Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 6999 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 9 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
22-02-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
23-11-2015
Assessment Year
2002-2003
Appeal Filed On
03-05-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI A.T. VARKEY, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.2200 & 2201/DEL./2011 (ASSESSMENT YEARS : 2002-03 & 2003-04) M/S. PEROT SYSTEMS TSI (INDIA) PVT.LTD., VS. ACIT, CIRCLE 14 (1), (FORMERLY KNOWN AS HCL PEROT SYSTEMS LTD.) NEW DEL HI. PLOT NO.123, EPIP PHASE II, WHITEFIELD INDUSTRIAL AREA, BENGALURU 560 066. (PAN : AAACH1925Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKHILESH KUMAR, ADVOCATE REVENUE BY : SHRI SUJIT KUMAR, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THESE APPEALS, AT THE INSTANCE OF THE ASSESSEE, ARE FILED AGAINST THE ORDER OF CIT (APPEAL)-XVII, NEW DELHI DATED 07.02.2 011 FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04. 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER UNDER SECTION 250(6) PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS), XVII ['CIT(A)'], IS BAD IN LAW AND VOID- AB-INITIO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN CONFIRMING THE PENALTY LEVIED BY ASSIS TANT COMMISSIONER OF ITA NOS.2200 & 2201/DEL./2011 2 INCOME-TAX, CIRCLE 14(1), NEW DELHI ('AO') UNDER SE CTION 271(1)(C) OF THE ACT WITHOUT RECORDING ADEQUATE SATISFACTION DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) / AO ERRED IN LEVYING PENALTY UNDER SECTION 271(1)(C) IN RELATION TO TRANSFER PRICING ADDITIONS MADE IN THE ASSESSMENT ORDER. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) / AO HAS ERRED IN HOLDING THAT THE APPELLANT HAS NOT ACTED IN GOOD FAITH AND HAS NOT EXERCISED DUE-DILIGENCE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) / AO ERRED IN NOT APPRECIATING THAT THE APPELLANT HAD DISCLOSED ALL MATERIAL FACTS RELATING TO THE ADJUSTMENT AND HENCE NO PENAL TY OUGHT TO BE LEVIED. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) / AO ERRED IN LEVYING PENALTY IN RELATION TO MERE DIF FERENCE OF OPINION AS REGARDS ARM'S LENGTH NATURE OF A PARTICULAR TRANSAC TION UNDER SECTION 92 OF THE INCOME TAX ACT, 1961, ESPECIALLY WHEN THE SUBJE CT ASSESSMENT YEAR WAS AN INITIAL YEAR FOR APPLICABILITY OF TRANSFER P RICING REGULATIONS IN INDIA. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) / AO ERRED IN NOT ACCEPTING THE FACT THAT TH E APPELLANT HAD A BONAFIDE BELIEF IN STATING THAT THE TRANSACTIONS WI TH RESPECT TO INTEREST FREE LOAN WAS AT ARM'S LENGTH. 3. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES T O THE LEVY OF PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAF TER THE ACT). 4. BRIEF FACTS OF THE CASE ARE THAT THE AO MADE AN ADDITION OF RS.1,43,53,512/- ON ACCOUNT OF TRANSFER PRICING ADJ USTMENT AND ALSO MADE DISALLOWANCE OF RS.2,00,000/- U/S 14A. THE ASSESSE E FILED AN APPEAL BEFORE THE CIT(A) WHO IN TURN HAS CONFIRMED THE ADD ITION OF RS.1,38,94,980/-AND ALLOWED THE RELIEF OF RS.4,58,5 321-. THE CIT(A) HELD THAT THE EXTENSION OF THE LOAN WERE NOTHING BUT DEB T SIMPLICITOR AND THAT THE DEBT WAS A SHORT TERM WORKING CAPITAL LOAN REPAYABL E ON DEMAND. BEING REPAYABLE ON DEMAND, IT WOULD MEAN THAT THE LOAN IS RE-NEGOTIATED ON AN ITA NOS.2200 & 2201/DEL./2011 3 ANNUAL BASIS. THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 30.10.2009 DISMISSED THE APPEAL OF THE ASSESSEE AND DECIDED THE ISSUE IN THE FAVOUR OF THE REVENUE. 5. THE AO ISSUED THE PENALTY NOTICE U/S 271(1)(C) O F THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO CAME TO THE CONCLUSION THAT IT WAS FIT CASE FOR LEVY OF PENALTY AND ACCORDINGLY HE LEVIED THE PENALTY. FOR THE SAKE OF THE CONVENIENCE, THE R ELEVANT PORTION OF THE AO'S FINDINGS IS REPRODUCED AS UNDER: ' THE ASSESSEE HAS ADVANCES TWO FOREIGN CURRENCY LOAN S TO ITS ASSOCIATE ENTERPRISES (AES) IN JANUARY/FEBRUARY, 20 01. THE INTEREST FREE LOANS HAVE BEEN UTILIZED TO MAKE INVESTMENT IN OTHE R GROUP COMPANIES. THE TRANSFER PRICING OFFICER AFTER CONSIDERING THE ISSUE IN DETAIL DETERMINED THE ARM'S LENGTH INTEREST AT LOANS GIVEN BY THE ASSESSEE TO ITS AES NAMELY HPS GLOBAL SYSTEMS (BERMUDA) LTD. US$ 1. 5. MILLION AND HPS GLOBAL SYSTEMS HUNGRAY LIQUIDITY MANAGEMENT LTD . US$ 4.6. MILLION AT RS.35,29,552 AND RS.1,08,23,960/- IN PLA CE OF NIL INTEREST DECLARED BY THE ASSESSEE. THUS, HE MADE AND ADJUSTM ENT OF RS.1,43,53,512/- TO THE INCOME OF THE ASSESSEE. ON THE BASIS OF TPO ORDER THE ASSESSING OFFICER MADE ADDITION OF THIS AMOUNT TO THE ASSESSEE'S TOTAL INCOME. IN APPEAL THE CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS.1,38,94,980/- AND ALLOWED A RELIEF OF RS.4,58,53 2/- TO THE ASSESSEE. THE AO INITIATED PENALTY PROCEEDINGS DURING THE ASSESSM ENT PROCEEDINGS. THE ASSESSEE FILED REPLIES AND EXPLANATION IN RESP ECT OF PENALTY PROCEEDINGS ON 22.02.2006, 18.3.2010 AND 23.3.2010. THE ASSESSEES EXPLANATIONS WERE DULY CONSIDERED AND FOUND UNACCEP TABLE. THE ASSESSEE CONTENDED THAT PENALTY FOR CONCEALMENT OF INCOME CA NNOT BE IMPOSED IF THE ASSESSEE PROVES THAT THE PRICE CHARGED OR PAID IN INTERNATIONAL TRANSACTIONS HAS BEEN DETERMINED IN ACCORDANCE WITH SECTION 92C IN GOOD FAITH AND WITH DUE DILIGENCE. THE ASSESSEE FURTHER SUBMITTED THE PENALTY PROCEEDINGS AND ASSESSMENT PROCEEDINGS ARE INDEPEND ENT PROCEEDINGS AND FINDINGS IN ASSESSMENT PROCEEDINGS ALONE ARE NOT MA TERIAL AND MAY NOT JUSTIFY THE IMPOSITION OF PENALTY IN A GIVEN CASE. THE ASSESSEE CONTENDED THAT IT NEITHER FAILED TO OFFER EXPLANATION NOR THE EXPLANATION GIVEN BY THE ASSESSEE WAS FOUND TO BE FALSE. THE ASSESSEE SUBMIT TED THAT SINCE IN TERMS OF EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT THE C LAIM OF ASSESSEE BEING BONAFIDE DULY SUPPORTED BY JUDICIAL PRONOUNCEMENT A ND HAVING BEING APPROPRIATELY DISCLOSED, THE PRESUMPTION U/S 271(1) (C) STANDS REBUTTED. THE ASSESSEE ALSO RELIED UPON VARIOUS JUDICIAL PRON OUNCEMENTS/DECISIONS. ITA NOS.2200 & 2201/DEL./2011 4 THE ASSESSEE'S CONTENTIONS ARE DULY CONSIDERED. THE ASSESSEE'S ARGUMENTS IN RESPECT OF LOAN TRANSACTION WERE NOT FOUND ACCEP TABLE BY THE TPO AND THE SAME WERE HELD AS DEBT AND NOT EQUITY. IN APPEA L ALSO THE ASSESSEE'S CONTENTIONS WERE NOT FOUND ACCEPTABLE AND CIT(A) CO NFIRMED THE ADDITION IN RESPECT OF ARM'S LENGTH PRICE TO THE EXTENT OF R S.1,38,94,980/-. THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM IN ASSESS MENT AS WELL APPELLATE PROCEEDINGS. EVEN IN PRESENT PENALTY PROCEEDINGS, A SSESSEE COULD NOT ADDUCE ANY SUCH EVIDENCE WHICH MAY PROVE THAT THE P RICE CHARGED OR PAID IN SUCH TRANSACTIONS WAS COMPUTED IN ACCORDANCE WIT H THE PROVISIONS CONTAINED IN SECTION 92C AND IN THE MANNER PRESCRIB ED UNDER THAT SECTION, IN GOOD FAITH AND WITH DUE DILIGENCE AS IS THE REQU IREMENT OF THE EXPLANATION 7 TO SECTION 271(1)(C) OF THE ACT. FROM THE VERY READING OF THE EXPLANATION, IT IS CLEAR THAT UNLESS ASSESSEE PROVE S SO, ANY AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME U/S 92C SHALL, FOR THE PURPOSES OF CLAUSE (C) OF SECTION 271 (1)(C), BE DE EMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CO NCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED. IN VIEW OF THE JUD GMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF K. P. MADHUSUDAN VS. C IT 2511TR 99 AND IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTIL E PROCESSORS (2008) 174 TAXMAN 571, IT IS ON ASSESSEE TO PROVE THAT HE HAS NOT CONCEALED OR FURNISHED INACCURATE PARTICULARS OF HIS INCOME. IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS(SUPRA) THE HON'BLE COURT HELD THAT THE EXPLANATION APPENDED TO SECTION 271(1)(C) ENTIRELY INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CON CEALMENT OR FOR GIVING INACCURATE PARTICULARS OF INCOME WHILE FILLING RETU RN. THE HON'BLE COURT HELD THAT 'THE PENALTY IN THAT SECTION IS A CIVIL L IABILITY. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTR ACTING CIVIL LIABILITY, AS IS THE CASE IN THE MATTER OF PROSECUTION UNDER SECTION 276C.' IN VIEW OF THIS, IT WAS ASSESSEE'S BURDEN TO PROVE THAT HE WAS NOT G UILTY OF CONCEALMENT OR GIVING INACCURATE PARTICULARS OF INCOME, IN WHICH H E FAILED. IN VIEW OF THE ABOVE DISCUSSION IT IS A FIT CASE FO R IMPOSITION OF PENALTY U/S 271(1)(C) OF THE I.T. ACT, 1961 FOR FUR NISHING INACCURATE PARTICULARS OF ITS INCOME TO THE EXTENT OF RS.1,38, 94,980/-. 6. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY AND THE CIT (A) CONFIRMED THE PENALTY LEV IED BY THE AO. 7. THE ASSESSEE, BEING AGGRIEVED, FILED AN APPEAL B EFORE US. 8. LD. AR FOR THE ASSESSEE, REITERATED THE SUBMISSI ONS MADE BEFORE THE LD. CIT (A), AND POINTED OUT THAT IN ASSESSEES OWN CASE FOR A SUBSEQUENT ITA NOS.2200 & 2201/DEL./2011 5 YEAR THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW HAV E BEEN ADMITTED BY THE HONBLE JURISDICTIONAL HIGH COURT:- (1) WHETHER THE INCOME TAX APPELLATE TRIBUNAL ERRE D IN LAW IN SUSTAINING THE ADJUSTMENT ON ACCOUNT OF ARMS LENGT H PRICE IN RESPECT OF INTEREST FREE LOANS PROVIDED BY THE APPELLANT TO IT S WHOLLY OWNED FOREIGN SUBSIDIARIES? (2) IF THE ANSWER TO QUESTION NO.1 IS IN THE NEGATI VE, WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLATE TRIBUNAL ERRED IN LAW IN NOT HOLDING THAT +/-5% VARIATION FR OM THE ARMS LENGTH INTEREST SHOULD HAVE BEEN ALLOWED TO THE APPLICANT IN TERMS OF THE PROVISIONS OF SECTION 92C (2) OF THE INCOME TAX ACT , 1961? SO, ACCORDING TO THE LD. AR, SINCE THE HONBLE HIGH COURT HAS ADMITTED THE AFORESAID QUESTIONS OF LAW, THAT ITSELF SHOWS THAT THE SUBJECT MATTER IN ISSUE WAS DEBATABLE AND ACCORDINGLY, NO PENALTY CAN BE LE VIED ON THE ASSESSEE. 8.1 ACCORDING TO LD. AR, IT IS WELL SETTLED THAT PE NALTY CANNOT BE IMPOSED ON DEBATABLE ISSUES AND RELIED ON THE DECIS ION OF THE HONBLE HIGH COURT OF DELHI IN CIT VS. ELECTROLUX KELVENATO R LTD. 357 ITR 665 (DEL) AND CIT VS. JASWINDER SINGH AHUJA 351ITR262(D EL.) 9. LD. DR FOR THE REVENUE DOES NOT WANT US TO INTER FERE IN THE ORDER OF THE AUTHORITIES BELOW AND RELIED ON THEIR ORDERS. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS WELL SETTLED THAT THE FINDING IN THE ASSESSMENT PROCEEDI NGS ALONE CANNOT BE THE SOLE BASIS TO JUSTIFY THE IMPOSITION OF PENALTY. T RANSFER PRICING AT THE NASCENT STAGE WHERE THE ASSESSEE ACTS BONAFIDELY, A ND IN GOOD FAITH, EXERCISING DUE DILIGENCE COMPUTE PRICES CHARGED OR PAID IN INTERNATIONAL TRANSACTION AND COMPUTES IN ACCORDANCE WITH THE PRO VISIONS CONTAINED IN ITA NOS.2200 & 2201/DEL./2011 6 SECTION 92C AND IN THE MANNER PRESCRIBED UNDER THAT SECTION, THEN NO PENALTY CAN BE LEVIED EVEN IF THE T.P. ADJUSTMENT M ADE BY THE TPO HAS BEEN CONFIRMED BY THE TRIBUNAL. SO, WHEN THE ISSUE AGITATED BY THE ASSESSEE HAS BEEN ADMITTED AS A SUBSTANTIAL QUESTIO N OF LAW BY THE HONBLE HIGH COURT SHOWS THAT THE ISSUE IS DEBATABLE AND TH E ASSESSEES CONTENTION THAT IT ACTED ON A BOANFIDE BELIEF CANNOT BE SHOT D OWN SIMPLY BECAUSE ASSESSMENT/TP ADJUSTMENT MADE BY THE TPO HAS BEEN U PHELD BY THE TRIBUNAL. 10.2 WE ALSO TAKE NOTE THAT THE HONBLE JURISDICTIO NAL HIGH COURT HAS HELD THAT WHEN AN ISSUE IS ADMITTED BY THE HIGH COU RT ON THE GROUND THAT THE SAME INVOLVES SUBSTANTIAL QUESTION OF LAW THEN PENALTY CANNOT BE LEVIED ON THAT ISSUE AGAINST THE ASSESSEE. 10.3 WE TAKE NOTE THAT THE HONBLE HIGH COURT HAS A DMITTED THE FOLLOWING SUBSTANTIAL QUESTION OF LAW, WHICH IS PRE CISELY ON THE ISSUE ON WHICH THE ADDITION HAS BEEN MADE IN THE APPEALS AND ON WHICH THE PENALTY IS LEVIED ON THE ASSESSEE, WHICH IS REPRODUCED BELO W :- ITA 683/2010, ITA 684/2010 & ITA 685/2010 WE HAVE HEARD THE COUNSEL FOR THE PARTIES. ADMIT. THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW ARISE F OR THE CONSIDERATION OF THIS COURT :- (1) WHETHER THE INCOME TAX APPELLATE TRIBUNAL ERRE D IN LAW IN SUSTAINING THE ADJUSTMENT ON ACCOUNT OF ARM S LENGTH ITA NOS.2200 & 2201/DEL./2011 7 PRICE IN RESPECT OF INTEREST FREE LOANS PROVIDED BY THE APPELLANT TO ITS WHOLLY OWNED FOREIGN SUBSIDIARIES? (2) IF THE ANSWER TO QUESTION NO.1 IS IN THE NEGATI VE, WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLATE TRIBUNAL ERRED IN LAW IN NOT H OLDING THAT +/-5% VARIATION FROM THE ARMS LENGTH INTEREST SHOULD HAVE BEEN ALLOWED TO THE APPLICANT IN TERMS OF THE PROVISIONS OF SECTION 92C (2) OF THE INCOME TAX ACT, 1961? 10.4 WE TAKE NOTE THAT IN THE CASE OF LIQUID INVEST MENT: ITA 240 OF 2009, THE HON'BLE JURISDICTIONAL DELHI HIGH COURT DELETED THE PENALTY LEVIED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SUBSTANTIVE APPEAL (BEING APPEAL UNDER SECTION 260A OF THE ACT AGAINST THE DISALLOWANCE MADE IN QUANTUM PROCEEDINGS) HAD BEEN ADMITTED BY T HE HIGH COURT. 'BOTH THE CIT(A) AS WELL AS THE ITAT HAVE SET ASIDE THE PENALTY IMPOSED BY THE ASSESSING OFFICER UNDER SECT ION 271(1)(C) OF THE INCOME TAX ACT. 1961 ON THE GROUND THAT THE ISSUE OF DEDUCTION UNDER SECTION 14A OF THE ACT WAS A DEBATABLE ISSUE. WE MAY ALSO NOTE THAT AGAINST THE QUANTUM ASSESSMENT WHEREUNDER DEDUCTION UNDER SECTION 14A O F THE ACT WAS PRESCRIBED TO THE APPELLANT. THE APPELLANT HAS PREFERRED AN APPEAL IN THIS COURT UNDER SECTION 260 A OF THE ACT WHICH HAS ALSO BEEN ADMITTED AND SUBSTANTIAL QU ESTION OF LAW FRAMED. THIS ITSELF SHOWS THAT THE ISSUE IS DEB ATABLE. FOR THESE REASONS. WE ARE OF THE OPINION THAT NO QUESTI ON OF LAW ARISES IN THE PRESENT CASE. THIS APPEAL IS ACCORDIN GLY DISMISSED... (EMPHASIS SUPPLIED) 10.5 A USEFUL REFERENCE MAY ALSO BE MADE TO THE DEC ISION OF APEX COURT IN THE CASE OF CIT V. RELIANCE PETRO PRODUCTS PRIVA TE LIMITED: 322 ITR 158, WHERE THE DECISION OF BOMBAY HIGH COURT DELETI NG THE PENALTY IMPOSED BY THE ASSESSING OFFICER ON THE GROUND THAT QUANTUM APPEAL WAS ITA NOS.2200 & 2201/DEL./2011 8 ADMITTED BY THE HIGH COURT ON THE GROUND OF INVOLVI NG QUESTION OF LAW, WAS AFFIRMED BY THE APEX COURT. 10.6 IN THE LIGHT OF THE ABOVE, WE FIND THAT THE AD JUSTMENT MADE AND CONFIRMED BY THE TRIBUNAL ON ACCOUNT OF ARMS LENGT H PRICE IN RESPECT OF INTEREST FREE LOAN PROVIDED BY THE APPELLANT TO ITS WHOLLY OWNED SUBSIDIARIES HAS BEEN ADMITTED BY THE HONBLE HIGH COURT, SO IS CLEARLY A DEBATABLE ISSUE AND SO PENALTY LEVIED CANNOT BE SUS TAINED, SO WE ORDER DELETION OF IT. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 22 ND DAY OF FEBRUARY, 2016. SD/- SD/- (O.P. KANT) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND DAY OF FEBRUARY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XVII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.
Mehul