Asstt. CIT v. Pentasoft Technologies Ltd.

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The Tax Publishers2012 TaxPub(DT) 0967 (Chen-Trib) : (2012) 134 ITD 0567 : (2012) 145 TTJ 0099 : (2012) 068 DTR 0154 INCOME TAX ACT, 1961 --Penalty under section 271(1)(c)--ConcealmentDisallowance of claim made by assessee--The assessing officer levied penalty under section 271(1)(c) on the grounds that assessee made claim regarding depreciation on non-complete fee and foreign exchange expenses were not deducted from export turnover while claiming deduction under section 10A. The penalty levied on the assessee under section 271(1)(c) was deleted by CIT(A) holding that there was no wrong or incorrect claim for depreciation on non-compete fees and difference in the claim of deduction under section 10A arose out of exclusion of foreign exchange expenditure from total turnover as well as export turnover. Held: Making an incorrect claim under section 10A could not be said to be a concealment and depreciation on non-compete fee itself is in doubts, the penalty under section 271(1)(c) was, therefore, not leviable. Penalty levied here on the assessee was on two counts. One was for the reason that assessee's claim for deduction under section 10A was not correctly worked out since foreign exchange expenditure was not deducted by the assessee from export turnover. As per the assessing officer, it was required to be deducted only from export turnover and not from total turnover. The second issue on which penalty levied was for a claim of depreciation on non-compete fee which, as per the revenue, was not allowable. Insofar as the first issue was concerned, the Tribunal itself for the same assessment year, had vide its order dt. 24-3-2008 in ITA No. 2148/Mds/2007 held in favour of assessee and ruled that whatever was excluded from the export turnover was also required to be excluded from total turnover. Insofar as the second issue was concerned, the question is whether non-compete fee would fall within the definition of intangible assets given under section 32(1)(ii) and whether such a claim is totally untenable in law. No doubt, the Tribunal had held against the assessee by relying on the decision of co-ordinate Bench in the case of A.B. Mauria India (P.) Ltd. v. CIT (I.T. Appeal No.1293/Mds/2006 dated 23-11-2007). Nevertheless, the said decision of the Tribunal was in relation to an issue whether revision under section 263 was justified or not and not directly on the issue regarding depreciation on non-compete fee. The question whether non-compete fee is an intangible asset falling within section 32(1)(ii) is not without doubt. Merely because assessee had made a claim in this regard, it could not be considered equivalent to a concealment. Assessee also cannot be held guilty of furnishing inaccurate particulars. Making an incorrect claim in law would not tantamount to furnishing of inaccurate particulars. Just because assessee's claim of deduction under section 10A was not accepted by the Revenue, would not be sufficient to levy a penalty under section 271(1)(c). Therefore, CIT(A) was justified in deleting the penalty. No interference is called for. (Para 6) Income Tax Act, 1961 Section 271(1)(c) INCOME TAX ACT, 1961 --Penalty under section 271AA--LeviabilityNon-maintenance of records under rule 10D--A reference under section 92CA(1) was made by the assessing officer to the Transfer Pricing Officer (TPO) with reference to transactions reported by the assessee in Form No.3CEB. In the proceedings before the TPO, assessee had submitted the details called for by the TPO through a questionnaire issued on 19-8-2005. TPO came to a conclusion that assessee had not gathered and maintained sufficient information as envisaged under rule 10D of IT Rules, 1962 (in short, 'the Rules') for its claim that Cost Plus Method adopted by it for determining the Arm's Length Price was most appropriate one. As per the TPO, Transaction Net Margin Method (TNMM Method) was the ideal one. Nevertheless, he came to a conclusion that no adjustment was necessary on the value of international transactions entered by the assessee. However, he recommended the assessing officer to initiate penalty proceedings under section 271AA. The assessing officer, thereafter, levied penalty under section 271AA citing the same reasons as mentioned by the TPO. According to him, assessee was not able to show a reasonable cause for not keeping and maintaining such information and documents as required under sub-section (1) of section 92D in respect of international transactions entered by it. In its appeal before CIT(A), argument of the assessee was that there was no revision of the Arm's Length Price and there was no failure of maintaining records mentioned in rule 10D of the Rules. Submission of the assessee was that all the records as required under Rule 10D were available and produced by the assessee. CIT(A) was appreciative of these contentions. According to him, in the first place, there was no change in the ALP on account of reference made to TPO. In the second place, assessing officer had not reached any subjective satisfaction of his own but had merely followed the recommendation of TPO and thus, he deleted penalty. Held: Justified. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0967 (Chen-Trib) : (2012) 134 ITD 0567 : (2012) 145 TTJ 0099 : (2012) 068 DTR 0154

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c)--ConcealmentDisallowance of claim made by assessee--The assessing officer levied penalty under section 271(1)(c) on the grounds that assessee made claim regarding depreciation on non-complete fee and foreign exchange expenses were not deducted from export turnover while claiming deduction under section 10A. The penalty levied on the assessee under section 271(1)(c) was deleted by CIT(A) holding that there was no wrong or incorrect claim for depreciation on non-compete fees and difference in the claim of deduction under section 10A arose out of exclusion of foreign exchange expenditure from total turnover as well as export turnover. Held: Making an incorrect claim under section 10A could not be said to be a concealment and depreciation on non-compete fee itself is in doubts, the penalty under section 271(1)(c) was, therefore, not leviable.

Penalty levied here on the assessee was on two counts. One was for the reason that assessee's claim for deduction under section 10A was not correctly worked out since foreign exchange expenditure was not deducted by the assessee from export turnover. As per the assessing officer, it was required to be deducted only from export turnover and not from total turnover. The second issue on which penalty levied was for a claim of depreciation on non-compete fee which, as per the revenue, was not allowable. Insofar as the first issue was concerned, the Tribunal itself for the same assessment year, had vide its order dt. 24-3-2008 in ITA No. 2148/Mds/2007 held in favour of assessee and ruled that whatever was excluded from the export turnover was also required to be excluded from total turnover. Insofar as the second issue was concerned, the question is whether non-compete fee would fall within the definition of intangible assets given under section 32(1)(ii) and whether such a claim is totally untenable in law. No doubt, the Tribunal had held against the assessee by relying on the decision of co-ordinate Bench in the case of A.B. Mauria India (P.) Ltd. v. CIT (I.T. Appeal No.1293/Mds/2006 dated 23-11-2007). Nevertheless, the said decision of the Tribunal was in relation to an issue whether revision under section 263 was justified or not and not directly on the issue regarding depreciation on non-compete fee. The question whether non-compete fee is an intangible asset falling within section 32(1)(ii) is not without doubt. Merely because assessee had made a claim in this regard, it could not be considered equivalent to a concealment. Assessee also cannot be held guilty of furnishing inaccurate particulars. Making an incorrect claim in law would not tantamount to furnishing of inaccurate particulars. Just because assessee's claim of deduction under section 10A was not accepted by the Revenue, would not be sufficient to levy a penalty under section 271(1)(c). Therefore, CIT(A) was justified in deleting the penalty. No interference is called for. (Para 6)

Income Tax Act, 1961 Section 271(1)(c)

INCOME TAX ACT, 1961

--Penalty under section 271AA--LeviabilityNon-maintenance of records under rule 10D--A reference under section 92CA(1) was made by the assessing officer to the Transfer Pricing Officer (TPO) with reference to transactions reported by the assessee in Form No.3CEB. In the proceedings before the TPO, assessee had submitted the details called for by the TPO through a questionnaire issued on 19-8-2005. TPO came to a conclusion that assessee had not gathered and maintained sufficient information as envisaged under rule 10D of IT Rules, 1962 (in short, 'the Rules') for its claim that Cost Plus Method adopted by it for determining the Arm's Length Price was most appropriate one. As per the TPO, Transaction Net Margin Method (TNMM Method) was the ideal one. Nevertheless, he came to a conclusion that no adjustment was necessary on the value of international transactions entered by the assessee. However, he recommended the assessing officer to initiate penalty proceedings under section 271AA. The assessing officer, thereafter, levied penalty under section 271AA citing the same reasons as mentioned by the TPO. According to him, assessee was not able to show a reasonable cause for not keeping and maintaining such information and documents as required under sub-section (1) of section 92D in respect of international transactions entered by it. In its appeal before CIT(A), argument of the assessee was that there was no revision of the Arm's Length Price and there was no failure of maintaining records mentioned in rule 10D of the Rules. Submission of the assessee was that all the records as required under Rule 10D were available and produced by the assessee. CIT(A) was appreciative of these contentions. According to him, in the first place, there was no change in the ALP on account of reference made to TPO. In the second place, assessing officer had not reached any subjective satisfaction of his own but had merely followed the recommendation of TPO and thus, he deleted penalty. Held: Justified.