HAWORTH { I ] P.Ltd, Pune V. ACIT, Pune

ITA 2266/PUN/2012

• Counselvise Citation: 226624514 RSA 2012
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: ASWANI TANEJA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C; 143(3); 27; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2266/PN/2012 (ASSTT.YEAR : 2006-07) HAWORTH (INDIA) PRIVATE LIMITED, RAISONI INDUSTRIAL PARK, SITE NO.276, VILLAGE MAAN, TALUKA MULSHI, PUNE-411046 .. APPELLANT PANNO.AAACH8417K VS. ACIT,CIRCLE-1(2), PUNE .. RESPONDENT APPELLANT BY : SMT. ASWANI TANEJA RESPONDENT BY : SHRI P.L. PATHADE DATE OF HEARING : 11-11-2013 DATE OF PRONOUNCEMENT : 28-11-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 29- 05-2012 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMEN T YEAR 2006-07. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A)-I, PUNE ERRED IN DISMISSING THE APPEAL OF THE APPELLANT AND CO NFIRMING THE PENALTY OF INR 14,293,660 U/S.271(1)(C) OF THE ACT. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING, WHOLESALE TRADING AN D INSTALLATION OF FURNITURE AND PROVIDING MARKETING SERVICES. FROM DECEMBER 20 05, THE COMPANY HAD STARTED ITS MANUFACTURING ACTIVITY, I.E. ASSEMBLY O F CHAIRS AT ITS PLANT SITUATED AT HINJEWADI. DURING THE COURSE OF IMPUGNED ASSESSMEN T YEAR, THE COMPANY HAS UNDERTAKEN INTERNATIONAL TRANSACTIONS, VIZ PURCHAS E OF RAW MATERIAL, IMPORT OF DISPLAY ITEMS AND MOCK UPS, MARKETING AND INSTALLAT ION SERVICES, PURCHASE OF FIXED ASSETS ETC. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING LOSS OF 2 RS.52,33,133/- WHICH WAS SUBSEQUENTLY REVISED TO PR OFIT OF RS.79,75,975/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143(3) R.W.S. 144(C) OF THE I.T. ACT DETERMINING THE TOTAL INCOME AT RS.6,79,99 ,031/-. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND THE TRI BUNAL GAVE PART RELIEF TO THE ASSESSEE AS A RESULT OF WHICH THE INCOME WAS REDUCE D TO RS.3,90,55,000/-. THEREAFTER, THE ASSESSING OFFICER LEVIED PENALTY U/ S.271(1)(C) OF THE I.T. ACT. R.W. EXPLANATION (1) AMOUNTING TO RS.1,69,78,370/- WHICH WAS SUBSEQUENTLY RECTIFIED TO RS.1,42,92,660/- VIDE RECTIFICATION OR DER DATED 07-02-2012. IT MAY BE NOTED HERE THAT THE ASSESSING OFFICER LEVIED PEN ALTY U/S.271(1)(C) OF THE I.T. ACT IN RESPECT OF THE FOLLOWING DISALLOWANCES/ADDIT IONS : A. ARMS LENGTH PRICE RS.5,45,54,363/- B. PROVISION OF CERTAIN EXPENSES RS. 40,94,915/- C. DEPRECIATION RS. 13,73,781/- 2.2 IN RESPONSE TO THE NOTICE U/S.271(1)(C), THE AS SESSEE MADE ELABORATE SUBMISSIONS BEFORE THE ASSESSING OFFICER. SO FAR A S THE DISALLOWANCE ON ACCOUNT OF PROVISION OF CERTAIN EXPENSES AMOUNTING TO RS.40,94,915/- IS CONCERNED, IT WAS SUBMITTED THAT THE ASSESSEE FILED DETAILED SUBMISSION EXPLAINING THE BASIS FOR MAKING THE PROVISION AND P ROVIDED SUPPORTING OF THE EXPENSES TO THE EXTENT AVAILABLE DURING ASSESSMENT PROCEEDING AND BEFORE THE ITAT. 2.3 SO FAR AS THE DISALLOWANCE ON ACCOUNT OF ADJUST MENTS RELATING TO INTERNATIONAL TRANSACTIONS, IT WAS SUBMITTED THAT T HE KEY REASONS FOR ADJUSTMENT MADE IN TPOS ORDER FOR MANUFACTURING SEGMENT WERE PRE-COMMENCEMENT EXPENDITURE AND CAPACITY UNDER UTILIZATION. IT WAS SUBMITTED THAT THE TPO DID NOT CONSIDER DETAILED SUBMISSIONS AND EXPLANATIONS PROVIDED DURING THE ASSESSMENT PROCEEDING BEFORE MAKING ADJUSTMENT. TH US, THERE IS NO CONCEALMENT OF INCOME ON THE PART OF THE COMPANY. 3 2.4 AS REGARDS ADJUSTMENT IN THE MARKETING SUPPORT SERVICES SEGMENT IT WAS SUBMITTED THAT THE SAME WAS BASED MERELY ON DIFFERE NCE OF OPINION. THE COMPANY HAD PROPERLY APPLIED METHOD IN RESPECT OF I NTERNATIONAL TRANSACTION, I.E. MANUFACTURING SEGMENT-TNMM., MARKETING SUPPORT SERVICE SEGMENT- TNMM AND REIMBURSEMENT OF EXPENSES-CUP AND THEREFOR E DULY COMPLIED WITH THE PROVISIONS OF SECTION 92C(1) OF THE ACT IN RELA TION TO CHOICE OF APPROPRIATE METHOD. VARIOUS DECISIONS WERE ALSO CITED BEFORE T HE ASSESSING OFFICER TO THE PROPOSITION THAT NO PENALTY U/S.271(1)(C) IS LEVIAB LE. 2.5 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND LEVIED PENALTY OF RS.1,69 ,78,370/- WHICH WAS SUBSEQUENTLY REDUCED TO RS.1,42,93,660/- IN THE REC TIFICATION ORDER. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION THE ACTION OF THE A SSESSING OFFICER. 2.6 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE ASSESSING OFFICER HAS LEVIED PENALTY U/S.271(1)(C) R.W. EXPLANATION (1) OF THE ACT AS AGAINST 271(1)(C) R.W. EXPLANATION (7). THE REFORE, THE PENALTY ORDER IS ILLEGAL SINCE A WRONG LAW HAS BEEN APPLIED. 3.1 REFERRING TO PAGES 174 TO 178 OF THE PAPER BOOK HE SUBMITTED THAT DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE THE ASSESSING OFFICER AND THE PROVISIONS OF EXPLANATION (7) TO SECTION 271(1)(C) WERE BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFI CER HAS NOT DEALT WITH THE SAME. THE LD.CIT(A) ALSO DID NOT ADJUDICATE THE PE NALTY ORDER ON THE BASIS OF EXPLANATION (7) TO SECTION 271(1)(C). HE SUBMITTED THAT AS PER EXPLANATION (7) 4 TO SECTION 271(1)(C) WHENEVER ANY ADJUSTMENT IS MAD E TO THE INTERNATIONAL TRANSACTION ENTERED WITH BY THE ASSESSEE, NO PENALT Y U/S.271(1)(C) CAN BE MADE UNLESS THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER THAT THE PRICE CHARGED OR PAID IN SUCH TRANSACTION WAS COMPU TED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 92C AND IN THE MANN ER PRESCRIBED IN THAT SECTION, IN GOOD FAITH AND WITH DUE DILIGENCE. HE SUBMITTED THAT THE ASSESSEE OBTAINED TP REPORT FROM A REPUTED CA FIRM AND IT IS NOT EVEN THE ALLEGATION OF THE ASSESSING OFFICER OR CIT(A) THAT PRICE CHARGED WAS NOT COMPUTED U/S.92C OR THERE WAS LACK OF GOOD FAITH OR DUE DILIGENCE. M OST APPROPRIATE METHOD FOR DETERMINING ALP WAS NOT FOUND FAULT WITH BY THE TPO . THE ALP WAS DETERMINED ON THE BASIS OF COMPARABLES CHOSEN BY TH E ASSESSEE ONLY. HE SUBMITTED THAT WHEN THE QUESTION OF PENALTY WITH RE FERENCE TO ADDITION U/S.92C IS CONCERNED, THEN SPECIFIC EXPLANATION (7) WILL AP PLY AND NOT EXPLANATION (1). REFERRING TO VARIOUS DECISIONS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSING OFFICER HAS APPLIED THE WRONG P ROVISION THE PENALTY LEVIED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) S HOULD BE DELETED. 3.2 REFERRING TO THE DECISION OF MUMBAI BENCH OF TH E TRIBUNAL IN THE CASE OF DCIT VS. RBS EQUITIES INDIA LTD. REPORTED IN 141 TT J 56 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT AS LONG AS NO DISHONESTY IS FOUND IN THE CONDUCT OF THE ASSESSEE AND AS LONG AS HE HAS D ONE WHAT A REASONABLE MAN WOULD HAVE DONE IN HIS CIRCUMSTANCE, TO ENSURE THAT THE ALP WAS DETERMINED IN ACCORDANCE WITH THE SCHEME OF SECTION 92C, DEEMING FICTION UNDER EXPLANATION (7) CANNOT BE INVOKED. IT HAS BEEN HELD IN THE SAI D DECISION THAT LACK OF GOOD FAITH AND DUE DILIGENCE CANNOT BE INFERRED WHEN THE GROUNDS ON WHICH ALP DETERMINED BY THE ASSESSEE HAS BEEN REJECTED OR REA SONABLY DEBATABLE, EVEN IF NOT CORRECT. ACCORDINGLY, APPLYING THE EXPLANATION (7) TO SECTION 271(1)(C) THE 5 PENALTY DELETED BY THE CIT(A) WAS UPHELD. HE ALSO RELIED ON THE FOLLOWING DECISIONS AND SUBMITTED THAT PENALTY LEVIED U/S. 27 1(1)(C) SHOULD BE DELETED : I. DCIT VERTEX CUSTOMER SERVICES INDIA (P) LTD. REPOR TED IN 126 TTJ 184 II. ACIT VS. FIREMENICH AROMATICS INDIA VIDE ITA NO.4654/MUM/2009 ORDER DATED 17-05-2010 3.3 IN HIS ALTERNATE CONTENTION, HE SUBMITTED THAT SINCE INSTEAD OF EXPLANATION (7) TO SECTION 271(1)(C), THE ASSESSING OFFICER HAS APPLIED EXPLANATION (1) TO SECTION 271(1)(C) AND LEVIED PENALTY WHICH HAS BEEN UPHELD BY THE CIT(A), THEREFORE, THE MATTER MAY BE SENT BACK TO THE ASSES SING OFFICER TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF EXPLANATION (7) TO SEC TION 271(1)(C) ON ACCOUNT OF ADDITION OF ARMS LENGTH PRICE. 3.4 AS REGARDS THE PROVISIONS OF EXPENSES AS WELL A S COMPUTATION OF DEPRECIATION ON COMPUTER PERIPHERALS, UPS AND PRINT ER HE SUBMITTED THAT BOTH THE ISSUES WERE HIGHLY DEBATABLE. HE HOWEVER SUBMI TTED THAT SINCE THE PENALTY CANNOT BE DECIDED IN PIECE MEAL, THEREFORE, THE ENT IRE ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDIC ATION. 4. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT HE HAS NO OB JECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER CONSIDERING EXPLANATION (7) TO SECTION 271(1)(C) OF THE I.T. ACT. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE PENALTY HAS BEEN LEVIED BY THE ASSESSING 6 OFFICER U/S.271(1)(C) R.W. EXPLANATION (1) ON ACCOU NT OF ADDITION WITH RESPECT TO THE FOLLOWING : A. ARMS LENGTH PRICE RS.5,45,54,363/- B. PROVISION OF CERTAIN EXPENSES RS. 40,94,915/- C. DEPRECIATION RS. 13,73,781/- 5.1 WE FIND THE EXPLANATION (7) TO SECTION 271(1)(C ) READS AS UNDER : WHERE IN THE CASE OF AN ASSESSEE WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] DEFINED IN SECTION 92B, ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME UNDER SUB-SECTION (4) OF SECTION 92C, THEN, THE AMOUNT SO ADDED OR DISAL LOWED SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR I NACCURATE PARTICULARS HAVE BEEN FURNISHED, UNLESS THE ASSESSEE PROVES TO THE SATISFACTI ON OF THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) [OR THE COMMISSIO NS] THAT THE PRICE CHARGED OR PAID IN SUCH TRANSACTION WAS COMPUTED IN AC CORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 92C AND IN THE MANNER PRESCRIBED UNDER THAT SECTION, IN GOOD FAITH AND WITH DUE DILIGENCE. 5.2 WE FIND ALTHOUGH THE ASSESSEE HAS MADE SUBMISSI ONS BEFORE THE ASSESSING OFFICER BRINGING TO HIS NOTICE REGARDING THE PROVISION OF EXPLANATION (7) TO SECTION 271(1)(C), THE ASSESSING OFFICER HAS NOT DEALT WITH THE ISSUE. EVEN THE LD.CIT(A) HAS ALSO NOT DECIDED THE ISSUE R EGARDING THE APPLICABILITY OF SECTION (7) TO SECTION 271(1)(C) WHILE UPHOLDING THE PENALTY LEVIED BY THE ASSESSING OFFICER ON ACCOUNT OF ADDITION WITH RESPE CT TO ALP. WE, THEREFORE, AGREE WITH THE ALTERNATE CONTENTION OF THE LD. COUN SEL FOR THE ASSESSEE THAT THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESS ING OFFICER WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE THAT THE PRICE CHARGED OR PAID IN THE INTERNATIONAL TRANSACTION WAS COMPUTED IN AC CORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 92C AND IN THE MANNER PRESCRIB ED UNDER THAT SECTION, IN GOOD FAITH AND WITH DUE DILIGENCE. SINCE THE MAIN ISSUE RELATING TO LEVY OF PENALTY IS BEING RESTORED TO THE FILE OF THE ASSESS ING OFFICER AND SINCE IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT PENALTY CANNOT BE DECIDED IN PIECE MEAL AND THE ENTIRE ISSUE HAS TO BE RESTOR ED TO THE FILE OF THE ASSESSING OFFICER, THEREFORE, THE PENALTY LEVIED ON ACCOUNT O F DISALLOWANCE OF PROVISIONS 7 OF CERTAIN EXPENSES AND DEPRECIATION IS ALSO RESTOR ED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THE ASSESSING OFFI CER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSES. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28-11-2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 28 TH NOVEMBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE