ACIT, Jaipur V. INTEGRATED DECISIONS & SYSTEMS (INDIA) P LTD., Jaipur

ITA 127/JPR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5432 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: RAJENDRA AGARWAL C A DHK
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 92D; 6

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA -@ ITA NO. 127/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2006-07. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR. CUKE VS. M/S INTEGRATED DECISIONS & SYSTEMS (INDIA) PVT. LTD., E-16, GOKHLE MARG, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAACI 7132 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI B.K. GUPTA (CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJENDRA AGARWAL (C.A.) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 21/01/2016. MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 24/02/2016. VKNS'K@ ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 07/11/2012 OF THE LEARNED C.I.T.(A)-II JAIPUR, FOR A .Y. 2006-07. THE SOLE EFFECTIVE GROUND OF APPEAL IS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD CIT(A) HAS ERRED IN DELETING THE PENALTY OF R S. 15,51,675/- IMPOSED BY U/S 271AA OF THE I.T. ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE 2 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . FAILED TO MAINTAIN THE RECORD AS REQUIRED U/S 92D O F THE I.T. ACT READ WITH RULE 10D OF THE I.T. RULES. 2. THE SOLE GROUND OF THE REVENUES APPEAL IS AGAINS T DELETING THE PENALTY OF RS. 15,51,675/- IMPOSED U/S 271AA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE IS ENGAGED IN THE DEVELOPMENT AND ONLINE SUPPORT OF SOFTWARE. THE ASSESSEE FILED ITS RE TURN FOR A.Y. 2006-07 ON 17/10/2006 DECLARING TOTAL INCOME OF RS. 5,56,72 0/-. THE CASE WAS SCRUTINIZED U/S 143(3) OF THE ACT. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE LD ASSESSING OFFICER HAS HELD THAT THE ASSESSEE HAD NOT USED RECENT CONTEMPORARY DATA FOR THE PURPOSE OF BE NCHMARKING INTERNATIONAL TRANSACTION OF THE YEAR IN WHICH THE TRANSACTION TOOK PLACE, THE COMPARABLES IDENTIFIED BY THE ASSESSEE WERE NOT CONSIDERED VALID. ACCORDINGLY, PENALTY U/S 271AA WAS INITIATED FOR DEF AULT OF THE PROVISIONS/REQUIREMENTS PRESCRIBED BY RULE 10D(1) O F THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) READ WITH SECTION 9 2D OF THE ACT. 2.1 BEFORE IMPOSING PENALTY U/S 271AA, THE LD ASSES SING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD. IT WAS SUBMIT TED BY THE ASSESSEE THAT PENALTY PROCEEDING MAY BE KEPT IN ABEYANCE AS THE ASSESSEE WAS GOING TO FILE APPEAL AGAINST THE ASSESSMENT ORDER B EFORE THE HONBLE ITAT. AGAIN SHOW CAUSE NOTICE WAS ISSUED BY THE ASSESS ING OFFICER ON 3 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . 13/5/2011 TO IMPOSE THE PENALTY UNDER THIS SECTION AND CASE WAS FIXED FOR 20/5/2011. IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD FILED APPEAL BEFORE THE HONBLE ITAT AND REQUESTED TO KEEP THE PE NALTY PROCEEDING IN ABEYANCE. AFTER CONSIDERING THE ASSESSEES REPLY, T HE LD ASSESSING OFFICER HELD THAT THE FACTS OF MAINTENANCE OF RECORDS AS PE R PROVISIONS OF RULE 10D OF THE RULES WILL REMAIN UNCHANGED FROM THE STA TUS AS OBSERVED DURING ASSESSMENT PROCEEDINGS. THE APPELLATE AUTHORI TY MAY DECIDE THE RELEVANCY OF KIND OF INFORMATION BUT OBSERVATION TH AT THE RECORDS RELATING TO INTERNATIONAL TRANSACTION WERE NOT MAINTAINED AS REQUIRED UNDER RULE 10D OF THE RULES WILL REMAIN SAME. THEREFORE, PENALT Y PROCEEDING CANNOT BE KEPT IN ABEYANCE TILL DISPOSAL OF APPEAL BY THE HONBLE ITAT. IN ORDER U/S 92CA(3) OF THE ACT, THE TRANSFER PRICING OF FICER (TPO) IN PARA 4 HAS OBSERVED THAT THE RECORDS OF ANALYSIS PERFORM ED TO EVALUATE THE COMPARABILITY OF UNCONTROLLED TRANSACTION WITH THE R ELEVANT INTERNATIONAL TRANSACTIONS WAS NOT FILED. FURTHER IT HAS BEEN OBSE RVED THAT AS PER ANNEXURE-5 OF THE T.P. STUDY REPORT, RELATING TO THE RECORD OF THE ANALYSIS PERFORMED TO EVALUATE COMPARABILITY, THE SEARCH PRO CESS HAD BEEN UNDERTAKING FOR THE PRECEDING YEAR I.E. F.Y. 2004-0 5. EIGHTY COMPANIES HAD BEEN SELECTED AS COMPARABLES BY THE ASSESSEE FO R F.Y. 2002-03, 2003-04 AND 2004-05, WHICH HAD BEEN ANALYSED. NO FRE SH SEARCH FOR 4 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . COMPARABLES OR ANALYSIS USING CONTEMPORANEOUS DATA HAD BEEN MADE BY THE ASSESSEE. THUS THE ASSESSEE HAD NOT COMPLIED WITH THE PROVISIONS OF (F),(G) AND (H) OF RULE 10D OF THE RULES, WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN PENALTY ORDER. BESIDES THI S SUB-RULE (4) OF RULE 10D REQUIRED THAT THE INFORMATION AND DOCUMENT SPEC IFIED UNDER SUB- RULE (1)&(2) SHOULD AS FAR AS POSSIBLE BE CONTEMPOR ANEOUS AND SHOULD EXIST LATEST BY SPECIFIED DATE REFERRED TO CLAUSE ( IV) OF SECTION 29F OF THE ACT. HE FURTHER OBSERVED THAT THE WORD SHALL IN T HE MAIN PROVISIONS OF THE RULE, MAKES IT CLEAR IN CERTAIN TERMS THAT THE USE OF THE CURRENT F.Y. DATA I.E. THE F.Y. IN WHICH INTERNATIONAL TRANSACTIO N WAS ACTUALLY ENTERED INTO IS A MANDATORY REQUIREMENT OF THE LAW IN THE CO MPARABILITY ANALYSIS UNDER THE TRANSFER PRICING REGULATIONS. THE ASSESSE E FAILED TO MAINTAIN RECORDS RELATING TO INTERNATIONAL TRANSACTIONS AS R EQUIRED UNDER RULE 10D OF THE RULES IS LIABLE TO IMPOSE PENALTY U/S 271AA OF THE ACT. THUS, HE IMPOSED 2% PENALTY UNDER THIS SECTION ON VALUE OF E ACH INTERNATIONAL TRANSACTION DETERMINED BY THE TPO AT RS. 15,51,675/- . 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD DELETED THE PENALTY BY OBSERVING THAT THE LD TPO REQUIRED THE A PPELLANT TO UNDERTAKE 5 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . SEARCH FOR COMPARABLES RELEVANT FOR F.Y. 2005-06, WH ICH IT DID, USING DARABASES UPDATED AS ON 25 TH AUGUST, 2006. OUT OF 12 COMPANIES CHOSEN BY THE TPO AS COMPARABLE COMPANIES, 5 COMPANIES WERE FROM THE SET OF NINE COMPARABLE COMPANIES WITH DATABASE UPDATED AS O N 11/1/2006 AND 25/8/2006 IDENTIFIED BY THE APPELLANT. THE COMPARABL E COMPANIES HAS BEEN NARRATED BY THE LD CIT(A) AT PAGE 10 OF HIS ORD ER. THE LD TPO DID NOT FIND THE NECESSARY DOCUMENTS IN SUPPORT OF THE ARMS LENGTH PRICE (ALP) SHOWN BY THE APPELLANT. HE DIRECTED THE APPELL ANT TO CONDUCT SEARCH FOR COMPARABLES RELEVANT TO F.Y. 2005-06. TH E APPELLANT DID DURING TPO PROCEEDINGS AND PROVIDED NINE COMPANY CAS ES AS COMPARABLES. HOWEVER, THESE NINE COMPANIES WERE THE S AME COMPANIES WHICH THE APPELLANT HAD USED FOR FY 2004-05. FOR PRO VIDING THE INFORMATION REQUIRED BY THE TPO THE APPELLANT UPDATE D MARGINS FOR THE SAME COMPANIES, STATING THAT THE UPDATES WERE DATED 25/8/2006. THE LD TPO USED FIVE COMPANIES OUT OF NINE PROVIDED BY THE APPELLANT DURING TPO PROCEEDINGS FOR DETERMINING THE ALP. THE TPOS OBJ ECTION WAS THAT THE APPELLANT UTILIZED THE RESULTS OF THE SAME PROC ESS AS HAD BEEN UNDERTAKEN BY IT IN THE FY 2004-05 AND PROVIDED THE UPDATED MARGINS FOR THE SAME COMPARABLES AND THEREFORE HE RECOMMENDED P ENALTY PROCEEDING U/S 271AA. THE LD ASSESSING OFFICER IMPOS ED PENALTY U/S 6 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . 271AA ON THE ALP DETERMINED BY THE TPO AND TAKEN IN THE ASSESSMENT ORDER I.E. ON RS. 7,75,83,771/- BUT THIS ALP HAS NO T BEEN UPHELD BY THE HONBLE ITAT VIDE ORDER DATED 31/10/2011 IN THE CASE OF APPELLANT ON THE GROUND THAT THE DIFFERENCE IN THE ALP DECLARED BY T HE APPELLANT AND THAT DETERMINED BY THE DEPARTMENT WAS LESS THAN 5% SO NO UPWARD ADJUSTMENT WAS WARRANTED. THE APPELLANT HAD FURNISHED REQUIRED DOCUMENTS/INFORMATION AS PER RULE 10D(4), AS FAR AS POSSIBLE, BE CONTEMPORANEOUS AND SHOULD EXIST LATEST BY THE SPEC IFIED DATE REFERRED TO IN CLAUSE (IV) OF SECTION 92F. IT IS UNDISPUTED THAT THE COMPARABLES WERE UPDATED AS ON 25/8/2006, WHICH IS BEFORE THE DU E DATE OF FILING OF RETURN I.E. 31/10/2006. AS PER SECTION 92D(3), THE LD ASSESSING OFFICER MAY IN THE COURSE OF PROCEEDINGS DIRECT SUCH PERSON WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION TO FURNISH ANY IN FORMATION AND DOCUMENT IN RESPECT THEREOF, AS MAY BE PRESCRIBED UNDER SUB- SECTION (1) WITHIN A PERIOD OF 30 DAYS FROM THE DATE OF RECEIPT OF A NOT ICE ISSUED IN THIS REGARD. THE LD TPO ASKED THE APPELLANT TO UNDERTAKE S EARCH FOR COMPARABLES RELEVANT FOR F.Y. 2005-06, WHICH THE AP PELLANT DID. THE TPO USED THE COMPARABLES PROVIDED BY THE APPELLANT. THE ARGUMENT OF THE APPELLANT IS ALSO NOT DISPUTED BY THE ASSESSING OFF ICER THAT SIMILAR SERVICE 7 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . RENDERED TO THE AE DURING THE YEAR UNDER CONSIDERAT ION, WHICH HAS BEEN RENDERED IN F.Y. 2004-05. ACCORDINGLY SHE DELETED T HE PENALTY. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. AT TH E OUTSET, THE LD AR OF THE ASSESSEE HAS REITERATED THE ARGUMENTS MADE BEFO RE THE LD CIT(A) AND FURTHER ARGUED THAT THE SERVICE RENDERED TO THE AE BY THE ASSESSEE WAS SAME AS PROVIDED IN A.Y. 2004-05. THE COMPARABLES WERE UPDATED BEFORE DUE DATE OF FILING OF RETURN. THE ASSESSEE HA D SUBMITTED NINE COMPARABLES BEFORE THE LD TPO OUT OF WHICH HE USED F IVE COMPARABLES FOR DECIDING ALP OF INTERNATIONAL TRANSACTIONS. HE FURTHER RELIED ON THE DECISION IN THE CASE OF DCIT VS M/S BEBO TECHNOLOGIES PVT. LTD. ITA NO. 532/CHD/2010 DATED 26/08/2013 WHEREIN IT HAS BEEN H ELD BY THE HONBLE TRIBUNAL THAT THE INTERNATIONAL TRANSACTION DISCLOSE D BY THE ASSESSEE HAS NOT FOUND TO BE ALP AND NO ADJUSTMENT IS REQUIRED T O BE MADE AS HELD BY THE TRIBUNAL. THUS, THERE IS NO MERIT IN THE LEVY OF PENALTY U/S 271AA OF THE ACT. HE FURTHER RELIED ON THE FOLLOWING CASE LAWS:- (I) ACIT VS. M/S SMITH AND NEPHEW HEALTHCARE (P) LTD. ITA NO. 5779/MUM/2007 DATED 09 TH NOVEMBER, 2011. (II) ITO(OSD) VS. M/S PPN POWER GENERATING COMPANY PV T. LTD. ITA NO. 774/MDS/2007 DATED 21 ST OCTOBER, 2011. 8 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . (III) ACIT VS. M/S GLOBAL ONE INDIA PVT. LTD. ITA NO S. 5164 & 5165/DEL/2011 DATED 17 TH FEBRUARY, 2012. (IV) TUSSOR MACHINE TOOLS INDIA (P) LTD. VS. ACIT ITA NO. 1270/MDS/2012 DATED 14 TH FEBRUARY, 2013. (V) CARGILL INDIA (P) LTD. VS. DCIT ITA NO. 1844/DEL /2007 ORDER DATED 15 TH FEBRUARY, 2008. HE FURTHER ARGUED THAT PERUSAL OF RULE 10D OF THE R ULES ARE VOLUMINOUS AND VARIOUS CLAUSES ARE PRESCRIBED UNDER SUB-RULE(1 ), THEREFORE, AND ALL SUCH CLAUSES ARE NOT APPLICABLE ON THE GIVEN CASE. THEREFORE, HE PRAYED TO UPHOLD THE ORDER OF THE LD CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE DISCLOSED INTERNATIONAL TRANSACTION MADE WITH AE. THE TRIBUNAL HAD DECIDED THAT NO UPWARD ADJUSTMENT IS REQUIRED IN THE ALP DISCLOSED B Y THE ASSESSEE. WHATEVER INFORMATION ASKED TO SUPPLY BY THE TPO HAD BEEN FURNISHED BEFORE HIM I.E. NINE COMPARABLE COMPANIES DATA WERE FURNISHED OUT OF WHICH THE LD TPO HAD SELECTED FIVE COMPANIES. THE LD D R HAD NOT CONTROVERTED THAT THE ASSESSEE HAD NOT PROVIDED SIM ILAR SERVICES DURING THE YEAR UNDER CONSIDERATION AS PROVIDED IN F.Y 200 4-05, THEREFORE, COMPARABLE COMPANIES APPLIED FOR F.Y. 2004-05 ARE R ELEVANT TO THE 9 ITA NO. 127/JP/2013 ACIT VS M/S INTEGRATED DECISIONS & SYSTEMS (I) P LTD . TRANSACTIONS MADE DURING THE F.Y. 2005-06, WHICH WAS ALSO UPDATED BY THE APPELLANT. ACCORDINGLY, WE UPHOLD THE ORDER OF T HE LD CIT(A). 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 24/02/2016. SD/- SD/- YFYR DQEKJ VH-VKJ-EHUK (LALIET KUMAR) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24 TH FEBRUARY,2016 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ACIT, CIRCLE-6, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S INTEGRATED DECISIONS & SYSTEMS (INDIA)PVT. LTD., JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO.127/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR