THE OTHER HAND REVENUE IS IMPUGNING THE PENALTY DELETED BY THE LD.CIT(A). 7. DURING THE COURSE OF HEARING LD.COUNSEL FOR THE ASSESSEE CARVED OUT THE DETAILS OF DIFFERENT ADDITIONS ON WHICH PENALTY HA S BEEN DELETED BY THE LD.CIT(A). SUCH ADDITIONS READ AS UNDER: ADDITION ON WHICH PENALTY IS LEVIED AMOUNT OF ADDIT ION TP ADDITION RS.34,86,035/- PRIOR PERIOD INCOME RS.2,60,696/- DEPRECIATION ON ELECTRIC INSTALLATION RS.8,502/- DISALLOWANCE U/S.14A RS.1,21,423/- DISALLOWANCE U/S.40(A)(I) RS.44,58,072/- DISALLOWANCE U/S.10B RS.44,90,967 8. AS FAR AS APPEAL OF THE ASSESSEE IS CONCERN,HE CONT ENDED THAT AN ADDITIONS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIO N LOSS CLAIMED BY THE ASSESSEE WAS MADE BY THE AO. THE ISSUE WITH REGARD TO THIS ADDITION HAS BEEN ITA NOS.138&189/AHD/2017 A.Y. 2009-10 4 SET ASIDE BY THE TRIBUNAL. THE COPY OF THE TRIBUNAL S ORDER PLACED ON RECORD. THUS, NO PENALTY IS IMPOSABLE UPON THE ASSESSEE ON THIS ISSUE. 9. ON THE OTHER HAND LD.DR RELIED UPON THE ORDER OF THE AO. 10. WE HAVE DULY CONSIDER THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. LD.COUNSEL FOR THE ASSESSEE HAS PLACED O N RECORD CHART CONTENDING THERE IN, THAT OUT OF TOTAL ITEM CONSIDERED BY THE AO FOR VISITING THE ASSESSEE WITH PENALTY, THE MAJOR ADDITIONS HAVE BEEN DELETED BY THE ITAT IN QUANTUM APPEAL. HE MADE REFERENCE TO PARA NO. AND PAGE NO. OF TRIBUNALS ORDER. THE SUBMISSION IN THIS CHART READ AS UNDER: PENALTY ON TP ADDITION RS.34,86,035 AO MADE TP ADJUSTMENT OF RS.34,86,035/- IN RESPECT OF INTEREST ON LOAN TO AES AND THE SAME CAME TO BE CONFIRMED BY CIT(A) AS WELL IN THE QUANTUM APPEAL BEARING ITA 2958 & 3087/AHD/2 013. HONBLE THE ITAT HAS DELETED SUCH TP ADJUSTMENT PARA 10-12 @ 12 PGS.23 -25 OF ORDER (ANNEXURE A). HENCE, PENALTY DESERVES TO BE DELETED. PENALTY ON PRIOR PERIOD INCOME RS.2,60,696/- ASSESSEE EARNED PRIOR PERIOD INCOME (PPI) OF RS .1,30,352/- AND INCURRED PRIOR PERIOD EXPENSES (PPE) OF RS.13,36,441/-. AF TER SETTING OFF PPE AGAINST PPI, ASSESSEE DEBITED NET SUM OF RS.12,06,089/- AS EXPEN SES IN P& L. HOWEVER, SUM OF RS.12,06,097/- WAS ADDED BACK BY THE ASSESSEE WHILE FILING THE RETURN OF INCOME. AO DID NOT AGREE WITH THE ABOVE TREATMENT SINCE HE WAS OF THE VIEW THAT ENTIRE PPE OUGHT TO HAVE BEEN DISALLOWED. HENCE, HE MADE A DDITION OF RS.1,30,344/- (I.E 13,36,441 RS.12.06,097/-). AO MADE TOTAL ADDITION OF RS.1,30,352/- BEING PPI. ACCORDINGLY, AO MADE TOTAL ADDITION OF RS.2,60,696/ - (I.E RS.1,30,344 + RS.1,30,352/). IN QUANTUM APPEAL,HONBLE ITAT HELD THAT PPI IS TO BE SET-OFF AGAINST PPE AND ONLY NET DIFFERENTIAL SUM IS TO BE BROUGHT TO T AX. ACCORDINGLY, NET PRIOR PERIOD EXPENSES HAVE BEEN ALLOWED AS DEDUCTION (PARA 22-25 @ 25, PGS. 28-30 OF THE ORDER). HENCE PENALTY DESERVES TO BE DELETED. ITA NOS.138&189/AHD/2017 A.Y. 2009-10 5 PENALTY ON DEPRECIATION ON ELECTRIC INSTALLATION RS.8,502/- ASSESSEE CLAIMED DEPRECIATION @ 15% OF ELECTRIC I NSTALLATION. HOWEVER, AO APPLIED DEPRECIATION RATE @ 10% AND MADE ADDITION O F RS.8,502/- IN RESPECT OF THE DIFFERENTIAL AMOUNT. BEFORE HONBLE THE ITAT, THE SAID GROUND WAS NOT PR ESSED ON ACCOUNT OF SMALLNESS OF AMOUNT (PARA 38,PGS.32-33 OF THE ORDER). DETAILS OF DEPRECIATION APPEARED IN THE TAX AUDIT R EPORT AND THE SAID FACT IS NOT IN DISPUTE (PG.4 OF ASST. ORDER) THE ONLY DISPUTE WAS W.R.T RATE OF DEPRECIATION . AS PER ASSESSEE, IT WAS 15% AND AS PER AO, IT WAS 10%. MERELY BECAUSE ADDITION HAS BEEN MADE IN RESPECT OF THE DIFFERENTIAL DEPRECIATION, NO PENALTY CAN BE LEVIED . THERE IS NEITHER ANY CONCEALMENT OF INCOME NOR ANY INACCURATE PARTICULARS OF INCOME HAVE BEEN FURNISHED. HENCE, PENALTY CANNOT B E LEVIED. RELIANCE IS PLACED ON RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158(SC ). PENALTY ON DISALLOWANCE U/S.14A RS.1,21,423/- AO MADE DISALLOWANCE OF RS.1,21,423/- U/S.14A AND T HE SAME CAME TO BE CONFIRMED BY CIT(A) & ITAT (PARA 43-47 @ 47, PGS 37-39 OF THE ORDER) IMPUGNED ADDITION HAS BEEN MADE MERELY ON THE BASIS OF INVOKING DEEMING FICTION U/S. 14A OF THE ACT. ALL THE NECESSARY FACTS HAVE A LREADY BEEN DISCLOSED BY THE ASSESSEE. THERE IS NEITHER ANY CONCEALMENT OF INCOM E NOT ANY INACCURATE PARTICULARS OF INCOME HAVE BEEN FURNISHED. MERELY B ECAUSE AN ADDITION HAS BEEN MADE, PENALTY CANNOT BE LEVIED. RELIANCE IS PLACED ON RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC). UNDER SUCH CIRCUMSTAN CES PENALTY DESERVE TO BE DELETED. PENALTY ON DISALLOWANCE U/S.40(A)(I) RS.44,58,0 72/- HONBLE THE ITAT HAS DELETED SUCH DISALLOWANCE OF R S.44,58,072/- AMADE U/S.40(A)(I) OF THE ACT (PARA 48-53 @ 52-53, PGS 39 -41 OF THE ORDER). HENCE, PENALTY ON THE SAME DESERVES TO BE DELETED. PENALTY ON DISALLOWANCE U/S.10B - RS.44,90,967/- HONBLE THE ITAT HAS DELETED SUCH DISALLOWANCE MADE U/S. 10B OF THE ACT (PARA 61-63 @ 63 PGS.47-53 OF THE ORDER). HENCE PENALTY O N THE SAME DESERVES TO BE DELETED. 11. WITH REGARD TO ASSESSEE APPEAL, SUCH SUBMISSION READ AS UNDER: AO LEVIED PENALTY ON ADDITION OF RS.11,U/S.271(1)(C ) OF THE ACT,589/- W.R.T. DISALLOWANCE ON ACCOUNT OF FOREIGN EXCHANGE FLUCT UATION LOSS OF ITA NOS.138&189/AHD/2017 A.Y. 2009-10 6 RS.11,U/S.271(1)(C) OF THE ACT,589/- AND THE SAME C AME TO BE CONFIRMED BY CIT(A) AS WELL. IN THE QUANTUM PROCEEDINGS, HONBLE THE ITAT HAS SE T-ASIDE THE ISSUE TO THE FILE OF AO FOR ADJUDICATION AFRESH (PARA 39-42 @ 42, PGS. 3 3-37 OF THE ORDER). COPY OF THE QUANTUM ORDER IS ANNEXED AND MARKED AS ANNEXURE A TO DEPARTMENTS APPEAL BEARING ITA 138/AHD/2017. HENCE, PENALTY DESERVES TO BE DELETED. 12. SUB-CLAUSE (III) OF SECTION 271(1)(C) PROVIDES MECHANISM FOR QUANTIFICATION OF PENALTY. IT CONTEMPLATES THAT THE ASSESSEE WOULD BE DIRECTED TO PAY A SUM IN ADDITION TO TAXES, IF ANY, PAYABLE BY HIM, WHICH SHALL NOT BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES T HE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF CONCEALMENT OF ON INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN OTHER WORDS, T HE QUANTIFICATION OF THE PENALTY IS DEPENDANT UPON THE ADDITIONS MADE TO THE INCOME OF THE ASSESSEE. 13. ON PERUSAL OF THE DETAILS PLACED BEFORE US AS W ELL AS ORDER OF THE ITAT IN THE QUANTUM PROCEEDINGS WOULD INDICATE THAT ADDI TION FOR TP ADJUSTMENT, DISALLOWANCE U/S.40(A)(I) &DISALLOWANCE U/S.10B OF THE ACT STANDS DELETED. THESE ARE THE MAJOR ADDITIONS FOR VISITING THE ASSE SSEE WITH PENALTY. THEREFORE WITH REGARD TO THESE ITEMS THERE IS NO BASIS ON WH ICH IT COULD BE ALLEGED THAT ASSESSEE HAS EVADED TAXES. 14. AS FAR AS THE ISSUE REGARDING DEPRECIATION ON E LECTRIC INSTALLATION IS CONCERNED AN ADDITION OF RS.8,502/- WAS MADE ON ACC OUNT OF DIFFERENCE IN RATE OF DEPRECIATION. THUS, IN OUR MIND THIS DOESNT CAL L FOR VISITING THE ASSESSEE WITH PENALTY. THE ASSESSEE HAS DISCLOSED BASIC FAC TS FULLY AND TRULY.IT IS A DIFFERENCE OF OPINION BETWEEN AO AND ASSESSEE ABOUT THE ADMISSIBILITY DEPRECIATION AT PARTICULAR RATE. ITA NOS.138&189/AHD/2017 A.Y. 2009-10 7 15. AS FAR AS PRIOR PERIOD INCOME IS CONCERN THE LD .AO TOOK THE PRIOR PERIOD INCOME WITHOUT GIVING SET OFF PRIOR PERIOD E XPENDITURE. THE ITAT IN THE QUANTUM PROCEEDINGS HELD THAT PRIOR PERIOD INC OME IS TO BE SET OFF AGAINST PRIOR PERIOD EXPENDITURE. WE HAVE DEALT WITH NUMBER OF A.YS AND FOUND THAT IN CERTAIN A.Y THE NET BALANCE WAS POSITIVE INCOME WHEREAS IN OTHER ASSESSMENT YEAR IT WAS NEGATIVE. THUS, ON THIS ISSU E IT COULD BE CONCLUDED THAT ASSESSEE HAS NOT CONCEALED THE PARTICULARS OF INCOM E. IT DOESNT CALL FOR VISITING THE ASSESSEE WITH PENALTY. 16. SIMILARLY, AS FAR AS DISALLOWANCE U/S. 14A IS C ONCERN, DURING THE QUANTUM PROCEEDINGS WE HAVE EXAMINED THIS ISSUE AND OBSERVE THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND FOR TAKING CARE OF INTEREST EXPENDITURE RELATABLE TO EARNING OF TAX FREE INCOME ON THE ESTI MATE BASIS. ADHOC DISALLOWANCE WAS CONFIRMED IN A.Y 2007-2008 AND ON SAME ANALOGY ADHOC ADDITIONS STAND CONFIRMED FOR A.Y 2009-2010. 17. WE FIND THAT ASSESSEE HAS DISCLOSED COMPLETE FA CT ABOUT THE TAX FREE INCOME AND HOW FUNDS HAVE BEEN USED. THE LD.CIT(A) HAS APPRECIATED THIS ASPECT AND THEREAFTER DELETED THE PENALTY. THUS, WE FIND THAT MAJOR ADDITIONS WHICH GOAD THE AO TO VISIT WITH PENALTY STANDS DELE TED IN THE QUANTUM PROCEEDINGS. THE AMOUNT WHICH HAVE BEEN ADDED TO IN COME OF THE ASSESSEE ON THREE ISSUES WERE BASICALLY ADHOC DISALLOWANCES. TH E LD.CIT(A) HAS APPRECIATED THIS ASPECT AND THEREAFTER DELETED PENA LTY. WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF LD.CIT(A) AS FA R AS REVENUES APPEAL IS CONCERN. ITA NOS.138&189/AHD/2017 A.Y. 2009-10 8 18. AS FAR AS ASSESSEES APPEAL IS CONCERN, WE HAV E ALREADY SET ASIDE THE ISSUE TO THE FILE OF LD.AO FOR RE-ADJUDICATION IN THE QUANTUM PROCEEDINGS. THUS, AS OBSERVED EARLIER THERE IS NO BASIS TO VISI T THE ASSESSEE WITH THE PENALTY ON THIS ISSUE BECAUSE THE AO HAS YET TO EXA MINE WHETHER ANY DISALLOWANCES/ADDITIONS ON ACCOUNT OF FOREIGN EXCHA NGE FLUCTUATION LOSS CLAIM IS TO BE MADE IN COMPUTATION OF TOTAL INCOME OF THE ASSESSEE.AFTER ADJUDICATING THIS ISSUE IN QUANTUM PROCEEDINGS, IT WILL BE IN THE DISCRETION OF LD.AOTO INITIATE OR NOT TO INITIATE PENALTY ON THIS ISSUE. AT THIS STAGE, THERE IS NO ADDITION ON WHOSE BASIS IT COULD BE ALLEGED THA T ASSESSEE HAS EVADED TAX. THEREFORE, WE ALLOW THE APPEAL OF ASSESSEE. 19. IN THE RESULT, APPEAL OF REVENUE IS DISMISS AND APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER, 2018. -SD- -SD- (WASEEM AHMED) ACCOUNTANT MEMBER (TRUE COPY) (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 07/09/2018 MANISH $% & ''() *$)' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A) 5. $%& '' , / DR, ITAT, 6. &)* + / GUARD FILE. $% + / BY ORDER, ,/ - ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD