IN INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER IT(TP)A no.1049 & 1050/Mum./2017 (Assessment Year : 2009 10 & 2010 11) JBF Industries Ltd. Express Tower, 8th Floor . Appellant Nariman Point, Mumbai 400 021 PAN AAACJ2575J v/s Dy. Commissioner of Income Tax . Respondent Circle 4(2)(2), Mumbai Assessee by : Shri S.D. Jaithwar a/w Ms. Mamata Mathkar and Shri Pravin Prajapati Revenue by : Shri Anand Mohan Date of Hearing 13.08.2019 Date of Order 30.08.2019 ORDER PER SAKTIJIT DEY. J.M. Captioned appeals have been filed by assessee challenging two separate orders passed by learned Commissioner of Income Tax (Appeals) 56, Mumbai, confirming penalty imposed under section 271(1)(c) of Income Tax Act, 1961 (for short "the Act") for assessment years 2009 10 and 2010 11. 2 JBF Industries Ltd. 2. Brief facts are, assessee is Indian company. During previous year relevant to assessment year under consideration, assessee had entered into various international transactions with its Associate Enterprises (AE). Noticing aforesaid, Assessing Officer made reference to Transfer Pricing Officer for determining arm s length price of international transactions. After considering submissions of assessee and material on record, Transfer Pricing Officer passed orders under section 92CA(3) of Act proposing transfer pricing adjustment in both assessment years. In addition to transfer pricing adjustment proposed by Transfer Pricing Officer, Assessing Officer also made separate additions. additions made in different assessment years are as under: Sr. Addition in A.Y. Addition in Particulars no. 2009 10 A.Y. 2010 11 Corporate Guarantee Commission 1. ` 2,73,82,833 ` 1,46,35,607 for Subsidiary Interest on unallocated share 2. ` 2,45,47,852 ` 3,56,53,807 capital Interest on loan to subsidiary 3. ` 1,02,08,742 ` 17,96,950 company 4. FCCB loss ` 11,40,49,785 Purchase of PTA from subsidiary 5. ` 44,02,141 company Total Addition ` 17,61,89,212 ` 5,64,88,505 3 JBF Industries Ltd. 3. Against additions made in draft assessment orders, assessee raised objections before learned DRP and after Assessing Officer passed final assessment orders in pursuance to directions of learned DRP, assessee preferred appeals before Tribunal. During pendency of aforesaid appeals of assessee before Tribunal, Assessing Officer on basis of additions made in assessment orders initiated proceedings for imposition of penalty under section 271(1)(c) of Act and ultimately passed orders imposing penalty under section 271(1)(c) of Act for assessment years 2009 10 and 2010 11. Though, assessee challenged imposition of penalty under section 271(1)(c) of Act before learned Commissioner (Appeals), however, he sustained penalty imposed under section 271(1)(c) of Act. Against such imposition of penalty, assessee is in appeal before Tribunal. 4. learned Authorised Representative submitted, in meanwhile, Tribunal has disposed off quantum appeals of assessee by deleting most of additions made by Assessing Officer. learned Authorised Representative submitted, only in respect of transfer pricing adjustment relating to corporate guarantee commission and interest on loan to subsidiary, additions have been sustained by Tribunal. As regards transfer pricing adjustment made on account of corporate guarantee, learned Authorised 4 JBF Industries Ltd. Representative submitted, during year under consideration, there was no clarity on issue as to whether provision of corporate guarantee comes within definition of international transaction as per section 92B of Act. learned Authorised Representative submitted, by virtue of amendment made to section 92B of Act by Finance Act, 2012, with retrospective effect from 1st April 2002, all types of guarantee were brought within definition of international transaction, thus he submitted, when transactions were entered into between assessee and AE amendment could not have been foreseen. Therefore, as per prevailing judicial precedents, assessee had bona fide belief that provision of corporate guarantee would not come within definition of international transaction, hence, did not charge any guarantee commission to AE. Thus, he submitted, since non charging of guarantee commission is for bonafide reason, it will not lead to either furnishing of inaccurate particulars of income or concealment of income requiring imposition of penalty under section 271(1)(c) of Act. Insofar as addition on account of interest on loan to subsidiary, learned Authorised Representative submitted, though assessee initially did not offer any interest income on loan to subsidiary, however, subsequently, in course of assessment proceedings, assessee had offered to tax interest on loan to subsidiary. Therefore, there is no reason to impose penalty under section 271(1)(c) of Act. 5 JBF Industries Ltd. 5. learned Departmental Representative submitted, since assessee had offered guarantee fee @ 0.50% and 0.75% in assessment years 2008 09 and 2011 12 respectively, there is no reason why it did not at all offer it to tax in assessment year 2009 10 and offered it at reduced rate of 0.25% in assessment year 2010 11. He submitted, aforesaid conduct of assessee clearly demonstrates that it considered provision of corporate guarantee to AE as international transaction. Therefore, by not offering corporate guarantee commission to tax in assessment year 2009 10 and offering it at reduced rate in assessment year 2010 11, assessee has furnished inaccurate particulars of income leading to concealment of income. As regards interest on loan to subsidiary, learned Departmental Representative submitted, assessee initially did not offer it to tax and only in course of assessment proceedings offered interest income to tax at LIBOR +2%. Therefore, there is furnishing of inaccurate particulars of income. 6. We have considered rival submissions and perused material on record. It is fact on record that major part of additions made on account of transfer price adjustment or even otherwise has been deleted by Tribunal while deciding assessee s quantum appeals for impugned assessment years in ITA no.838/Mum./2014 and ITA 6 JBF Industries Ltd. no.431/Mum./2015, dated 19th June 2019. only additions made by Assessing Officer which were partly sustained by Tribunal are on account of corporate guarantee commission and interest on loan to subsidiary. Insofar as addition made on account of corporate guarantee commission is concerned, it is evident, from stage of transfer pricing proceedings till hearing of appeals before Tribunal, assessee had consistently taken stand that provision of corporate guarantee to AEs does not come within purview of international transaction as defined under section 92B of Act. It is claim of assessee that only after amendment of section 92B of Act by Finance Act, 20012 with retrospective effect from 1 st April 2002, provision of corporate guarantee is treated as international transaction under section 92B of Act. Therefore, non offering of corporate guarantee fee as income is due to bonafide reason. We find merit in aforesaid submission of assessee. Though, it may be fact that assessee had offered corporate guarantee fee charged at different rates in assessment years 2008 09, 2010 11 and 2011 12, however, fact remains, in certain judicial precedents it was held that provision of corporate guarantee is not international transaction under section 92B of Act. Therefore, at relevant point of time, there was lack of clarity on issue which might have led assessee to entertain bonafide belief that corporate guarantee provided to AE does not require charging guarantee commission. 7 JBF Industries Ltd. Therefore, assessee can be given benefit of doubt in this regard. Undisputedly, by virtue of amendment made to section 92B of Act by Finance Act, 2012, all types of financial guarantees were brought within purview of 92B of Act with retrospective effect. Keeping in view change in legal position due to statutory amendment, assessee had made alternative submissions in quantum proceedings offering guarantee commission @ 0.5% which has been accepted by Tribunal. However, at time of providing corporate guarantee, assessee could not have visualized such amendment to statute. It is also relevant to observe, though, Assessing Officer had charged guarantee fee @ 2.25% per annum, however, Tribunal accepting assessee s claim reduced it to 0.5%. Thus, keeping in view overall facts and circumstances of case, we are of opinion that neither there is furnishing of inaccurate particulars of income or concealment of income to levy penalty under section 271(1)(c) of Act. 7. Insofar as levy of penalty due to addition on interest on loan to subsidiary, undisputedly, assessee in course of proceedings before Assessing Officer and Transfer Pricing Officer has voluntarily offered interest income charged @ LIBOOR +2%. However, Transfer Pricing Officer did not accept claim of assessee and charged interest @ 10.5%. While deciding quantum appeals of 8 JBF Industries Ltd. assessee, Tribunal directed Transfer Pricing Officer to compute interest @ LIBOR +2%. Thus, assessee s claim was accepted. From aforesaid facts, it is very much clear that assessee has neither furnished inaccurate particulars of income nor has concealed particulars of income. That being case, there is no basis for imposition of penalty under section 271(1)(c) of Act in respect of addition relating to interest on loan to subsidiary company. In fact, there is no addition as assessee itself has offered interest income on loan to subsidiary charged @ LIBOR +2% which has been accepted by Tribunal. In view of aforesaid, we delete penalty imposed under section 271(1)(c) of Act in respect of additions made on account of corporate guarantee commission and interest on loan to subsidiary. As regards other additions, since, they have been deleted by Tribunal while deciding quantum appeals of assessee, as referred to above, penalty imposed under section 271(1)(c) of Act in respect of such additions would not survive. Accordingly, penalty imposed under section 271(1)(c) of Act in both assessment years is deleted. Grounds raised are allowed. 8. In result, both appeals are allowed. Order pronounced in open Court on 30.08.2019 Sd/- Sd/- N.K. PRADHAN SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30.08.2019 9 JBF Industries Ltd. Copy of order forwarded to: (1) Assessee; (2) Revenue; (3) CIT(A); (4) CIT, Mumbai City concerned; (5) DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai JBF Industries Ltd. v. Dy. Commissioner of Income-tax, Circle4(2)(2), Mumbai