FL Smidth Minerals Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1283/CHNY/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6046 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 15-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 12-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: S P CHIDAMBARAM S
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction
• Section: 92D

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1283/MDS/2014 ( / ASSESSMENT YEAR: 2007-08) M/S. FL SMIDTH MINERALS PRIVATE LIMITED (NOW MERGED WITH FLSMIDTH PRIVATE LIMITED), FLSMIDTH HOUSE, NO.34, EGATTOOR, RAJIV GANDHI SALAI (OMR), KELAMBAKKAM, CHENNAI 603 103. VS THE DCIT, COMPANY CIRCLE II(1), CHENNAI. PAN: AAACF1122D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI GIRISH DAVE & SHRI S.P. CHIDAMBARAM, ADVOCATES /RESPONDENT BY : SMT. VIJAYAPRABHA, JCIT /DATE OF HEARING : 25.09.2017 /DATE OF PRONOUNCEMENT : 26.09.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-II, CHENNAI DATED 16.01.2014 IN ITA NOS.480/2013-14 FOR THE ASSESSMENT YEAR 2007-08 PASSED U/S.250(6) R.W.S. 14 3(3) & 271AA OF THE ACT. 2 ITA NO.1283/MDS/2014 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN ENHANCING THE LEVY OF PENALTY AMOUNTING TO RS.95,77 ,305/- U/S.271AA OF THE ACT, WHEN THE ORDER OF THE LD.AO I TSELF IS ERRONEOUS WITH RESPECT TO LEVY OF PENALTY U/S.271AA OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF SUPPLY, DESIGN, SUPERVISION, ERECTION AND COMMISSIONING OF PLANT & EQUIPMENT FOR MINERALS PROCESSING INDUSTRIES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ELECTRONICAL LY ON 26.10.2007 ADMITTING INCOME OF RS.48,10,86,260/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBS EQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND FINALLY ASSESSME NT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 31.12.2010, WHEREIN THE LD.AO MADE CERTAIN ADDITIONS. FURTHER IN THE ORDER U/S.92 CA(4) OF THE ACT, THE LD.TPO OBSERVED THAT THE ASSESSEE HAD FAIL ED TO DISCLOSE TRANSACTIONS WORTH RS.15,82,65,883/- IN FO RM 3CEB WITH RESPECT TO THE ASSESSEES TRANSACTION WITH ITS ASSO CIATE ENTERPRISES. THE LD.TPO HAD FURTHER MENTIONED IN T HE ORDER THAT THE ASSESSEE HAD NOT COMPLIED WITH THE PROVISIONS O F SECTION 3 ITA NO.1283/MDS/2014 10B(4) OF THE ACT BY NOT FURNISHING THE COMPARABLES FOR THE CURRENT YEAR. IN VIEW OF THE SAME, THE LD.TPO HAD R ECOMMENDED PENALTY U/S.271AA OF THE ACT @ 2% ON THE VALUE OF T OTAL INTERNATIONAL TRANSACTION (2% ON RS.50,20,12,346/-) . ACCORDINGLY THE LD.AO INITIATED PENALTY PROCEEDINGS U/S.271AA O F THE ACT. THEREAFTER THE LD.DCIT LEVIED PENALTY OF RS.95,77,3 05/- BEING 2% OF THE TOTAL VALUE OF INTERNATIONAL TRANSACTION OF RS.47,88,65,270/- INVOKING THE PROVISIONS OF SECTIO N 271AA OF THE ACT BY OBSERVING AS UNDER:- 9. AS PER RULE 100(4), THE INFORMATION AND DOCUME NTS TO BE KEPT AND MAINTAINED SHOULD AS FAR AS POSSIBLE, B E CONTEMPORANEOUS AND SHOULD EXIST LATEST BY THE SPEC IFIED DATE REFERRED IN CLAUSE (IV) OF SECTION 92F. ACCORD INGLY, THE SPECIFIED DATE AS PER SEC.92F(IV) IS 30TH SEPTEMBER 2007 IN THIS CASE. BUT AS THE ASSESSEE HAS CONDUCTED THE SE ARCH OF COMPANIES EXISTING AS ON FEB. 15, 2007, EVER\I5~FOR E THE COMPLETION OF THE RELEVANT FINANCIAL YEAR I.E., BEF ORE 31.03.2007, IT HAS SPECIFICALLY EXCLUDED THE COMPAN IES WHICH WOULD HAVE BEEN OTHERWISE AVAILABLE FOR COMPA RISON IN THE DATABASES BETWEEN 1.4.2007 TO 30.9.2007. BY THIS ACT OF THE ASSESSEE COMPANY, IT HAS FAILED TO COMPLY WI TH RULE 10D(4). 10. THE ASSESSEE ARGUES THAT AS PER RULE 10B(4) OF THE IT RULES, IT IS NOT MANDATORY TO USE THE CURRENT YEAR DATA FOR THE PURPOSE OF DETERMINATION OF ALP. THIS CONTENTIO N IS NOT FULLY CORRECT. AS PER RULE 108(4), IT IS MANDATORI LY REQUIRED ON THE PART OF THE ASSESSEE COMPANY TO USE THE CURR ENT YEAR DATA FOR ANALYZING THE COMPARABILITY OF AN UNCONTRO LLED TRANSACTION WITH THE INTERNATIONAL TRANSACTION. THE CURRENT 4 ITA NO.1283/MDS/2014 YEAR IS THE FINANCIAL YEAR IN WHICH THE INTERNATION AL TRANSACTION HAS BEEN ENTERED INTO. THE PROVISO TO R ULE 10B(4) OF THE I.T RULES CONTEMPLATES THAT PRIOR YEA R DATA COULD ALSO BE USED AS LONG AS SUCH DATA HAS INFLUEN CE ON THE INTERNATIONAL TRANSACTION. HOWEVER, AS POINTED OUT BY THE TPO. THE ASSESSEE COMPANY HAS FAILED TO BRING OUT O N RECORD THE INFLUENCE OF THE PRIOR YEAR DATA ON ITS INTERNATIONAL TRANSACTIONS FOR DETERMINATION OF THE ARMS LENGTH PRICE OF ITS INTERNATIONAL TRANSACTIONS BASE D ON PRIOR YEAR DATA. 11. IN VIEW OF THE ABOVE DISCUSSION. IT BECOMES CLE AR THAT THE ASSESSEE'S CASE IS A FIT ONE FOR LEVY OF PENALT Y U/S 271AA OF THE ACT. AS PER THE DECISION OF THE GAWAHATI HIG H COURT IN THE CASE OF CIT VS SATYANARAN SIKARIA {238 ITR 8 55), THE STATUTE IS NOT TO BE INTERPRETED TO BLUNT THE EDGE OF THE LEGISLATIVE DEVICE. ACCORDING TO THE HON'BLE SUPREM E COURT ( IN THE CASE OF K.P.VARGHESE VS ITO AND ANOTHER - 131 ITR 597), THE TASK OF INTERPRETATIONS OF STATUTORY ENAC TMENT IS NOT A MECHANICAL TASK; IT IS MORE THAN A MERE READING O F MATHEMATICAL FORMULA. IF A BIG OMISSION TO COMPLY W ITH SEC.920 IS IGNORED AND PENALTY IS NOT LEVIED, THEN THE SANCTITY OF SECTION 92D WILL LOSE ITS TEETH. 12. FURTHER, THE FACTS OF THE CASE LAW RELIED ON BY THE ASSESSEE, VIZ., HINDUSTAN STEELS LIMITED ARE DIFFER ENT FROM THE FACTS OF THE ASSESSEE'S CASE. IN THE CITED CASE , THE SUPREME COURT HAD ACTUALLY ASKED THE ITAT TO SUBMIT A SUPPLEMENTARY STATEMENT ON THE CASE AND NO CONCLUSI VE FINDING WAS GIVEN IN THE CITED ORDER. IN THE PRESEN T CASE, THE OMISSION ON THE PART OF THE ASSESSEE TO COMPLY WITH THE PROVISIONS OF SEC.92D HAS BEEN CLEARLY BROUGHT OUT AS DISCUSSED IN PREVIOUS PARAGRAPHS. ACCORDINGLY, PENA LTY OF RS.95,77,305/- (RUPEES NINETY FIVE LAKH SEVENTY SEV EN THOUSAND THREE HUNDRED AND FIVE ONLY) BEING 2% OF T HE TOTAL VALUE OF INTERNATIONAL TRANSACTION OF RS.47,8 8,65,270 IS LEVIED U/S 271AA OF THE INCOME TAX ACT. 5 ITA NO.1283/MDS/2014 4. ON APPEAL, THE LD.CIT(A) ENHANCED THE PENALTY LE VIED U/S.271AA OF THE ACT BY OBSERVING AS UNDER:- 4.10 WHEREAS, IN THE INSTANT CASE, THE TP ANALYSI S FOLLOWED BY THE ASSESSEE IS TOTALLY WRONG AND AGAINST THE PR OCEDURE LAID DOWN IN THE RULES. IT HAD DELIBERATELY CONDUCTED TH E TP ANALYSIS BEFORE THE END OF THE FINANCIAL YEAR ITSEL F WHICH IS TOTALLY AGAINST THE PROCEDURE LAID DOWN UNDER RULE 1 OD. HENCE THE ABOVE CASE LAWS ARE DISTINGUISHABLE ON FA CTS AND HENCE NOT APPLICABLE TO THE INSTANT CASE. 4.11 IN VIEW OF THE ABOVE DISCUSSIONS, THERE IS A C LEAR FAILURE ON PART OF THE ASSESSEE TO INCLUDE AND FURNISH THE INTERNATIONAL TRANSACTIONS WITH AES OFRS.13,51,18,805/- IN ITS FO RM NO.3CEB REPORT. HENCE, IN THIS REGARD ALONE, THE AS SESSEE IS LIABLE FOR A PENALTY OF RS.27,02,376/-, BEING 2% OF RS.13,51,18,805/-, U/S.271AA OF THE ACT. IN ADDITIO N, AS DETAILED IN THE FORGING PARAGRAPHS, THE ASSESSEE FA ILED TO CONDUCT THE TP ANALYSIS/STUDY IN ACCORDANCE WITH TH E PROVISIONS OF RULE 10D OF THE IT RULES. THEREFORE T HE ASSESSEE IS LIABLE FOR PENALTY U/S.271AA OF THE INCOME TAX A CT, ON THE TOTAL INTERNATIONAL TRANSACTIONS WITH AES OF RS.47, 88,65,270/-. THEREFORE THE ASSESSING OFFICER IS JUSTIFIED IN IMP OSING A PENALTY OF RS.95,77,305/-, BEING 2% OF THE TOTAL VA LUE OF INTERNATIONAL TRANSACTIONS OF RS.47,88,65,270/-, U/ S.271AA OF THE ACT. THE PENALTY IMPOSED BY THE ASSESSING OFFI CER IS CONFIRMED. 5. AT THE OUTSET, THE LD.AR SUBMITTED BEFORE US THA T THE LD.CIT(A) HAD ENHANCED THE PENALTY WITHOUT ISSUING NOTICE TO THE ASSESSEE FOR MAKING SUCH ENHANCEMENT AND THEREBY DE PRIVED THE ASSESSEE THE OPPORTUNITY OF BEING HEARD WITH RE SPECT TO SUCH 6 ITA NO.1283/MDS/2014 ENHANCEMENT OF PENALTY. IT WAS THEREFORE ARGUED TH AT THE ORDER OF THE LD.CIT(A) MAY BE QUASHED. THE LD.DR ON THE OTHER HAND OPPOSED TO THE SUBMISSION OF THE LD.AR AND PLEADED FOR CONFIRMING THE ORDER OF THE LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. THE PRINCIPLES OF NATURAL JUSTICE DEMANDS THAT PROPER OPPORTUNITY SHOULD BE PROVIDED TO THE ASSESSEE FOR BEING HEARD AGAINST ANY TAX OR PENALTY ETC., IMPOSED ON THE ASSESSEE. FURTHER THE PROVISIONS OF SECTION 251(2) MAKE IT CLEAR THAT THE COMMISSIONER OF APPEA LS SHALL NOT ENHANCE AN ASSESSMENT OR A PENALTY OR REDUCE THE AM OUNT OF REFUND UNLESS THE APPELLANT HAS BEEN GIVEN A REASON ABLE OPPORTUNITY OF BEING HEARD. FROM THE FACTS OF THE CASE IT IS APPARENT THAT THE LD.CIT(A) HAS FAILED TO ADHERE TO THIS PROVISIONS OF THE ACT. THEREFORE IN THE INTEREST O F JUSTICE, WE HEREBY REMIT BACK THE MATTER TO THE FILE OF LD.CIT( A) IN ORDER TO PROVIDE ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEI NG HEARD WITH RESPECT TO THE ENHANCEMENT OF PENALTY AND THER EAFTER PASS APPROPRIATE ORDER AS PER LAW AND MERITS. FURTHER S INCE WE HAVE NOT HEARD THE CASE ON MERITS WITH RESPECT TO THE LE VY OF PENALTY 7 ITA NO.1283/MDS/2014 BY THE LD.AO U/S.271AA OF THE ACT, THE ASSESSEE IS AT LIBERTY TO PLEAD ONCE AGAIN BEFORE THE LD.CIT(A) AGAINST THE L EVY OF PENALTY, WHICH THE LD.CIT(A) SHALL CONSIDER AND PAS S APPROPRIATE ORDER IN ACCORDANCE WITH LAW AND MERITS AFRESH. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED ON THE 26 TH SEPTEMBER, 2017 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER /CHENNAI, ! /DATED 26 TH SEPTEMBER, 2017 RSR ! #$% &% /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. %+ , ##-. /DR 6. , /0 /GF