DCIT (International Taxation), New Delhi V. M/s. Convergys Customer Management Group Inc., New Delhi

ITA 2116/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9307 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Non passing of speaking order
• Section: 271(1)(c); 143(3)

Judgement Text

1 ITA NO. 2116/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO. 2116/DEL/2017 (A.Y 2007-08) DCIT(INTERNATIONAL TAXATION) CIRCLE 1(1)(1), NEW DELHI -110 002. (APPELLANT) VS M/S. CONVERGYS CUSTOMER MANAGEMENT GROUP INC. C/O. PRICEWATERHOUSE COOPERS, SUCHETA BAHWAN, GATE NO.2, 11A, VISHNU DIGAMBAR MARG, NEW DELHI 110 002. (PAN : AACCC 8989 M) ( RESPONDENT) APPELLANT BY SHRI SATPAL GULATI, CIT-D.R. RESPONDENT BY SHRI RAVI SHARMA, ADV. MS. SHRUTI KHIMTA, A.R. ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS]-42, NEW DELHI DATED 30.01.2017 UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW IN QUASHING/DELETING THE PENALTY U/S 271(1)(C) OF THE I.T. ACT. 2. THE APPELLANT CRAVES TO ADD, AMEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. DATE OF HEARING 06.01.2020 DATE OF PRONOUNCEMENT 10.01.2020 2 ITA NO. 2116/DEL/2017 3. THE ASSESSEE IS A NON RESIDENT COMPANY INCORPORATED UNDER LAWS OF UNITED STATE OF AMERICA (USA). IT PROVIDES OUTSOURCED CUSTOMER, EMPLOYEE AND MARKETING SUPPORT SERVICES AS WELL AS COMPREHENSIVE CUSTOMER MANAGEMENT SERVICES BY UTILIZING ITS ADVANCED INFORMATION SYSTEM CAPABILITIES, HUMAN RESOURCE MANAGEMENT SKILLS AND INDUSTRY EXPERIENCE. THE ASSESSEE HAS A SUBSIDIARY IN INDIA BY NAME OF CONVERGYS INDIA SERVICE PVT. LTD. (CIS). TO PROVIDE SERVICE TO ITS CUSTOMERS, THE ASSESSEE PROCURES SERVICES FROM INDIA FROM CIS. CIS PROVIDES IT ENABLED CALL CENTRE/BACK OFFICE SUPPORT SERVICES TO THE ASSESSEE. FOR A.Y. 2007-08, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2007. THE ASSESSEE DECLARED A TOTAL INCOME OF RS.4,36,33,694/- COMPRISING OF INTEREST INCOME AMOUNTING TO RS.2,07,17,429/- AND FEES FOR INCLUDED SERVICES AMOUNTING TO RS.2,29,16,265/-. THE INTEREST INCOME WAS EARNED ON THE EXTERNAL COMMERCIAL BORROWINGS ADVANCED BY THE ASSESSEE TO CIS AND WAS OFFERED TO TAX @ 15% ON GROSS BASIS IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 11 OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND USA (DTAA). THE SERVICE INCOME WAS ALSO OFFERED TO TAX AT 15% ON GROSS BASIS IN TERMS OF ARTICLE 12(4)(B) OF THE DTAA. THE ASSESSEE FILED AN ACCOUNTANTS REPORT IN FORM NO.3CEB ON 31.10.2007 AND DECLARED RECEIPT OF INTEREST ON EXTERNAL COMMERCIAL BORROWINGS AND FEES FOR SERVICES PROVIDED TO CIS AS INTERNATIONAL TRANSACTIONS. FURTHER A NOTE WAS GIVEN THAT ANY TRANSACTION OF THE COMPANY WITH ITS ASSOCIATES ENTERPRISE, ACCORDING TO THE ASSESSEE, DOES NOT RESULT IN ANY INCOME ACCRUING/ARISING IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, SUCH TRANSACTION WAS NOT REPORTED IN THE FORM NO.3CEB. THE ASSESSING OFFICER ISSUED A DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S. 144C(1) OF THE ACT DATED 21.12.2009 ASSESSING THE TOTAL INCOME OF THE COMPANY AT RS.97,24,66,634/-. THE ASSESSEE FILED OBJECTIONS AGAINST THE DRAFT ASSESSMENT ORDER BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP UPHELD THE DRAFT ASSESSMENT ORDER. THE ASSESSING OFFICER FRAMED THE FINAL ASSESSMENT ORDER VIDE ORDER DATED 26.10.2010. THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL WHICH WAS REMANDED BACK TO THE FILE OF THE DRP AS THE ORDER PASSED BY THE DRP WAS A NON SPEAKING ORDER AND DID NOT ADDRESS ALL THE CONTENTIONS 3 ITA NO. 2116/DEL/2017 RAISED BY THE ASSESSEE IN THE OBJECTIONS FILED BEFORE THE DRP VIDE ORDER DATED 16.06.2011. THE DRP VIDE ORDER DATED 26.03.2013 ISSUED DIRECTIONS U/S 144C(5) OF THE ACT AS PER THE ORDER OF THE TRIBUNAL. PURSUANT TO THE DIRECTIONS OF THE DRP, THE ASSESSING OFFICER PASSED A FINAL ASSESSMENT ORDER DATED 11.04.2013 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS.97,24,66,634/-. THE ASSESSING OFFICER HELD THAT THE FACTS OF THE CASE ARE SAME AS WERE IN THE LAST YEAR, I.E. A.Y. 2006-07 AND THEREFORE, CONCLUDED THAT THE ASSESSEE HAS A PERMANENT ESTABLISHMENT (PE) IN INDIA. CONSEQUENTLY, A DEMAND INCLUDING INTEREST OF RS.63,93,19,221/- WAS RAISED AGAINST THE ASSESSEE AND THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER DATED 28.01.2015 BEFORE THE HONBLE HIGH COURT OF DELHI ON 26.05.2015. THE HIGH COURT OF DELHI ADMITTED AN APPEAL ON THE ISSUE OF EXISTENCE OF FIXED PLACE PE IN INDIA AND FRAMED SUBSTANTIAL QUESTIONS OF LAW. THE ASSESSING OFFICER ISSUED A NOTICE DATED 18.06.2015 AND 08.09.2015 WHEREIN THE ASSESSEE WAS ASKED TO SHOW-CAUSE WHY PENALTY U/S 271(1)(C) OF THE ACT SHOULD NOT BE LEVIED. IN RESPONSE TO THE AFORESAID NOTICES, THE ASSESSEE FILED WRITTEN REPLIES DATED 01.07.2015 AND 17.09.2015 WITH REGARD TO PENALTY U/S 271(1)(C) OF THE ACT. THE ASSESSING OFFICER PASSED PENALTY ORDER DATED 28.09.2015 U/S 271(1)(C) OF THE ACT AND CONCLUDED THAT THE ASSESSEE WAS HIDING THE EXISTENCE OF ITS PE INDIA AND THUS THIS ACT OF HIDING CRUCIAL INFORMATION OF EXISTENCE OF PE IN INDIA ATTRACTS PENALTY UNDER PROVISIONS OF SECTION 271(1)(C) OF THE ACT ON THE AMOUNT OF PROFITS ATTRIBUTABLE TO THE PE. THE ASSESSING OFFICER LEVIED PENALTY @ 100% OF THE AMOUNT OF TAX ON PROFITS ATTRIBUTABLE TO THE PE AT RS.51,54,490/-. 4. BEING AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN QUASHING THE PENALTY U/S 271(1)(C) OF THE ACT AS THE ASSESSEE HAS DELIBERATELY NOT STATED THAT IT HAS PE IN 4 ITA NO. 2116/DEL/2017 INDIA. THEREFORE, THE LD. DR SUBMITTED THAT THE PENALTY ORDER IS JUST AND PROPER. 6. THE LD. AR SUBMITTED THAT THE FACT OF WHETHER THERE IS A PE IN INDIA OR NOT IS DEPENDENT UPON THE FACTUAL ASPECT AND AT NO RELEVANT TIME THE ASSESSEE EITHER CONCEALED THE PARTICULARS OF INCOME OR FILED/FURNISHED INACCURATE PARTICULARS OF INCOME. THEREFORE, THE LD. AR SUBMITTED THAT BOTH THE ALIMENTS FOR WHICH SECTION 271(1) IS APPLICABLE WAS NOT ESTABLISHED BY THE REVENUE. THUS, THE CIT(A) HAS RIGHTLY DELETED THE PENALTY. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIALS AVAILABLE ON RECORD. THE ISSUE OF PENALTY U/S 271(1)(C) IS ATTRACTED WHEN THERE IS A CONCEALMENT OF INCOME AND/OR FURNISHING INACCURATE PARTICULARS OF INCOME IN THE PRESENT CASE IN THE ORIGINAL ASSESSMENT ORDER AS WELL AS SUBSEQUENT ASSESSMENT ORDERS. THERE IS NO MENTION THAT THE ASSESSEE FILED INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. IN FACT, THE PENALTY ORDER HAS ALSO NOT GIVEN AS TO WHICH LIMB OF 271(1)(C) HAS BEEN DELIBERATELY INVOKED BY THE ASSESSING OFFICER. IN FACT, THE PENALTY ORDER HAS LEVIED THE PENALTY ON BOTH THE COUNTS I.E. CONCEALED THE PARTICULARS OF INCOME AND FURNISHING INACCURATE PARTICULARS BUT HOW THESE CONDITIONS HAVE BEEN DEALT IN THE PRESENT ASSESSEES CASE WAS NOT AT ALL PLACED ON RECORD BY THE REVENUE. THE ASSESSEE HAS A FIXED PLACE PE OR NOT IS A MATTER OF ADJUDICATION WHICH ACCORDING TO THE ASSESSEE WAS NOT HAVING PE AND ACCORDING TO THE REVENUE WAS HAVING PE. THE RETURNS OF INCOME AS WELL AS THE DOCUMENTARY EVIDENCE SUBMITTED BEFORE THE ASSESSING OFFICER REVEALS THE STAND TAKEN BY THE ASSESSEE AND IT IS A MATTER OF ADJUDICATION TO HOLD WHETHER THERE IS A PE OR NOT IN ASSESSEES CASE. THIS CANNOT BE HELD AS CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS. THEREFORE, SECTION 271(1)(C) IS NOT AT ALL ATTRACTED IN ASSESSEES CASE AND THUS, THE ORDER OF THE CIT(A) IS JUST AND PROPER. HENCE, APPEAL OF THE REVENUE IS DISMISSED. 5 ITA NO. 2116/DEL/2017 8. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DAY OF JANUARY, 2020 . SD/- SD/- (PRASHANT MAHARISHI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10/01/2020 PRITI YADAV, SR. PS * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 07.01.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 08.01.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 10.01.2020 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 10.01.2020 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 10.01.2020 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 10.01.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 10.01.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10.01.2020 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK