DCIT, CHENNAI V. Dishnet Wireless Ltd., CHENNAI

ITA 1278/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6267 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-06-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 09-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SREENIVASAN
• Assessee Lawyers: RAVI SHARMA CA
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings; Reasonable cause
• Section: 92C; 92D; 92A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 1278/MDS/2016 / ASSESSMENT YEARS : 2005-06 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1(1), CHENNAI 600 034. VS. M/S. DISHNET WIRELESS LTD., SPENCER PLAZA, 5 TH FLOOR, 769, ANNA SALAI, CHENNAI 600 002. [PAN: AAACD 5767E] ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. SREENIVASAN, JCIT )*%& / RESPONDENT BY : SHRI. RAVI SHARMA, CA & /DATE OF HEARING : 27.06.2017 & /DATE OF PRONOUNCEMENT : 06.09.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI IN ITA NO. 66/09-10 DATED 11.02.2016. :-2-: I.T.A. N0. 1278/MDS/2016 2. M/S. DISHNET WIRELESS LTD., THE ASSESSEE, IS EN GAGED IN THE BUSINESS OF BROADBAND INTERNET SERVICE PROVIDING TR ADING IN VIDEO CONFERENCING EQUIPMENT AND INTERNET PROTOCOL PHONES , TELECOM CONSULTANCY, SOFTWARE AND GSM SERVICES. SINCE, THE VALUE OF INTERNATIONAL TRANSACTIONS WITH SIVA LIMITED FOR IN TERNATIONAL BANDWIDTH CAPACITY WAS FOR RS. 24,50,00,000/- AND D ISHNET WIRELESS (MAURITIUS) LIMITED FOR 2 MBPS LINE CIRCUIT-BANDWID TH CAPACITY WAS FOR RS. 2,18,750/- AS PER FORM 3CEB , WHICH EXCEEDED RS. 15 CRORES FOR ASSESSMENT YEAR 2005-06, THE AO MADE A REFERENC E TO THE TPO U/S. 92A(1) FOR DETERMINING ARMS LENGTH PRICE. THE TPO IN HER ORDER DATED 20.10.2008 HAS CONCLUDED THAT NO ADJUST MENT WAS NECESSARY TO THE VALUE OF INTERNATIONAL TRANSACTION S ENTERED INTO BY THE ASSESSEE. HOWEVER, SHE RECORDED A FINDING THAT SINCE THE ASSESSEE FAILED TO FURNISH THE DETAILS CALLED FOR B Y THE TPO VIDE HER OFFICE NOTICES DATED 14.03.2007 AND 07.05.2008 AND LETTER DATED 03.08.2008, THE PROVISIONS OF SECTION 271G ARE ATTR ACTED FOR EACH FAILURE AND HENCE INITIATED PENALTY PROCEEDINGS U/S . 271G. THE ASSESSEE PLEADED THAT THE PROVISIONS OF SECTION 273 (B) OVERRIDES THE PROVISIONS OF SECTION 271G AND THE ASSESSEE HAD REA SONABLE CAUSE FOR THE FAILURE LIKE (A) THERE WAS CHANGE OF OWNERS HIP OF DWL W.E.F. 21.03.2006 AND THE DETAILS REQUIRED BY THE TPO COUL D NOT BE FURNISHED SINCE THOSE DETAILS WERE NOT FURNISHED BY THE ERSTWHILE :-3-: I.T.A. N0. 1278/MDS/2016 MANAGEMENT & (B) THE INFORMATION REQUIRED BY THE TP O WAS NOT PUBLICLY AVAILABLE AND THE SAME WAS NOT ALSO FURNIS HED TO THE COMPANY BY THE ERSTWHILE MANAGEMENT. AFTER HEARING THE APPELLANT, THE AO PASSED PENALTY ORDER U/S. 271G DA TED 30.06.2009 LEVYING A PENALTY OF RS. 1,47,13,125/-. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT (A) HELD THAT THE DEFAULT WAS NOT PATENT, HENCE THE PENALTY U/S. 271G WAS SUS TAINABLE IN LAW AND DIRECTED THE AO TO DELETE THE PENALTY. AGGRIEV ED AGAINST THAT ORDER, THE REVENUE FILED THIS APPEAL, INTER ALIA, W ITH THE FOLLOWING GROUNDS: 2.1 THE LEARNED CIT(A) ERRED IN DELETING THE PENAL TY LEVIED U/S. 271G OF THE IT ACT TO THE TUNE OF RS. 1,47,13, 125/- 2.2 THE LEARNED CIT(A) ERRED IN DELETING THE PENALT Y BY STATING THAT THE ASSESSEE HAS REASONABLE CAUSE TO F URNISH THE INFORMATION/DOCUMENT U/S. 92D OF THE IT ACT. 2.3 THE LEARNED CIT(A) ERRED IN ACCEPTING THE REASO N ADDUCED BY THE APPELLANT THAT THERE WAS CHANGE IN T HE MANAGEMENT OF THE ASSESSEE COMPANY DUE TO WHICH THE ASSESSEE W AS INCAPACITATED FROM FURNISHING THE INFORMATION REQUI RED U/S. 92D OF THE IT ACT. 2.4 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH E FACT THAT THE INFORMATION AND DOCUMENTS IN RELATION TO T HE INTERNATIONAL TRANSACTIONS REPORTED IN FORM 3CEB CONSTITUTES CONT EMPORANEOUS DOCUMENTATION WHICH REQUIRED TO BE KEPT AND MAINTAI NED BY THE ASSESSEE MANDATORILY. 2.5 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT KE EPING AND MAINTAIN THE DOCUMENTATION U/S. 92D HAS GOT NOTHING TO DO WITH THE CHANGE IN THE OWNERSHIP/MANAGEMENT OF THE ASSESSEE COMPANY. :-4-: I.T.A. N0. 1278/MDS/2016 2.6 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ASSESSEE ENTITY CONTINUES TO BE IN EXISTENCE AS A GOING CONC ERN IRRESPECTIVE OF THE CHANGE IN THE MANAGEMENT OF THE COMPANY. THERE FORE THE RELIEF GRANTED TO THE ASSESSEE IS NOT IN ACCORDANCE WITH T HE PROVISIONS OF LAW. 3. THE DR INVITED OUR ATTENTION TO THE COPY OF THE ANNEXURE I OF ANNEXURE TO FORM NO. 3CEB IN THE PAPER BOOK FURNISH ED BY THE ASSESSEE AND SUBMITTED THAT THE ASSESSEE HAS DECLAR ED DISHNET WIRELESS (MAURITIUS) LTD., AND SIVA LIMITED AS ASSO CIATED ENTERPRISES WITH WHOM IT HAS ENTERED INTO INTERNATIONAL TRANSAC TIONS AND THE VALUE OF THE INTERNATIONAL TRANSACTIONS WITH THEM HAS BEEN COMPUTED BY APPLYING INTERNAL COMPARABLE UNCONTROL LED PRICE METHOD AS PRESCRIBED U/S. 92C . THEREAFTER, HE INVI TED OUR ATTENTION TO THE AOS OBSERVATION IN THE ASSESSMEN T ORDER FOR THE INITIATION OF PENALTY PROCEEDINGS AND SUBMITTED TH AT SINCE THE ASSESSEE HAS NOT FURNISHED THE DETAILS REQUIRED BY THE AO AND HAS NOT EXPLAINED THE REASONABLE CAUSES FOR NOT FURNISH ING THE REQUIRED DETAILS. SO, THE LEVY OF PENALTY IS JUSTIFIED. PER CONTRA, THE AR SUBMITTED THAT DURING THE COURSE OF THE ASSESSMENT, THE ASSESSEE HAD PLEADED BEFORE THE TPO THAT SIVA LIMITED, BERMUD A AND DISHNET WIRELESS (MAURITIUS) LIMITED, WERE NOT ITS ASSOCIAT ED ENTERPRISES AND REQUESTED FOR DROPPING THE PROCEEDINGS. IN ORDER T O DROP THE PROCEEDINGS, THE TPO VIDE HER NOTICES DATED OCTOBE R 14, 2007, MAY :-5-: I.T.A. N0. 1278/MDS/2016 7, 2008 AND JULY 3, 2008 HAD CALLED FOR SOME DOCUMENTS/INFORMATION TO SUBSTANTIATE ITS CLAIM BEF ORE THE TPO THAT SLB AND DWML ARE NOT ITS ASSOCIATED ENTERPRISES (AE S). IN THE ABSENCE OF DETAILS/DOCUMENTS, THE TPO WANTED TO CON CLUDE THAT THE TP PROVISIONS ARE APPLICABLE. THEREUPON, THE TPO HA D DISCUSSIONS WITH THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRA NSACTION AND AFTER DISCUSSIONS AND CONSIDERATION OF DOCUMENTS FURNISHE D BEFORE HER, SHE HAS CONCLUDED THAT THE INTERNATIONAL TRANSACTIO NS ARE AT ARMS LENGTH. THOUGH THE INFORMATION AS PER RULE 10D WERE FURNISHED TO THE SATISFACTION OF THE TPO, SHE HAD CONSIDERED TH EM AND CONCLUDED THAT THE TRANSACTIONS ARE AT ARMS LENGTH , STILL THE TPO CONSIDERED THAT THE PROVISIONS OF SECTION 271G ARE APPLICABLE AND INITIATED PENALTY PROCEEDINGS. ALTHOUGH THE ASSESS EE HAD PLEADED BEFORE THE ASSESSING OFFICER THAT THERE HAD BEEN A CHANGE IN THE MANAGEMENT OF THE APPELLANT COMPANY DUE TO WHICH IT DID NOT HAVE EXHAUSTIVE DOCUMENTATION TO SUPPORT ITS CONTENTION ETC, THE AO DISREGARDED THEM AND LEVIED PENALTY. IN SUPPORT, T HE AR INVITED OUR ATTENTION TO ITS LETTER DATED 16.05.2007 TO SHR I D. RAMA PRASAD, GROUP CFO, SIVA VENTURES LIMITED, ON THE SUBJECT OF INFORMATION FOR TRANSFER PRICE ASSESSMENT FOR THE ASSESSMENT YEAR 2 005-06-DISHNET WIRELESS LIMITED, CHENNAI . FURTHER, THE AR RELIED ON THE ORDER OF :-6-: I.T.A. N0. 1278/MDS/2016 THE CIT (A) AND SUBMITTED THAT ON PROPER APPRECIATI ON OF THE FACTS AND CIRCUMSTANCES OF ITS CASE AND AFTER CONSIDERING THE REASONABLE CAUSES, THE APPELLATE AUTHORITY ALLOWED ITS APPEA L AND THEN INVITED OUR ATTENTION TO THE RELEVANT PORTIONS OF THE CIT( A) ORDER. 4. WE HEARD THE RIVAL SUBMISSIONS. THE RELEVANT PO RTION OF THE ORDER OF THE CIT(A) IS EXTRACTED AS UNDER: 15. I HAVE CAREFULLY CONSIDERED THE FACTS, ORDER OF THE AO, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON R ECORD. AS IN EVIDENT FROM THE ABOVE THE PROCEEDINGS U/S 271 G WE RE INITIATED AND PENALTY LEVIED FOR FAILURE TO FURNISH INFORMATION C ALLED FOR BY THE TPO. IT NECESSITATES THE PRESENCE OF THE INGREDIENTS VIZ ., (I) THAT THE PERSON OUGHT TO HAVE ENTERED INTO A INTERNATIONAL T RANSACTION WITH AN AE WHICH MANDATES REFERENCE TO THE TPO U/S 92CA (II ) THAT ON BEING CALLED FOR TO PRODUCE INFORMATION OR DOCUMENT THE S AME REMAIN UNCOMPLIED WITH. THE PROVISIONS OF S.271 G ARE TO B E READ ALONG WITH S.273B WHICH REQUIRE PENALTY NOT TO BE IMPOSED IN C ASE THE APPELLANT PROVES THAT HE WAS PRECLUDED FROM COMPLYING WITH TH E REQUIREMENTS OF PRODUCTION OF DOCUMENTS OR INFORMATION CALLED FO R BY THE TPO BY REASONABLE CAUSE. 16. FROM THE SUBMISSIONS MADE BY THE APPELLANT WHAT IS EVIDENT ARE AS FOLLOWS: (I) THAT THE TPO HAD FINALIZED THE ORDER U/S 92CA N OT PROPOSING ANY ADJUSTMENT TO THE VALUE OF INTERNATIO NAL TRANSACTIONS ENTERED INTO BY THE APPELLANT AND ACCE PTING THE TRANSACTIONS TO BE AT ARMS LENGTH. (II) THAT CERTAIN INFORMATION CALLED FOR BY THE TP O COULD NOT BE FURNISHED BY THE APPELLANT ON ACCOUNT OF CHANGE OF OWNERSHIP OF THE APPELLANT COMPANY W.E.F. 21.3.2006 CONSEQUENT TO WHICH THERE WAS A CHANGE IN ERSTWHILE MANAGEMENT. :-7-: I.T.A. N0. 1278/MDS/2016 (III) THAT THE INFORMATION CALLED FOR BY THE TPO WA S NOT IN PUBLIC DOMAIN AND THE SAME WERE ALSO NOT FUR NISHED BY THE ERSTWHILE MANAGEMENT. (IV) THAT SIVA LTD., BERMUDA (SLB) AND DISHNET WIRELESS (MAURITUS) LTD (DWML) ARE NOT AES OF THE APPELLANT AND HENCE THE PROVISIONS OF TRANSFER PRIC ING INCLUDING THE OBLIGATION OF COMPLYING WITH THE SAME WOULD NOT APPLY. THIS FACT WAS SUBMITTED BY THE APPELLANT BEFORE THE TPO VIDE ITS SUBMISSION DT. 14.3.2007 THAT SLB AND DWML WERE NOT ASSOCIATED ENTERPRISES IN TERMS OF PROVISIONS OF S. 92A AND HENCE TRANSFER PRICING PRO VISIONS WERE NOT APPLICABLE TO THE APPELLANT. (V) THAT THE APPELLANT HAD STATED BEFORE THE TPO TH AT THE MANAGEMENT HAD CHANGED AFTER BEING TAKEN OVER B Y THE MAXIS GROUP EFFECTIVE FROM 21.03.2006. (VI) THAT THERE WAS A FINDING BY THE TPO WHILE FINALIZING THE ORDER U/S 92CA THAT ' THE CASE WAS D ISCUSSED WITH THE ASSESSEE'S REPRESENTATIVE. AFTER EXAMINING INTERNATIONAL TRANSACTIONS, NO ADJUSTMENT IS CONSID ERED NECESSARY TO THE VALUE OF THE INTERNATIONAL TRANSAC TIONS ENTERED INTO BY THE ASSESSEE. AS THE ASSESSEE FAILE D TO FURNISH THE DETAILS CALLED FOR VIDE THIS OFFICE NOT INGS DATED 14.3.2007 AND 7.5.2008 AND LETTER DATED 3.7.2008, T HE PROVISIONS OF SECTION 271G IS ATTRACTED FOR EACH FA ILURE OF THE ASSESSEE.' (EXTRACTED BY THE APPELLANT FROM THE ORDER OF TPO AND MADE PART OF THE SUBMISSION. (VII) THAT THE SUBMISSIONS MADE BY THE APPELLANT DATED 20.1.2009 BEFORE THE AO NEEDED TO BE CONSIDER ED. 17. THE READING OF THE ORDER IMPOSING PENALTY ALSO IS INDICATIVE OF THE SEVERAL REASONS AS TO WHY THE REASONS ADVANC ED WOULD CONSTITUTE 'REASONABLE CAUSE' WHICH WERE NOT CONSID ERED BY THE AO. THIS IS FURTHER MADE CLEAR IN PARA 4 OF THE PENALTY ORDER WITH REGARD TO THE DOCUMENTS AND INFORMATION REQUESTED BY THE T PO. THE ABOVE REASONS READ ALONG WITH THOSE LISTED OUT BY THE APP ELLANT IN PARA 5 ABOVE AND RELIED UPON CASE- LAWS DO GO IN TO SUPPOR T THE VIEW THAT :-8-: I.T.A. N0. 1278/MDS/2016 THE APPELLANT WAS PRECLUDED FROM COMPLYING WITH THE REQUIREMENTS WITH REGARD TO INFORMATION AND DOCUMENTS REQUISITIO NED BY THE TPO BY REASONABLE CAUSE. ACCORDINGLY, I AM OF THE CONSI DERED VIEW THAT THE DEFAULT WAS NOT PATENT AND HENCE THE PENALTY U/ S 271 G WAS NOT SUSTAINABLE IN LAW. THE AO IS DIRECTED TO DELETE TH E PENALTY. THIS GROUND OF APPEAL IS ALLOWED. 4.1 FROM THE ABOVE IT IS CLEAR, THAT THE ASSESSEE H AS ESTABLISHED THAT SIVA LTD., BERMUDA AND DISHNET WIRELESS (MAURI TIUS) LTD ARE NOT ITS AES AND HENCE THE PROVISIONS OF TRANSFER PR ICING INCLUDING THE OBLIGATION OF COMPLYING WITH THE SAME WOULD NOT APP LY. CERTAIN INFORMATION CALLED FOR BY THE TPO COULD NOT BE FURN ISHED BY THE ASSEESEE ON ACCOUNT OF CHANGE OF OWNERSHIP OF THE A PPELLANT COMPANY W.E.F. 21.3.2006 CONSEQUENT TO WHICH THERE WAS A CHANGE IN ERSTWHILE MANAGEMENT. THE INFORMATION CALLED FOR BY THE TPO WAS NOT IN PUBLIC DOMAIN AND THE SAME WERE ALSO NOT FUR NISHED BY THE ERSTWHILE MANAGEMENT. THEREAFTER, THE TPO BASED ON THE ELABORATE DETAILS FURNISHED BY THE ASSESSEE HAD FINALIZED THE ORDER U/S 92CA WITHOUT MAKING ANY ADJUSTMENT TO THE VALUE OF INTER NATIONAL TRANSACTIONS AND ACCEPTED THE DECLARED TRANSACTIONS TO BE AT ARMS LENGTH. WHEN WE CONSIDER THE ABOVE FACTS AND CIRC UMSTANCES AND THE REASONS GIVEN BY THE CIT(A) , AS EXTRACTED SUPR A, IT IS CLEAR THAT THE ASSESSEE HAS ESTABLISHED REASONABLE CAUSES FOR THE IMPUGNED NON-COMPLIANCE AND HENCE THERE IS NO GROUND FOR THE LEVY OF :-9-: I.T.A. N0. 1278/MDS/2016 PENALTY. THE ORDER PASSED BY THE CIT (A) DOES NOT R EQUIRE ANY INTERFERENCE AND HENCE THE REVENUES GROUNDS OF AP PEAL FAIL. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON WEDNESDAY, THE 6 TH DAY OF SEPTEMBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 06 TH SEPTEMBER, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF