TECHNOCRAFT INDUSTRIES (I) LTD, MUMBAI v. ADDL CIT 8(3), MUMBAI

ITA 6685/MUM/2014 | 2007-2008
Pronouncement Date: 29-04-2015 | Result: Allowed

Appeal Details

RSA Number 668519914 RSA 2014
Assessee PAN AAACT2724P
Bench Mumbai
Appeal Number ITA 6685/MUM/2014
Duration Of Justice 5 month(s) 24 day(s)
Appellant TECHNOCRAFT INDUSTRIES (I) LTD, MUMBAI
Respondent ADDL CIT 8(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted K
Tribunal Order Date 29-04-2015
Assessment Year 2007-2008
Appeal Filed On 05-11-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 6685/M/2014 ASSESSMENT YEAR: 2007 - 08 M/S. TECHNOCRAFT IND. (INDIA) LTD. A - 25 MIDC MAROL INDL. AREA ROAD NO.3 ANDHERI (E) MUMBAI 400 093 PAN: AAACT 2724P VS. ADDL. COMMISSIONER OF INCOME TAX 8(3) AAYAKAR BHAVAN MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIJA Y MEHTA A.R. REVENUE BY : SHRI N.K. CHAND D.R. DATE OF HEARING : 22.04. 201 5 DATE OF PRONOUNCEMENT : 29.04.2015 O R D E R PER VIJAY PAL RAO JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19.08.2014 OF CIT( A) ARISING FROM TRANSFER PRICING ADJUSTMENT PASSED UNDER SECTION 271(1)(C) FOR THE ASSESSMENT YEAR 2007 - 08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 15 (HEREINAFTER REFERRED TO AS '(THE CIT - (A)' ERRED IN LAW AND ON FACTS IN CONFIRMING THE PENALTY LEVIED U/ S 271(1)(C) OF THE INCOME - TAX ACT 1961 BY THE ASSESSING OFFICER ON INTEREST ON MSEB DEPOSIT RENT RECEIPT AND WEIGH - BRIDGE RECEIPTS ON WHICH DEDUCTION U/S 10 B WAS CLAIMED. 2. THE LD. CITA) ER RED IN LAW AND ON FACTS IN CONFIRMING THE PENALTY LEVIED U/S 271(1)(C) BY THE ASSESSING OFFICER IN RESPECT OF UPWARD ADJUSTMENT OF ARMS LENGTH PRICE BY THE TRANSFER PRICING OFFICER AMOUNTING TO RS.52 24 068/ - . THE APPELLANT PRAYS THAT RELIEFS ON THE ABOVE GROUNDS OF APPEAL BE ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 2 LLOWED AND THE APPELLATE ORDER BE MODIFIED ACCORDINGLY. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMPLIFY THE ABOVE GROUNDS OF APPEAL. 2. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE ORDER DATED 10.12.10 THE ASSESSING OFF ICER (AO) INTER - ALIA RESTRICTED THE DEDUCTION UNDER SECTION 10B IN RESPECT OF YARN DIVISION AT RS.7 15 46 157/ - AS AGAINST RS.7 83 31 945/ - CLAIMED BY THE ASSESSEE AS WELL AS MADE AN ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.52 04 068/ - . BO TH THESE ADDITIONS HAVING CONFIRMED BY THE LD. CIT(A) AS WELL AS BY THIS TRIBUNAL VIDE ORDER DATED 08.01.14 THEREFORE THE ADDITION MADE BY THE AO HAS ATTAINED THE FINALITY. THE AO INITIATED THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) IN RESPECT OF TH ESE TWO ADDITIONS AND LEVIED THE PENALTY OF RS. 40 82 000/ - BEING 100% OF THE TAX SOUGHT TO BE EVADED VIDE ORDER DATED 21.03.13. THE ASSESSEE CHALLENGED THE ACTION OF THE AO FOR LEVY OF THE PENALTY UNDER SECTION 271(1)(C) BEFORE THE LD. CIT(A) BUT COULD NO T SUCCEED. 3. BEFORE US THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT IN THE ISSUE OF DISALLOWANCE OF DEDUCTION UNDER SECTION 10B THREE ASPECTS ARE INVOLVED VIZ. I) INTEREST INCOME ON MSEB DEPOSIT HELD TO BE NOT DERIVED FROM BUSINESS OF ELIGIBLE UNDE RTAKING II) WEIGH BRIDGE RECEIPTS HELD TO BE NOT DERIVED FROM BUSINESS OF ELIGIBLE UNDERTAKING AND III) ALLOCATION OF DIRECTORS REMUNERATION ON PRO - RATA TURNOVER BASIS. 4. THE LD. A.R. HAS SUBMITTED THAT AS FAR AS THE INTEREST INCOME ON MSEB DEPOSIT I S CONCERNED THE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 10B IS A BONAFIDE CLAIM AND BASED ON GOOD FAITH AND DUE DILIGENCE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF MOTO ROLA INDIA ELE CTRONICS (P) LTD. 265 CTR 94 AS WELL AS ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 3 DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HRITNI K EXPORTS PVT. LTD. . THUS THE LD. A.R. HAS SUBMITTED THAT THOUGH THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THIS TRIBUNAL HOWEVER THERE ARE TWO POSSIBLE VIEWS ON THIS ISSUE AND THEREFORE THE REJECTION OF CLAIM OF DEDUCTION UNDER SECTION 10B ON THE INTEREST INCOME ON MSEB DEPOSIT IS NOT ATTRACTED THE PENALTY PROVISIONS OF SECTION 271(1)(C) . HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS DI SCLOSED ALL THE PARTICULARS ALONG WITH THE RETURN OF INCOME THEREFORE THERE IS NO CONCEALMENT OF INCOME NOR ANY INACCURATE PARTICULARS OF INCOME FURNISHED BY THE ASSESSEE TO ATTRACT THE PROVISIONS OF SECTION 271(1)(C). THE CLAIM OF THE ASSESSEE THAT INTE REST INCOME CONSTITUTE PROFIT OF BUSINESS OF ELIGIBLE UNDERTAKING IS A BONAFIDE CLAIM AND BASED ON GOOD FAITH IN VIEW OF THE VARIOUS JUDGMENTS RELIED UPON BY THE ASSESSEE THEREFORE THE PENALTY UNDER SECTION 271(1)(C) IS NOT JUSTIFIED. 5. AS REGARDS THE WEIGH BRIDGE RECEIPTS THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE SAME FORMS PART OF THE UNDERTAKING AND INCOME EARNED FROM SUCH ASSET WAS CLAIMED BY THE ASSESSEE AS PROFITS OF BUSINESS OF THE ELIGIBLE UNDERTAKING THEREFORE REITERATING THE CONTE NTION AS ADVANCE IN RESPECT OF THE CLAIM OF DEDUCTION UNDER SECTION 10B ON INTEREST INCOME ON MSEB DEPOSIT THE LD. A.R. HAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS BONAFIDE CLAIM AND BASED ON GOOD FAITH AND DUE DILIGENCE. THE ASSESSEE HAS DISCLOSED A LL THE RELEVANT PARTICULARS OF INCOME AND OTHER DETAILS ALONG WITH THE RETURN OF INCOME THEREFORE NO CONCEALMENT OF INCOME NOR ANY INACCURATE PARTICULARS OF INCOME WERE FURNISHED BY THE ASSESSEE. HE HAS ASSERTED THAT SINCE THE CLAIM OF THE ASSESSEE IS NO T A BOGUS CLAIM BUT IT IS A BONAFIDE CLAIM OF THE ASSESSEE AND MERE DISALLOWANCE OF THE CLAIM WOULD NOT TANTAMOUNT TO CONCEALMENT OF INCOME NOR ANY INACCURATE PARTICULARS OF INCOME. ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 4 6 . AS REGARDS THE ALLOCATION OF DIRECTORS REMUNERATION AGAINST THE INC OME ELIGIBLE FOR DEDUCTION UNDER SECTION 10B THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT SINCE THE ASSESSMENT YEAR 2001 - 02 THE ASSESSEE HAS NOT ALLOCATED THE DIRECTORS REMUNERATION WHILE COMPUTING THE INCOME OF ELIGIBLE UNDERTAKING UNDER SECTION 10B AND THE AO FOR ALL THE EARLIER ASSESSMENT YEARS HAS ACCEPTED THE CLAIM OF THE ASSESSEE WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 143(3). ONLY FOR THE YEAR UNDER CONSIDERATION FIRST TIME THE AO HAS DISALLOWED THE CLAIM BY ALLOCATING THE DIRECTORS REMUNERATION ON PRO - RATA TURN OVER BASIS. T HOUGH THE DISALLOWANCE HAS BEEN ACCEPTED BY THE ASSESSEE AFTER CONFIRMATION BY THE LD. CIT(A) H OWEVER THE CLAIM OF THE ASSESSEE IS A BONAFIDE CLAIM AND THERE IS NO CONCEALMENT OF INCOME NOR ANY INACCURATE PARTIC ULARS OF INCOME FURNISHED BY THE ASSESSEE. THE LD. A.R. HAS FURTHER SUBMITTED THAT THE ASSESSEE DID NOT ALLOCATE THE DIRECTORS REMUNERATION TOWARDS THE INCOME FROM ELIGIBLE UNDERTAKING BECAUSE THERE WAS NO ROLE OF THE DIRECTORS IN RESPECT OF THE ELIGIBLE UNDERTAKING THEREFORE THE ALLOCATION OF EXPENDITURE AND THE BASIS OF ALLOCATION IS A DEBATABLE ISSUE AS SECTION 10B DOES NOT STIPULATE SUCH APPROPRIATION OF EXPENDITURE. HE HAS RELIED UPON JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (P) LTD. 322 ITR 158 AND SUBMITTED THAT MERELY MAKING CLAIM DOES NOT CONSTITUTE CONCEALMENT OF INCOME NOR ANY FURNISHING OF INACCURATE PARTICULARS OF INCOME WHEN THE CLAIM OF THE ASSESSEE IS BASED ON GOOD FAITH AND BONAFIDE ONE. TRANSFER PRIC ING ADJUSTMENT IN RESPECT OF BANK GUARANTEE PROVIDED TO THE AE: 7. THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS DISCLOSED ALL FACTS TO THE AO BY SUBMITTING FORM NO.3CEB INCLUDING THE FACT OF GIVING BANK GUARANTEE. HE HAS REFERRED THE FORM NO.3CEB AND SUBMITTED THAT THE ASSESSEE HAD EXPLAINED THIS FACT OF GIVING BANK GUARANTEE TO AE AND THERE IS ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 5 NO CONCEALMENT OF INCOME NOR ANY INACCURATE PARTICULARS OF INCOME. FURTHER THE LD. A.R. HAS FORCEFULLY CONTENDED THAT PRIOR TO THE AMENDMENT TO SECTION 92B BY FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 THERE WAS NO REASON TO THE ASSESSEE TO REPORT THE BANK GUARANTEE FURNISHED TO THE AE AS AN INTERNATIONAL TRANSACTION. THUS UNDER THE BONAFIDE BELIEF THE ASSESSEE HAS NOT MADE A NY TRANSFER PRICING ADJUSTMENT FOR THE BANK GUARANTEE AT THE RELEVANT TIME BECAUSE SUCH TRANSACTION WAS NOT TREATED AS INTERNATIONAL TRANSACTION. THOUGH THE EXPLANATION TO SECTION 92B HAS BEEN INTRODUCED SUBSEQUENTLY WITH RETROSPECTIVE EFFECT TO COVER THE BANK GUARANTEE AS THE INTERNATIONAL TRANSACTION H OWEVER AT THE TIME OF FILING THE RETURN THERE WAS NO SUCH PROVISION IN THE ACT TO INDICATE THAT THE BANK GUARANTEE TRANSACTION WAS MANDATORILY AN INTERNATIONAL TRANSACTION. THE ASSESSEE HAS IN GOOD FAITH AND WITH DUE DILIGENCE HAS SUBMITTED DETAILS OF TRANSACTIONS IN FORM NO.3CEB AND AS SUCH THE EXPLANATION 7 TO SECTION 271(1)(C) OF THE ACT IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF RBS EQUITIES INDIA LTD. DATED 26.08.1 1 IN ITA NO.2570/M/ 2010. THE LD. A.R. HAS FURTHER SUBMITTED THAT EVEN AFTER THE RETROSPECTIVE AMENDMENT TO SECTION 92B THE DELHI BENCHES OF THIS TRIBUNAL IN THE CASE OF BHARTI AIRTEL 161 TTJ 428 AS WELL AS THE DECISION OF THIS TRIBUNAL IN THE CASE OF VIDEOCON INTERNATIONAL LTD. HAS HELD THAT THE BANK GUARANTEE PROVIDED TO THE AE IS NOT AN INTERNATIONAL TRANSACTION. THEREFORE THIS IS A HIGHLY DEBATABLE ISSUE WHICH DOES NOT ATTRACT THE PENALTY UNDER SECTION 271(1)(C) O F THE ACT. 8. THE SECOND ASPECT OF THE TRANSFER PRICING ADJUSTMENT IS REGARDING THE ADDITION OF ACTUAL EXPENDITURE OF RS.15 49 880/ - INCURRED BY THE ASSESSEE FOR SECURING BANK GUARANTEE FOR THE AE. THE LD. A.R. HAS SUBMITTED THAT THE TRANSACTION ENTERE D INTO IS NOT AN INTERNATIONAL TRANSACTION. THE PAYMENT WAS MADE FOR A SUBSIDIARY AE OUT OF BUSINESS EXIGENCY. THE PAYMENT WAS MADE TO ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 6 THE BANK AND THEREFORE IT CANNOT BE TREATED AS A SEPARATE INTERNATIONAL TRANSACTION ONCE AN ADJUSTMENT IS MADE IN RESPE CT OF THE BANK GUARANTEE ITSELF. ONCE THE TPO/AO HAS MADE AN ADDITION FOR PROVIDING BANK GUARANTEE FOR THE AE AT THE RATE OF 2.08% THERE IS NO JUSTIFICATION TO MAKE FURTHER ADDITION OF ACTUAL EXPENDITURE INCURRED. THUS THE LD. A.R. HAS CONTENDED THAT SO FAR AS THE AMOUNT OF RS.15 49 880/ - IS CONCERNED IT IS A DOUBLE ADDITION OVER AND ABOVE THE ADDITION FOR PROVIDING BANK GUARANTEE AND THEREFORE IT WOULD NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME ONCE THE BANK GU ARANTEE TRANSACTION ITSELF IS SUBJECTED TO ARMS LENGTH PRICE AND TRANSFER PRICING ADJUSTMENT . 9. THE NEXT ADDITION MADE BY THE TPO/AO WAS IN RESPECT OF INTEREST ON THE ACTUAL EXPENDITURE OF RS.15 49 880/ - . THE LD. A.R. HAS SUBMITTED THAT WHEN THE ACTUA L EXPENDITURE ITSELF IS NOT AN INTERNATIONAL TRANSACTION AND DOES NOT REQUIRE ANY ADJUSTMENT THEN THE ADJUSTMENT MADE ON ACCOUNT OF NOTIONAL INTEREST ON SUCH EXPENDITURE IS NOT JUSTIFIED IN ANY CASE AND THE PENALTY UNDER SECTION 271(1)(C) IS NOT ATTRACTED ON AN ADDITION BASED ON PRESUMPTION AS WELL AS HYPOTHETICAL INCOME NOT ACTUALLY EARNED BY THE ASSESSEE. 10 . PER CONTRA THE LD. D.R. HAS SUBMITTED THAT THE CLAIM OF DEDUCTION UNDER SECTION 10B IN RESPECT OF THE INTEREST INCOME AS WELL AS OTHER ITEMS OF I NCOME IS CONTRARY TO THE PROVISIONS OF LAW AND THEREFORE SUCH A CLAIM CANNOT BE TREATED AS A BONAFIDE CLAIM. THERE IS NO NEXUS OF THE INCOME OF INTEREST AS WELL AS WEIGH BRIDGE RECEIPTS WITH THE EXPORT BUSINESS OF THE ASSESSEE OR THE ELIGIBLE UNDERTAKING THEREFORE THE CLAIM OF THE ASSESSEE IS NOT PERMISSIBLE UNDER LAW. THE ISSUE IS NO MORE RES - INTEGRA AS THERE ARE BINDING PRECEDENTS OF THE HONBLE HIGH COURTS AS WELL AS HONBLE SUPREME COURT ON THIS POINT. THEREFORE THE CLAIM OF THE ASSESSEE IS NOT A BON AFIDE CLAIM. EVEN OTHERWISE THESE INCOMES ARE NOT PART OF THE EXPORT TURNOVER THEN THE CLAIM OF THE ASSESSEE IS ABSOLUTELY ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 7 WRONG CLAIM. THE LD. D.R. THUS SUBMITTED THAT THE PENALTY UNDER SECTION 271(1)(C) IS ATTRACTED IN CASE OF ABSOLUTELY IMPERMISSIBLE CLAIM OF THE ASSESSEE . ON THE ISSUE OF TRANSFER PRICING ADJUSTMENT THE LD. D.R. HAS SUBMITTED THAT IT IS NOT A CASE OF NO FINANCIAL EFFECT OF THE BA NK GUARANTEE PROVIDED TO THE AE BUT T HE ASSESSEE HAS INCURRED THE EXPENSES TO THE TUNE OF RS.15 49 880/ - AN D THEREFORE THE DECISIONS RELIED UPON BY THE ASSESSEE IN CASE OF BHARTI AIRTEL (SUPRA) AS WELL AS VIDEOCON INTERNATIONAL LTD. (SUPRA) ARE NOT RELEVANT AND HELP TO SUPPORT THE CLAIM OF THE ASSESSEE. THE ASSESSEE HAS PROVIDED/RENDERED THE SERVICE OF FUR NISHING OF BANK GUARANTEE TO ITS AE WHICH ITSELF IS AN INTERNATIONAL TRANSACTION EVEN PRIOR TO THE INSERTION OF THE EXPLANATION TO SECTION 92B. THUS THE LD. D.R. HAS SUBMITTED THAT IT IS NOT A BONAFIDE CLAIM OF THE ASSESSEE AND THE AO IS JUSTIFIED IN LEVY ING THE PENALTY IN THIS RESPECT. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 1 1 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE EVIDENT MATERIAL ON RECORD. THE PENALTY UNDER SECTION 271(1)(C) HAS BEEN LEVIED BY THE AO IN RESPECT O F THE DISALLOWANCE OF DEDUCTION UNDER SECTION 10B AS WELL AS ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF BANK GUARANTEE PROVIDED BY THE ASSESSEE TO ITS AE. THE DISALLOWANCE OF DEDUCTION UNDER SECTION 10B WAS CONFIRMED BY THE LD. CIT(A ) AND THE ASSESSEE HAS ACCEPTED THE ORDER OF THE LD. CIT(A) BY NOT PRESSING THE GROUND IN RESPECT OF INTEREST INCOME ON MSEB DEPOSIT BEFORE THIS TRIBUNAL AND THE OTHER TWO ADDITIONS ON ACCOUNT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 10B IN RESPECT OF WE IGH BRIDGE RECEIPTS AND ALLOCATION OF DIRECTORS REMUNERATION WERE NOT CHALLENGED BY THE ASSESSEE BEFORE THIS TRIBUNAL. THE TRANSFER PRICING ADJUSTMENT CHALLENGED BY THE ASSESSEE BEFORE THIS TRIBUNAL BUT THE TRIBUNAL HAS CONFIRMED THE ADDITION MADE BY THE AUTHORITIES BELOW. THEREFORE ALL THESE ISSUES ON WHICH THE PENALTY HAS BEEN LEVIED BY THE AO HAS ATTAINED FINALITY IN QUANTUM PROCEEDINGS. THERE ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 8 IS NO QUARREL ON THE PROPOSITION THAT MERELY BECAUSE A CLAIM IS MADE BY THE ASSESSEE AND THE SAME WAS REJECT ED BY THE AO DOES NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME WHEN THE ASSESSEE HAS MADE OUT A CASE THAT THE CLAIM SO MADE BY THE ASSESSEE WAS A BONAFIDE CLAIM AN D BASED ON GOOD FAITH AND DUE DILIGENCE. WE WILL DEAL WITH EACH ITEM OF DISALLOWANCE/ADDITION AS UNDER: DISALLOWANCE OF DEDUCTION UNDER SECTION 10B IN RESPECT OF INTEREST INCOME ON MSEB DEPOSIT : - T HE INTEREST INCOME ON DEPOSIT MADE WITH MSEB IS NOT A N INCOME DERIVED FROM THE EXPORT OF ARTICLE OR THINGS BUT THERE IS A QUESTION WHETHER SUCH INCOME CAN BE SAID TO BE PART OF THE PROFITS OF BUSINESS OF THE ELIGIBLE UNDERTAKING AS PER SUB SECTION 4 OF SECTION 10B OF THE INCOME TAX ACT. THOUGH THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT AND IT WAS SO DISALLOWED BY THE AUTHORITIES BELOW AND ASSESSEE HAS ACCEPTED THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) HOWEVER IT CANNOT BE SAID THAT THE CLAIM OF THE ASS ESSEE OF DEDUCTION UNDER SECTION 10B IN RESPECT OF INTEREST INCOME ON DEPOSITS MADE WITH THE MSEB IS A BOGUS CLAIM OR AN ABSOLUTELY IMPERMISSIBLE FALSE CLAIM. IN SUPPORT OF ITS CONTENTION OF BONAFIDE CLAIM THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF H ONBLE KARNATAKA HIGH COURT IN THE CASE OF MOTOROLA INDIA ELECTRONICS (P) LTD. (SUPRA). THE HONBLE HIGH COURT HAS OBSERVED IN PARA 8 AS UNDER: 8. IN THE INSTANT CASE THE ASSESSEE IS A 100% EOU WHICH HAS EXPORTED SOFTWARE AND EARNED THE INCOME. A PO RTION OF THAT INCOME IS INCLUDED IN EEFC ACCOUNT. YET ANOTHER PORTION OF THE AMOUNT IS INVESTED WITHIN THE COUNTRY BY WAY OF FIXED DEPOSITS ANOTHER PORTION OF THE AMOUNT IS INVESTED BY WAY OF LOAN TO THE SISTER CONCERN WHICH IS DERIVING INTEREST OR THE CO NSIDERATION RECEIVED FROM SALE OF THE IMPORT ENTITLEMENT WHICH IS PERMISSIBLE IN LAW. NOW THE QUESTION IS WHETHER THE INTEREST RECEIVED AND THE CONSIDERATION RECEIVED BY SALE OF IMPORT ENTITLEMENT IS TO BE CONSTRUED AS INCOME OF THE BUSINESS OF THE UNDERT AKING. THERE IS A DIRECT NEXUS ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 9 BETWEEN THIS INCOME AND THE INCOME OF THE BUSINESS OF THE UNDERTAKING. THOUGH IT DOES NOT PAR TAKE THE CHARACTER OF A PROFIT AND GAINS FROM THE SALE OF AN ARTICLE IT IS THE INCOME WHICH IS DERIVED FROM THE CONSIDERATION REAL IZED BY EXPORT OF ARTICLES. IN VIEW OF THE DEFINITION OF INCOME FROM PROFITS AND GAINS' INCORPORATED IN SUB - SECTION (4) THE ASSESSEE IS ENTITLED TO THE BENEFIT OF EXEMPTION OF THE SAID AMOUNT AS CONTEMPLATED UNDER SECTION 10B OF THE ACT. THEREFORE THE TR IBUNAL WAS JUSTIFIED IN EXTENDING THE BENEFIT TO THE AFORESAID AMOUNTS ALSO. WE DO NOT FIND ANY MERIT IN THESE APPEALS. THEREFORE THE FIRST SUBSTANTIAL QUESTION OF LAW RAISED IN ITA NO.428/2007 IS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE AND THE FIRST SUBSTANTIAL QUESTION OF LAW IN ITA NO.447/2007 IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 1 2 . A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF HRITNIK EXPORTS PVT. LTD. (SUPRA). THEREFOR E IT CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE IS AN ABSOLUTE IMPERMISSIBLE CLAIM AND DOES NOT FALL IN THE CATEGORY OF BONAFIDE CLAIM. IT IS PERTINENT TO NOTE THAT IN VIEW OF THE VARIOUS JUDGMENTS AS RELIED UPON BY THE ASSESSEE THERE ARE CERTAINLY TWO POSSIBLE VIEWS ON THIS ISSUE. THUS WE ARE OF THE CONSIDERED OPINION THAT THE CLAIM OF DEDUCTION UNDER SECTION 10B IN RESPECT OF THE INTEREST ON DEPOSIT WITH MSEB DEPOSIT DISALLOWED BY THE AO WOULD NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME WHEN THERE IS NO SUCH ALLEGATION BY THE AO THAT THE ASSESSEE HAS NOT FURNISHED ALL RELEVANT PARTICULARS AND DETAILS IN RESPECT OF THIS CLAIM. ACCORDINGLY WE HOLD THAT T HE PENALTY UNDER SECTION 271(1)(C) IS NOT JUSTIFIED IN RESPECT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 10B ON INTEREST INCOME FROM DEPOSIT WITH MSEB. WEIGH BRIDGE RECEIPTS: 1 3 . THERE IS NO DISPUTE REGARDING THE FACT THAT WEIGH BRIDGE IS SITUATED IN T HE UNDERTAKING ITSELF AND THEREFORE THE INCOME EARNED FROM SUCH ASSET CLAIMED AS PROFIT OF BUSINESS OF THE UNDERTAKING IS A BONAFIDE CLAIM OF THE ASSESSEE. MERE DISALLOWANCE OF THE CLAIM UNDER SECTION 10B WOULD NOT CONSTITUTE CONCEALMENT OF INCOME OR FURN ISHING INACCURATE PARTICULARS OF INCOME WHEN THE ASSESSEE HAS ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 10 DISCLOSED ALL RELEVANT FACTS AND DETAILS IN THE RETURN OF INCOME AND ALSO FURNISHED THE RELEVANT MATERIAL EXPLAINING THE FACTS AND SOURCE OF THE INCOME . ACCORDINGLY IN VIEW OF OUR OBSERVATION O N THE ISSUE OF LEVY OF PENALTY IN RESPECT OF THE INTEREST INCOME ON MSEB DEPOSIT WE HOLD THAT THE DISALLOWANCE OF CLAIM UNDER SECTION 10B IN RESPECT OF THE INCOME EARNED FROM WEIGH BRIDGE WILL NOT ATTRACT THE PENALTY PROVISIONS UNDER SECTION 271(1)(C) WHE N THE ASSESSEE HAS BROUGHT ON RECORD AND EXPLAINED TO THE AO THE NATURE OF INCOME AND SOURCE OF INCOME. ALLOCATION OF DIRECTORS REMUNERATION: 1 4 . THERE IS NO DISPUTE THAT SINCE 2001 - 02 THE ASSESSEE HAS BEEN CLAIMING DEDUCTION UNDER SECTION 10B WITHOUT ALLOCATING THE DIRECTORS REMUNERATION TOWARDS THE INCOME ELIGIBLE FOR SECTION 10B DEDUCTION. ONLY FOR THE YEAR UNDER CONSIDERATION THE AO HAS MADE THE ALLOCATION ON THE BASIS OF PRO - RATA TURNOVER AND THEREBY DISALLOWED/RESTRICTED THE CLAIM OF DEDUCTION UNDER SECTION 10B. IT IS UNDISPUTED FACT THAT SINCE THE ASSESSMENT YEAR 2001 - 02 THE CLAIM OF THE ASSESSEE HAS NOT BEEN DISPUTED BY THE AO THEREFORE IT HAS GIVEN AN UNDERSTANDING AND BONAFIDE BELIEF TO THE ASSESSEE THAT NO ALLOCATION OF EXPENDITURE OF DIR ECTORS REMUNERATION IS REQUIRED WHILE COMPUTING INCOME OF ELIGIBLE UNDERTAKING. THOUGH FOR THE YEAR UNDER CONSIDERATION THE CLAIM OF THE ASSESSEE IS DISALLOWED AND HAS ATTAINED FINALITY HOWEVER MERELY MAKING A CLAIM WHICH HAS BEEN DISALLOWED BY THE AO D OES NOT CONSTITUTE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO P RODUCTS (P) LTD. (SUPRA) . THEREFORE WE ARE OF THE CONSIDERED OPINION THAT WHEN FOR THE LAST S IX YEARS THE ASSESSEE WAS UNDER THE IMPRESSION THAT NO ALLOCATION OF EXPENDITURE IS REQUIRED WHILE COMPUTING THE INCOME OF ELIGIBLE UNDERTAKING BECAUSE THE AO HAS ACCEPTED THE COMPUTATION OF INCOME FOR DEDUCTION UNDER SECTION 10B ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 11 WITHOUT ANY ALLOCATION OF DIRECTORS REMUNERATION THEN THE CLAIM FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS BASED ON GOOD FAITH AND DUE DILIGENCE AND THEREFORE THE DISALLOWANCE OF THE SAME WOULD NOT ATTRACT THE PENALTY UNDER SECTION 271(1)(C). TRANSFER PRICING ADJUSTMENT 1 5 . THE FIRST ADJUSTMENT WAS MADE BY THE TPO/AO IS REGARDING BANK GUARANTEE PROVIDED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. THE TPO HAS MADE AN ADJUSTMENT OF RS.35 98 244/ - BY DETERMINING THE ARMS LENGTH BANK GUARANTEE COMMISSION AT THE RATE OF 2.08% . THE ASSESSEE DID NOT REPORT THE TRANSACTION OF PROVIDING BANK GUARANTEE TO ITS AE AS AN INTERNATIONAL TRANSACTION HOWEVER IN THE FORM NO.3CEB SUBMITTED BEFORE THE AO THE ASSESSEE HAS DISCLOSED THE FACT OF GIVING BANK GUARANTEE AS WELL AS INCURRING THE EXPENDITURE FOR PROVIDING THE BANK GUARANTEE. ONCE THE ASSESSEE HAS DISCLOSED THE FACT OF PROVIDING BANK GUARANTEE TO ITS AE WHICH HAS NOT BEEN DISPUTED BY THE AO THEN THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT BY DETERMINING THE ALP OF T HE BANK GUARANTEE COMMISSION AT THE RATE OF 2.08% ITSELF CANNOT BE TREATED AS CONCEALMENT OF INCOME OR FURNISHING OF I NACCURATE PARTICULARS OF INCOME. THE ASSESSEE HAS EXPLAINED BEFORE THE AUTHORITIES BELOW THAT THE ASSESSEE HAS IN GOOD FAITH AND WITH DUE DILIGENCE HAS SUBMITTED THE DETAILS OF TRANSACTIONS IN FORM NO.3CEB INSTEAD OF REPORTING THE SAME AS INTERNATIONAL TRANSACTION BECAUSE PRIOR TO THE RETROSPECTIVE AMENDMENT BY THE FINANCE ACT 2012 W.E.F. 01.04.2002 THE BANK GUARANTEE WAS NOT SPECIFICALLY PROVIDED IN THE ACT AS INTERNATIONAL TRANSACTION. 1 6 . WE FIND THAT THE ASSESSEE HAS GIVEN THE PARTICULARS OF THE BANK GUARANTEE AND THE CHARGES PAID ON BEHALF OF THE ASSOCIATED ENTERPRISES IN ANNEXURE - III OF FORM NO.3CEB. IN THE CASE OF D CIT VS. RBS E QUITIES INDIA LTD. (SUPRA) IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL REGARDING LEVY OF PENALTY ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 12 UNDER SECTION 271(1)(C) IN RESPECT OF ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE TRIBUNAL AFTER CONSIDERING THE PROVISIONS OF SECTION 2 71(1)(C) HAS OBSERVED IN PARA 9 AS UNDER: 9 . THE SCHEME OF EXPLANATION 7 TO SECTION 271(1)( C ) MAKES IT CLEAR THAT THE ONUS ON THE ASSESSEE IS ONLY TO SHOW THAT THE ALP WAS COMPUTED BY THE ASSESSEE IN ACCORDANCE WITH THE SCHEME OF SECTION 92C IN GOOD FAIT H AND WITH DUE DILIGENCE. IT IS NOT EVEN IN DISPUTE IN THE PRESENT CASE THAT THE ALP WAS COMPUTED IN ACCORDANCE WITH THE SCHEME OF SECTION 92C INASMUCH AS TRANSACTIONAL NET MARGIN METHOD (TNMM) WHICH IS FOLLOWED BY THE ASSESSEE IS ONE OF THE PRESCRIBED M ETHOD UNDER SECTION 92C(1) AND THE ASSESSING OFFICER HAS NOT FOUND ANY FAULTS IN COMPUTATION OF ALP IN ACCORDANCE WITH TRANSACTION NET MARGIN METHOD. IN FACT HE HAS REJECTED THE TNMM ON THE GROUND THAT CUP METHOD COULD BE APPLIED TO THE FACTS OF THIS CASE . WHATEVER BE THE LEGAL MERITS OF THIS APPROACH AND THE JUDICIAL PRECEDENTS BY THE CO - ORDINATE BENCHES ON THIS ISSUE IT IS CERTAINLY A HIGHLY CONTENTIOUS ISSUE WHETHER A PRIORITY IN THE METHODS OF DETERMINING ALPS CAN BE SAID TO EXIST EVEN IMPLICITLY GI VING AN EDGE TO CUP OVER OTHER METHODS. IN A SITUATION THEREFORE WHEN THE TNMM IS REJECTED BY THE REVENUE AUTHORITIES WITHOUT FINDING ANY SPECIFIC REASONS FOR INAPPLICABILITY OF THE TNMM AND SIMPLY ON THE GROUND THAT A DIRECT METHOD IS MORE APPROPRIATE TO THE PARTICULAR FACT SITUATION IT CANNOT AT ALL BE A FIT CASE FOR IMPOSITION OF PENALTY INASMUCH AS IT CANNOT BE SAID THAT IN A SUCH SITUATION AND DESPITE THE FINDINGS - CONTESTED OR UNCONTESTED - TO THE EFFECT THAT A DIRECT METHOD IS PREFERABLE THE A LP HAS NOT BEEN COMPUTED BY THE ASSESSEE UNDER THE SCHEME OF SECTION 92C OF THE ACT. AS TO THE SCOPE OF CONNOTATIONS OF EXPRESSION 'IN GOOD FAITH' APPEARING IN EXPLANATION 7 WE FIND GUIDANCE FROM SECTION 3(22) OF GENERAL CLAUSES ACT WHICH STATES THAT 'A T HING SHALL BE DEEMED TO BE DONE IN 'GOOD FAITH' WHERE IT IS IN FACT DONE HONESTY WHETHER IT IS DONE NEGLIGENTLY OR NOT'. A THING DONE IN GOOD FAITH IS A THING DONE HONESTLY AND THEREFORE IT IS NOT EVEN NECESSARY WHETHER IN DOING THAT THING THE ASSESSEE HAS BEEN NEGLIGENT OR NOT. THERE IS NO WAY THAT AN ASSESSEE CAN PROVE HIS HONESTY BECAUSE HONESTY IN PRACTICAL TERMS ONLY IMPLIES LACK OF DISHONESTY AND PROVING NOT BEING DISHONEST IS ESSENTIALLY PROVING A NEGATIVE WHICH AS HON'BLE SUPREME COURT HAS OBSERVED IN THE CASE OF K.P. VARGHESE V. ITO [1981] 131 ITR 597 / 7 TAXMAN 13 I S ALMOST IMPOSSIBLE. HOWEVER AS THE EXPRESSION 'GOOD FAITH' IS USED ALONGWITH 'DUE DILIGENCE' WHICH REFERS TO 'PROPER CARE IT IS ALSO ESSENTIAL THAT NOT ONLY THE ACTION OF THE ASSESSEE SHOULD BE IN GOOD FAITH I.E. HONESTLY BUT ALSO WITH PROPER CARE. AN ACT DONE WITH DUE DILIGENCE IN OUR HUMBLE UNDERSTANDING WOULD MEAN AN ACT DONE WITH AS MUCH AS CARE AS A PRUDENT PERSON WOULD TAKE IN SUCH CIRCUMSTANCES. IN VIEW OF THESE DISCUSSIONS IN OUR CONSIDERED VIEW AS LONG AS NO DISHONESTY IS FOUND IN THE CO NDUCT OF THE ASSESSEE AND AS LONG AS HE HAS DONE WHAT A REASONABLE MAN WOULD HAVE DONE IN HIS CIRCUMSTANCES TO ENSURE THAT THE ALP WAS DETERMINED IN ACCORDANCE WITH THE SCHEME OF SECTION 92C DEEMING FICTION UNDER EXPLANATION 7 CANNOT BE INVOKED. ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 13 1 7 . WE FIND NO REASON TO TAKE A DIFFERENT VIEW WHEN THE PENALTY IN THE CASE OF THE ASSESSEE IS RELATED IN RESPECT OF THE TRANSFER PRICING ADJUSTMENT AND THE TRANSACTIONS WERE DULY DISCLOSED BY THE ASSESSEE IN THE FORM NO.3CEB. EVEN OTHERWISE PRIOR TO THE AMENDM ENT TO SECTION 92B VIDE FINANCE ACT 2012 WHEREBY THE EXPLANATION HAS BEEN INSERTED WITH RETRO SPECTIVE EFFECT FROM 01.04.20 02 T HE CLAIM OF THE ASSESSEE IS BASED ON GOOD FAITH AND DUE DILIGENCE AND THEREFORE WE DO NOT FIND IT A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C). 18 . THE NEXT POINT OF DISPUTE IS THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE BY THE TPO/AO IN RESPECT OF ACTUAL EXPENDITURE OF RS.15 49 880/ - INCURRED FOR SECURING BANK GUARANTEE AND RS.75 944/ - TOWARDS NOTIONAL INTEREST ON THE SAID AMOUNT OF RS.15 49 880/ - . WE FIND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR SECURING THE BANK GUARANTEE IS HIGHLY DEBATABLE ISSUE AS TO WHETHER IT IS A SEPARATE INTERNATIONAL TRANSACTION OR IT IS A PART AND PARCEL OF THE BANK GUARANTEE FURNISHED BY THE ASSESSEE ON BEHALF OF THE AE. IT IS ONLY AN EXPENDITURE INCURRED TO EFFECTUATE THE INTERNATIONAL TRANSACTION OF BANK GUARANTEE AND THEREFORE THE BELIEF OF THE ASSESSEE THAT IT IS NOT AN INTERNATIONAL TRANSACTION BY ITSELF IS A B ONAFIDE ONE. THE LD. A.R. OF THE ASSESSEE HAS INVITED OUR ATTENTION TO THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2008 - 09 WHEREIN THE AO/TPO HAS NOT MADE ANY ADDITION IN RESPECT OF THE BANK GUARANTEE BUT DISALLOWED THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE IN FURNISHING BANK GUARANTEE ON BEHALF OF THE AE UNDER SECTION 37 OF THE ACT. IT IS CLEAR THAT THE AO HIMSELF HAS NOT TREATED THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR FURNISHING BANK GUARANTEE ON BEHALF OF THE AE AS AN INTERNATIONAL T RANSACTION BUT IT WAS DISALLOWED UNDER SECTION 37. IN VIEW OF THE FACT THAT AO HAS NOT TREATED IT AS AN INDEPENDENT AND SEPARATE INTERNATIONAL TRANSACTION WH ILE PASSING THE ASSESSMENT ORDER FOR A.Y. 2008 - 09 THE ADDITION ITA NO.6685/M/2014 M/S. TECHNOCRAFT IND. (INDIA) LTD. 14 OF TRANSFER PRICING ADJUSTMENT ON T HIS ACCOUNT FOR THE YEAR UNDER CONSIDERATION DOES NOT ATTRACT THE PENALTY UNDER SECTION 271(1)(C). 1 9 . IN VIEW OF THE ABOVE DISCUSSION AS WELL AS FACTS AND CIRCUMSTANCES OF THE CASE WE DELETE THE PENALTY LEVIED UNDER SECTION 271(1)(C) IN RESPECT OF THE DISALLOWANCE OF DEDUCTION UNDER SECTION 10B AS WELL AS ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 20 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29. 04. 201 5 . SD/ - SD/ - ( G.S. PANNU ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 29 .04.2015 . * KISHORE SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT ( A) CONCERNED MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.