BABCOCK & BROWN INDIA P.LTD, MUMBAI V. DCIT 3(1), MUMBAI

ITA 2214/MUM/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2323 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Assessee Lawyers: S HARIHARAN R SURYANARAYAN AN
• Keywords: Transfer pricing
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEORE SHRI SAKTIJIT DEY,JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTNT MEMBER ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) M/S.BABCOCK & BROWN INDIA PVT. LTD. ROOM NO.1/3, 1 ST FLOOR, JAYANTHI APTS., ABOVE HOTEL ATITHI, MULUND (W) MUMBAI. ... APPELLANT PAN: AADCB 3091J VS. THE DY. COMMISSIONER OF INCOME TAX (3)(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 .... RESPONDENT APPELLANT BY : S/SHRI S.HARIHARAN/ R.SURYANARAYAN AN RESPONDENT BY : SHRI PANKAJ KUMAR DATE OF HEARING : 17/11/2015 DATE OF PRONOUNCEMENT : 20/11/2015 ORDER PER N.K.BILLAIYA,AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-5, MUMBAI DATED 14/11/2014 PERTAINING TO THE ASSESSMENT YEAR 2009-10. 2. THE APPEAL IS BARRED BY LIMITATION BY 42 DAYS. THE ASSESSEE HAS PRAYED FOR THE CONDONATION OF THE DELAY AND THE P RAYER IS SUPPORTED BY AN AFFIDAVIT. WE HAVE CONSIDERED THE CONTENTS O F THE AFFIDAVIT. IN 2 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) OUR CONSIDERED OPINION THE ASSESSEE WAS PREVENTED B Y REASONABLE AND SUFFICIENT CAUSE FOR NOT FILING THE APPEAL ON TIME. THEREFORE, THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED. 2. THE SOLE GRIEVANCE OF THE ASSESSEE RELATES TO TH E PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) ON ACCOUNT OF UPWARD PRICING ADJUSTMENT MADE BY TH E ASSESSING OFFICER. 3. THE ROOTS FOR THE LEVY OF PENALTY LIE IN THE ASS ESSMENT ORDER DATED 1/3/2013 MADE UNDER SECTION 143(3) R.W.S. 144C(3) O F THE ACT. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVI DING INVESTMENT ADVISORY SERVICES. FOR ITS INTERNATIONAL TRANSACTIO NS, TRANSFER PRICING STUDY REPORT WAS FILED ALONGWITH THE RETURN OF INCO ME. THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR THE DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRAN SACTIONS ENTERED WITH THE ASSOCIATED ENTERPRISES OF THE ASSESSEE. 5. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND THE TRANSFER PRICING STUDY REPORT OF THE ASSESSEE, THE TPO RECO MMENDED AN UPWARD ADJUSTMENT OF RS.4,03,58,886/-. OBJECTIONS WERE RA ISED BEFORE THE DRP, WHICH WERE DISMISSED. THE ASSESSMENT WAS COMPLETED BY MAKING UPWARD ADJUSTMENT OF RS.4,03,58,886/-. SIMULTANEOU SLY, PENALTY PROCEEDINGS WERE INITIATED UNDER SECTION 271(1)(C) OF THE ACT FOR FILING INACCURATE PARTICULARS OF INCOME. 3 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) 6. DURING THE COURSE OF PENALTY PROCEEDINGS, THE AS SESSEE WAS ASKED TO EXPLAIN WHY PENALTY SHOULD NOT BE IMPOSED FOR FI LING INACCURATE PARTICULARS OF INCOME. THE ASSESSEE FILED A DETAIL ED REPLY VIDE LETTER DATED 08/03/2013 STATING THAT ALTHOUGH IT HAS ACCEP TED THE VARIATION PROPOSED IN THE ORDER, IT WAS NOT IN AGREEMENT WITH THE SAME AS THE ARMS LENGTH PRICE TAKEN BY THE TPO BY TAKING FINAL COMPARABLE COMPANIES WERE NOT IN SIMILAR LINE AS COMPARED TO THE ASSESSEES BUSINESS. IT WAS FURTHER CONTENDED THAT THE ONLY R EASON FOR ACCEPTING THE ORDER OF THE AO WAS TO AVOID PROTRACTED LITIGAT ION. IT WAS ALSO POINTED OUT THAT THE COMPANY IS UNDER VOLUNTARY WIN DING UP AND AN OFFICIAL LIQUIDATOR HAS BEEN APPOINTED. THE CONTEN TION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO, WHO WAS OF THE FIRM BELIEF THAT EXPLANATION-1 TO SECTION 271(1)(C) OF THE ACT SQUA RELY APPLY AND, THEREFORE, CONCLUDED BY LEVYING PENALTY UNDER SECTI ON 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME . 7. THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A ) BUT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS TH E SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT ASSESSEES TRANSFER PRICING S TUDY REPORT WAS BASED ON A STUDY CONDUCTED BY AN INDEPENDENT EXPERT AND T HE EXPERT JUSTIFIED THE PRICING AS ARMS LENGTH PRICE USING TNMM METHOD . IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN SO FAR AS THE TRANSFER PRICING ADDITIONS ARE CONCERNED, EXPLANATION -7 IS THE RELE VANT EXPLANATION TO BE CONSIDERED ALONGWITH SECTION 271(1)(C) OF THE AC T. STRONG RELIANCE 4 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE C ASE OF RBS EQUITY (INDIA) LTD., 13 TAXMAN.COM 30 (MUM). PER CONTRA, LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 9. WE HAVE GIVEN CAREFUL CONSIDERATION TO THE ORDER S OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED CAREFUL LY THE DECISION OF THE CO-ORDINATE BENCH RELIED UPON BY THE LD. COUNSE L FOR THE ASSESSEE. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAD ADOPTE D TNMM METHOD AS MOST APPROPRIATE METHOD FOR DETERMINING THE ARMS L ENGTH PRICE WITH THE COMPARABLES. IT IS ALSO A FACT THAT THE TPO HA S ALSO FOLLOWED THE TNMM METHOD. THUS, THERE IS NO DISPUTE IN SO FAR A S ADOPTION OF MOST APPROPRIATE METHOD IS CONCERNED. ADMITTEDLY, THE U PWARD ADJUSTMENT HAVE BEEN MADE ON ACCOUNT OF DIFFERENT SETS OF COM PARABLES TAKEN BY THE TPO. IT IS ALSO AN ADMITTED FACT THAT THE ASSE SSEE DID NOT CONTEST THE ASSESSMENT ORDER BECAUSE IT WAS UNDER LIQUIDATI ON AND WAS GOING TO WIND-UP ITS AFFAIRS. 10. IN OUR CONSIDERED OPINION, THE DETERMINATION OF REASONABLE ARMS LENGTH PRICE IS A MATTER OF ESTIMATE. MERELY BECAU SE IT IS POSSIBLE TO ARRIVE AT TWO DIFFERENT ESTIMATES OF ARMS LENGTH PRICE, IT CANNOT BE HELD THAT THE LOWER OF THE TWO ESTIMATES IS BASED ON IN ACCURATE PARTICULARS, WHILE HIGHER ONE IS ACCURATE. WE ALSO FIND THAT WI TH REGARDS TO PENALTY UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF TR ANSFER PRICING ADDITIONS, ONLY EXPLANATION -7 TO THE SECTION HAS T O BE CONSIDERED. A PERUSAL OF THE SAID EXPLANATION SHOWS THAT NO PENAL TY CAN BE LEVIED WHERE THE PRICING IS DONE IN GOOD FAITH AND WITH DU E DILIGENCE. IN THE PRESENT CASE, THE TRANSFER PRICING OF THE ASSESSEE IS BASED ON A STUDY 5 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) CONDUCTED BY AN INDEPENDENT EXPERT, M/S.PRICE WATER HOUSE COOPERS, CHARTERED ACCOUNTANTS. THE ASSESSEE HAS OBTAINED A TRANSFER PRICING STUDY FROM AN OUTSIDE EXPERT, AND THIS TRANSFER P RICING STUDY, OBJECTIVITY OF WHICH IS NEITHER CALLED INTO QUEST ION OR SEEMS TO BE, UPON PERUSAL OF THIS TRANSFER PRICING STUDY, QUESTI ONABLE TO US ANYWAY, APPROVES TNMM METHOD FOR DETERMINATION OF ARMS LEN GTH PRICE - A PROPOSITION WHICH HAS NOT BEEN SPECIFICALLY REJECT ED BY THE REVENUE AUTHORITIES. ON THESE FACTS, LACK OF DUE DILIGE NCE IN DETERMINING THE ARMS LENGTH PRICE IS NEITHER INDICTED NOR CAN BE I NFERRED. IN SUCH A SITUATION, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT DETERMINED THE ARMS LENGTH PRICE IN ACCORDANCE WITH THE SCHEME O F SECTION 92C IN GOOD FAITH AND WITH DUE DILIGENCE. THE CONDITIO NS PRECEDENT FOR INVOKING EXPLANATION-7 TO SECTION 271(1)(C) DID NOT EXIST ON THE FACTS OF THIS CASE. 11. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CIT(A ) AND DIRECT THE AO TO DELETE THE IMPUGNED PENALTY. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/11/2015. SD/- SD/- (SAKTIJIT DEY) (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 20/11/2015 6 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS