DCIT, CHENNAI V. M/s. Magick Woods Exports (P) Ltd., CHENNAI

ITA 2203/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61114 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SIBENDU MOHARANA IRS
• Assessee Lawyers: S SRIDHAR
• Keywords: Transfer pricing; International transaction; Reasonable cause
• Section: 273B; 92D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.2203(MDS)/2010 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE IV(1), CHENNAI. VS. M/S. MAGICK WOODS EXPORTS PVT. LTD., A-8, INDUSTRIAL COMPLEX, MARAIMALAR NAGAR CHENGALPET DISTRICT, CHENNAI-603 209. PAN AADCM6228N. (APPELLANT) (RESPONDENT) APPELLANT BY : DR.SIBENDU MOHARANA, IRS, CI T RESPONDENT BY: SHRI S.SRIDHAR, ADVOCATE DATE OF HEARING : 30 TH APRIL, 2012 DATE OF PRONOUNCEMENT : 07 TH MAY, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-V AT CHENNAI, - - ITA NO.2203 OF 2010 2 DATED 13-9-2010 AND ARISES OUT OF THE PENALTY ORDER PASSED UNDER SECTION 271G OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE HAD ENTERED INTO AN INTERNATIONAL TRANSACTION DURING THE PREVIOUS YEAR RELEVANT TO TH E ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THE QUESTION OF ARM S LENGTH PRICE(ALP) WAS REFERRED TO THE TRANSFER PRICING OFF ICER(TPO). THE TPO, IN HIS ORDER PASSED UNDER SECTION 92CA(3), HELD THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THE I NTERNATIONAL TRANSACTION IN TIME, AS REQUIRED UNDER SECTION 92D. THE TPO REPORTED THAT THE ASSESSEE OUGHT TO HAVE FILED THE DETAILS WITHIN THE TIME LIMIT OF 30 DAYS FROM THE ISSUE OF FIRST N OTICE, WHICH WAS ISSUED ON 26-8-2008. IT WAS EXTENDED TO FURTHER 30 DAYS ON SPECIFIC REQUEST AND STILL THE ASSESSEE FAILED TO C OMPLY WITH THE NOTICE. THE ASSESSEE HAD ALSO FAILED TO FILE THE C ORE DOCUMENT, I.E. THE COST PLUS ARRANGEMENT WITH ITS ASSOCIATED ENTERPRISE(AE), WHICH WAS CALLED FOR ON 4-9-2009. THEREFORE, THE PROVISION OF SECTION 271G IS VERY MUCH APPLICABLE I N THIS CASE. 3. IN THE LIGHT OF THE ABOVE OBSERVATION MADE BY T HE TPO IN HIS ORDER PASSED UNDER SECTION 271G, THE ASS ESSING OFFICER LEVIED PENALTY UNDER SECTION 271G, QUANTIFY ING IT TO A SUM - - ITA NO.2203 OF 2010 3 EQUAL TO 2% OF THE VALUE OF INTERNATIONAL TRANSACTI ON. A PENALTY OF ` 43,16,682/- HAS THUS BEEN IMPOSED ON THE ASSESSEE. 4. IN FIRST APPEAL, THE COMMISSIONER OF INCOME- TAX(APPEALS) FOUND THAT THERE WAS REASONABLE CAUSE WITH THE ASSESSEE IN NOT FILING THE PARTICULARS WITHIN THE D EADLINE. HE FOUND THAT THE STAFF OF THE ASSESSEE, WHO HANDLED T HE TRANSFER PRICING MATTERS, WERE NOT VERY MUCH FAMILIAR WITH T HE PROVISIONS AND PROCEDURES AND AS SUCH THERE WAS A LOT OF DELAY FROM THEIR SIDE TO COMPLY WITH THE NECESSARY DOCUMENTS AND DET AILS. REGARDING THE CORE DOCUMENT, THE ASSESSEE EXPLAINED THAT A COPY HAD TO BE COLLECTED FROM THE ASSESSEES HOLDIN G COMPANY AND AS SOON AS IT WAS RECEIVED, THE SAME WAS PRODUC ED BEFORE THE TPO. THE COMMISSIONER OF INCOME-TAX(APPEALS) A LSO FOUND THAT INSPITE OF ALL THE DIFFICULTIES, ULTIMATELY TH E TPO HAS NOT MADE ANY ADJUSTMENT IN THE ALP. THEREFORE, THE DEFAULT ALLEGED IN THE HANDS OF THE ASSESSEE AS SUCH WAS NOT CRUCIAL IN TH E STUDY OF ALP MADE BY THE TPO. 5. THE COMMISSIONER OF INCOME-TAX(APPEALS), IN VIE W OF THE ABOVE CIRCUMSTANCES EXPLAINED BEFORE HIM, FO UND THAT THE - - ITA NO.2203 OF 2010 4 ASSESSEE HAD REASONABLE CAUSE FOR NOT FILING THE DE TAILS WITHIN THE TIME LIMIT. HE ACCORDINGLY CANCELLED THE LEVY OF PENALTY. 6. THE REVENUE IS AGGRIEVED AND, THEREFORE, IN APP EAL BEFORE US. 7. WE HEARD DR. SIBENDU MOHARANA, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E AND SHRI S.SRIDHAR, THE LEARNED COUNSEL APPEARING FOR THE RE SPONDENT- ASSESSEE. 8. SECTION 92D CASTS A DUTY ON EVERY PERSON WHO HA S ENTERED INTO AN INTERNATIONAL TRANSACTION TO KEEP A ND MAINTAIN THE INFORMATION AND DOCUMENT IN RESPECT THEREOF, AS PRE SCRIBED UNDER RULE 10D. THIS DUTY IS CAST ON AN ASSESSEE F OR THE REASON THAT THE INFORMATION AND DOCUMENT ARE VERY CRUCIAL FOR THE TPO TO EXAMINE THE ISSUE OF ALP WHILE PASSING AN ORDER UND ER SECTION 92CA. 9. NON OBSERVANCE OF THE OBLIGATION UNDER SECTION 92D IS TAKEN AS A SERIOUS DEFAULT BY THE STATUTE. THER EFORE, THE LAW HAS PRESCRIBED LEVY OF PENALTY FOR FAILURE TO FURNI SH INFORMATION OR DOCUMENT AS REQUIRED UNDER SECTION 92D. THE PENALT Y IS PROVIDED IN SECTION 271G. SECTION 271G SAYS THAT IF ANY PERSON, - - ITA NO.2203 OF 2010 5 WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION, FAILS TO FURNISH ANY SUCH INFORMATION OR DOCUMENT AS REQUIRED BY SUB -SECTION(3) OF SECTION 92D, THE ASSESSING OFFICER OR THE COMMIS SIONER OF INCOME-TAX(APPEALS) MAY DIRECT THAT SUCH PERSON SHA LL PAY, BY WAY OF PENALTY, A SUM EQUAL TO 2% OF THE VALUE OF T HE INTERNATIONAL TRANSACTION FOR EACH SUCH FAILURE. 10. THE LAW HAS ALSO PROVIDED A SAFEGUARD AGAINST THE ARBITRARY USE OF SECTION 271G. THE SAFEGUARD IS PR OVIDED IN SECTION 273B. SECTION 273B PROVIDES THAT NO PENALT Y CAN BE IMPOSED IN A CASE WHERE THE ASSESSEE PROVES THAT TH ERE WAS REASONABLE CAUSE FOR A PARTICULAR FAILURE. 11. THE CASE OF THE ASSESSEE IN THE PRESENT CASE I S TO BE EXAMINED IN THE LIGHT OF THE ABOVE STATED PROVIS IONS OF LAW. IT IS NOT A CASE WHERE THE ASSESSEE HAS NOT FURNISHED THE DETAILS AT ALL. THERE WAS A DELAY IN FILING THE DETAILS. THE ASSESSEE HAS EXPLAINED THE REASONS WHY IT COULD NOT FURNISH THE DETAILS WITHIN THE TIME LIMIT SPECIFIED BY THE TPO. CERTAIN IMPOR TANT DOCUMENT HAD TO BE OBTAINED FROM ITS HOLDING COMPANY, AS THE SAME WAS NOT READILY AVAILABLE WITH IT. FURTHER, AS THE TRA NSFER PRICING LAW IS A NEW SUBJECT, THE EMPLOYEES OF THE ASSESSEE WERE N OT SO - - ITA NO.2203 OF 2010 6 FAMILIAR WITH IT SO AS TO COMPLETE THE WORK IN A FA ST PACE TO KEEP UP THE TIME LIMIT. IN THESE CIRCUMSTANCES, WE FEEL THAT THE ASSESSEE HAD GENUINE DIFFICULTIES IN PRESENTING THE DETAILS STRICTLY WITHIN THE TIME SPECIFIED BY THE TPO. 12. MOREOVER, INSPITE OF ALL THESE THINGS, THE TPO HAS NOT SUGGESTED ANY ADJUSTMENT IN THE ALP REPORTED BY THE ASSESSEE. WHEN THAT IS THE CASE, THE DEFAULT IF AT ALL ANY IN THE HANDS OF THE ASSESSEE, TURNS OUT TO BE A TECHNICAL DEFAULT. 13. THE LEVY OF PENALTY UNDER SECTION 271G IS TO B E CONSIDERED IN THE ABOVE CIRCUMSTANCES. THE PENALTY PRESCRIBED UNDER SECTION 271G IS VERY SEVERE. THE QUANTUM OF PENALTY IS 2% OF THE VALUE OF THE INTERNATIONAL TRANSACTION FO R EACH FAILURE ON THE PART OF THE ASSESSEE. IF THERE ARE MORE FAI LURES ON THE PART OF THE ASSESSEE, THE PENALTY MAY END UP ALMOST IN A CAPITAL PUNISHMENT. WHEN THE PENALTY PROVISION IS VERY SEV ERE, IT SHOULD BE APPLIED WITH GREAT CAUTION AND ONLY IF CIRCUMSTA NCES SUFFICIENTLY JUSTIFY INVOKING THE PENAL PROVISION. 14. IN THE PRESENT CASE, AS ALREADY STATED, THE DE FAULT POINTED OUT BY THE TPO WAS ONLY TECHNICAL IN NATURE AND FURTHER - - ITA NO.2203 OF 2010 7 THE ASSESSEE HAD REASONABLE CAUSE TO EXPLAIN THE DE LAY CAUSED IN FILING THE DETAILS. 15. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) IS JUS TIFIED IN DELETING THE PENALTY. THE APPEAL FILED BY THE REVE NUE IS LIABLE TO BE DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 7 TH OF MAY, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 7 TH MAY, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.