M/s. Dishman Pharmaceuticals & Chemicals Limited, Ahmedabad V. The ACIT, (OSD),Range-1, Ahmedabad

ITA 15/AHD/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9682 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 03-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T P HEMANI
• Assessee Lawyers: KRISHNA MURARI
• Keywords: Depreciation; Transfer pricing; Double taxation relief; Principle of natural justice; Permanent establishment; Bad and doubtful debts; Difference of opinion; Deemed dividend; Revised return
• Section: 143(3); 14A; 80G; 10B; 37; 144

Judgement Text

, LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD LOZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;K F;D LNL; LOZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;K F;D LNL; LOZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;K F;D LNL; LOZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;K F;D LNL; DS LE{KA DS LE{KA DS LE{KA DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO. 15/AHD/2014 ( / ASSESSMENT YEAR : 2007-08) M/S. DISHMAN PHARMACEUTICALS & CHEMICALS LTD., 2, BHADRARAJ CHAMBERS, NR. SWASTIK CROSS ROADS, NAVRANGPURA, AHMEDABAD. / VS. THE ACIT, (OSD) RANGE 1, AHMEDABAD. ./ I.T.A. NO. 205/AHD/2014 ( / ASSESSMENT YEAR : 2007-08) THE ACIT, (OSD) RANGE 1, AHMEDABAD. / VS. M/S. DOSHMAN PHARMACEUTICALS & CHEMICALS LTD., 2, BHADRARAJ CHAMBERS, NR. SWASTIK CROSS ROADS, NAVRANGPURA, AHMEDABAD. ./ ./ PAN/GIR NO. : AAACD 4164 D ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI KRISHNAMURARI, CIT-D.R. REVENUE BY : SHRI T. P. HEMANI, A.R. / DATE OF HEARING 04/07/2018 / DATE OF PRONOUNCEMENT 26/09/2018 !' / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THESE CROSS-APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 2 - (APPEALS)-6, AHMADABAD, DATED 05.11.2013 FOR ASSESS MENT YEAR 2007- 08. BOTH THE APPEALS ARE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY WAY OF A CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE I N ITA NO.15/AHD/2014 PERTAINING TO THE ASSESSMENT YEAR 20 07-08 ARE AS UNDER:- 1. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED TH AT THE LD. AO HAS ERRED IN LAW AND FACTS OF THE CASE IN LEVYING PENAL TY U/S 271(1)(C) OF THE ACT ON THE FOLLOWING ADDITIONS / DISALLOWANC E MADE IN ASSESSMENT ORDER, WHICH IS WHOLLY UNSUSTAINABLE IN LAW AND ON FACTS AND AS SUCH THE APPELLANT COULD NOT BE CHARGE D WITH ANY GUILT OF FURNISHING INACCURATE PARTICULARS OF INCOM E OR CONCEALING PARTICULARS OF INCOME WITHIN MISCHIEF OF SECTION 271(1)(C) OF THE ACT : (A) DISALLOWANCE OF PROVISIONS FOR DOUBT FUL DEBTS AMOUNTING TO RS. 10,52,773/- (B) DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUA TION LOSS AMOUNTING TO RS.86,77,000/- (C) DISALLOWANCE OF PENALTY OF RS.2,000/- (D) ADDITION OF RS.3,10,08,567/- U/S 2(22)(E) O F THE ACT. (E) DISALLOWANCE OF DEDUCTION OF RS.10,74,790/- CLA IMED U/S 80G/37 OF THE ACT. 2. THE LEVY OF PENALTY BEING WITHOUT JURISDICT ION AND TOTALLY UNCALLED FOR, DESERVES TO BE QUASHED. 3. IN ANY CASE, THE IMPUGNED PENALTY ORDER IS B ARRED BY LIMITATION AND THUS WITHOUT JURISDICTION AND ILLEGAL. 4. IN ANY CASE, QUANTIFICATION OF THE PENALTY IS ERRONEOUS AND EXCESSIVE. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 3 - 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN INITIATING AND LEVYING PENALTY UNDER SECTION 271(1)(C) OF THE ACT WITHOUT RECORDING MANDATORY SA TISFACTION AS CONTEMPLATED UNDER THE ACT AT THE TIME OF FRAMING T HE ASSESSMENT ORDER. 6. BOTH THE LOWER AUTHORITIES HAVE PASSED THE O RDERS WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHE R ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN C LEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE THE HEARING OF THE APPEAL. 3. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN I TA NO.205/AHD/2014 PERTAINING TO THE ASSESSMENT YEAR 2 007-08 ARE AS UNDER:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS BY DEL ETING THE PENALTY U/S271(1)(C) TO THE EXTENT OF RS.3.31 CRORES DESPIT E THE FACT THAT THE CORRESPONDING QUANTUM ADDITIONS WERE ALREADY CO NFIRMED BY THE CIT(A). 2. THE CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME IN ITS R ETURN OF INCOME WHICH IS LIABLE TO LEVY OF PENALTY U/S 271(1 )(C) OF THE ACT. ON THE FACT IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DI SCLOSE HIS TRUE INCOME/BOOK PROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED TO THE ABOVE ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 4 - EXTENT. THE APPELLANT CRAVES, TO LEAVE, TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4. THE INTER-CONNECTED ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT LD CIT(A) ERRED IN CONFIRMING THE PENALTY LEVI ED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT. 5. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE MANUFACTURING BUSINESS OF BULK DRUGS , FINE CHEMICALS, INTERMEDIATE AND CRAMS. THE ASSESSEE FOR THE YEAR U NDER CONSIDERATION FILED RETURN OF INCOME DECLARING A TOTAL LOSS OF RS . 46,78,40,252/- ONLY. THEREAFTER, THE ASSESSEE FILED REVISED RETURN ON 31 .03.2008 DECLARING INCOME OF RS. 7,45,55,580/-, WHICH WAS PROCESSED U/ S 143(1) OF THE ACT ON 10.01.2009 AT THE INCOME DECLARED IN THE RETURN OF INCOME. 5.1 SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELE CTED UNDER SCRUTINY AND ACCORDINGLY NOTICE U/S 143(2)/142(1) WAS SERVED UPON THE ASSESSEE. THE ASSESSMENT WAS FRAMED BY THE AO AFTER MAKING VA RIOUS ADDITIONS TO THE TOTAL INCOME OF THE ASSESSEE U/S 143(3) R.W.S. 144C OF THE ACT OF THE ACT AT RS. 37,38,27,848/- ONLY VIDE ORDER DATED 23- 2-2011. 5.2 THE AO DURING THE ASSESSMENT PROCEEDINGS INITI ATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ON ACCOUNT OF FURNISHING INACCURATE PARTICULARS OF INCOME AS WELL AS CONCEALMENT OF INC OME. 5.3 SUBSEQUENTLY, THE AO ISSUE A NOTICE U/S 274 R.W .S. 271(1)(C) OF THE ACT DATED 23-02-2011 PROPOSING THE PENALTY IN RESPE CT OF CERTAIN ITEMS OF ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 5 - THE ADDITIONS MADE DURING THE ASSESSMENT PROCEEDING S ON ACCOUNT OF CONCEALMENT OF PARTICULARS OF INCOME/FURNISHING INA CCURATE PARTICULARS OF INCOME. 5.4 THE ADDITIONS IN RESPECT OF WHICH PENALTY WAS I NITIATED AMONG OTHER ADDITIONS ARE DETAILED AS UNDER: AMOUNT (RS.) 1 PROVISION FOR BAD DEBTS 10,52,773 2 FOREIGN EXCHANGE FLUCTUATION LOSS 18,77,000 3 PENALTY EXPENSES 2000 4 DEEMED DIVIDEND U/S 2(22)(E) 3,10,08,567 5 DEDUCTION U/S 80G 10,74,790 6 TRANSFER PRICING ADDITION 74,72,426 7 PRIOR PERIOD INCOME 40,11,972 8 MISC. EXP. WRITTEN OFF 25,00,000 9 EXCESS DEPRECIATION ON ELECTRIC INSTALLATION 56,096 10 DISALLOWANCE U/S 14A 3,93,000 11 DISALLOWANCE U/S 40(A)(I) 1,56,69,776 12 DISALLOWANCE U/S 10B OF THE ACT 6,84,63,318 5.5 THE ASSESSEE IN COMPLIANCE TO IT SUBMITTED THAT THERE WAS NEITHER FURNISHED ANY INACCURATE PARTICULARS OF INCOME NOR CONCEALED ANY PARTICULARS OF INCOME. ALL THE ADDITIONS MADE BY TH E AO ARE DEBATABLE ISSUE. THEREFORE, THE ASSESSEE CANNOT BE CHARGED FO R ANY PENALTY U/S 271(1)(C) OF THE ACT. THE ASSESSEE ALSO SUBMITTED T HAT IF ANY CLAIM MADE IN THE RETURN OF INCOME HAS NOT BEEN SUBSTANTIATED AND ACCORDINGLY, THE INCOME WAS ESTIMATED THEN THE ASSESSEE CANNOT BE HE LD GUILTY EITHER FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. THE ASSESSEE IN SUPPORT OF HIS CLAIM REL IED ON THE JUDGMENT OF ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 6 - HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIAN CE PETROPRODUCTS PVT. LTD. REPORTED IN 322 ITR 158 (SC). 5.6 THE ASSESSEE ALSO SUBMITTED THAT THERE WAS NO D ELIBERATE ATTEMPT TO CONCEAL THE PARTICULARS OF INCOME OR FURNISHING IN ACCURATE PARTICULARS OF INCOME. THEREFORE, NO PENALTY CAN BE LEVIED UNDER S ECTION 271(1) OF THE ACT. THE ASSESSEE IN SUPPORT HIS CLAIM RELIED O N THE FOLLOWING JUDGMENTS: 1. CIT VS. ASHIM KUMAR AGARWAL REPORTED IN 275 ITR 48 BY HONBLE JHARKHAND HIGH COURT. 2. DILIP N SHROFF VS. JCIT REPORTED IN 161 TAXMAN 218 BY HONBLE SUPREME COURT. 5.7 THE ASSESSEE ALSO SUBMITTED THAT A PENALTY CAN BE LEVIED IF THE ISSUE INVOLVE IS DEBATABLE. THE ASSESSEE IN THIS REGARD R ELIED ON THE ORDER OF THIS TRIBUNAL IN THE CASE OF BIL METAL INDUSTRIES L TD. VS. ACIT IN ITA 2715/AHD/2011 VIDE ORDER DATED 9-6-2015. 5.8 HOWEVER, THE AO DISREGARDED THE CONTENTION OF T HE ASSESSEE AND LEVIED THE PENALTY FOR THE ADDITIONS AS DISCUSSED A BOVE UNDER SECTION 271(1) FOR RS. 4,72,52,587/- BEING 100% OF THE AMO UNT OF TAX SOUGHT TO BE EVADED. 6. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED AS UNDER: ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 7 - I. PROVISIONS FOR DOUBTFUL DEBTS:- THE ASSESSEE SUBMITTED THAT THE PROVISION FOR DOUBT FUL DEBTS WAS ACTUALLY WRITTEN OFF IN THE SUNDRY DEBTORS ACCOUNT S IN THE BALANCE SHEET. IT WAS ALSO SUBMITTED THAT SUCH PROVISIONS W AS NOT WRITTEN OFF INDIVIDUALLY IN THE ACCOUNT OF RESPECTIVE SUNDR Y DEBTORS. THE ASSESSEE ALSO SUBMITTED THAT WRITING OFF DOUBTFUL D EBTS AGAINST THE SUNDRY DEBTORS IS SUFFICIENT ENOUGH FOR CLAIMING TH E DEDUCTION UNDER SECTION 36(2) OF THE ACT. THE ASSESSEE IN SU PPORT OF HIS CLAIM RELIED ON THE JUDGMENT OF HONBLE SUPREME COU RT IN THE CASE OF VIJAY BANK VS. CIT REPORTED IN 190 TAXMAN 257. II. FOREIGN EXCHANGE FLUCTUATION LOSS OF RS. 86,77,000/ - THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF OIL & NATURAL GAS CROP. LTD. VS. CIT REPORTED IN 322 ITR 180 AND CIT VS. WOODWORD GOVERNOR OF INDIA. PVT. LTD. REPORTED IN 3 12 ITR 254. THE ASSESSEE ALSO SUBMITTED THAT THE PROVISIONS OF INCOME TAX ACT REQUIRE CONVERTING ITS LIABILITY INVOLVING FOREIGN EXCHANGE INTO RUPEES ON THE LAST DAY OF PREVIOUS YEAR. AS A RESUL T, IF LOSSES ARISE TO THE ASSESSEE THEN THE SAME SHOULD BE ALLOWED AS DEDUCTION. III PENALTY EXPENSES OF RS. 2000/- THERE WAS NO INACCURATE PARTICULAR FURNISHED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNTS. IT IS BECAUSE THE PENALT Y WAS DULY ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 8 - CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, NO PENALTY CAN BE LEVIED ON THE DISALLOWANCE OF THE EXPENSES. IV. DISALLOWANCES U/S 14A FOR RS. 3,93,000/- THE ASSESSEE SUBMITTED THAT NO INACCURATE PARTICULA RS WERE FURNISHED FOR THE EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME. THEREFORE THERE CANNOT BE LEVIED ANY PENALT Y ON ACCOUNT OF DISALLOWANCES MADE U/S 14A OF THE ACT IN VIEW OF THE HONBLE JURISDICTIONAL GUJARAT HIGH COURT IN THE CASE OF CIT VS. AIA EXPORTS PVT. LTD. IN TAX APPEAL NO. 1408 OF 2011. V. DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TDS U/S 40(A)(I) OF THE ACT FOR RS. 1,56,69,776/- THE ASSESSEE SUBMITTED THAT NO INACCURATE PARTICULA R OF INCOME HAS BEEN FURNISHED. THEREFORE NO PENALTY CAN BE LEVIED ON ACCOUNT OF NON-DEDUCTION OF TDS. VI. DISALLOWANCE U/S. 2(22)(E) OF THE ACT RS. 3,10, 08,567/- THERE WAS NO CONCEALMENT OR INACCURATE PARTICULAR O F INCOME WHICH HAS BEEN FURNISHED. THEREFORE, NO PENALTY CAN BE LEVIED UNDER THE PROVISION OF SECTION 2(22)(E) OF THE ACT. VII. DISALLOWANCES U/S 10B OF THE ACT FOR RS.6,84,6 3,318/- THERE WAS NO CONCEALMENT OR INACCURATE PARTICULAR O F INCOME WHICH HAS BEEN FURNISHED. THEREFORE, NO PENALTY CAN BE LEVIED ON ACCOUNT OF EXEMPTION CLAIMED UNDER SECTION 10B OF T HE ACT. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 9 - VIII. TRANSFER PRICING OF RS.74,72,426/- THERE WAS NO CONCEALMENT OR INACCURATE PARTICULAR O F INCOME WHICH HAS BEEN FURNISHED. THEREFORE, NO PENALTY CAN BE LEVIED ON ACCOUNT OF THE ADJUSTMENT OF TRANSFER PRICING. IX. DISALLOWANCE OF PRIOR PERIOD OF RS.40,11,972/- THERE WAS NO CONCEALMENT OR INACCURATE PARTICULAR O F INCOME WHICH HAS BEEN FURNISHED. THEREFORE, NO PENALTY CAN BE LEVIED ON ACCOUNT OF PRIOR PERIOD ITEMS. X. DISALLOWANCES MISC. EXPENSES WRITTEN OFF OF RS. 25,00,000/- THERE WAS NO CONCEALMENT OR INACCURATE PARTICULAR O F INCOME WHICH HAS BEEN FURNISHED. THEREFORE, NO PENALTY CAN BE LEVIED ON ACCOUNT OF MISC. EXPENSES WRITTEN OFF. XI. DISALLOWANCES OF ELECTRICAL INSTALLATION OF RS. 56,096/- THERE WAS NO CONCEALMENT OR INACCURATE PARTICULAR O F INCOME WHICH HAS BEEN FURNISHED. THEREFORE, NO PENALTY CAN BE LEVIED ON ACCOUNT OF ELECTRIC INSTALLATION EXPENSES. 6.1 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE PENALTY IN PART LEVIED BY THE AO BY OBS ERVING AS UNDER:- 3.3 TO SUM-UP LEVY OF PENALTY WITH REFERENCE TO TH E FOLLOWING DISALLOWANCES/ADDITION IS UPHELD. 1. PROVISION FOR DOUBTFUL DEBTS. 2. FOREIGN EXCHANGE DIFFERENCE LOSS. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 10 - 3. PENALTY EXPENSES. 4. ADDITION U/S.2(22)(E) 5. DISALLOWANCE OF DEDUCTION U/S.80G PENALTY LEVIED WITH REFERENCE TO THE FOLLOWING BALA NCE DISALLOWANCES/ADDITIONS IS CANCELLED. 1. TRANSFER PRICING ADDITION. 2. ADDITION OF PRIOR PERIOD INCOME. 3. MISCELLANEOUS EXPENSES WRITTEN OFF. 4. DISALLOWANCE OF DEPRECIATION ON ELECTRICAL INSTA LLATION. 5. DISALLOWANCE U/S.14A. 6. DISALLOWANCE U/S.40(A)(IA) 7. DISALLOWANCE OF DEDUCTION U/S.10B 6.2 BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 7. THE ASSESSEE IS IN APPEAL AGAINST THE PENALTY OR DER CONFIRMED BY THE LD. CIT(A) WHEREAS THE REVENUE IS IN APPEAL AGA INST THE PENALTY DELETED BY THE LD. CIT(A). 8. THE LD. A. R. BEFORE US SUBMITTED AS UNDER:- PENALTY ON PROVISION FOR DOUBTFUL DEBTS RS.10,52 ,773/- : IT IS SUBMITTED THAT ASSESSEE HAD DEBITED PROVISION FOR DOUBTFUL DEBTS AND THE SAME WAS CREDITED UNDER THE HEAD PROV ISION FOR DOUBTFUL DEBTS FROM THE SUNDRY DEBTORS IN BALANCE-S HEET AND NOT INDIVIDUALLY FROM RESPECTIVE DEBTORS. THE SAID FACT WAS EVIDENT FROM THE GROUPING OF BALANCE-SHEET, PROFIT & LOSS A /C AND RELEVANT LEDGERS. HENCE, SUCH DEDUCTION WAS ALLOWAB LE IN LIGHT OF DECISION IN THE CASE OF VIJAYA BANK VS. CT -190 T AXMAN 257 (SC). IN ANY CASE, THE UNDERLYING AMOUNT HAS BEEN DULY RE FLECTED IN THE GROUPING OF BALANCE-SHEET AND P&L A/C. THUS, ALL NE CESSARY FACTS WERE DISCLOSED. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 11 - THERE IS NEITHER ANY CONCEALMENT OF INCOME NOR ANY INACCURATE PARTICULARS OF INCOME HAVE BEEN FURNISHED. MERELY B ECAUSE AN ADDITION HAS BEEN MADE. PENALTY CANNOT BE LEVIED. R ELIANCE IS PLACED ON RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC). HENCE, NO PENALTY CAN BE LEVIED. PENALTY ON PENALTY EXPENSES RS.2,000/- THERE IS NEITHER ANY CONCEALMENT OF INCOME NOR ANY INACCURATE PARTICULARS OF INCOME HAVE BEEN FURNISHED. MERELY B ECAUSE AN ADDITION HAS BEEN MADE, PENALTY CANNOT BE LEVIED ON THE SAME. RELIANCE IS PLACED ON RELIANCE PETROPRODUCTSPVT. LTD. -322 ITR 158 (SC). PENALTY ON DEDUCTION U/S 80G RS.10,74,790/- HONBLE THE ITAT HAS ALLOWED SUCH EXPENSES AS DEDUC TION U/S. 37 OF THE ACT (PARA 26-30 @ 30, PG.30 OF THE ORDER). H ENCE, PENALTY IS TO BE DELETED. 8.1 LD. AR ALSO SUBMITTED THAT: PENALTY ON TP ADDITION RS.74,72,426/- AO MADE TOTAL TP ADJUSTMENT OF RS.11,12,88,512/- OU T OF WHICH, CIT(A) PARTLY CONFIRMED TP ADJUSTMENTS AS FOLLOWS A ND PENALTY HAS ALSO BEEN LEVIED ON FOLLOWING TP ADJUSTMENTS: INTEREST ON LOAN RS.46,25,937/- INSURANCE RS.28,46,489/- TOTAL RS.74,72,426/- AS REGARD TP ADJUSTMENT W.R.T INTEREST ON LOAN, SUCH TP ADJUSTMENT HAS BEEN DELETED BY HONBLE THE ITAT IN QUANTUM APPEAL BEARING ITA 955 & 1043/AHD/2012 PARA 10-12 @ 12 PGS. 23-25 OF ORDER. AS REGARDS TP ADJUSTMENT IN RESPECT OF INSURANCE, SUCH ADDITION WAS CONFIRMED BY ITAT IN QUANTUM PROCEEDIN GS PARA 21, PG.8 OF THE ORDER. TPO MADE UPWARD ADJUSTMENT W.R.T. REIMBURSEMENT TO AES ON ACCOUNT OF INSURANCE TAKEN BY AE FOR ENTIRE GROUP O F ASSESSEE ON THE BASIS OF ALLOCATION OR APPORTIONMENT. SUCH AMOUNT WAS REIMBURSED TO AE ON T HE BASIS OF ALLOCATION OR APPORTIONMENT AND NO ELEMENT OF PRO FIT IS ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 12 - EMBEDDED THEREIN. HENCE, THE SAID TRANSACTION COULD NOT HAVE BEEN TAKEN WITHIN THE PURVIEW OF TP PROVISIONS. IN ANY CASE, ALL MATERIAL FACTS WERE DISCLOSED BY T HE ASSESSEE. AO MADE TP ADJUSTMENT OF 11.12,88,512/- OUT OF WHIC H, MAJOR TP ADDITION WAS DELETED AND MERELY RS.28,46,489/- C AME TO BE CONFIRMED BY HON'BLE THE ITAT IN QUANTUM APPEAL. IT IS MERELY A CASE OF TP ADJUSTMENT WHICH HAS BEEN MADE ON ACCOUNT OF DIFFERENCE OF OPINION AS TO ALP (I.E. AR MS LENGTH PRICE) WHICH IS VERY MUCH POSSIBLE SINCE IT VERY UN LIKELY THAT TWO PERSONS WOULD ADOPT SIMILAR METHOD AND APPROACH FOR DETERMINING ALP. ALSO THERE IS NEITHER ANY CONCEALMENT OF INC OME NOR ANY INACCURATE PARTICULARS OF INCOME HAVE BEEN FURNISHE D. MERELY BECAUSE AN ADDITION HAS BEEN MADE, PENALTY C AN'T BE LEVIED. RELIANCE IS PLACED ON 'RELIANCE PETROPRODUCTS PVT. LTD.' - 322 1TR 158 (SC). UNDER SUCH CIRCUMSTANCES, PENALTY DESERVES TO BE DE LETED. PENALTY ON PRIOR PERIOD INCOME RS.40,11,972/-: ITAT HELD THAT PPI IS TO BE SET-OFF AGAINST PPE AND ONLY NET DIFFERENTIAL SUM IS TO BE BROUGHT TO TAX. ACCORDI NGLY, RS.7,22,725/- IS TO BE ALLOWED AS DEDUCTION (PARA 2 2-25 @ 25, PGS. 28-30 OF THE ORDER). PENALTY ON MISC. EXPENSES WRITTEN OFF-RS.25,00,00 0/- HONBLE ITAT RESTRICTED SUCH DISALLOWANCE TO RS.10, 00,000/- ON ADHOC BASIS (PARA 31-34 @ 34 PG.31 OF THE ORDER). IT TRANSPIRES THAT THE ADDITION HAS BEEN EVENTUALLY ESTIMATED AT RS.10,00,000/- BY HONBLE ITAT ON ADHOC BASIS. IT IS SETTLED LAW THAT PENALTY U/S.271(1)(C) OF THE ACT CANNOT BE LEVIED ON ADDITION MADE ON ESTIMATED BASIS. RELIANC E IS PLACED ON NAVJIVAN OIL MILLS VS. CIT - 252 ITR 417 (GUJ .) ALL NECESSARY FACTS HAVE BEEN DISCLOSED. THERE IS N EITHER ANY CONCEALMENT OF INCOME NOT ANY INACCURATE PARTICULAR S OF INCOME HAVE BEEN FURNISHED. MERELY BECAUSE AN ADDITION HAS BEEN MADE, PENALTY CANT BE LEVIED. RELIANCE IS PLACED ON REL IANCE PETROPRODUCTSPVT.LTD. - 322 ITR 158 (SC). UNDER SUCH CIRCUMSTANCES, PENALTY DESERVES TO BE DE LETED. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 13 - PENALTY ON DEPRECIATION OF ELECTRIC INSTALLATION RS.56,096/- 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.10 OF PENALTY ORDER ). THE ONLY DISPUTE WAS W.R.T RATE OF DEPRECIATION . AS PER ASSESSEE IT WAS 15% AND AS PER AO, IT WAS 10%. MERE LY BECAUSE ADDITION HAS BEEN MADE IN RESPECT OF THE DIFFERENTI AL DEPRECIATION, NO PENALTY CAN BE LEVIED. THERE IS NEITHER ANY CONCEALMENT OF INCOME NOT ANY INACCURATE PARTICULARS OF INCOME HAVE BEEN FURNISHED. HENCE, P ENALTY CANNOT BE LEVIED. RELIANCE IS PLACED ON RELIANCE PETROPRODUCTSPVT. LTD. 322 ITR 158 (SC). PENALTY ON DISALLOWANCE U/S 14A - RS.3,93,000/- HONBLE THE ITAT PARTLY CONFIRMED AHOC DISALLOWANCE OF RS.3,00,000/- (PARA 43-47 @ 47, PGS.37-39 OF THE OR DER). IT TRANSPIRES THAT THE ADDITION HAS BEEN EVENTUALLY ESTIMATED AT RS.3,00,000/- BY HONBLE ITAT ON ADHOC BASIS. IT IS A SETTLED LAW THAT PENALTY U/S 271(1)(C) IF T HE ACT CANNOT BE LEVIED ON ADDITION MADE ON ESTIMATED BASIS. RELIANC E IS PLACED ON NAVJIVAN OIL MILLS VS. CIT 252 ITR 417 (GUJ. ). IN ANY CASE, ALL NECESSARY FACTS HAVE BEEN DISCLOS ED. THERE IS NEITHER ANY CONCEALMENT OF INCOME NOT ANY INACCURAT E PARTICULARS OF INCOME HAVE BEEN FURNISHED. MERELY B ECAUSE AN ADDITION HAS BEEN MADE, PENALTY CANNOT BE LEVIED. R ELIANCE IS PLACED ON RELIANCE PETROPRODUCTSPVT. LTD. 322 ITR 158 (SC). UNDER SUCH CIRCUMSTANCES, PENALTY DESERVES TO BE DELETED. PENALTY ON DISALLOWANCE U/S 40(A)(I) RS.1,56,69,7 76/- HONBLE THE ITAT HAS DELETED SUCH DISALLOWANCE OF RS.1,56,69,776/- MADE U/S.40(A)(I) OF THE ACT (PARA 48-53, PGS. 39-41 OF THE ORDER). HENCE, PENALTY ON THE SAME DESERVES TO BE DELETED. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 14 - PENALTY ON DISALLOWANCE U/S 10B RS.6,68,63,318/ - . 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 ON THE SAME DESERVES TO BE DELETED. 9. ON THE OTHER HAND, THE LD. D. R. SUBMITTED THAT THE ADDITION WAS MADE BY THE A.O. IN RESPECT OF SEVERAL ITEMS AND AC CORDINGLY PENALTY WAS INITIATED ON ACCOUNT OF CONCEALMENT OF PARTICULARS OF INCOME AND INACCURATE PARTICULARS OF INCOMES FOR DIFFERENT KIN DS OF ADDITION. 9.1 BOTH THE PARTIES BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CASE ARE NOT IN DISPUTE. THEREFORE WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY, CONVENIENCE AND ADJUDICATION. 11. NOW WE PROCEED TO ADJUDICATE THE ISSUE RAISED B Y THE ASSESSEE AS WELL AS BY THE REVENUE INDEPENDENTLY. I. PROVISION FOR DOUBTFUL DEBTS OF RS. 10,52,773/- IN THE PRESENT CASE, THE PENALTY WAS LEVIED BY THE AO DUE TO THE FACT THAT THE ASSESSEE HAS CLAIMED PROVISION FO R DOUBTFUL DEBTS AS DEDUCTION IN THE INCOME TAX RETURN. THE VI EW TAKEN BY THE AO WAS SUBSEQUENTLY CONFIRMED BY THE LD CIT( A). ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 15 - HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE BEFORE US CLAIMED THAT THE ASSESSEE HAS NOT FURNISHED ANY INACCURATE PARTI CULARS OF INCOME. IT WAS ALSO SUBMITTED THAT THE DEDUCTION WA S CLAIMED IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN TH E CASE OF VIJAYA BANK (SUPRA). FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE HON BLE ITAT IN QUANTUM PROCEEDINGS HAS CONFIRMED THE ADDITION ON A CCOUNT OF THE DEDUCTION CLAIMED BY THE ASSESSEE FOR PROVISIONS FO R DOUBTFUL DEBTS AFTER CONSIDERING THE JUDGMENT OF HONBLE SUPREME C OURT IN THE CASE OF VIJAYA BANK (SUPRA). MOREOVER, THE ISSUE BEFORE US IS NOT WITH REGARD TO THE ADDITION MADE FOR THE PROVISION FOR DOUBTFUL DEBTS RATHER IT RELATES TO THE PENALTY PROCEEDINGS. THUS THE LIMITED ISSUE BEFORE US IS TO DECIDE WHETHER THE ASSESSEE H AS FURNISHED INACCURATE PARTICULARS OF INCOME OR NOT. THEREFORE, WE REJECT THE ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE REQUIRING US TO CONSIDER THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE O F VIJAYA BANK. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED THE D EDUCTION WHICH IS NOT ELIGIBLE AS PER THE PROVISION OF SECTION 36(2) OF THE ACT. THUS, WE NOTE THAT THE HONBLE DELHI HIGH COURT IN THE CA SE OF ZOOM COMMUNICATION PVT. LTD. REPORTED IN 191 TAXMAN 179 AFTER CONSIDERING THE JUDGMENT OF HONBLE SUPREME COURT I N THE CASE OF ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 16 - RELIANCE PETROPRODUCT PVT. LTD. HAS DECIDED THE ISS UE AGAINST THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER IS REPR ODUCED BELOW: 10. SECTION 271(1)(C ) OF THE ACT, TO THE EXTENT IT IS RELEVANT, PROVIDES FOR IMPOSITION OF PENALTY IN CASE THE ASSE SSING OFFICER, IN THE COURSE OF ANY PROCEEDINGS UNDER ACT, IS SATI SFIED THAT ANY PERSON HAD CONCEALED PARTICULARS OF HIS INCOME OR H AD FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. EXPLANATION 1 TO SUB- SECTION (1) OF SECTION 271 PROVIDES THAT WHERE IN R ESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCO ME OF ANY PERSON, SUCH PERSON FAILS TO OFFER AN EXPLANATION O R OFFERS AN EXPLANATION WHICH IS FOUND TO BE FALSE OR HE OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO P ROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL I NCOME, HAVE BEEN DISCLOSED BY HIM, THEN THE AMOUNT ADDED OR DIS ALLOWED IN COMPUTING TOTAL INCOME OF SUCH PERSON, AS A RESULT THEREOF, SHALL FOR THE PURPOSE OF CLAUSE (C) BE DEEMED TO REPRESEN T THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED . AFTER HAVING REGARD TO THE FACTS OF THE ABOVE CASE, IN OUR CONSIDERED VIEW, THE ASSESSEE HAS FURNISHED INACCUR ATE PARTICULARS OF INCOME AND ACCORDINGLY LIABLE FOR PENALTY UNDER SECTION 271(1) OF THE ACT. THUS, WE DO NOT FIND THE ANY RE ASON TO INTERFERE IN THE ORDER OF LD. CIT(A). THUS, THE GRO UND OF THE APPEAL IS DISMISSED. II. DISALLOWANCES ON FOREIGN EXCHANGE FLUCTUATION L OSS: AT THE OUTSET, WE NOTE THAT THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 955/AHD/2012 & OTHERS VIDE ORDER DATED 20/06/2018 HAS SET ASIDE THE PROCEEDINGS FOR FRESH ADJUDICATION TO ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 17 - THE AO AS PER THE PROVISION OF THE LAW. THE RELEVAN T EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 42. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. ASSESSMENT ORDER AS W ELL AS ORDER OF THE LD.CIT(A) ARE SILENT ON THE SUBMISSIONS MADE BY THE ASSESSEE. THE ASSESSEE HAS CONTENDED THAT BEING COM PANY, IT IS REQUIRED TO PREPARE ITS ACCOUNTS BY FOLLOWING ACCOU NTING STANDARD AS-11 WHERE IT IS REQUIRED TO RESTATE ALL ITS FOREIGN EXCHANGE ASSETS AND LIABILITIES INCLUDING LOANS AND ADVANCES GIVEN, TAKEN, RECEIVABLES, PAYABLES ETC. GAIN OR LO SS ARISING ON TRANSACTIONS OF FOREIGN CURRENCY ASSETS AS ON THE D ATE OF BALANCE SHEET ARE CHARGED TO THE REVENUE I.E. DEBITED OR CR EDITED TO THE PROFIT & LOSS ACCOUNT. IT IS ALSO PERTINENT TO MENT ION THAT THE ASSESSEE HAS POINTED OUT THAT IN ASSESSMENT YEAR 20 06-07 IT HAS A GAIN OF RS.12,41,640/- WHICH WAS OFFERED FOR TAXATI ON. SIMILARLY, FOREIGN EXCHANGE LOAN LOSS AMOUNTING TO RS.74,35,54 0/- DETERMINED AS ON 31.3.2007 AND CLAIM HAS BEEN REVER SED ON 1.4.2007. THIS HAS BEEN OFFERED FOR TAXATION IN THE NEXT ASSESSMENT YEAR I.E. A.Y.2008-09. IF THE LD. REVENU E AUTHORITIES ARE ACCEPTING THE GAINS ON ACCOUNT OF FOREIGN EXCHA NGE FLUCTUATIONS AS TAXABLE THEN HOW AND WHY THE LOSS C OULD BE DENIED TO THE ASSESSEE ? NO SPECIFIC FINDING HAS BE EN RECORDED ABOUT THE NATURE OF LOANS AND HOW SUCH LOSSES ON AC COUNT OF FLUCTUATIONS LOSS COULD BE DISALLOWED. THEREFORE, T AKING INTO CONSIDERATION ALL THE FACTS THAT LD.REVENUE AUTHORI TIES HAVE FAILED TO EXAMINE THE ISSUE BY KEEPING IN MIND TAXATION OF GAINS IN EARLIER AND SUBSEQUENT YEARS ON THE SAME LOANS, AND FAILED TO RECORD ANY SPECIFIC FINDING AS TO HOW IN SUCH CIRCU MSTANCES THE LOSS COULD BE DENIED, WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION. TH E LD.AO SHALL TAKE INTO CONSIDERATION THE SPECIFIC PLEADINGS MADE BY THE ASSESSEE POINTING OUT TAXATION OF GAIN IN THE ASSES SMENT YEAR 2006-07 AND 2008-09, AND THEN DECIDE THE ISSUE IN T HE LIGHT OF HON'BLE SUPREME COURT'S JUDGMENT CITED (SUPRA). WE SET ASIDE THIS ISSUE ON THE GROUND THAT, ABOUT TAXABILITY OF GAIN HAS NOT BEEN EXAMINED BY THE AO. THUS, VERACITY OF THIS FAC T NEEDS TO BE VERIFIED. ON ACCOUNT OF THIS REASON, THE ISSUE IS B EING SET ASIDE TO THE FILE OF THE AO FOR RE-ADJUDICATION AFRESH IN AC CORDANCE WITH LAW. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 18 - AS THE QUANTUM ADDITION HAS BEEN SET ASIDE TO THE A O, WE THEREFORE ARE INCLINED TO SET ASIDE THE IMPUGNED IS SUE OF PENALTY TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE PROVISION OF THE LAW. THUS THE GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. III. PENALTY ON PENALTY EXPENSES:- IN THE PRESENT CASE, THE PENALTY WAS LEVIED BY THE AO DUE TO THE FACT THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR TH E PENALTY EXPENSES CLAIMED IN THE INCOME TAX RETURN. THE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY CONFIRMED BY THE LD CIT(A). IT IS FACT ON RECORD THAT THE PENALTIES ARE NOT ALL OWABLE FOR THE DEDUCTION. BUT THE ASSESSEE HAS CLAIMED THE DEDUCTI ON FOR THE SAME DESPITE THE FACT THAT THESE ARE NOT ALLOWABLE FOR T HE DEDUCTION. THUS WE CONFIRM THE PENALTY IN VIEW OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUN ICATION PVT. LTD (SUPRA) ON ACCOUNT OF INACCURATE PARTICULARS OF INCOME FURNISHED IN THE INCOME TAX RETURN. ACCORDINGLY WE HOLD THAT THE ASSESSEE IS LIABLE FOR PENALTY UNDER SECTION 271(1) OF THE ACT. THUS, WE DO NOT FIND THE ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). THUS, THE GROUND OF THE APPEAL IS DISMISSED . IV. DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE A CT: AT THE OUTSET, WE NOTE THAT THE ABOVE ADDITION WAS DELETED BY THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 19 - 955/AHD/2012 & OTHERS. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 58. SO FAR AS GROUNDS OF ASSESSEE ARE CONCERNED, T HE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT INTER CO RPORATE DEPOSITS MADE BY THE ASSESSEE-COMPANY AND THE BHADR AJA HOLDINGS P.LTD. ARE IN THE NATURE OF CURRENT ACCOMM ODATION ADJUSTMENT ENTRIES NOT IN THE NATURE OF LOANS AND A DVANCES SO AS TO ATTRACT PROVISIONS OF SECTION 2(22)(E) OF THE AC T. THE ASSESSEE WAS MAINTAINING A SORT OF CURRENT ACCOUNT WITH M/S. BHADRA RAJ HOLDINGS P.LTD. AND THE ASSESSEE HAS NOT TAKEN ANY LOANS AND DEPOSITS FROM ITS SISTER CONCERN DURING THE YEAR. IT IS THEREFORE PRAYED THAT NO ADDITION BE MADE UNDER SECTION 2(22) (E) OF THE ACT. ALTERNATIVELY, IT IS PLEADED THAT AT THE MOST WHAT COULD BE ADDED WAS ONLY THE ACCUMULATED AMOUNT OF PROFIT & L OSS ACCOUNT OF THE PAYER COMPANY AND NOT THE ENTIRE AMOUNT OF A LLEGED LOAN OR ADVANCES. IT IS SUBMITTED THAT M/S.BHADRA RAJ H OLDINGS P.LTD. HAS ALREADY DECLARED AND DISTRIBUTED DIVIDEN D OF RS.6,90,00,000/- AND THEREFORE WHILE MAKING ADDITIO N UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASS ESSEE, ADJUSTMENT AGAINST ACTUAL DISTRIBUTION OF DIVIDEND IS REQUIRED TO BE GIVEN AND ONLY NET AMOUNT OF DEEMED DIVIDEND COU LD BE ADDED. IF THIS IS THE POSITION, THEN AS PER CLAUSE (III) OF SECTION 2(22)(E) OF THE ACT SET OFF OF THE SAID SUM BE GRAN TED, CONSEQUENTLY, NO ADDITION SURVIVES UNDER SECTION 2( 22) OF THE ACT. 59. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE ASSESSEE- COMPANY IS HAVING 40% SHAREHOLDING IN THE BHADRA RA J HOLDINGS P.LTD. NATURE OF ACCOUNTS SHOWED THAT IT W AS NOT A RUNNING ACCOUNT AS THE FUNDS MOVED FROM ONE DIRECTI ON ONLY I.E. THE ASSESSEE WAS GETTING FUNDS FROM 1 ST APRIL, 2006 TILL 5 TH SEPTEMBER, 2006 AND THEREAFTER FROM 5 TH SEPTEMBER, 2006 THERE WERE CASH OUTFLOW IN THE FORM OF REPAYMENT TILL 27 TH MARCH 2007. THEREFORE, IT SHOWED THAT TRANSACTIONS ARE NOTHING BUT LOAN TRANSACTIONS AND CANNOT BE TREATED AS INTER-CORPORA TE DEPOSITS OR CURRENT ACCOUNT WITH ASSOCIATE CONCERN. HE RELIED ON ORDERS OF THE REVENUE AUTHORITIES. 60. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE RECORD. WE FIND THAT IN THE ASSTT.YEAR 2006-07, WE HAVE CONSIDERED SIMILAR TRANSACTIONS BETWEEN THE ASSESSE E AND THE ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 20 - SDBPL. WHEN THE ISSUE TRAVELLED TO THE HONBLE HIG H COURT IN EARLIER YEAR, THEN IT WAS POINTED OUT THAT THESE WE RE NOT SIMPLICITOR LOAN TRANSACTIONS, RATHER THESE ARE THE BUSINESS TRANSACTIONS WHEREBY THE CURRENT AMOUNT IS BEING MA INTAINED. BOTH PARTIES HAVE GIVEN AMOUNTS TO EACH OTHER AND T HESE ARE ADJUSTMENT ENTRIES. CONSIDERING THE CURRENT ACCOUN T AND NUMBER OF TRANSACTIONS, AND SINCE THE HONBLE HIGH COURT H AS UPHELD THE FINDING OF THE TRIBUNAL IN EARLIER YEARS THAT THESE ARE NOT LOANS, WHICH COULD BE BROUGHT IN THE AMBIT OF SECTION 2(22 )(E) OF THE ACT FOR THE PURPOSE OF TREATING IT AS DEEMED DIVIDEND, WE RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT IN THE ASSESSMENT Y EAR 2006-07 AS WELL AS JUDGMENT OF THE HONBLE HIGH COURT IN EA RLIER YEARS, ARE OF THE VIEW THAT ADVANCE GIVEN TO M/S.BHADRA RA J HOLDINGS P.LTD. CANNOT BE TREATED AS DEEMED DIVIDEND. WE AL LOW THIS GROUND OF APPEAL. ONCE THE QUANTUM ADDITION HAS BEEN DELETED THEN IN OUR CONSIDERED VIEW THE QUESTION OF LEVYING THE PENALTY DOES NOT A RISE. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. V. DEDUCTION UNDER SECTION 80(G) FOR RS.10,74,790/- AT THE OUTSET, WE NOTE THAT THE ABOVE ADDITION WAS DELETED BY THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 955/AHD/2012 & OTHERS. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 30. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE RECORD. THIS EXPENDITURE WAS INCURRED BY THE ASSESSEE IN ORDER TO PERFORM ITS CORPORATE SOCIAL R ESPONSIBILITY. EXPENDITURE WAS GIVEN TO MUNICIPAL CORPORATION, SUR AT AND AHMEDABAD AND SURAT DIAMOND ASSOCIATION. ACCORDING TO THE ASSESSEE THERE WERE HEAVY RAINS AND REQUEST CAME FR OM MUNICIPAL CORPORATION. IN ORDER TO FULFILL THE SOC IAL RESPONSIBILITY, IT HAS GIVEN THE AMOUNTS. ON DUE C ONSIDERATION OF THE FACTS, WE ARE OF THE VIEW THAT THERE CANNOT BE ANY DOUBT ABOUT THE GENUINENESS OF THE PAYMENT. THE PAYMENT WAS MA DE TO ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 21 - MUNICIPAL CORPORATION TOWARDS CORPORATE SOCIAL RESP ONSIBILITY. THIS IS AN ESSENTIAL EXPENDITURE FOR KEEPING RELATI ONSHIP SMOOTH AND THE SOCIETY AT LARGE. THIS EXPENDITURE DESERVE S TO BE ALLOWED TO THE ASSESSEE. THEREFORE, WE ALLOW THIS EXPENDIT URE AND DELETE DISALLOWANCE. ONCE THE QUANTUM ADDITION HAS BEEN DELETED THEN IN OUR CONSIDERED VIEW THE QUESTION OF LEVYING THE PENALTY DOES NOT A RISE. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. VI. TRANSFER PRICING ADDITION RS. 74,72,426/- AT THE OUTSET, WE NOTE THAT THE PENALTY WAS LEVIED ON ACCOUNT OF FOLLOWING ADDITIONS: 1. INTEREST ON LOAN RS.46,25,937/- 2. INSURANCE RS.28,46,489/- AT THE OUTSET, WE NOTE THAT THE QUANTUM ADDITION ON INTEREST OF LOAN HAS BEEN DELETED BY THE HONBLE ITAT IN THE OWN CAS E OF THE ASSESSEE IN ITA NO.955 AND 1043/AHD/2012 & OTHERS R ELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE RECORD CAREFULLY. IT IS PERTINENT TO OBSERVE THAT THE ASSESSEE WAS HAVING CASH CREDIT ACCOUNT IN DOLLAR DENOMINATION W ITH ICICI BANK, SINGAPORE BRANCH AND BOI. IT HAS GIVEN A LOA N IN DOLLAR DENOMINATION FROM THESE ACCOUNTS TO ITS AE, DISHMAN EUROPE LTD. SIMILARLY, IT WAS HAVING CASH CREDIT ACCOUNT WITH CORPORATION BANK AND GIVEN LOAN FROM THESE ACCOUNTS TO DISHMAN PHARMA SOLUTION. THE ASSESSEE HAS GIVEN LO ANS IN DOLLAR. THESE LOANS HAVE BEEN GIVEN FROM SINGAPORE BRANCH. THE QUESTION BEFORE US IS WHETHER THE INTEREST RATE CHARGED BY THE ASSESSEE AT LIBOR PLUS 1% IS AT MARKET RATE OR IT H AS GIVEN SOME UNDUE BENEFIT TO ITS AES AND THUS, ITS RATE COULD N OT BE CONSIDERED AS ARMS LENGTH PRICE. THE LD.TPO HAS N OT MADE MUCH DISCUSSION ON THIS ASPECT. HE HARBOURED A BEL IEF THAT SINCE ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 22 - ONE OF THE AES. BORROWED FUNDS FROM EUROPEAN BANK A ND PAID HIGHER RATE OF INTEREST, THUS FUNDS GIVEN BY THE AS SESSEE SHOULD ALSO CARRY THAT VERY RATE OF INTEREST. IN OUR OPIN ION, THE LD.TPO FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE IS THE TESTED PARTY AND NOT THE AE. THE FACTUM OF BUSINESS REQUIREMENT IN A FOREIGN COUNTRY AT WHAT RATE OF INTEREST FUNDS ARE BEING BO RROWED BY THE AE IS TOTALLY IRRELEVANT ASPECTS. THE QUESTION BEF ORE THE TPO WAS AT WHAT RATE AN INDIAN CONCERN SHOULD PROVIDE L OANS IN DOLLAR DENOMINATION TO AN UNRELATED PARTY FROM INDI A. THE AE HAS OBTAINED LOANS FROM EUROPEAN MARKET, WHICH IS A LTOGETHER A DIFFERENT CURRENCY AND THE REQUIREMENT OF AE COULD BE DIFFERENT FOR THAT. THERE MAY BE HIGHER RATE OF INTEREST PRE VAILING FOR BORROWING FUNDS, BUT AT WHAT RATE THE LOAN COULD BE MADE FROM INDIA IN DOLLAR DENOMINATION? THE ASSESSEE HAS POI NTED OUT THAT LIBOR IS THE PREVAILING RATE AND IT HAS CHARGED LIB OR PLUS 1%. NO DEFECT HAS BEEN POINTED OUT IN THIS RATE. ONLY THING IS THAT ONE OF THE AES HAS OBTAINED LOAN FROM EUROPEAN MARK ET, THEREFORE, THE LD.TPO HAS APPLIED THAT RATE. TO OU R MIND THIS ACTION OF THE LD.TPO COULD BE JUSTIFIED IF HE HAS P OINTED OUT THAT A TESTED PARTY IN INDIA HAS GRANTED LOAN TO ITS AE IN DOLLAR DENOMINATION AT A HIGHER RATE THAN THE LIBOR PLUS 1 %. IT IS ALSO PERTINENT TO NOTE THE COST OF THE FUNDS TO THE ASSESSEE. THE ASSESSEE HAS CONTENDED THAT IT HAS RAISED FUNDS BY ISSUING OF FCCB AT NOMINAL COST 0.5% TO 1% AND IT HAS GIVEN TH ESE FUNDS TO ITS AE. THUS, THE ASSESSEE HAS DEMONSTRATED THA T THE RATE CHARGED BY IT WAS AT A MARKET RATE AND ITS TRANSACT IONS WERE AT ARMS LENGTH. NO ADJUSTMENT CAN BE MADE IN THE RAT E OF INTEREST CHARGED BY THE ASSESSEE FROM ITS AE ON PROVIDING LO ANS IN DOLLAR DENOMINATION. WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS ASPECT, AND DELETE ADJUSTMENT RECOMMENDED BY THE LD .TPO. THEREFORE, WE HOLD THAT ONCE THE QUANTUM ADDITION H AS BEEN DELETED THEN THE PENALTY UNDER SECTION 271(1) WILL NOT SURVIVE. AS REGARDS, THE PENALTY IMPOSED ON ACCOUNT OF THE A DJUSTMENT IN RESPECT INSURANCE EXPENSES FOR RS. 28,46,489/- WE N OTE THAT THE ADDITION WAS MADE BY THE AO ON ACCOUNT OF ALLOCATIO N OF THE ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 23 - EXPENSES MADE BY ITS AE. HOWEVER THE PENALTY WAS DE LETED IN RESPECT OF SUCH ADDITION BY THE LD. CIT(A). THE LD. DR BEFORE US RELIED ON THE ORDER OF HONBLE MUMBAI TRIBUNAL IN T HE CASE OF CLESTRA LIFE SCIENCE PVT. LTD. VS. ITO REPORTED IN 75 TAXMANN.COM 112 . ON THE OTHER HAND, THE ARGUMENT OF LD. AR WAS THAT THERE WAS NO CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. IN THE CASE BEFORE US THE ADDITION WAS CONFIRMED ON ACCOUNT OF ALLOCATION OF INSURANCE EXPANSES, WHICH WAS INCURRE D BY THE AE OF THE ASSESSEE. THUS, THE AMOUNT OF INSURANCE EXPENSE CLAIMED BY THE ASSESSEE REPRESENTS THE REIMBURSEMENT OF THE EX PENSES TO ITS AE WHICH WERE DULY DISCLOSED IN THE INCOME TAX RETU RN. THEREFORE, WE HOLD THAT THERE WAS NO CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. WE ALSO NOTE THAT THE CASE LAW RELIED BY THE LD DR DOES NOT APPLICABLE TO THE INSTANT FACTS. IN THAT CASE, THE ADJUSTMENT WAS MADE IN UPWARD DIRECTION ON ACCOUNT OF THE SALE PRI CE WHEREAS IN THE CASE BEFORE US IT RELATES TO THE REIMBURSEMENT OF THE EXPENSES CLAIMED BY THE ASSESSEE. THUS, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF LD CIT(A). HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 24 - VII THE PRIOR PERIOD INCOME: AT THE OUTSET, WE NOTE THAT THE ABOVE ADDITION WAS DELETED BY THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 955/AHD/2012 & OTHERS. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 25. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO N OTE THAT ALONG WITH THIS APPEAL, WE HAVE HEARD APPEALS FOR THE ASS ESSMENT YEAR 2005-06 AND 2006-07. IN THE ASSESSMENT YEAR 2006-0 7, THE ASSESSEE HAS PRIOR PERIOD INCOME AT RS.46,50,648/- AND IT HAS DEBITED PRIOR PERIOD EXPENDITURE OF RS.43,11,114/-. THE NET DIFFERENTIAL AMOUNT OF RS.3,39,534/- HAS BEEN CREDI TED TO PROFIT & LOSS ACCOUNT AND OFFERED FOR TAXATION. THE AO DID NOT ALLOW SET OFF PRIOR PERIOD EXPENDITURE AND TAXED THE GROSS IN COME. THE ISSUE CAME UP BEFORE THE TRIBUNAL. WE HAVE UPHELD TAXABILITY OF NET DIFFERENTIAL AMOUNT. THE TRIBUNAL OBSERVED THA T ONCE THE ASSESSEE HAS BEEN OFFERING INCOME OF PRIOR PERIOD A S AN ENTITY, THEN ITS PRIOR PERIOD EXPENDITURE CANNOT BE DISALLO WED SIMPLY BY OBSERVING THAT IT IS NOT ASCERTAINABLE WHETHER THIS EXPENDITURE WERE INCURRED FOR EARNING A PARTICULAR RECEIPTS OFF ERED UNDER THE HEAD PRIOR PERIOD INCOME. ACCORDING TO THE TRIBU NAL, IF AN ASSESSEE IS OFFERING PRIOR PERIOD INCOME, THEN THE EXPENDITURE WHICH WERE INCURRED UNDER DIFFERENT HEADS AND CRYST ALILISED IN THIS YEAR OUGHT TO BE SET OFF AGAINST HAT INCOME. CONSIDERING OUR FINDING IN THE ASSESSMENT YEAR 2006-07, WE PARTLY A LLOW ALL THE GROUNDS AND DIRECT THE AO TO TAX ONLY NET DIFFERENT IAL AMOUNT. IN OTHER WORDS, IN ANY PARTICULAR YEAR, IF THERE IS A NEGATIVE INCOME, THEN THAT AMOUNT IS TO BE DEBITED TO THE PROFIT & L OSS ACCOUNT. IN OTHER WORDS, SAY, IN THE ASSESSMENT YEAR 2007-08, T HE ASSESSEE HAS INCOME OF RS.41,11,972/- AND EXPENDITURE OF RS. 47,34,697/-; THERE IS A NEGATIVE AMOUNT OF RS.7,22,725/-. THIS NET AMOUNT IS TO BE ALLOWED AS EXPENDITURE TO THE ASSESSEE. ON S AME PRINCIPLE, THE INCOME OF THE ASSESSEE BE COMPUTED IN REST OF T WO YEARS. THUS, THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 25 - IN VIEW OF ABOVE, WE HOLD THAT ONCE THE QUANTUM ADD ITION HAS BEEN DELETED THEN THE PENALTY UNDER SECTION 271(1) WILL NOT SURVIVE. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMI SSED. VIII MISC. EXPENSES RETURN: AT THE OUTSET, WE FIND THAT THE ADDITION WAS MADE B Y THE AO FOR RS.31,80,222/- ON ACCOUNT OF MISC. EXPENSES ON ACCO UNT OF GROUND THAT SUFFICIENT DETAILS WERE NOT FURNISHED. HOWEVER , THE SAME WAS REDUCED TO RS. 25,00,000/- BY THE LD CIT(A) WHICH W AS SUBSEQUENTLY REDUCED TO RS.10,00,000/- BY THE HONB LE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO.955/AHD/2011 & OTHERS. THUS, WE NOTE THAT THE ADDITION HAS BEEN MADE ON AD HOC BASIS. IN SUCH KIND OF ADDITION, THE HONBLE GUJARAT HIGH COU RT IN THE CASE OF NAVJIVAN OIL MILLS VS. CIT REPORTED IN 252 ITR 4 17 HAS HELD THAT THE PENALTY CANNOT BE SUSTAINED. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: THE SETTLED LEGAL POSITION IS THAT THE EXPLANATION TO SECTION 271(1)( C ) PROVIDES FOR RAISING A PRESUMPTION AGAINST THE ASSESSEE IN CASE WHERE THE TOTAL INCOME RETURNED BY ANY PERSON IS LESS THAN 80 PER CENT OF THE TOTAL INCOME AS ASS ESSED UNDER SECTION 143 OR 144 OR SECTION 147. SUCH A PRESUMPTI ON IS REBUTTABLE AND THE ONUS WHICH IS HELD TO BE ON THE REVENUE IN THE MAIN PROVISION SHIFTS TO THE ASSESSEE WHEN THE EXPLANATION IS INVOKED AGAINST THE ASSESSEE AND AS HELD BY THE APE X COURT AS WELL AS BY THE HIGH COURT IN CIT V. S.P. BHATT [1974] 97 ITR 440 (GUJ.), AN ASSESSEE CAN DISCHARGE THIS ONUS ON THE BASIS OF PREPONDERANCE OF PROBABILITIES . IN OTHER WORDS IT IS A BURDEN AKIN TO THAT IN A CIVIL CASE W HERE THE DETERMINATION IS MADE UPON PREPONDERANCE OF PROBABI LITIES. IT IS ALSO NOT NECESSARY THAT ANY POSITIVE MATERIAL SHOUL D BE PRODUCED BY THE ASSESSEE IN ORDER TO DISCHARGE THIS BURDEN W HICH RESTS ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 26 - UPON HIM. THE ASSESSEE MAY CLAIM TO HAVE DISCHARGED THE BURDEN BY RELYING ON THE MATERIAL WHICH IS ON RECORD IN TH E PENALTY PROCEEDINGS, IRRESPECTIVE OF WHETHER IT IS PRODUCED BY HIM OR BY THE REVENUE. IF IT CAN BE SAID ON A PREPONDERANCE O F PROBABILITIES THAT THE FAILURE TO RETURN THE TOTAL ASSESSED INCOM E HAS NOT ARISEN ON ACCOUNT OF ANY FRAUD OR ANY GROSS OR WILLFUL NEG LECT ON THE PART OF THE ASSESSEE, THE LEGAL FICTION ENACTED IN THE EXPLANATION CANNOT ARISE AND THE REVENUE MUST FAIL IN ITS ATTEMPT TO IMPOSE PENALTY UPON THE ASSESSEE. FROM THE ABOVE, IT IS CLEAR THAT THE PENALTY ON ACC OUNT OF AD HOC DISALLOWANCES CANNOT BE MADE. THUS THE GROUND OF AP PEAL OF THE REVENUE IS DISMISSED. IX. DISALLOWANCES OF DEPRECIATION IN THE INSTANT CASE, THE ADDITION WAS MADE ON ACCOU NT OF RATE APPLIED BY THE ASSESSEE FOR CHARGING THE DEPRECIATI ON ON THE ASSETS. THE ASSESSEE HAS CHARGED DEPRECIATION AT THE HIGHER RATE THAN THE RATE APPLIED BY THE AO. THUS, THE ADDITION WAS MADE . WE NOTE THAT THE HONBLE COURTS IN SUCH KIND OF ADDITION HAS DEL ETED THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM T HE JUDGMENT OF LALA HARBHAGWAN DAS & MEMORIAL & DR. PREM HOSPITAL (P.) LTD. VS. CIT REPORTED IN 40 TAXMANN.COM 150. THE RELEVANT EXTRAC T OF THE HEAD NOTE OF THE ORDER IS REPRODUCED BELOW: IT : WHERE HIGHER DEPRECIATION WAS WRONGLY CLAIMED UNDER BONA FIDE BELIEF IN RESPECT OF NATURE OF EQUIPMENT AND ITS PR OFESSIONAL USE, NO PENALTY WOULD BE LEVIABLE. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 27 - RESPECTFULLY FOLLOWING THE ORDER AS DISCUSSED ABOVE , WE DO NOT WANT TO DISTURB THE FINDING OF LD. CIT-A. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. X. DISALLOWANCES U/S. 14A OF THE ACT: IN THIS CASE, THE PENALTY WAS LEVIED ON ACCOUNT OF THE DISALLOWANCE OF THE EXPENSES UNDER SECTION 14A OF THE ACT. HOWEV ER, WE NOTE THAT THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD.(SUPRA) HAS HELD THAT NO PENALTY WILL BE LEVIED IN CASE THE ADDITION IS MADE ON ACCOUNT OF DISALLOWANC E MADE U/S 14A OF THE ACT. THE RELEVANT EXTRACT OF THE ORDER I S REPRODUCED BELOW: MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPEND ITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT, BY ITSELF, WOULD NOT ATTRACT THE PEN ALTY UNDER SECTION 271(1)( C ). IF THE CONTENTION OF THE REVENUE WAS ACCEPTED, THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE W AS NOT ACCEPTED BY THE ASSESSING OFFICER FOR ANY REASON, T HE ASSESSEE WOULD INVITE PENALTY UNDER SECTION 271(1)( C ). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. FROM THE ABOVE, IT IS CLEAR THAT NO PENALTY CAN BE LEVIED IN THE GIVEN FACTS AND CIRCUMSTANCES. THUS THE GROUND OF A PPEAL OF THE REVENUE IS DISMISSED. XI. THE DISALLOWANCE U/S 40(A)(I) OF THE ACT: AT THE OUTSET, WE NOTE THAT THE QUANTUM ADDITION HA S BEEN DELETED BY THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 28 - NO.955/AHD/2012 & OTHERS, THE RELEVANT EXTRACT IS R EPRODUCED BELOW: 48. GROUND NOS.14 TO 21 IN THE ASSTT.YEAR 2007-08; GROUND NOS.12 TO 15 IN THE ASSTT.YEAR 2008-09 AND G ROUND NOS.10 TO 13 IN THE ASSESSMENT YEAR 2009-10: IN THESE GRO UNDS OF APPEAL, ASSESSEE IS AGGRIEVED BY THE ACTION OF THE REVENUE AUTHORITIES IN CONFIRMING DISALLOWANCE OF RS.1,56,6 9,776 (ASSTT.YEAR 2007-08), RS.82,92,297/- (ASSTT.YEAR 20 08-09) AND RS.44,58,072/- (ASSTT.YEAR 2009-10) UNDER SECTION 4 0(A)(I) OF THE ACT AND DISALLOWANCE OF RS.25,78,986 OUT OF REIMBUR SEMENT OF ADMINISTRATIVE EXPENDITURE. 49. THOUGH FACTS ON VITAL POINTS ARE COMMON IN ALL THREE YEARS ON THIS ISSUE, WE ARE TAKING FACTS FROM ASSTT .YEAR 2007-08 FOR THE PURPOSE OF REFERENCE. THE AO ON PERUSAL OF THE DETAILS NOTICED THAT ASSESSEE HAS DEBITED FOLLOWING EXPENDI TURE SR. NO. PARTICULARS AMOUNT A) REIMBURSEMENT OF ADMINISTRATIVE SERVICES TO DISHMAN EUROPE LTD. 1,47,37,061/- B) ADVERTISEMENT EXPENSES 7,71,512/- C) CONFERENCE CHARGES 1,32,282/- D) LIST FEES 28,921/- TOTAL 1,56,69,776/ - 50. THE LD.AO WAS OF THE VIEW THAT THE ASSESSEE HAS REMITTED THE ABOVE AMOUNT TO NON-RESIDENT WITHOUT D EDUCTING TDS UNDER SECTION 195 OF THE ACT, WHICH ACCORDING T O THE ASSESSEE, IT WAS NOT SUPPOSED TO DO SO IN VIEW OF S ECTION 195 R.W. DTAA OF THOSE COUNTRIES. THE LD.AO DID NOT ACCEPT THIS SUBMISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUN T OF RS.1,56,69,776/- UNDER SECTION 40(A)(IA) OF THE ACT , WHICH WAS CONFIRMED BY THE LD.CIT(A). 51. IT HAS BEEN BROUGHT TO OUR NOTICE THAT SIMILAR ISSUE HAS ALREADY AGITATED IN THE ASSESSMENT YEAR 2006-07 BEFORE THE TRIBUNAL. ACCORDINGLY, BOTH THE PARTIES REITERATED THEIR RESPECTIVE SUBMISSIONS AS WERE MADE FOR THE ASSESSM ENT YEAR 2006-07. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 29 - 52. AFTER HEARING BOTH THE SIDES, WE FIND THAT SIMI LAR ISSUE AROSE IN THE CASE OF ASSESSEE IN THE ASSESSMENT YEA R 2006-07 AND THE TRIBUNAL IN ITA NO.773/AHD/2011 ORDER DATED 23- 5-2018 ALLOWED THE CLAIM OF THE ASSESSEE. BOTH THE PARTIES BEFORE US AGREED THAT FACTS IN THE PRESENT CASE ALSO SIMILAR TO THE ASSESSMENT YEAR 2006-07. THEREFORE, WE DEEM IT AP PROPRIATE TO TAKE NOTE OF THE FINDING OF THE TRIBUNAL IN THE ASS ESSMENT YEAR 2006-07. IT READS AS UNDER: 80.WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. A PERUSAL OF THE BREAKUP OF TH IS EXPENDITURE WOULD INDICATE THAT EXPENDITURE INCURRE D BY THE ASSESSEE COULD BE DIVIDED INTO THREE CATEGORIES VIZ. (A) PAYMENTS TOWARDS PROFESSIONAL SERVICE CHARGES, (B) REIMBURSEMENT OF ADMINISTRATIVE SERVICES TO DISHMAN EUROPE LTD., AND (C) REIMBURSEMENT OF INSURANCE AND FOREIGN RAVEL EXPENDITURE TO DISHMAN EUROPE LTD. B EFORE MAKING AN ANALYSIS OF THIS EXPENDITURE, WE WOULD LI KE TO TAKE INTO CONSIDERATION DECISION OF HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY (SUPRA). HONBLE SUPREME COURT HAS PROPOUNDED IN THIS DECISI ON THAT A PERSON CAN BE HELD LIABLE TO DEDUCT TDS WHIL E MAKING PAYMENT TO A NON-RESIDENT IF THE PAYMENTS MA DE BY HIM CONSISTS OF SOME ELEMENT OF INCOME CHARGEABL E TO TAX UNDER THE PROVISIONS OF INCOME TAX ACT, 1961. THE LD.REVENUE AUTHORITIES WERE OF THE VIEW THAT IF THE ASSESSEE HAS BEEN MAKING PAYMENT TO A NON-RESIDENT THEN EITH ER IT SHOULD TAKE A CERTIFICATE FROM THE AO UNDER SECTION 195(2) OR DEDUCT TDS ON SUCH PAYMENTS. FOR THIS VIEW, THE Y ARE HARPING UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS (SUPRA). HOWEVER, THE HONBLE SUPREME COURT DID NOT CONCUR W ITH THIS VIEW OF HONBLE HIGH COURT AND OBSERVED THAT EXPRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IS BEING EMPLOYED UNDER SECTION 195(1) AND IF ELEME NT OF INCOME IS INVOLVED IN THE PAYMENTS MADE BY THE ASSE SSEE ONLY THEN THE TDS HAS TO BE DEDUCTED. KEEPING IN V IEW THIS DECISION IN MIND, LET US EXAMINE THE NATURE OF PAYMENT MADE BY THE ASSESSEE. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 30 - 81. LET US TAKE FIRST CATEGORY OF PAYMENT MADE TOWA RDS PROFESSIONAL CHARGES. ACCORDING TO THE ASSESSEE, NO N- RESIDENT WAS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA OR ANY BUSINESS CONNECTION. THUS, SUCH SUM I S NOT TAXABLE IN INDIA AND NO QUESTION OF DEDUCTING TDS W OULD ARISE. REFERENCE TO CIRCULAR NO.786 DATED 7.2.2000 IS BEING MADE. THE AO FAILED TO BRING ON RECORD ANY MATERIAL SHOWING THAT RECIPIENT IS TAXABLE IN INDIA . WITH REGARD TO OTHER TWO ITEMS I.E. REIMBURSEMENT OF ADMINISTRATIVE CHARGES AND REIMBURSEMENT OF INSURAN CE AND FOREIGN TRAVEL EXPENSES ARE CONCERNED, THESE EX PENSES HAVE BEEN REIMBURSED TO DR.HENK PLUIM WHO WAS RESPONSIBLE FOR PROCUREMENT, CHEMICAL DEVELOPMENT A ND TECHNOLOGICAL UP GRADATION ETC. THESE AMOUNTS HAVE BEEN CALCULATED ON THE BASIS OF SERVICES RENDERED AND TI ME DEVOTED BY HIM TO THREE CONCERNS VIZ. DISHMAN UK, DISHMAN INDIA AND DISHMAN USA. THE AO WAS OF THE VIEW THAT ALLOCATION OF EXPENDITURE WAS ON HIGHER S IDE. HE ALSO OBSERVED THAT IN SUBSEQUENT YEAR SUCH EXPEN SES HAVE BEEN ALLOCATED AMONGST THESE CONCERNS IN THE R ATIO OF 40:40:20 BASED ON ADVICE GIVEN BY THE GROUP CHAI RMAN. ON THE BASIS OF THAT RATIO, THE LD.AO HAS ALLOCATED THIS EXPENDITURE IN THIS YEAR ALSO AND WORKED OUT ALLOWA NCE EXPENDITURE OUT OF RS.81,02,622/- DEBITED UNDER THE HEAD ADMINISTRATIVE SERVICES. HE OBSERVED THAT IT SHO ULD BE ALLOWED AT RS.49,89,517/-. A PERUSAL OF THE ASSESS MENT ORDER WOULD INDICATE THAT THE LD.AO HAS ASSIGNED TW O REASONS FOR MAKING DISALLOWANCE, VIZ. (I) NON-DEDUC TION OF TAX, AND (II) HIGHER ALLOCATION OF EXPENDITURE IN T HE HANDS OF THE ASSESSEE WHICH WERE INCURRED ON DR.HENK PLUI M. AS FAR AS FIRST PARTY IS CONCERNED, THESE ARE SIMPL Y REIMBURSEMENT OF ADMINISTRATIVE EXPENSES INCURRED B Y DR.HENK PLUIM OUTSIDE INDIA. THEY DID NOT INVOLVE ANY ELEMENT OF INCOME AND TDS WAS NOT REQUIRED TO BE DEDUCTED. AS FAR AS SECOND PARTY IS CONCERNED, THE LD.AO FAILED TO BRING ANY MATERIAL ON RECORD TO JUSTIFY T HE ADMINISTRATIVE EXPENSES REQUIRED TO BE INCURRED FOR AVAILING SERVICES OF DR.HENK. IT IS TOTALLY IN THE DOMAIN OF THE BUSINESSMAN AND THE AO CANNOT DICTATE TERMS HOW MUCH SALARY AND OTHER EXPENSES ARE NECESSARY FOR AVAILING THE SERVICES. THIS DISALLOWANCE MADE BY T HE AO ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 31 - IS NOT SUSTAINABLE. THE LD.CIT(A) OUGHT TO HAVE NO T CONFIRMED DISALLOWANCE MADE BY THE AO. WE ALLOW TH IS GROUND OF APPEAL AND DELETE ADDITION OF RS.1,12,01, 869/-. 53. SINCE NO DISPARITY OF THE FACTS HAVE BEEN POINT ED OUT BY THE LD.DR ON THIS ISSUE, WE FOLLOWING THE ORDER OF THE TRIBUNAL CITED SUPRA FOR THE ASSESSMENT YEAR 2006-07, DELETE THE IMPUGNED ADDITIONS AND ALLOW THE GROUNDS OF APPEALS OF THE A SSESSEE. IN VIEW OF ABOVE, WE HOLD THAT ONCE THE QUANTUM ADD ITION HAS BEEN DELETED THEN THE PENALTY UNDER SECTION 271(1) WILL NOT SURVIVE. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMI SSED. XII. DISALLOWANCE U/S 10B FOR RS. 6,84,63,318.00 AT THE OUTSET, WE NOTE THAT THE ABOVE ADDITION WAS DELETED BY THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 955/AHD/2012 & OTHERS. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 63. BEFORE US NO DISPARITY OF THE FACTS HAS BEEN P OINTED OUT BY THE LD.DR IN THESE YEARS IN THIS BEHALF. THEREFORE, FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 2006-0 IN ASSESSEE'S OWN CASE WE DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE UN DER SECTION 10B IN ACCORDANCE WITH OUR DIRECTIONS CONTAINED IN ORD ER FOR THE ASSESSMENT YEAR 2006-07. ACCORDINGLY, WE ALLOW THE GROUNDS OF APPEALS OF THE ASSESSEE AND REJECT THAT OF THE REVE NUE. IN VIEW OF ABOVE, WE HOLD THAT ONCE THE QUANTUM ADD ITION HAS BEEN DELETED THEN THE PENALTY UNDER SECTION 271(1) WILL NOT SURVIVE. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMI SSED. ITA NOS.15&205-AHD-16 DISHMAN PHARMACEUTICAL & CHEMICALS LTD. A.Y.2007-08 - 32 - 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS D ISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26/09/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; YKS [KK LNL; U;KF;D LNL; YKS[KK LNL; U;KF;D LNL; YKS[KK LNL; U;KF;D LNL; YKS[KK LNL; (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 26/09/2018 PRITI YADAV, SR.PS !' #' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ %& ' / CONCERNED CIT 4. ' () / THE CIT(A)-6, AHMEDABAD. 5. *+, --%& , %& , /0!$! / DR, ITAT, AHMEDABAD. 6. ,12 3 / GUARD FILE. $ % / BY ORDER, * - //TRUE COPY// &/% () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 07/08/2018 (DICTATION-PAD 13 P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25/09/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 27/09/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER