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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA&
आदेश / O R D E R
PER PRADIP KUMAR KEDIA, AM: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax(Appeals)-1, Vadodara [CIT(A) in short] dated 22/12/2014 in the matter of assessment order under s.143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 02/02/2011 relevant to Assessment Year (AY) 2007-08.
The grounds of appeal raised by the Assessee read as under:- 1. Based on the facts and the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeals)-I,
ITA No.916/Ahd/2017 Gujbrandsen Chemicals vs. DCIT Asst.Year - 2007-08 - 2 - Baroda has erred in upholding the penalty order passed by the Ld.DCIT, Circle 1(1), Baroda (Ld.AO) levying penalty of Rs.1,01,50,000 on the appellant under Section 271(1)(c) of the Income Tax Act, 1961. 2. Based on the facts and the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeals) has erred in upholding the order of the Ld.AO that the appellant has furnished inaccurate documentation and failed to provde a bonafide explanation in respect of addition of Rs.2,78,02,502/- representing the adjustment made on Transfer Pricing as made to the returned income.
Based on the facts and the circumstances of the case and in law, the Hon’ble Commissioner of income Tax (Appeals) has erred in upholding the order of the Ld.AO that the appellant has furnished inaccurate particulars and failed to provide a bonafide explanation with respect to disallowance of Rs.23,14,803/- representing the addition made on account of revenue expenditure treated as Capital Expenditure which is added to the returned income.”
When the matter was called for hearing, the Ld.AR for the assessee pointed out that penalty of Rs.1,01,50,000/- was imposed on two counts; (i) addition of Rs.2,78,02,502/- representing the adjustment made on transfer pricing and (ii) disallowance of Rs.23,14,803/- representing additions made on account of Revenue expenditure treated as capital expenditure.
In the context, Ld.AR pointed out that both the additions have been deleted by Coordinate Bench of Tribunal in the quantum proceedings vide para Nos.20 and 33 respectively in ITA No.874/Ahd/2012 and Ors. order dated 12/02/2019 which read as under:
ITA No.916/Ahd/2017 Gujbrandsen Chemicals vs. DCIT Asst.Year - 2007-08 - 3 - “20. We have noted that the assessee has applied TNMM by comparing the profits on transactions with AEs and the non AEs and no specific defects have been pointed out in the allocation of costs in the segmental accounts which are duly reconciled with entity level consolidated accounts. We have also noted that dealing with the Internal TNMM adopted by the assessee the TPO had expressed the view that the basis of allocating the overheads was not clear, in response to which it was explained by the assessee that revenue and expenses have been allocated on actual basis wherever these are directly allocable, and wherever these are not directly allocable, the allocation has been done on the basis of appropriate allocation key such as ration of sales quantity, sales revenue, total revenue. It was also explained that the segmental details have been reconciled with entity level audited accounts. The assessee had further submitted that "in case if in your view there are any inappropriate cost allocations, we would appreciate if you can kindly let us know which cost allocations are not appropriate and why these are not appropriate so that we can accordingly clarify and explain on those aspects". We have noted that the TPO did not have any specific comment on this request and he simply rejected the explanation of assessee as "not accepted". In appeal also, no specific adjustments were suggested to the allocations made in the segmental accounts and the discussions were confined to generalities. In these circumstances, we see no reasons to disturb the internal TNMM adopted by the assessee. We, therefore, delete the impugned ALP adjustment of Rs.2,78,02,502.”
……. ……. “33. Having heard the rival contentions and having perused the material on record, we are inclined to uphold this plea of the assessee as well. As evidence from a plain look at the nature of expenditure, overwhelming part of the expenses is clearly in the nature of replacement and repairs and the mere fact that its benefit will be beyond one year cannot be reason enough to decline the treatment as revenue expenditure. This threshold of benefit being beyond one year for an expense to be treated as capital expenditure is alien to the tax jurisprudence. Enduring benefit is a test often resorted to but enduring benefit does not mean benefit beyond one year and it is not of unqualified application such as in replacement repairs. Glass line replacement cannot be an acquisition of independent asset or anything
ITA No.916/Ahd/2017 Gujbrandsen Chemicals vs. DCIT Asst.Year - 2007-08 - 4 - other than replacement repairs. Similarly, battery and valve cannot be treated as standalone assets and are in the nature of replacements. The remaining expenses are small expenses and integral to the R&D facilities maintenance. In any case, the authorities below have not . assigned any specific reasons, beyond the vague generalities, for treating these expenses as capital expenditure. In view of these discussions and bearing in mind entirety of the case, we uphold this plea of the assessee as well. The Assessing Officer is, accordingly, directed to, delete the disallowance of Rs. 23,14,803 on account of repairs and replacement.”
The Ld.DR did not controvert the aforesaid assertions on behalf of the assessee.
In view of the fact that where the quantum additions / disallowances / adjustments itself have been dislodged, the very edifice for imposition penalty under s.271(1)(c) ceases to exist and does not survive any more. The consequential penalty imposed under s.271(1)(c) thus stands vacated.
In the result, appeal of the assessee is allowed. This Order pronounced in Open Court on 14/05/2019
Sd/- Sd/- (Ms. MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 14 /05/2019
ITA No.916/Ahd/2017 Gujbrandsen Chemicals vs. DCIT Asst.Year - 2007-08
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation (dictation pad pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….14.5.19 7. Date on which the file goes to the Bench Clerk…………………14.5.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………