Income Tax Appellate Tribunal - Mumbai
Merck Ltd, Mumbai vs Assessee on 2 April, 2014
आयकर अपीलीय अिधकरण, आई"
आई खंडपीठ मुंबई
अिधकरण "आई
INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'I' BENCH.
सव[ौी आय.पी.बंसल, Ûयाियक सदःय एवं राजेÛि, लेखा सदःय
Before S/Sh.I.P.Bansal, Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.2945/Mum/2009,िनधा[ िनधा[रण वष[/Assessment Year-2003-04 Merck Limited, DCIT 6(3)(2) Lloyds Centre Point, Unit No.21 Vs Mittal Court, Nariman Point, & 22, 2nd Floor, "A", Appasaheb Mumbai.
Marathe Marg, Prabhadevi
Mumbai-400025
PAN: AAACE2616F
(अपीलाथȸ/ Appellant) (ू×यथȸ / Respondent)
िनधा[ǐरती ओर से / Assessee by : Aarti Vissanji
राजःव कȧ ओर से/ Revenue by : Shri O.P.Singh
सुनवाई कȧ तारȣख/ Date of Hearing : 02-04-2014
घोषणा कȧ तारȣख / Date of Pronouncement : 07-05-2014
आयकर अिधिनयम,
अिधिनयम 1961 कȧ धारा ( 1 ) 254 के अ Ûतग[ त आ दे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Rajendra,AM ले खा सदःय राजे Ûि के अनु सार: ार
Challenging the order dt. 27.02.2009 of the CIT(A)-VI,Mumbai, assessee had raised following Grounds of Appeal:
The Learned Commissioner of Income Tax (Appeals) in the facts and circumstances of the case of the appellant and in law erred in-
(a).upholding the impugned penalty order passed U/s.27l(1)(c) of the Act in a "summary manner"
and without giving proper and sufficient opportunity to the appellant to appear before him and make submissions to him;
(b)upholding the order passed by the assessing officer U/s.271(l)(c) of the Act, levying penalty thereunder, despite the fact that the "proceedings" as contemplated U/s.271(1)(c) of the Act had not been completed.
(c)upholding the order passed by the assessing officer U/s.271(1)(c) of the Act in respect of various matters, though however, he had not recorded the "satisfaction" of concealment of income or furnishing of inaccurate particulars of income as contemplated U/s.27l(l)(c) of the Act.
(d)confirming the penalty order though however, the appellant had not concealed the particulars of income nor had it furnished any inaccurate particulars of income as contemplated under the said provisions of the Act
(e)confirming the penalty, though however, the explanation/s offered by the appellant were not found to be false or explanations offered by the appellant were substantiated and proved to be bonafide and the facts relating to the same and materials to the computation of total income were disclosed by the appellant.
(f)confirming levy of penalty for alleged concealment of particulars of income in respect of the disallowances and ad-hoc basis and/or on the basis of of matters where two
(g)Confirming the penalty on account of "transfer pricing adjustments" though the appellant had furnished all the particulars in respect of the international transactions with the associated enterprises and such particulars furnished were not inaccurate and further, the prices charged or paid in respect of such transactions were computed in accordance with the provisions contained in Section 92C of the Act and in the manner prescribed in that Section in good faith and with due diligence.
(h)Confirming the penalty in respect of the following items:
Distribution of Physicians' Rs.5,32,69,000/ -samples 2 ITA No. 2945/Mum/2009 Merck Ltd. "Transfer Pricing
(i)Confirming the impugned penalty order passed by the assessing officer U/s.271(1)(c) of the Act by merely rejecting the explanations offered by the appellant in respect of the matters as referred to hereinabove.
2.The Learned Commissioner of Income Tax (Appeals) in the facts and circumstances of the case of the appellant and in law ought to have-
(a)Not confirmed the impugned penalty order U/s.271(1)(c) of the Act in the facts and circumstances of the case of the appellant for the reasons and submissions made to him and giving proper and sufficient opportunity to the Deduction reduced U/s.80-IB of the Act.Rs.6,83,00l (DEPB Receipts) submissions to
(b)Not confirmed the penalty order as the "proceedings" under the Act had not been completed in view of the pendency of the appeal before the Hon. Income Tax Appellate Tribunal;
(c)Not confirmed the penalty order, as there were no "satisfaction" recorded in the order that the appellant had concealed the particulars of income or had submitted inaccurate particulars of income as contemplated therein;
(d)accepted the explanations offered by the appellant as regards the items disallowed / added by the learned AO as true and correct and given bonafide and held that the facts relating to the same and material to the computation of total income were disclosed by the appellant.
(e)Not confirmed the penalty order in respect (1f various matters as the appellant had not concealed any particulars of income nor had submitted any inaccurate particulars of income as contemplated under the said provisions of the Act.
(f)Not confirmed levy of penalty in respect of the disallowances / additions made on ad-hoc basis and/or on the basis of assumptions, surmises and in respect of the matters where two views were possible and the appellant had adopted one of them;
(g)Accepted the explanations offered by the appellant as regards the items disallowed/added by the Learned assessing officer as true and correct and given bonafide and held that the facts relating to the same are material to the computation of total income were disclosed by the appellant.
(h)not confirmed the penalty U/s.271(l)(c) of the Act in respect of the following items:
(a)Distribution of Physician's Rs. 5,32,69,000/ -samples
(b)"Transfer Pricing Adjustments" Rs 4,43,69,9l1/-
(c)Reduction reduced U/s.80-IB of Rs.6,83,00l the Act-DEPB Receipts
(d)Reduction U/s.80-HHC of the Rs.19,64,050/-Act
(i)Not levied penalty on account of "transfer pricing adjustments", as the appellant had not concealed any particulars of income or had not furnished any inaccurate particulars of income and the appellant had charged /paid prices in respect of international transactions with the "associated enterprises" in accordance with the provisions contained in Section 92C of the Act and in the manner prescribed there under in good faith and with due diligence.
3.The above grounds of appeal are distinct and separate and without prejudice to each other.
4.The Appellant craves leave to add, alter, amend or withdraw all or any of the grounds of appeal herein and to submit such statements, documents and papers as may be considered necessary at any time before or at the time of hearing the appeal."
2.Assessee-company,engaged in the business of manufacturing, trading and marketing of Drugs, Chemicals filed its return of income on 30/10/2003 declaring total income at Rs.49.77 lakhs. Assessing officer(AO)finalised the assessment order u/s.143(3) of the Act,on 27.03.2006, determining the total income at Rs.63,11,28,420/- after making various additions.Penalty proceedings u/s.were also initiated with regard to some of the additions.A notice u/s.274 r.w.s.271(1)(c) of the Act of the Act was issued to the assessee.
Meanwhile,assessee-company filed an appeal before the First Appellate Authority(FAA),who vide his order,dated 22.09.2006,upheld the action of the AO.Penalty proceedings pertained to disallowance u/s.40(a)(i) of the Act(Rs. 57.47lakhs)additions on account of discrepancy for closi
-ng stock i.e. Distribution of Physician's samples (Rs.5,32,69,000/-)Transfer Pricing Adjustment 3 ITA No. 2945/Mum/2009 Merck Ltd. (TPA) (Rs.4,43,69,911/-),disallowance u/s.43(B)-(Rs.99.55lakhs),deduction u/s.80IB(reduced by 6.83 lakhs)and 80HHC (reduced by Rs.19.64 lakhs)of the Act.In response to the notice issued by the AO,assessee filed its explanation along with the case laws relied upon by it.After considering the submissions of the assessee,AO levied a penalty of Rs. 3,68,55,091/-on account of additions made for discrepancy in closing stock,TPA and deductions u/s.80IB and deduction u/s.80HHC
2.Assesee preferred an appeal before the FAA.It was submitted before him that AO had not recorded his satisfaction for levying penalty,that there was no concealment of particulars of income of furnishing of inaccurate particulars,that there was difference of opinion between the assessee and the AO,that the assessee had submitted all the documents, records and evidences for proving the genuineness and bonafide of the expenditure incurred by it,that goods were imported at Arm's Length Price,that it had made claim u/s.80IB and 80HHC of the Act on the basis of certificate issued by a CA.,that DEPB was also claimed as per the certificate issued by the CA. After considering the submissions of the assessee and the penalty order,FAA held that while making the addition in the assessment order,the AO had recorded that penalty proceedings u/s. 271(c)were being initiated separately,that the AO had taken into consideration all additions and disallowances made in the assessment order but had levied penalty only in those cases where it had not filed any explanation,that it had not given proof of sample distribution to the Doctors, that AO was justified in making the addition, that AO had made further addition on the basis of findings of the TPO,that the order of the AO was confirmed by the then FAA on merits,that FAA had confirmed the disallowance u/s.80IB and 80HHC of the Act,that it had claimed deduction under above referred sections incorrectly,that it had not derived income from industrial under - taking,that only export income was required to be deducted u/s.80HHC,that it had claimed other income as exempt,that AO had rightly arrived at the conclusion that the assessee had furnished inaccurate particulars of income.Finally,he confirmed the order of the AO.
3.Before us,Authorised Representative (AR) of the assessee submitted that details of issue of free samples distribution to Doctors has been restored back to the file of the AO by the 'K' bench of ITAT,Mumbai vide its order dated 19.07.2013 (ITA No. 925/Mum/2007-AY 2003-04), that out of the three adjustments suggested by the TPO and made by the AO two had been deleted by the Tribunal,that one of the issues was restored back to the file of the FAA by the Tribunal.With regard to DEPB benefit of Rs.6.83 lakhs,AR submitted that Tribunal had confirmed the addition, that penalty could not be levied for the amount in question,that the claim made by the assessee was bonafide,that at the time of filing of return by the assessee there were two views possible about the benefit.In her support,she relied upon the judgments of Arvind Footwear Pvt. Ltd.(72 DTR294-Allahabad),Reliance Petroproducts (P) Ltd.(322ITR158-SC),KHS Machinery Pvt. Ltd. 34CCH 198)and Bipra Investment & Trusts (P)Ltd.(3SOT897).With regard to deduction u/s.80 HHC of the Act,it was argued that Tribunal had partly allowed the said ground in favour of the assessee-company,that disallowance was restricted to Rs. 2.81 lakhs only, that penalty was not leviable about the said amount,that 90% of the net amount of interest and deposit was upheld by the Tribunal,that interest of delayed payment, insurance claim and income from instruction service contract,reversal of revaluation loss assets were deleted by the Tribunal in its order discussed earlier,that issue of miscellaneous income was allowed by the Tribunal for the statistical purposes,that 90% of the net amount under the head export incentives and intending commission receipt were upheld by the Tribunal,that out of 100% deduction items interest on FDC Bank was upheld up to the 90% of net amount whereas interest on income-tax refund was upheld in full.In support of her arguments, AR relied upon the orders of Flora Exports(40 DTR 70),Sarf Seasing Udhyog(174 Taxman594),Shah Originals(112TTJ754),India Galatine & Chemi - calsLtd.(275ITR284),Rachna Udhyog(35DTR 65),Baldev Wooleen International (131 TTJ
338).DR submitted that DEPB issue was not debatable,that additions were made by the AO after recording satisfaction for levying penalty.
4 ITA No. 2945/Mum/2009 Merck Ltd.4.We have heard the rival submissions and perused the material before us.We find that the issue of distribution of free samples to the doctors(discrepancy in closing stock)has been restored back to the file of the AO by the Tribunal vide its order19.07.2013(supra),so,penalty levied by the AO in this regard cannot survive.We delete the penalty confirmed by the FAA on account of difference in closing stock.AO will be free to levy or not to levy penalty about the said item after passing fresh order.
Out of the three TP Adjustments,Tribunal has deleted two adjustments and has restored back one issue.In these circumstances,penalty had to be cancelled for all the three adjustments.After taking a decision about the third adjustment,question of levying of penalty can be decided.
We find that Tribunal has confirmed the disallowance made on account of DEPB benefit,relying upon the decision of the Hon'ble Supreme Court delivered in the matter of Liberty India(317 ITR
218),that the assessee had filed its return of income on 30.10.2003,that Hon'ble Apex Court had pronounced the judgment on 31.08.2009,that at the time of filing of return of income divergent views were prevalent with regard to the DEPB benefit with regard to its inclusion in the calculating 80IB deduction,issue was finally settled by the order of the Hon'ble Apex Court. In these circumstances,we are of the opinion that levy of penalty on a debatable issue is not justified.So, we delete the penalty levied for not reducing DEPB benefit while calculating 80IB deduction,in light of the peculiar facts of the case under appeal.
Now,we would discuss the issue of penalty levied u/s.271(1)(c)of the Act for not reducing the income,amounting to Rs.19,64,050/- while calculating the deduction u/s.80HHC of the Act.We find that there are seven items pertaining to 90% reduction and three items of 100% reduction, that the Tribunal had deleted additions pertaining to interest on delayed payment,insurance claim,income from instrument service contract,80IB deduction reduced from 80HHC profits, whereas GOA with regard to Miscellaneous income was allowed for statistical purposes by the Tribunal.As the above referred additions had been deleted by the Tribunal vide its order dated (supra),so we are of the opinion that penalty cannot be levied for such items.
It leaves us,with the five items(interest on deposit and others,export incentives,indenting commi - ssion received,interest on FDRs with bank,interest on income tax refund)that were upheld by the ITAT,while deciding the quantum appeal.We find that at the time of filing of return of income there were not unanimity about four items out of the five items.
But,there was and there is no confusion about income tax refund-it cannot be part of any incentive scheme.Not considering the same for disallowance while computing the profit eligible for special deduction/incentive scheme cannot be treated a bonafide belief or a reasonable explanation.Therefore,considering the peculiar facts and circumstances of the case,we uphold the levy of penalty u/s.271(1)(c)of the Act for the said amount.Penalty levied for other four items is deleted.
Effective ground of appeal is allowed in favour of the assessee,in part.
As a result,appeal filed by the assessee stands partly allowed.
फलतः िनधा[ǐरती कȧ अपील आंिशक Ǿप से मंजूर कȧ जाती है .
Order pronounced in the open court on 7th May,2014.
आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांक 7 मई,2014 को कȧ गई ।
5 ITA No. 2945/Mum/2009 Merck Ltd. Sd/- Sd/-
(आय.पी.बंसल /I.P. Bansal) राजेÛि/Rajendra)
(राजे ि
Ûयाियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
मुंबई/Mumbai,Ǒदनांक/Date: 07.05.2014.
SK
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. Assessee /अपीलाथȸ 2. Respondent /ू×यथȸ
3. The concerned CIT(A)/संबƨ अपीलीय आयकर आयुƠ,4.The concerned CIT /संबƨ आयकर आयुƠ
5. DR "I" Bench, ITAT, Mumbai /ǒवभागीय ूितिनिध आई खंडपीठ,आ.अ.Ûयाया.मुब ं ई
6. Guard File/गाड[ फाईल स×याǒपत ूित //True Copy// आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai