The Dy. CIT, Central Circle-3, Surat V. M/s. Veer Gems, Surat

ITA 161/SRT/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8694 (ITAT-SURAT)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 12-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SREENIVAS T BIDARI LD
• Keywords: Transfer pricing; International transaction; Bonafide belief
• Section: 92D; 92B; 92E

Judgement Text

DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 1 OF 8 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A. NOS. 161 & 162/SRT/2017 / ASSESSMENT YEARS : 2012-13 & 2013-14 /ASSESSEE BY SHRI MEHU L SHAH , CA /REVENUE BY SHRI SREENIVAS T.BIDARI , LD CIT - DR / DATE OF HEARING : 10 .0 7 .2019 /PRONOUNCEMENT ON : 12 .07 .2019 /O R D E R PER O.P.MEENA, AM: 1. THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAINST COMPOSITE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, SURAT (IN SHORT THE CIT (A)) DATED 20.07.2017 PERTAINING TO ASSESSMENT YEAR 2012-13 AND 2013-14, WHICH IN TURN HAS ARISEN FROM THE SEPARATE PENALTY ORDERS PASSED UNDER SECTION 271AA AND 271BA ALL DATED 30.08.2016 OF INCOME TAX ACT, 1961 (IN SHORT THE ACT) BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE -3, SURAT (IN SHORT THE AO). DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3, SURAT. VS. VEER GEMS, 7/2982, BHAGAT BUILDING, PARSHI SHERI, SAIYEDPURA, SURAT. [PAN: AABFV 6446 L] /APPELLANT /RESPONDENT DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 2 OF 8 2. WE ARE TAKING UP I.T.A.NO. 161/SRT/2017 A.Y. 2012-13 FIRST WHOSE FINDINGS WOULD MUTATIS MUTANDIS APPLY TO ASSESSMENT YEAR 2013-14 AS THE FACTS ARE IDENTICAL. 3. GROUND NO. 1 TO 3 OF REVENUE STATES THAT LD.CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS.4,17,71,660/- LEVIED UNDER SECTION 271AA AND PENALTY OF RS.1,00,000/- LEVIED UNDER SECTION 271BA OF THE ACT VIDE COMPOSITE ORDER. 4. SUCCINCTLY, FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE IS ENGAGED IN THE PURCHASE OF ROUGH DIAMONDS AND MANUFACTURING OF POLISHED DIAMONDS & SALE / EXPORT OF POLISHED DIAMONDS. A SEARCH WAS CARRIED OUT ON 05.03.2013 IN THE CASE OF DIAMOND GROUP OF SURAT IN WHICH THE ASSESSEE WAS ALSO COVERED. A REFERENCE UNDER SECTION 92CA(1) OF THE ACT WAS MADE FOR COMPUTATION OF ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION. THE TRANSFER PRICING OFFICER PASSED AN ORDER UNDER SECTION 92CA(3) OF THE ACT ON 31.08.2015 WHEREIN NO ADJUSTMENT WAS MADE TO THE ARMS LENGTH PRICE TRANSACTION. HOWEVER, SINCE THE ASSESSEE HAS DID NOT FURNISH AUDIT REPORT IN FORM NO. 3CEB AND DIDNT MAINTAIN THE DOCUMENT PRESCRIBED UNDER SECTION 92D(1) OF THE ACT. CONSEQUENTLY, PENALTY PROCEEDINGS WERE INITIATED UNDER SECTION 271AA AND UNDER SECTION 271BA OF THE ACT. DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 3 OF 8 5. THE ASSESSING OFFICER (AO) REFERRED THE PROVISIONS OF SECTION 271AA AND OBSERVED THAT SECTION 92D(1) PRESCRIBES THAT THE INFORMATION AND DOCUMENTS WHICH ARE MAINTAINED BY EVERY ASSESSEE WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION, WITHIN THE MEANING OF SECTION 92B OF THE ACT. SECTION 92E STATES THAT EVERY PERSON WHO ENTERS INTO AN INTERNATIONAL TRANSACTION SHOULD FILE A REPORT FROM CHARTERED ACCOUNTANT IN FORM NO.3CEB AS PRESCRIBED BY RULE 10E, FAILURE TO MAINTAIN THE INFORMATION PRESCRIBED BY SUB-SECTION 1 AND SUB-SECTION 2 WOULD ENTAIL PENALTY U/S.271AA OF THE ACT AND FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 92E WOULD RESULT IN THE PENALTY TO BE IMPOSED U/S.271BA OF THE ACT OF RS.1,00,000/-. IT WAS EXPLAINED BY THE ASSESSEE THAT AS PER SECTION 92D (1) EVERY PERSON WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION SHALL KEEP AND MAINTAIN SUCH INFORMATION AND DOCUMENT IN RESPECT THEREOF, AS MAY BE PRESCRIBED. THE ASSESSEE SUBMITTED THAT IT HAS IN FACT KEPT AND MAINTAINED SUCH INFORMATION AND DOCUMENTS OF ALL THE YEARS FOR WHICH TRANSFER PRICING PROVISIONS WERE MADE APPLICABLE. IT WAS ARGUED THAT IN THE PAST THE AO DID NOT REQUIRE ASSESSEE TO FURNISH ANY INFORMATION OR DOCUMENTS AS PRESCRIBED U/S.92D(1). THE ASSESSEE HAS ALSO ADMITTED THAT IT HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH BLEU GEMS BVBA FOR ALL THE YEARS AND THE TRANSFER PRICING DOCUMENTATION FOR ALL THE YEARS WAS SAME AS THERE WAS NO SIGNIFICANT CHANGE OF NATURE OR TERMS OF INTERNATIONAL TRANSACTION. HOWEVER, THE ASSESSEE HAS OBJECTED THE APPLICABILITY OF TRANSFER PRICING PROVISION U/S.92CA AS ACCORDING TO THE ASSESSEE M/S.BLEU GEMS, BVBA IS NOT AN ASSOCIATE ENTERPRISE. HOWEVER, THE ASSESSING OFFICER DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 4 OF 8 WAS OF THE VIEW THAT THE ASSESSEE VIDE PARA 9 OF ITS SUBMISSIONS DATED 09.05.2016 HAS ADMITTED THAT AS IT WAS ON THE BONAFIDE BELIEF THAT BLUE GEMS, BVBA IS NOT ASSOCIATE ENTERPRISE, HENCE THE ASSESSEE DID NOT OBTAIN THE AUDIT REPORT IN FORM NO.3CEB FOR A.Y. 2012-13 AND 2013-14. THEREFORE, THE FACT THAT THE ASSESSEE FAILED TO KEEP AND MAINTAIN ANY DOCUMENTS AND AUDIT REPORT AND SUCH INFORMATION AS REQUIRED U/S.92D(1) AND 92D(2) THE ASSESSEE HAS FAILED TO FURNISH REPORT FROM THE ACCOUNTANT AS REQUIRED BY SECTION 92E OF THE ACT ATTRACTING PENALTY U/S.271BA OF THE ACT. 6. IN THE LIGHT OF ABOVE FACTS, THE ASSESSING OFFICER IMPOSED A PENALTY @2% OF THE VALUE OF EACH INTERNATIONAL TRANSACTION AMOUNTING TO RS.208,85,82,975/- AND IMPOSED THE PENALTY OF RS.4,17,71,660/- U/S.271AA FOR NON-MAINTENANCE OF INFORMATION AND PENALTY OF RS.1,00,000/- U/S.271BA OF THE ACT FOR NOT FURNISHING AN AUDIT REPORT FROM AN ACCOUNTANT AS REQUIRED BY SECTION 92E OF THE ACT. 7. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) WHEREIN IT WAS CONTENDED THAT M/S.BLEU GEMS, BVBA WAS NOT AN ASSOCIATE ENTERPRISE AND THIS FACTS WAS ALSO UPHELD BY THE ITAT AHMEDABAD IN ASSESSEES OWN CASE FOR A.Y. 2008-09 IN ITA NO.184/AHD/2012 AND CONFIRMED BY THE HON'BLE GUJARAT HIGH COURT (TAX APPEAL NO.338/2017). THEREFORE, IT WAS CONTENDED THAT ONCE IT IS HELD THAT TWO CONCERNS ARE NOT ASSOCIATED ENTERPRISE U/S.92(2) OF THE ACT, THERE IS NO QUESTION OF ENFORCING REQUIREMENT OF KEEPING THE RECORD AS REQUIRED U/S.92D(1) AND FURNISHING AN DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 5 OF 8 AUDIT REPORT IN FORM NO.3CEB, HENCE NO PENALTY CANNOT BE IMPOSABLE UNDER THE PROVISIONS OF SECTION 271AA AND 271BA OF THE ACT. 8. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THIS TRIBUNAL. THE LD.CIT-DR SUBMITTED THAT THE ASSESSEE HAS ADMITTED THAT IT WAS OF THE BONAFIDE BELIEF THAT THE BLEU GEMS IS NOT AN ASSOCIATE ENTERPRISE AND THEREFORE THE ASSESSEE DID NOT OBTAIN THE AUDIT REPORT IN FORM NO.3CEB FOR ASSESSMENT YEAR UNDER APPEAL, HENCE THE ASSESSEE HAS FAILED TO KEEP AND MAINTAIN ANY SUCH INFORMATION AND DOCUMENTS AS REQUIRED BY SUB- SECTION 92D(1) & 92D(2). THEREFORE, THE AO WAS JUSTIFIED IN LEVY OF PENALTY U/S.271AA AND 271BA OF THE ACT. 9. PER CONTRA, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT M/S.BLEU GEMS, BVBA IS NOT AN ASSOCIATE ENTERPRISE OF THE ASSESSEE, THEREFORE THERE WAS NO REQUIREMENT TO MAINTAIN TRANSFER PRICING DOCUMENTATION FOR THE YEAR UNDER APPEAL AND TO OBTAIN AUDIT REPORT U/S.92E OF THE ACT. THEREFORE, STRONGLY SUPPORTED THE ORDER OF THE LD.CIT(A). THE LD.COUNSEL SUBMITTED THAT ASSESSEE HAD MAINTAINED REQUIRED INFORMATION UP TO A.Y. 2007-08 AND SAME WAS SUBMITTED VIDE LETTER DATED 27.10.2009. IT WAS CONTENDED THAT AS PER PROVISO TO RULE 10D, WHEN AN INTERNATIONAL TRANSACTION CONTINUES TO HAVE A EFFECT OVER MORE THAN ONE PREVIOUS YEAR, FRESH DOCUMENT NEED NOT BE MAINTAINED. THE AO HAS ALSO NOT INITIATED ANY PENALTY PROCEEDINGS FOR A.Y. 2008-09 TO 2010-11. FURTHER, RELYING ON THE DECISION IN THE CASE OF ACIT VS. GLOBAL ONE INDIA (P) LTD., 19 TAXMANN.COM 249 (DELHI), AUGUSTAN DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 6 OF 8 KNITWEAR (P) LTD. VS. ACIT 67 TAXMANN.COM 139 (CHENNAI), ITO VS. PPM POWER GENERATING CO. (P) LTD., 50 SOT 26 (PB-22) SUBMITTED THAT PENALTY U/S.271AA IS NOT LEVIABLE WHEN NO TRANSFER PRICING ADJUSTMENT IS MADE. THE LD.COUNSEL HAS ALSO FILED A COPY OF ITAT ORDER IN THE CASE OF ASSESSEE ACIT VS. VEER GEMS ][2017] 77 TAXMANBN.COM 127 (AHMEDABAD TRIB.) WHEREIN IT HAS BEEN HELD THAT BLEU GEMS, BVBA WOULD NOT BE AN ASSOCIATE ENTERPRISE OF THE ASSESSEE U/S.92A WHICH HAS BEEN CONFIRMED BY THE HON'BLE GUJARAT HIGH COURT [2017] 83 TAXMANN.COM 271 (GUJ) AND SLP [PB 24] AND SLP OF WHICH IS ALSO DISMISSED BY THE HON'BLE SUPREME COURT REPORTED IN [2018] 95 TAXMANN.COM 16 (SC) [PB 23]. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT IN THE ASSESSEES OWN CASE FOR A.Y. 2008- 09 THE ITAT AHMEDABAD TRIBUNAL IN THE CASE OF ASSESSEE IN ACIT VS. VEER GEMS (SUPRA) HELD THAT A PARTNERSHIP CONCERN CANNOT BE SAID TO BE CONTROLLED BY AN INDIVIDUAL AND, HENCE AS PER SECTION 92A(2)(J) CANNOT BE A AE OF ANOTHER ENTERPRISE RUN BY RELATIVE OR PARTNERS EVEN THOUGH IT MAY HAVE A DEFACTO PARTICIPATION IN CAPITAL, MANAGEMENT FOR CONTROL OF OTHER ENTERPRISES. THUS, THE ITAT HAS DECIDED THE BASIC ISSUE IN FAVOUR OF THE ASSESSEE THAT BLEU GEMS, BVBA IS NOT AN ASSOCIATED ENTERPRISE OF THE ASSESSEE. THIS DECISION OF HON'BLE ITAT WAS ALSO UPHELD BY THE HON'BLE GUJARAT HIGH COURT REPORTED AT PCIT VS. VEER GEMS [2017] 83 TAXMANN.COM 271 (GUJ SC) [PB 24] AND FURTHER THE SLP OF THE REVENUE AGAINST THE SAID DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 7 OF 8 DECISION HAS BEEN DISMISSED BY THE HON'BLE SUPREME COURT IN PCIT VS VEER GEMS [2018] 95 TAXMANN.COM 16 SC [PB 23]. WE ARE, THEREFORE, OF THE VIEW THAT WHEN THE TWO CONCERNS ARE NOT ASSOCIATED ENTERPRISE U/S.92A(2) OF THE ACT, THERE IS NO QUESTION OF ENFORCING REQUIREMENT OF KEEPING THE RECORD AS REQUIRED U/S.92D(1) AND FURNISHING A REPORT IN FORM NO.3CEB U/S.92E OF THE ACT. WE FURTHER OBSERVE THAT THE LD.COUNSEL SUBMITTED THAT ASSESSEE HAD MAINTAINED REQUIRED INFORMATION UP TO A.Y. 2007-08 AND SAME WAS SUBMITTED VIDE LETTER DATED 27.10.2009. IT WAS CONTENDED THAT AS PER PROVISO TO RULE 10D, WHEN AN INTERNATIONAL TRANSACTION CONTINUES TO HAVE A EFFECT OVER MORE THAN ONE PREVIOUS YEAR, FRESH DOCUMENT NEED NOT BE MAINTAINED. THE AO HAS ALSO NOT INITIATED ANY PENALTY PROCEEDINGS FOR A.Y. 2008-09 TO 2010-11. FURTHER, RELYING ON THE DECISION IN THE CASE OF ACIT VS. GLOBAL ONE INDIA (P) LTD., 19 TAXMANN.COM 249 (DELHI), AUGUSTAN KNITWEAR (P) LTD. VS. ACIT 67 TAXMANN.COM 139 (CHENNAI), ITO VS. PPM POWER GENERATING CO. (P) LTD., 50 SOT 26 (PB-22) SUBMITTED THAT PENALTY U/S.271AA IS NOT LEVIABLE WHEN NO TRANSFER PRICING ADJUSTMENT IS MADE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT LD.CIT(A) HAS RIGHTLY HELD THAT NO PENALTY CAN BE IMPOSED UNDER THE PROVISIONS OF SECTION 271AA AND 271BA OF THE ACT. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD.CIT(A) ACCORDINGLY SAME IS UPHELD. CONSEQUENTLY, ALL THE GROUNDS OF REVENUE FOR A.Y. 2012-13 ARE DISMISSED. DCIT, CENTRAL CIRCLE-3, SURAT VS. VEER GEMS / ITA NOS. 161 & 162/SRT/2017 PAGE 8 OF 8 ITA NO.162/SRT/2017 FOR A.Y.2013-14: 11. SINCE THE FACTS AND CIRCUMSTANCES IN ABOVE ITA NO.161/SRT/2017 FOR A.Y. 2012-13 ARE IDENTICAL AS OF FACTS AS IN ITA NO.162/SRT/2017 FOR A.Y.2013-14, THEREFORE, THE REASONING AND FINDINGS GIVEN IN A.Y. 2012-13 WOULD MUTATIS-MUTANDIS APPLY TO THIS APPEAL FOR A.Y.2013-14 ALSO. THEREFORE, FOLLOWING THE SAME, WE DISMISS THE APPEAL OF THE REVENUE IN RESPECT OF ALL GROUNDS OF APPEAL. 12. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE DISMISSED. 13. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.07.2019 SD/- SD/- (V. DURGA RAO) (O.P.MEENA) ( /JUDICIAL MEMBER) ( /ACCOUNTANT MEMBER) / SURAT, DATED : 12 TH JULY , 2019/ S.GANGADHARA RAO, SR.PS COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT