DCIT, CHENNAI V. Autoneum Nittoku Sound Proof Products India Private Limited, Kancheepuram

ITA 1956/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7953 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 29-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: Transfer pricing; Rectification of order; International transaction
• Section: 92D; 115JB; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO. 1956/MDS/2016 /ASSESSMENT YEAR : 2009-10 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1(1), CHENNAI - 600 034. VS. M/S. AUTONEUM NITTOKU SOUND PROOF PRODUCTS INDIA PRIVATE LIMITED, PLOT NO. RNS 15, SIPCOT INDUSTRIAL GROWTH CENTRE, ORAGADAM, VADAKUPATTU POST, KANCHIPURAM, 603 204. [PAN: AAECR 1409H] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT / RESPONDENT BY : SHRI SANDEEP BAGMAR, ADVOCATE /DATE OF HEARING : 15.09.2016 /DATE OF PRONOUNCEMENT : 30.11.2016 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF CIT(A) - 1, CHENNAI I.T.A. NO. 275//CIT(A)-1/14-15 DATED 04.04.2016 PAS SED U/S. 271AA AND 250 OF THE INCOME TAX ACT. :-2-: I.T.A. NO.1956/MDS/2016 2. BEFORE WE PROCEED FOR HEARING THERE IS A DELAY OF 4 DAYS IN FILING THE APPEAL OF THE REVENUE. THE LD. DR FILED CONDONATIO N PETITION AND EXPLAINED THE CIRCUMSTANCES FOR DELAY WHICH ARE NOT DELIBERAT E. FURTHER, LD. AR OF THE ASSESSEE HAS NO SERIOUS OBJECTIONS FOR CONDONATION OF DELAY. AFTER HEARING THE SUBMISSIONS, WE ARE SATISFIED WITH THE REASONAB LE CAUSE SUBMITTED IN AFFIDAVIT FOR FILING THE APPEAL BELATEDLY. THEREFO RE, THE DELAY IS CONDONED AND APPEAL IS ADMITTED. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 3.1 THE LD. CIT(A) HAS ERRED ALLOWING THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE PENALTY ORDER DOES NOT SURVIVE SINCE THE MATTER HAS BEEN REMITTED BACK TO THE TPO FOR RECONSIDERATION. 3.2 THE LD. CIT(A) FAILED TO APPRECIATE THAT FACT T HAT THE HON'BLE ITAT HAS ONLY DIRECTED THE TPO TO COMPUTE ALP FOR THE PRODU CT DEVELOPMENT EXPENSES, WHICH HAS NO RELEVANCE TO PENALTY LEVIED FOR FAILURE/NON- MAINTENANCE OF INFORMATION/DOCUMENTS. 3.3 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE ORIGINAL ASSESSMENT BEING REMITTED BACK TO THE TPO, IT IS P REMATURE TO CONCLUDE THE FATE OF THE PENALTY LEVIED IN THE ASSESSEE'S F AVOUR. :-3-: I.T.A. NO.1956/MDS/2016 4. THE BRIEF FACTS OF THE CASE ARE THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF SOPHISTICATED SOUND PROOF SYSTEM S OLUTIONS FOR THE AUTOMOBILES AND FILED RETURN OF INCOME ELECTRONICALLY ON 30.09. 2009 DECLARING NIL INCOME AND COMPLIED THE PROVISIONS OF SECTION 115JB OF THE ACT WITH A LOSS OF RS. 84,48,950/- AND THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143( 2) WAS ISSUED. THE LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE D ETAILS. THE ASSESSING OFFICER MADE THE REFERENCE TO THE TRANSFER PRICING OFFICER FOR DETERMINING OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE LD. TPO PA SSED ORDER C.R. NO. R-510/TPO- V/AY 2009-10 DATED 23.01.2013 WITH OBSERVATIONS THA T THE ASSESSEE COMPANY HAS DETERMINED RS. 1,90,72,196/- WHICH IS ALSO THE ALP OF DEVELOPMENT FEES AGAINST ACTUAL AMOUNT OF RS. 3,49,10,547/- AND THE DIFFEREN CE OF THE TOTAL DEVELOPMENT FEE BE REDUCED AND SINCE, THE ASSESSEE COMPANY HAS CAPI TALISED THE ENTIRE SUM, ADJUSTMENT IS COMPULSORY, THE LD. AO PASSED DRAFT A SSESSMENT ORDER WITH TPO OBSERVATIONS ON 15.03.2013, THE RECTIFICATION PETIT ION WAS ALSO FILED. 5. AGGRIEVED BY THE DRAFT ASSESSMENT ORDER THE ASSE SSEE FILED OBJECTIONS BEFORE THE DRP AND ALSO RECTIFICATION OF MISTAKE CR EPT IN THE ORDER. SUBSEQUENTLY, THE DRP PASSED DIRECTIONS TO THE TPO U/S. 144C(5) O F THE ACT ON 20.12.2013. THE LD. TPO MADE REDUCTION TO RS. 77,68,082/- INSTEAD O F RS. 1,58,38,351/-. FURTHER, THE COMPANY IS IN THE FIRST YEAR OF ITS OPERATIONS AND YET TO COMMENCE THE COMMERCIAL OPERATIONS AND DEVELOPMENT FEE OF RS. 3, 49,10,547/- WAS CAPITALISED AS 'CAPITAL WORKING PROGRESS'. WHEREAS, AS PER THE DI RECTIONS OF THE TPO, THE CAPITAL WORKING PROGRESS WAS REDUCED AS ON 31.03.2009 TO RS . 2,71,48,465-. THE ASSESSING :-4-: I.T.A. NO.1956/MDS/2016 OFFICER AS PER THE DIRECTIONS OF THE DRP PASSED THE FINAL ASSESSMENT ORDER U/S. 143 R.W.S. 144(C) ON 24.02.2014, SUBSEQUENTLY THE ASSES SING OFFICER INITIATED PENALTY PROCEEDINGS AND ISSUED NOTICE U/S. 271AA OF THE ACT IN RESPECT OF MAINTENANCE OF DOCUMENTS AS PRESCRIBED U/S. 92D(1) & (2) OF THE AC T AND REPORT OF TRANSACTION AND NON-MAINTENANCE OF PROPER DOCUMENTS. THE LD. AR OF THE ASSESSEE FILED EXPLANATION ON 16.04.2014 AND 25.09.2014. THE LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE COMPANY HAS FAILED TO REPORT TRANSACTI ONS AND NON-FURNISHING OF INFORMATION, THE ASSESSEE PRAYED THE PENALTY PROCEE DING MAY KEPT IN ABEYANCE TILL THE DISPOSAL OF APPEAL FILED WITH TRIBUNAL ON ADDIT IONS. THE ASSESSING OFFICER ON PERUSAL OF THE FINDINGS OF THE TPO OBSERVED THAT TH E ASSESSEE COMPANY HAS TO MAINTAIN DOCUMENTS AND COULD NOT COMPLY THE CONDITI ONS OF INTERNATIONAL TRANSACTION REPORTED IN FORM 3CEB RS. 18,59,95,547/- AND ASSESS EE HAS FAILED TO MAINTAIN DOCUMENT AS PRESCRIBED U/S. 92D R.W.R. 10D OF INCOM E TAX RULES 1962 AND HAS NOT SUBMITTED THE MARKET ANALYSIS REPORT. THE LD. AO P ASSED PENALTY ORDER U/S. 271(1)(C) OF THE ACT FOR RS. 37,19,911/- BEING 2% O F INTERNATIONAL TRANSACTIONS OF ORDER DATED 27.08.2014. AGGRIEVED BY THE ORDER ASS ESSEE FILED AN APPEAL BEFORE THE CIT(A) IN THE APPELLANT PROCEEDINGS THERE WAS A DEL AY OF 78 DAYS IN FILING THE APPEAL AND WAS CONDONED. THE LD. AR FILED JUDICIAL DECISI ONS AND THE TRIBUNAL ORDER IN ASSESSEE'S OWN CASE. THE LD. CIT(A) OBSERVED ON TH E FINDINGS OF THE TPO ON NON- MAINTENANCE OF DOCUMENTS AS PRESCRIBED U/S. 92D R.W .S.10D. THE APPELLANT HAS INCURRED DEVELOPMENT COST OF RS. 3.49 CRORES EXAMIN ED BY THE LD. TPO AND ORDER PASSED U/S. 92CA OF THE ACT. THE QUANTUM APPEAL FI LED WITH THE TRIBUNAL WAS DISPOSED OFF BY ORDER IN ITA NO. 1425/MDS/2014, DAT ED 14.09.2015 WHERE THE TRIBUNAL REMITTED THE MATTER TO THE FILE OF TPO WIT H DIRECTIONS TO DETERMINE ALP FOR :-5-: I.T.A. NO.1956/MDS/2016 THE PRODUCT DEVELOPMENT EXPENSES INCURRED BY THE AS SESSEE. THE LD. CIT(A) BASED ON ITAT DECISION OF REMITTING THE MATTER TO THE FIL E OF TPO IS OF THE OPINION THAT PENALTY ORDER DOES NOT SURVIVE AND ALLOWED THE APPE AL. 6. AGGRIEVED BY THE ORDER, THE REVENUE HAS FILED AN APPEAL WITH TRIBUNAL. THE LD. DR ARGUED THE GROUNDS THAT THE LD. CIT(A) E RRED IN OBSERVING THAT PENALTY DOES NOT SURVIVE AS THE MATTER HAS BEEN REMITTED TO THE FILE OF TPO FOR RECONSIDERATION FOR COMPUTATION OF ALP. FURTHER, L D. CIT(A) ERRED AS THE PENALTY IS LEVIED IN ACCORDANCE WITH THE PROVISIONS FOR NON-MA INTENANCE OF INFORMATION AND DOCUMENTS IN RESPECT TO INTERNATIONAL TRANSACTIONS AND MARKET ANALYSIS AND PRAYED FOR SET ASIDE OF THE ORDER OF CIT(A) AND ALLOW THE REVENUE APPEAL. CONTRA, THE LD. AR OF THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A ) AND THE TRIBUNAL ORDER IN QUANTUM APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS, THE SOLE CRUX OF THE ISSUE ARGU ED BY THE DR THAT THE CIT(A) HAS ERRED IN DELETING THE PENALTY ON THE GROUNDS THAT T HE MATTER HAS BEEN REMITTED BACK TO TPO FOR RECONSIDERATION OR DETERMINING THE ALP O F INTERNATIONAL TRANSACTIONS OF PRODUCT DEVELOPMENT EXPENSES AND THE ASSESSEE HAS N OT MAINTAINED THE INFORMATION AS REQUIRED U/S. 92 R.W.S. RULE 10D. ON PERUSAL, W E FOUND THAT THE LD. TPO HAS EXAMINED THE RECORDS AND MADE THE ADJUSTMENTS TO TH E INTERNATIONAL TRANSACTIONS WHICH WAS CONSIDERED BY THE DRP. THE FACT BEING TH E ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF SOUND PROOF SYSTEM AND THE LD. AR HAS EXPLAINED THE :-6-: I.T.A. NO.1956/MDS/2016 ASSESSEE HAS MAINTAINED RECORDS AND SUBMITTED BEFOR E TPO AND THERE IS NO SPECIFIC FINDINGS IN RESPECT OF ANY FAILURE BY THE ASSESSING AUTHORITY ON APPLICABILITY OF PROVISIONS. WE FOUND THE TRIBUNAL IN APPEAL ITA NO. 275/CIT(A)-1/2014-15 DATED 14.09.2015 HAS REMITTED THE ISSUE TO THE FILE OF TP O FOR RECONSIDERATION AND CALCULATION OF THE ALP. WE SUPPORT OUR VIEW WITH T HE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF ACIT VS. PENTASOFT TECHNOLOGIE S LTD., ITA NO. 809, 810, 816 & 817/MDS/2011 DATED 25.11.2011 WERE IT IS HELD 'SUBMISSION OF THE ASSESSEE IS THAT IT HAD MAINTAIN ED ALL RECORDS WHICH WERE REQUIRED UNDER RULE 10D OF THE RULES. WHAT C OMES OUT OF THE PROCEEDINGS BEFORE THE TPO AND THE ASSESSING OFFIC ER ARE THAT THEY HAD NOT COME TO ANY FINDINGS REGARDING THE SPECIFIC FA ILURE, IF ANY, OF THE ASSESSEE. IF WE HAVE A LOOK AT RULE 10D, VARIOUS TYPES OF RECORDS ARE REQUIRED TO BE MAINTAINED AND THESE ARE ENUMERATED UNDER CLAUSES (A) TO (M) THEREUNDER. IF THE REVENUE ALLEGES THAT THERE HAS BEEN A FAILURE OF THE ASSESSEE WITH REGARD TO PRODUCTION OF ANY OF T HESE RECORDS, IT IS REQUIRED TO POINT OUT SPECIFICALLY WHERE SUCH FAI LURE OCCURS. IT CANNOT GO BY A GENERAL STATEMENT THAT ASSESSEE HAD NOT MAINT AINED INFORMATION AS ENVISAGED UNDER RULE 10D. THE SPECIFIC RECORD WHI CH ASSESSEE WAS REQUIRED TO MAINTAIN AND WHICH WAS NOT MAINTAINED HAS TO BE POINTED OUT. THIS HAS NOT BEEN DONE. IN OTHER WORDS, ASSESSEE' S CONTENTION THAT IT HAD ALL SUCH RECORDS WAS NOT EFFECTIVELY REBUTTED BY T HE REVENUE AT ANY POINT OF TIME. IN ANY CASE, ASSESSEE HAD FOLLOWED COST PLUS METHOD, WHEREAS AO HAD FOLLOWED TNMM METHOD, BUT, BOTH THE METHODS FINALLY GAVE THE SAME VALUE FOR THE INTERNATIONAL TRANSACTIONS. IN OTHER WORDS, NO CHANGE WAS CONSIDERED NECESSARY TO THE ARMS LENGTH PRICE. THIS BEING THE CASE, EVEN IF THERE WAS A FAILURE, IT WAS ONLY A BENIGN ONE WHICH HAD NO EFFECT WHATSOEVER ON THE VALUE OF INTERNATIONAL TRANSACTI ONS ENTERED INTO BY THE ASSESSEE. IN SO FAR AS THE CASE OF G. I. SYSTEMS ORG. INDIA (P) LTD, RELIED ON BY THE LD. DR IS CONCERNED, THERE ASSESSEE HAD NOT FILED AUDIT REPORTS IN PRESCRIBED FORM NO. 3CEB FOR THE INTERNATIONAL TRANSACTION ENTERED INTO BY IT. AS AGAINST THIS, HERE, PARA 1 OF THE ORDER OF TPO DATED 16TH MARCH, 2006 (PAPER-BOOK PAGE 45) CLEARLY SHOWS THAT FORM NO. 3CEB WAS FILED BY THE ASSESSEE. HENCE, WE ARE OF THE OPINION THA T THE DECISION OF HYDERABAD BENCH WOULD NOT HAVE ANY APPLICATION IN THE GIVEN CASE. WE FIND THAT LD. CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY LEVIED U/S. 271AA OF THE ACT. NO INTERFERENCE IS CALLED FOR. :-7-: I.T.A. NO.1956/MDS/2016 APPEALS OF THE REVENUE FOR ASSESSMENT YEAR 2003-0 4, IN THE CASE OF M/S. PENTASOFT TECHNOLOGIES LTD. STAND DISMISSED. ' 8. WE RELY ON THE CO-ORDINATE BENCH DECISION AND UP HELD THE ORDER OF THE CIT(A) IN DELETING THE PENALTY AND DISMISS THE REVE NUE APPEAL. 9. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 30TH DAY OF NOVE MBER, 2016 AT CHENNAI. SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER SD/- ( . . . . ) (G. PAVAN KUMAR) /JUDICIAL MEMBER /CHENNAI, /DATED: 30TH NOVEMBER, 2016 JPV /COPY TO: 1. / APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF.