C G INTERNATIONAL LTD, NAVI MUMBAI V. ACIT 10(3), MUMBAI

CO 162/MUM/2014

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0058 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-11-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N PADMANABH
• Assessee Lawyers: SHRI
• Keywords: Transfer pricing; International transaction; Validity of assessment
• Section: 92C; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K B ENCH, MUMBAI . . , . , ! BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.3633/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2006-07 THE ACIT 10(3), 451, AAYKAR BHAVAN, 4 TH FLOOR, MK ROAD, MUMBAI 400 020 ' ' ' ' / VS. M/S. C.G.INTERNATIONAL PVT. LTD., 182-4, TTC INDUSTRIAL AREA, MIIDC, VILLAGE SHIRVANE, NAVI MUMBAI -76. $ ./ % ./ PAN/GIR NO. : AAACC 4505B ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) C.O NO.162/MUM/2011(ARISING OUT OF ITA NO.3633/MUM/ 2011) ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2006-07 M/S. C.G.INTERNATIONAL PVT. LTD., 182-4, TTC INDUSTRIAL AREA, MIIDC, VILLAGE SHIRVANE, NAVI MUMBAI -76. ' ' ' ' / VS. THE ACIT 10(3), 451, AAYKAR BHAVAN, 4 TH FLOOR, MK ROAD, MUMBAI 400 020 $ ./ % ./ PAN/GIR NO. : AAACC 4505B CROSS OBJECTOR .. APPELLANT IN APPEAL REVENUE BY: SHRI N. PADMANABH ASSESSEE BY : SHRI PANKAJ TOPRANI ' ) *+ / DATE OF HEARING : 19/11/2014 ,-# ) *+ / DATE OF PRONOUNCEMENT : 20/11/2014 . / O R D E R PER I.P.BANSAL,J.M: THE APPEAL IS FILED BY THE REVENUE AND CROSS OBJEC TION BY THE ASSESSEE. BOTH ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT(A )-15, MUMBAI DATED 25/02/2011 FOR ASSESSMENT YEAR 2006-07. GROUNDS OF APPEAL AS WELL AS CROSS OBJECTION READ AS UNDER: I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 2 GROUNDS OF APPEAL IN ITA NO.3633/M/2011: 1(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961 WITHOUT, INTER ALIA, APPRECIATING THAT AS PER THE E XPLANATION 7 TO SECTION 271(1), WHERE ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTIN G THE TOTAL INCOME U/S.92C(4), THEN, THE AMOUNT SO ADDED OR DISALLOWED SHALL, FOR THE PURPOSES OF SECTION 271(1)(C) BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAD NOT PROV ED TO THE SATISFACTION OF THE ASSESSING OFFICER THAT THE PRICE CHARGED OR PAID FO R THE INTERNATIONAL TRANSACTION WAS COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONT AINED IN SECTION 92C AND IN THE MANNER PRESCRIBED UNDER THAT SECTION IN GOOD FA ITH AND WITH DUE DILIGENCE AS NO APPEAL HAS BEEN PREFERRED AGAINST THE ADJUSTMENTS M ADE BY THE TRANSFER PRICING OFFICER. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR A T THE TIME OF HEARING OF APPEAL. 3. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCE OF THE CASE. GROUNDS OF CROSS OBJECTION NO.162/MUM/2011: 1. THE LD. CIT(A) ERRED IN NOT DECIDING THE ADDITI ONAL GROUND FILED BY THE ASSESSEE STATING THAT THE ASSESSMENT ORDER PASSED U/S. 143( 3) IS BEYOND THE STATUTORY TIME LIMIT PRESCRIBED UNDER SECOND PROVISO TO SEC. 153(1 ) AND HENCE PENALTY ORDER U/S. 271(1) (C) CANNOT BE PASSED EVEN THOUGH HE ADMITTED THE ADDITIONAL GROUND AS IT INVOLVED THE LEGAL ISSUE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANU FACTURING AND EXPORT OF JEWELLERY STUDDED WITH DIAMONDS AND PRECIOUS STONE IN GOLD, SILVER AND PLATINUM. DURING THE COURSE OF ITS BUSINESS, FROM YEAR TO YEA R THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AES AND IS ALSO BEING ASSESSED ON THOSE TRANSACTIONS AS PER THE ORDER PASSED BY THE TPO. T HE ASSESSEE IN ITS PAPER BOOKS HAS ATTACHED ORDERS PASSED BY TPO IN RESPECT OF ASSESSMENT YEARS 2002- 03 TO 2006-07, WHICH WAS FOLLOWED BY THE ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(THE ACT) . COPY OF WHICH IS ALSO ENCLOSED IN THE PAPER BOOK. SEVERAL INTERNATIONAL TRANSACTIONS WITH THE AE, INTER ALIA INCLUDE PAYMENT OF COMMISSION BY THE ASSESSEE TO ONE INDIVIDUAL NAMELY MR. MANFRED GILOY ( EXCEPT FOR A.Y 2005-06 IN WHICH ASS ESSEE DID NOT MAKE SALE TO THE CONCERN ON WHICH COMMISSION WAS BEING PAID TO M R. MANFRED GILOY). THE I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 3 BASIS OF COMMISSION BEING PAID WAS THE SALES MADE B Y THE ASSESSEE TO M/S. GEMEX TRADING COMPANY, WHICH WERE STATED TO BE PAID IN PURSUANCE TO AGREEMENT ENTERED ON 25/3/1998, THE PAYMENT OF WHIC H WAS SUPPORTED BY THE PERMISSION OF RESERVE BANK OF INDIA VIDE LETTER DAT ED 12/5/1998. THE DETAILS OF COMMISSION PAID BY THE ASSESSEE TO THE SAID MR. MAN FRED GILOY IS INCORPORATED IN THE CHART GIVEN BY THE ASSESSEE IN THE PAPER BOO K AT PAGE 39 AND WHICH READ AS UNDER: S.NO. FINANCIAL YEAR % OF COMM ISSION ON SALES. % OF T.O.C OMMI . & ADVER T.CON TR. ON SALES . EXPORT SALES TO GEMEX/MGB METRO GROUP TO COMM & ADVERTISING CON PAID TO GEMEX/MGB METRO GROUP COMMISSION PAID TO MR. MANFRED GILOY 2323708.00 1. 1998-99 LESS: EXCESS PROVISION REVERSED IN 2000-01 NET PAID 10% 2% 30562627.00 663153.00 371679.00 291474.00 2323708.00 2615182.00 1415924.00 52384.00 6280172.00 2. 1999-2000 LESS:EXCESS PROVISION REVERSED ON 31/03/01 NET PAID 10% 2% 65456869.00 1363540.00 6280172.00 7643712.00 69610.00 29607.00 260802.00 3. 2000-01 PREVIOUS YEARS COMM. EXCH.DIFF TOTAL 10% 2% 3480517.00 99217.00 260802.00 360019.00 4. 2001-02 10% 2% 12975018.00 270254.00 1300500.00 1570754.00 5. 2002-03 10% 2% 10033156.00 212002.00 964897.00 1176899.00 6. 2003-04 10% 2% 18339559.00 379145.00 1721317.00 2100462.00 689470.00 3159098.00 32628.00 3848568.00 32628.00 689470.00 3191726.00 3881196.00 7. 2005-06 PREVIOUS YEARS COMM.. EXCH.DIFF. TOTAL FOR THE YEAR TOTAL 10% 2% 31476624.00 172324370.00 3034848.00 16043122.0 0 19077970.00 I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 4 2.1 FOR ALL THE EARLIER YEARS THE COMMISSION PAID BY THE ASSESSEE TO MR. MANFRED GILOY WAS CONSIDERED TO BE AT ARMS LENGTH BY THE TPO AS NO ADJUSTMENT HAS BEEN SUGGESTED WITH REGARD TO THE PAYMENTS MADE BY THE ASSESSEE AS COMMISSION. IT IS ONLY IN THE YEAR UNDER CONSIDERA TION THE PAYMENT OF COMMISSION IS NOT CONSIDERED AT ARMS LENGTH AND AN ADDITION OF RS. 38,81,196/- IS SUGGESTED BY THE TPO AND THE SAME IS MADE BY TH E AO BY REJECTING THE CONTENTION OF THE ASSESSEE THAT THE SAID PAYMENT HA S BEEN MADE ON THE BASIS OF THE AGREEMENT ENTERED INTO ON 25/3/1998 AND IS BEIN G MADE FROM YEAR TO YEAR IRRESPECTIVE OF THE FACT THAT WHETHER THE ASSESSEE MAKES PROFIT OR LOSS. IT WAS ALSO SUBMITTED THAT DURATION OF AGREEMENT IS AT WIL L AND WILL BE TERMINATED WITH MUTUAL CONSENT OF BOTH THE PARTIES. THE ASSESSEE A LSO SUBMITTED A COPY OF LETTER WRITTEN BY MR. MANFRED GILOY TO THE ASSESSEE BUT TH E SAID LETTER WAS ALSO REJECTED ON THE GROUND THAT IT IS UNDATED AND OTHER PARTY HA S NOT CONFIRMED REGARDING THE VALIDITY OF AGREEMENT FOR ASSESSMENT YEAR 2006-07. THE ASSESSEE DID NOT ADDUCE ANY EVIDENCE ABOUT THE SERVICES RENDERED BY MR. MAN FRED GILOY FOR ENTITLE HIM FOR RECEIPT OF COMMISSION. IT IS IN THESE CIRCUMSTANCE S THE IMPUGNED ADDITION WAS MADE. THE AO FRAMED THE DRAFT ORDER WHICH WAS SERV ED ON THE ASSESSEE. THE ASSESSEE DID NOT CHALLENGE THE DRAFT ORDER AND STAT ED BEFORE THE AO THAT ASSESSEE DID NOT FILE OBJECTION AND HAS ACCEPTED THE DRAFT A SSESSMENT ORDER. THUS, THE ADDITION WAS MADE WHICH WAS NOT AGITATED IN FURTHER APPEAL. 2.2 ON THE ABOVE ADDITION IMPUGNED PENALTY HAS BEEN LEVIED. APART FROM SUPPORTING THE SUBMISSION MADE BY THE ASSESSEE BEFO RE AO AND TPO THE ASSESSEE SUBMITTED THAT ASSESSEE DID NOT FILE OBJEC TION BEFORE DRP ON THE GROUND THAT COMPANY WAS NOT DOING WELL AND INCURRING LOSSE S. IT WAS DECIDED TO SUSPEND THE BUSINESS ACTIVITIES IN VIEW OF LOSSES A ND THERE WAS NO TAX LIABILITY AND COMMISSION WAS GENUINELY PAID TO MR. MANFRED GI LOY. IT WAS SUBMITTED THAT ASSESSEE NEITHER CONCEALED PARTICULARS OF INCOME NO R FILED INACCURATE PARTICULARS AS ALL THE DETAILS OF COMMISSION PAYMENT WERE FILED WITH THE RETURN AND DISCLOSED IN THE ANNUAL ACCOUNTS, REQUISITE AUDIT REPORTS AND SUBMISSIONS WERE MADE BEFORE TPO. MERE NON-CONTESTING OF THE ADDITION CA NNOT BE TAKEN AS ACCEPTANCE I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 5 OF THE ADDITION BY THE ASSESSEE OF CONCEALMENT. R ELIANCE WAS ALSO PLACED ON SEVERAL DECISIONS TO CONTEND THAT MERE REJECTION O F THE CLAIM OF THE ASSESSEE CANNOT LEAD TO IMPOSITION OF CONCEALMENT PENALTY. HOWEVER, THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE AS SUFFICI ENT FOR NON-LEVY OF CONCEALMENT PENALTY AND PENALTY WAS IMPOSED. 3. THE LEVY OF PENALTY WAS CONTESTED IN THE APPEAL FILED BEFORE LD. CIT(A) AND THE CONTENTIONS OF THE ASSESSEE HAVE BEEN SUMMARIZ ED BY LD. CIT(A) AS UNDER: (A) A COMPARATIVE STUDY OF THE OPERATING PROFITS WAS GIVEN TO THE TPO IN RESPECT OF THE ASSESSEE AND VARIOUS OTHER COMPANIES IN THE SAM E BUSINESS. THE TPO HAS NOT CONSIDERED THESE SUBMISSIONS BUT HAS PROCEEDED TO H OLD THAT NO SERVICES ARE RENDERED BY THE AE. THE APPELLANT SUBMITS THAT THE TPOS DUTY IS TO DETERMINE THE ARMS LENGTH PRICE AND HE HAS NO JURISDICTION TO GO BEYOND AND EXAMINE WHETHER THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS OR NOT. (PLEASE SEE THE CBDT INSTRUCTION SETTING OUT THE DUTIES OF THE TPO ON PAGE 2, PARA(I I) OF THE PAPER BOOK AND THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF HONDA SIEL CARS INDIA LTD(1 ITR TRIB 497). (B) THE AGREEMENT LETTER APPOINTING THE AE FOR PROC URING BUSINESS WAS OPEN ENDED. A CONFIRMATORY LETTER (UNDATED) WAS FOLLOWED UP BY A DATED LETTER AND THE SAME WAS COMPLETELY OVERLOOKED / IGNORED BY THE TPO. (C) THE EXISTENCE OF THE AGENT IS ALSO CONFIRMED B Y A THIRD PARTY BY WHOM THE ASSESSEE EXPORTS GOODS. (D) EVER SINCE 1998, THE COMMISSION IS BEING PAID T O THE SAID AE AND THERE HAS BEEN NO DISALLOWANCE IN THE PAST. EVER SINCE TRANSFER PR ICING PROVISIONS WERE INTRODUCED, THE TRANSACTIONS OF COMMISSION HAVE BEEN REPORTED I N ALL THE YEARS (EXCEPT A.Y.2005- 06 IN WHICH THERE IS NO SALE TO THE THIRD PARTY AND, THEREFORE, NO COMMISSION). THIS IS EVIDENT FROM THE TPOS ORDER F OR EARLIER YEARS. NEVER IN THE PAST HAS THE TPO DISPUTED THE COMMISSION PAYMENT. THIS I S FOR THE FIRST TIME THAT IT IS DISPUTED AND THAT TOO WITHOUT HIS DETERMINING ANY A RMS LENGTH PRICE, INDEED, IRRESPECTIVE OF WHETHER THE ASSESSEE AGITATED THE Q UANTUM OR NOT. THIS IS A FIT CASE THAT PENALTY CANNOT BELIEVED. (E) THE COMMISSION PAYMENT HAS BEEN APPROVED BY THE RBI IN 1998. THE ASSESSEE HAS PAID COMMISSION ONLY AT THE APPROVED RATE EVEN THOUGH FOR POST YEAR 2000, THE RBI APPROVAL IS NOT REQUIRED BUT IS AUTOMATICALLY G RANTED UNDER THE LIBERALIZED FEMA (F) SINCE COMMISSION PAYMENT IS WITHIN THE LIMITS A PPROVED BY RBI. IN ANY CASE, THE COMMISSION OUGHT TO BE PROVIDED AS ARMS LENGTH AND NOT EXCESSIVE. (G) FINALLY, THE ASSESSMENT ORDER PASSED U/S. 143 ( 3) IS BEYOND THE STATUTORY TIME LIMIT PRESCRIBED UNDER SECOND PROVISO TO SEC. 153 ( 1). THE DUTY FOR COMPLETION OF THE ASSESSMENT UNDER THAT PROVISION WAS DECEMBER 31, 20 09 WHEREAS THE ASSESSMENT ORDER IS PASSED ON FEBRUARY 2, 2010. IT IS SUBMITTE D THAT WHEN THE ASSESSMENT I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 6 ORDER ITSELF IS TIME BARRED ARID, THEREFORE, AB-INI TO VOID, NO PENALTY CAN BE LEVIED BASED ON SUCH AN ORDER. THIS ASPECT HAS BEEN TAKEN UP IN THE ADDITIONAL GROUND OF APPEAL. THE APPELLANT RELIES ON THE DECISION OF THE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO LTD VS. CIT (229 ITR 383) (SC) FOR THE PROPOSITION THAT A LEGAL ISSUE CAN BE TAKEN UP FOR THE FIRST TIME BEFO RE THE APPELLATE AUTHORITIES WHEN ALL THE FACTS ARE VERY MUCH ON RECORDS OF THE ASSES SMENT. (H) THE APPELLANT RELIES, INTER ALIA, ON THE DECISI ON OF CIT VS. RELIANCE PETROPRODUCTS (P) LTD (189 TAXMAN 322)(SC) FOR THE PROPOSITION TH AT LEVY OF PENALTY IS NOT AUTOMATIC AND THAT MERELY BECAUSE AN ADDITION IS MA DE, PENALTY IS NOT AUTOMATICALLY LEVIABLE. THE APPELLANT SUBMITS THAT NOT ONLY ON THE MERITS BUT ALSO ON THE GROUND OF LIMITATION, THE PENALTY SHOULD BE CAN CELLED. 3.1 ON THE ABOVE SUBMISSIONS LD. CIT(A) HAS RECORDE D A FINDING THAT PENALTY PROCEEDING ARE SEPARATE FROM ASSESSMENT PROCEEDING S. MERELY BECAUSE AN ADDITION HAS BEEN MADE, IRRESPECTIVE OF THE FACT TH AT WHETHER APPEAL FILED OR NOT, DOES NOT LEAD TO A CONCLUSION THAT CASE FOR CONCEAL MENT HAS BEEN MADE. THE CONSIDERATION WHICH WILL PREVAIL IN PENALTY PROCEED INGS WOULD BE DIFFERENT FROM WHAT IS APPLICABLE TO THE ASSESSMENT PROCEEDINGS. REFERRING TO THE FACTS LD. CIT(A) HAS OBSERVED THAT COMMISSION WAS PAID BY TH E ASSESSEE FROM 1998 ONWARDS IN RESPECT OF BUSINESS WHICH MR. MANFRED GI LOY WAS PROCURED FROM M/S. GEMEX TRADING LTD. THE SIMILAR TRANSACTION WAS SUB JECT MATTER OF TPOS SCRUTINY FROM ASSESSMENT YEAR 2002-03, 2003-04 AND 2004-05 A ND AFTER DUE EXAMINATION NO ADJUSTMENT WAS PROPOSED BY TPO. FOR ASSESSMENT YEAR 2005-06 AS THERE WAS NO REMITTANCE TO COMMISSION NO EXPENDITURE WAS CLAI MED. THUS, IT IS NOT A CASE WHERE COMMISSION PAYMENT IS MADE EVERY YEAR IRRESPE CTIVE OF THE SERVICES RENDERED BY THE INDIVIDUAL A.E. THE COURSE OF ACTI ON ADOPTED BY THE TPO IN THE YEAR UNDER CONSIDERATION IS CONTRARY TO THE EARLIER POSITION ADOPTED BY DIFFERENT TPOS FOR EARLIER THREE YEARS. IT IS FURTHER OBSERV ED BY LD.CIT(A) THAT ASSESSEE HAD DEMONSTRATED THAT THE PROFIT SHOWN BY IT WAS HIGHER THAN OTHER COMPANY EVEN AFTER PAYING SUCH COMMISSION AND TPO DID NOT CONSID ER THIS SUBMISSION AND HAS SUMMARILY REJECTED THE CLAIM. REFERRING TO THE PR OVISIONS OF SECTION 271(1)(C) OF THE ACT LD. CIT(A) HAS OBSERVED THAT ACCORDING TO T HOSE PROVISION ASSESSEE HAS TO SUBMIT AN EXPLANATION WHICH HAS TO BE EXAMINED BY T HE AO THAT WHETHER THE SAME IS BONA-FIDE OR NOT. IN THE PENALTY ORDER AO HAS ARRIVED AT A CONCLUSION THAT EXPLANATION FURNISHED BY THE ASSESSEE WAS NOT BONA-FIDE . HOWEVER, ON THE BASIS OF MATERIAL PLACED BY THE ASSESSEE ON RECORD IT CANNOT BE SAID THAT I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 7 EXPLANATION OF THE ASSESSEE IS NOT BONA-FIDE. TAK ING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES LD. CIT(A) HAS HELD THAT EXPLANAT ION FURNISHED BY THE ASSESSEE IS BONA-FIDE AND IT IS NOT A CASE FOR LEV Y OF PENALTY. IN VIEW OF THESE FINDINGS RECORDED BY LD. CIT(A), HE HAS DECLINED T O CONSIDER THE ADDITIONAL GROUNDS AND HAS CANCELLED THE PENALTY. THE DEPARTM ENT IS AGGRIEVED AND HAS RAISED AFOREMENTIONED GROUNDS OF APPEAL. 4. ASSESSEE IN ITS CROSS OBJECTION HAS CONTENDED TH AT THE ASSESSMENT WAS FRAMED BEYOND STATUTORY TIME LIMIT, THEREFORE, PENA LTY COULD NOT BE LEVIED AND DESPITE HAVING ADMITTED THE ADDITIONAL GROUND LD. C IT(A) HAS ERRED IN NOT DECIDING THE ADDITIONAL GROUNDS IS LEGAL ONE. 5. LD. DR RELYING UPON THE GROUNDS OF APPEAL SUBMIT TED THAT THE IMPUGNED PENALTY IS LEVIED IN RESPECT OF TP ADJUSTMENT AND HAS TO BE EXAMINED IN THE LIGHT OF EXPLANATION 7 TO SECTION 271(1)(C) AND LD. CIT (A) HAVING NOT EXAMINED THAT EXPLANATION HAS COMMITTED AN ERROR IN DELETING THE PENALTY. 6. ON THE OTHER HAND, ON THE DELETION OF CONCEALMEN T PENALTY LD. AR HAS RELIED UPON THE ORDER PASSED BY LD. CIT(A) AND THE EVIDENCES FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S AND EXPLANATION FURNISHED BY THE ASSESSEE IN THE PENALTY PROCEEDINGS. ON T HE ISSUE REGARDING NON- ADJUDICATION OF ADDITIONAL GROUND BY THE LD. CIT(A) IT WAS SUBMITTED BY LD. AR THAT ASSESSMENT WAS FRAMED BEYOND STATUTORY TIME, THE SAME WAS VOID AB-INITIO AND NO PENALTY COULD BE LEVIED. FOR THIS PURPOSE, LD. AR RELIED ON THE DECISION IN THE CASE OF CIT VS. S.P.VIZ CONSTRUCTION COMPANY , 176 ITR 47 (PAT). LD. AR FURTHER PLACED RELIANCE ON THE DECISION OF DELHI BE NCHES OF ITAT IN THE CASE OF DCIT VS. VERTEX CUSTOMER SERVICES INDIA PVT. LTD., 126 TTJ (DEL) 184 TO CONTEND THAT IN THE TP ADJUSTMENT WHERE PROVISIONS FOR DOU BTFUL DEBT BEING AN EXTRA ORDINARY ITEM, WARRANTING EXCLUSION FROM OPERATION AL COST IS A DEBATABLE POINT, THEREFORE, IT CANNOT BE SAID THAT COMPUTATION OF AR MS LENGTH PRICE DONE BY THE ASSESSEE WAS NOT IN GOOD FAITH AND NOT WITH DUE DI LIGENCE, THEREFORE, IT WAS HELD THAT PENALTY WAS NOT LEVIABLE. LD. AR ALSO RELIED UPON THE DECISION IN THE CASE OF VIP INDUSTRIES LTD. VS. IAC 36 ITD (BOM) 70, WHEREI N IT HAS BEEN HELD THAT IN I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 8 VIEW OF ADMISSION OF RECEIPT OF COMMISSION, COMMISS ION COULD NOT BE DISALLOWED. THUS, IT WAS PLEADED BY HIM THAT THE PAYMENT MADE BY THE ASSESSEE WAS IN PURSUANCE TO A CONTRACT, WHERE RENDERING OF SERVICE S WAS NOT REQUIRED. THUS, IT WAS PLEADED BY LD. AR THAT LD. CIT(A) RIGHTLY CANCE LLED THE PENALTY. 7. IN THE RE-JOINDER LD. DR SUBMITTED THAT THE DECI SIONS RELIED UPON BY LD. AR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CAS E. REFERRING TO THE DECISION IN THE CASE OF CIT VS. S.P. VIZ CONSTRUCTION COMPANY(S UPRA) IT WAS SUBMITTED BY LD. DR THAT IN THAT CASE THE ASSESSMENT ORDER ITSELF WA S CANCELLED, WHEREAS IN THE CASE OF ASSESSEE THE ASSESSMENT ORDER HAVING BECOM E FINAL IS SUBSISTING. IT WAS SUBMITTED BY LD. DR THAT IN VIEW OF SUBSISTENCE OF ASSESSMENT ORDER, PENALTY CANNOT BE DELETED ON THE GROUND THAT ASSESSMENT ORD ER WAS VOID-ABNITIO. FOR THIS PURPOSE LD. DR RELIED UPON THE DECISION OF HON BLE MADHYA PRADESH HIGH COURT IN THE CASE OF RATANCHAND BHOLENATH VS. CIT, 210 ITR 682 (MP), WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSMENT ORDER OR RE-AS SESSMENT ORDER BECOMES FINAL, THAT IS BINDING ON BOTH THE PARTIES AND NEITHER PAR TY CAN SEEK TO RE-OPEN IT IN A PENALTY PROCEEDINGS. THE OTHER DECISIONS RELIED UP ON BY LD. AR WERE DISTINGUISHED BY LD. DR ON THE GROUND THAT IN THE CASE OF DCIT VS. VERTEX CUSTOMER PVT. LTD.(SUPRA), THE QUESTION WAS REGARDI NG COMPUTATION OF OPERATING PROFIT, WHEREAS IN THE PRESENT CASE ENTIRE COMMISSI ON PAID BY THE ASSESSEE IS AN INTERNATIONAL TRANSACTION FOR WHICH ASSESSEE DID NO T SUBMIT ANY PROOF TO SUBSTANTIATE THAT THE SAID TRANSACTION WAS AT ARMS LENGTH. THUS, IT WAS PLEADED BY LD. DR THAT THE CASE OF THE ASSESSEE CLEARLY FAL LS WITHIN THE AMBIT OF EXPLANATION 7 AND PENALTY HAS WRONGLY BEEN DELET ED BY LD. CIT(A). LD. DR FURTHER SUBMITTED THAT THE DECISION IN THE CASE OF VIP INDUSTRIES LTD. VS. IAC (SUPRA) ALSO COULD NOT BE APPLIED TO THE FACTS OF T HE PRESENT CASE AS IN THE PRESENT CASE ASSESSEE DID NOT SUBMIT ANY EVIDENCE OF SERVIC ES HAVING BEEN RENDERED BY MR. MANFRED GILOY. 8. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. FIRST, WE WILL TAKE UP THE ISSUE RAISE D BY THE ASSESSEE IN ITS CROSS OBJECTION. IT IS THE CASE OF THE ASSESSEE THAT LD. CIT(A) HAS ERRED IN NOT ADJUDICATING THE ADDITIONAL GROUND RAISED BY THE AS SESSEE THOUGH THE SAME WAS I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 9 RECORDED BY HIM IN HIS ORDER. LD. CIT(A) HAS NOT A DJUDICATED THE ADDITIONAL GROUND AS HE HAS GRANTED RELIEF TO THE ASSESSEE ON MERITS. SINCE IT IS A LEGAL ISSUE, WE DO NOT CONSIDER IT NECESSARY TO RESTORE T HESE APPEALS TO THE FILE OF LD. CIT(A) TO ADJUDICATE THIS ISSUE AS IT WILL UNNECES SARILY PROLONG THE PROCEEDINGS. BOTH THE PARTIES HAVE SUBMITTED THEIR ARGUMENTS AND WE PROCEED TO DECIDE THIS ISSUE. THE IMPUGNED PENALTY IS ASSAILED BY THE ASS ESSEE ON THE GROUND THAT ASSESSMENT ORDER PASSED IN THE CASE OF ASSESSEE WAS TIME BARRED AND, THEREFORE, WAS VOID-ABNITIO AND FOR THAT REASON IMPUGNED PEN ALTY CANNOT BE LEVIED. IT IS A FACT THAT ASSESSEE HAS NOT CHALLENGED THE ASSESSMEN T ORDER BY WAY OF FILING ANY APPEAL AGAINST THAT ORDER. THE ASSESSMENT ORDER IS SUBSISTING AND HAS NEITHER BEEN SET ASIDE NOR IT HAS BEEN SHOWN TO BE QUASHED. THEN THE ONLY QUESTION WHICH IS TO BE DECIDED IS THAT WHETHER DURING THE S UBSISTENCE OF THE ASSESSMENT ORDER, IT IS OPEN TO THE ASSESSEE TO CHALLENGE THE VALIDITY OF ASSESSMENT IN THE PENALTY PROCEEDINGS. THE DECISION RELIED UPON BY L D. AR IN THE CASE OF CIT VS. VIZ CONSTRUCTION COMPANY(SUPRA) CANNOT BE APPLIED T O THE FACTS OF THE PRESENT CASE AS IN THE SAID CASE ASSESSMENT ORDER WAS CANCE LLED, WHEREAS IN THE CASE OF ASSESSEE IT IS SUBSISTING. THE DECISION IN THE CAS E OF S.S.RATANCHAND BHOLENATH VS. CIT(SUPRA) RELIED UPON BY LD. DR IS APPLICABLE AND IN THE SAID DECISION IT HAS BEEN HELD THAT PARTIES CANNOT SEEK TO RE-OPEN AN A SSESSMENT ORDER WHICH HAS BECOME FINAL IN THE PENALTY PROCEEDINGS. SIMILAR P ROPOSITION OF LAW HAS ALSO BEEN UPHELD BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF BHARAT RICE MILLS VS. CIT, 278 ITR 599, IN WHICH THEIR LORDSHIPS AFTER RELYIN G UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF STATE OF KERALA VS. M. K.KUNHIKANNAN NAMBIAR MANJERI MANIKOTH 1 SCC 435 AND AFTER REFERRING TO THE SAID DECISION THEIR LORDSHIPS HAVE HELD AS UNDER: THUS, APPLYING THE PRINCIPLES LAID DOWN BY THE APE X COURT IN THE AFORESAID CASES TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE REA SSESSMENT ORDER HAVING NOT BEEN CHALLENGED IN AN APPEAL OR ANY OTHER PROCEEDING, IT CANNOT BE SAID TO BE A VOID ORDER IN A COLLATERAL PROCEEDING. 8.1 IN THIS VIEW OF THE SITUATION, WE HOLD THAT ASS ESSMENT ORDER HAVING NOT BEEN CHALLENGED IN AN APPEAL OR IN OTHER PROCEEDING S, IT CANNOT BE SAID TO BE A I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 10 VOID ORDER IN A COLLATERAL PROCEEDINGS. WE DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE. 8.2 NOW COMING TO DEPARTMENTAL APPEAL IT, MAY BE ME NTIONED THAT THE FACTS HAVE BEEN ENUMERATED IN DETAIL IN THE ABOVE PART O F THIS ORDER. SIMILAR COMMISSION PAYMENTS ARE BEING MADE BY THE ASSESSEE TO MR. MANFRED GILOY AS PER AGREEMENT ENTERED IN 1998. IN RESPECT OF A.Y 2002-03,2003-04 AND 2004- 05 NOT ONLY THESE TRANSACTIONS WERE REPORTED AS IN TERNATIONAL TRANSACTIONS UNDER THE TP PROVISIONS BUT WERE ALSO EXAMINED BY THE TPO AND IN THE ORDER PASSED UNDER SECTION 92CA(3) THE TRANSACTIONS WERE CONSIDE RED TO BE AT ARMS LENGTH. IN NONE OF THESE YEARS IT HAS BEEN SHOWN THAT THE ASSE SSEE WAS REQUIRED TO SUBMIT PROOF REGARDING RENDERING OF SERVICES BY MR. MANFRE D GILOY. THE VERY BASIS OF THE PAYMENT MADE WAS AN AGREEMENT ON THE BASIS OF WHIC H THE PAYMENT OF COMMISSION HAS BEEN MADE IN THE IMPUGNED ASSESSMENT YEAR. IF IN EARLIER YEARS, SIMILAR COMMISSION WAS FOUND TO BE AT ARMS LENGTH THEN THE SAME COULD NOT BE CONSIDERED AS NOT BEING AT ARMS LENGTH IN THE YEAR UNDER CONSIDERATION UNLESS IT WAS SHOWN BY THE DEPARTMENT THAT THE FACT S IN THE YEAR UNDER CONSIDERATION HAVE UNDERGONE A CHANGE. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT FACTS OF THE PRESENT YEAR ARE IN ANY MANNER DIFFERENT FROM THE EARLIER YEARS IN WHICH SIMILAR TRANSACTION WAS CONS IDERED AT ARMS LENGTH. 8.3 LD. CIT(A) HAS ALSO RECORDED A FINDING OF FACT THAT SIMILAR TRANSACTION IN EARLIER YEARS HAS BEEN CONSIDERED TO BE AT ARMS LE NGTH BY THE TPO AND FOR THIS YEAR A DIFFERENT STAND HAS BEEN TAKEN WITHOUT BRING ING ANY MATERIAL ON RECORD TO SHOW THAT THERE WERE DIFFERENCE IN FACT AND CIRCUMS TANCES OF THE CASE. THEREFORE, WE ARE OF THE OPINION THAT CONSIDERING T HE HISTORY OF THE CASE, LD. CIT(A) DID NOT COMMIT ANY ERROR IN HOLDING THAT THE EXPLANATION FURNISHED BY THE ASSESSEE WAS BONA-FIDE AND THE CLAIM WAS BONA-FIDE IN VIEW OF THE ACCEPTED HISTORY OF THE CASE. THEREFORE, WE DECLINE TO INTE RFERE IN THESE FINDINGS RECORDED BY LD. CIT(A). 8.4 SO FAR AS IT RELATES TO THE CASE OF REVENUE REG ARDING EXPLANATION-7 TO SECTION 271(1)(C), WE ARE OF THE OPINION THAT THE E XPLANATION RAISES PRESUMPTION I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 11 THAT IN A CASE WHERE ADDITION HAS BEEN MADE AS PER TP PROVISIONS THEN THE SAME WILL BE DEEMED TO REPRESENT THE INCOME IN RESPECT O F WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNI SHED, UNLESS THE ASSESSEE PROVES TO THE SATISFACTION OF THE AO THAT THE PRIC E CHARGED OR PAID IN SUCH TRANSACTION WAS COMPUTED IN ACCORDANCE WITH THE PR OVISIONS CONTAINED IN SECTION 92C OF THE ACT AND IN THE MANNER PRESCRIBE D UNDER THAT SECTION, IN GOOD FAITH AND WITH DUE DILIGENCE. THUS, THE EXCEPTION TO THE DEEMED CONCEALMENT IS THE SATISFACTION OF AO REGARDING INTERNATIONAL TRAN SACTION THAT THE SAME IS COMPUTED IN ACCORDANCE WITH THE TP PROVISIONS IN GO OD FAITH WITH DUE DILIGENCE. IN VIEW OF THE ACCEPTED HISTORY OF THE TRANSACTION WHICH IS SUPPORTED BY THE ORDERS PASSED BY THE TPO IN RESPECT OF ASSESSMENT Y EAR 2002-03, 2003-04 AND 2004-05, IT CANNOT BE SAID THAT THE COMPUTATION MAD E BY THE ASSESSEE WAS NOT IN GOOD FAITH AND NOT WITH DUE DILIGENCE. IT MAY BE MENTIONED HERE THAT FOR A.Y 2002-03 THE ORDER PASSED BY THE TPO IS DATED 3/2/20 05 AND COPY OF THIS ORDER IS PLACED AT PAGES 28 TO 30 OF THE PAPER BOOK. VIDE THIS ORDER SIMILAR TRANSACTION WAS ACCEPTED TO BE AT ARMS LENGTH. . SIMILARLY, FOR ASSESSMENT YEAR 2003-04 THE ORDER PASSED BY TPO IS DATED 16/3/2006 AND FOR A.Y 2004-05 THE ORDER THE ORDER IS DATED 21/11/2006. THE RETURN OF INCOME FO R THE YEAR UNDER CONSIDERATION WAS FILED ON 25/11/2006. ON THE DAT E OF FILING THE RETURN FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS HAVING BENEFIT OF ORDERS PASSED BY TPO IN RESPECT OF ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05. THUS, IT CANNOT BE SAID THAT THE ASSESSEES ACTION WAS NOT IN GOOD FAITH OR IT WAS NOT WITH DUE DILIGENCE. ACCORDINGLY, EVEN APPLYING THE PROV ISIONS OF EXPLANATION-7 TO SECTION 271(1)(C) OF THE ACT, IT CANNOT BE SAID THA T FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WARRANTED LEVY OF CONCEALMENT PENALT Y. 8.5 IN VIEW OF ABOVE DISCUSSION, WE CONCLUDE THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN DELETING THE PENALTY. THE APPEAL FILE D BY THE REVENUE IS LIABLE TO BE DISMISSED AND ACCORDINGLY, DISMISSED. I.T.A. NO.3633/MUM/2011& CO NO.162/M11 ASSESSMENT YEAR : 2006-07 12 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A S WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/11/2014 . . ) ,-# / 0'1 20/11//2014 - ) 2 SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 0' DATED 20/11/2014 . . . . ) )) ) '*3 '*3 '*3 '*3 43#* 43#* 43#* 43#* / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 362 '*' , , / DR, ITAT, MUMBAI 6. 27 8 / GUARD FILE. .' .' .' .' / BY ORDER, (3* '* //TRUE COPY// 9 99 9 / : : : : (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . .VM , SR. PS