Asence Inc., Baroda V. The ADIT(Intl.Tax), Ahmedabad

ITA 257/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72860 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 28-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Keywords: Transfer pricing; International transaction; Permanent establishment; Reasonable cause
• Section: 143(3); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHAR AT, J.M. ) I.T. A. NOS. 256 & 257/AHD/2010 (ASSESSMENT YEAR: 2005-06) ASENCE INC., INDIA BRANCH OFFICE SARABHAI CAMPUS WADI, BARODA 390023 V/S ADIT (INTL. TAX), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAECA 0708J APPELLANT BY : SHRI VARTIK. CHOKSHI RESPONDENT BY : SHRI J.P. JHANGID, SR. D.R. ( )/ ORDER DATE OF HEARING : 27-12-2013 DATE OF PRONOUNCEMENT : 10-01-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAI NST THE ORDER OF CIT(A), GANDHINAGAR DATED 09.09.2009 FOR A.Y. 2005-06 AGAIN ST PENALTY U/S. 271G AND ORDER DATED 03.09.2009 FOR A.Y. 2005-06 AGAINST QUANTUM ADDITION. WE FIRST TAKE UP ITA NO. 256/AHD/2010. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER. ITA NO 256 & 257/AHD/2010 . A.Y. 200 5- 06 2 3. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THERE WAS DELAY IN FILING OF THE PRESENT APPEAL. HE SUBMITTED THAT AGAINST THE ORDER OF CIT(A), THE ASSESSEE SHOULD HAVE FILED APPEAL BEFORE HON. TRIBUNAL ON OR BEFORE 28.12.2009 BUT THE SAME WAS FILED ON 28.01.2010 THEREBY CAUSING A DELA Y OF 31 DAYS. THE ASSESSEE HAS FILED A PETITION FOR CONDONING THE DEL AY AND ALSO FILED A SWORN AFFIDAVIT OF THE DIRECTOR OF THE ASSESSEE WHEREIN T HE REASONS FOR DELAY HAS BEEN STATED AND HAS ALSO PRAYED FOR CONDONING THE D ELAY. THE LD. D.R. OBJECTED TO THE CONDONATION PETITION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON PERUSING THE AFFIDAVIT OF THE DIRECTOR OF THE ASSES SEE, WE FIND THAT THERE WAS REASONABLE CAUSE IN THE FILING OF THE PRESENT APPEA L. WE THEREFORE CONDONE THE DELAY AND ADMIT THE APPEAL. 5. ASSESSEE IS STATED TO BE A FOREIGN COMPANY ENGAG ED IN THE BUSINESS OF EXPORT OF VARIOUS PHARMACEUTICALS PRODUCTS SOURCED FROM INDIA. IT FILED ITS RETURN OF INCOME FOR A.Y. 05-06 ON 31.10.2005 DECLA RING TOTAL INCOME OF RS. 25,12,515/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THEREAFTER ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 29 .12.2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,17,06,858/-. AGGRIEV ED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) V IDE ORDER DATED 03.09.2009 DISMISSED THE APPEAL OF THE ASSESSEE. AG GRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 6. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS I T WAS SUBMITTED THAT THE ONLY EFFECTIVE GROUND IS WITH RESPECT TO THE TAXABI LITY OF INCOME. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O . NOTICED THAT ASSESSEE HAD SHOWN PROFIT BEFORE TAX OF RS. 46,80,242/- BUT HAD NOT OFFERED ANY INCOME FOR TAX. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLA IM. THE ASSESSEE INTERALIA SUBMITTED THAT ASSESSEES INDIAN BRANCH OPERATIONS ARE CONFINED TO PURCHASE ITA NO 256 & 257/AHD/2010 . A.Y. 200 5- 06 3 OF GOODS IN INDIA FOR THE PURPOSE OF EXPORT AND ENT IRE GOODS ARE EXPORTED OUTSIDE INDIA. THE INCOME ATTRIBUTABLE TO OPERATIO NS OF PURCHASE WAS NOT TAXABLE UNDER THE PROVISIONS OF SECTION 9 OF THE AC T AND FURTHER THE ASSESSEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. A .O. NOTED THAT THE OPERATIONS OF INDIAN BRANCH EXTENDED BEYOND SIMPLY PURCHASING AND EXPORT OF GOODS AND IT ALSO COVERED SALES PROMOTION ETC. H E WAS OF THE VIEW THAT ALL OPERATIONS STARTING FROM PROCURING ORDERS FROM WHER E THE CUSTOMERS GETTING MEDICINE MANUFACTURED IN INDIA AS PER REQUIREMENT, EXPORTING OUTSIDE INDIA, SALES REALIZATION AND THE COMMISSION PAYMENTS TO TH E AGENTS ARE PERFORMED BY THE INDIAN BRANCH ONLY AND THEREFORE THE ENTIRE ACTIVITIES RELATING TO THE BUSINESS OF THE ASSESSEE WAS DONE FROM THE INDIAN B RANCH. THE ASSESSEE WAS ASKED TO SUBMIT THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET OF THE ASSESSEE AS A WHOLE. ASSESSEE HOWEVER ONLY SUB MITTED THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET OF INDIAN BRANCH ONLY. ON PERUSING THE ACCOUNTS, A.O NOTICED THAT ASSESSEE HAD ENTERED INT O INTERNATIONAL TRANSACTION OF PURCHASE OF GOODS FROM ASSOCIATED EN TERPRISES AND THE VALUE OF THE TRANSACTION WAS RS. 6,61,12,504/-. A.O. ACCO RDINGLY MADE A REFERENCE UNDER SECTION 92CA (1) OF THE ACT TO THE TRANSFER P RICING OFFICER (TPO). T.P.O. VIDE ORDER DATED 17.10.2008 DETERMINED THE A RMS LENGTH PRICE OF THE PURCHASES AND DIRECTED THE A.O. TO MAKE THE ADJUSTM ENT OF RS. 72,09,183/- TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY AN AD DITION OF RS. 72,09,183/- WAS MADE BY THE A.O. AGGRIEVED BY THE ORDER OF A.O. , ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF A. O. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 8. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THE F ACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE SIMILAR TO THAT OF A.Y. 04-05. HE FURTHER SUBMITTED THAT ON IDENTICAL FACTS IN THE ASSESSEES OWN CASE FOR A.Y. 04-05, THE HON. TRIBUNAL HAD DIRECTED THE A.O TO APPLY THE NET PROFIT RATE O F 1.25% ON THE GROSS RECEIPTS OF THE ASSESSEE AS AGAINST THE PROFIT RATE OF 4.75% APPLIED BY THE ITA NO 256 & 257/AHD/2010 . A.Y. 200 5- 06 4 A.O. HE THEREFORE SUBMITTED THAT SINCE THE FACTS OF THE CASE, THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF A.Y. 04-05, THE ASS ESSEE HAS NO OBJECTION IF SIMILAR RATE IS APPLIED IN THE PRESENT ALSO. THE LD . D.R. ON THE OTHER HAND DID NOT SERIOUSLY OBJECT TO THE SUBMISSION OF THE A.R. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ASSESSEE FOR A.Y. 04-05 IN ITA NO. 2246/AHD/2008 ORDER DATED 06.12.20 13 HAS DIRECTED TO APPLY THE FLAT THE NET PROFIT RATE OF 1.25% BY HOLD ING AS UNDER:- 6. THE LEARNED DR SUBMITTED THAT SUFFICIENT OPPORTU NITY WAS GIVEN TO THE ASSESSEE BEFORE APPLYING THE PROFIT RATE OF 4.7% ON THE BASIS OF DATA GATHERED F ROM PROWESS DATABASE, BUT THE ASSESSEE HAD NOT AVAILED THE OPPORTUNITY, AND THEREFORE, THE REVENUE HAS JUSTIFIED IN APPLYING THE PROFIT RATE OF 4.7% TO THE CASE OF THE ASSESSEE, HE REFERRED TO THE RELEVA NT PORTIONS OF THE ASSESSMENT ORDER IN SUPPORT OF T HE CASE OF THE REVENUE. HE RELIED ON THE DECISION OF T HE BANGALORE BENCH OF THE TRIBUNAL IN AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD., 107 ITD 141 (B ANG). THE LEARNED COUNSEL FOR THE ASSESSEE OPPOSED THE SUBMISSIONS OF THE LEARNED DR. HE SUBMI TTED THAT NO PROPER OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO CONTROVERT THE STAND OF THE REVENUE FOR APPLICATION OF PROFIT RATE OF 4.7%. HE SUBMITTED THAT THE CASE LAW CITED BY THE LEARNED DR IS DISTIN GUISHABLE ON FACTS. HE SUBMITTED THAT IN EARLIER ASSESSMENT YEARS, 2002-2003 AND 2003-2004, THE REVE NUE HAS ACCEPTED THE LOSS AND NET PROFIT OF 1% WAS APPLIED IN THE SAME EXPORT BUSINESS BY THE REVE NUE IN THE ASSESSMENT YEAR 2001-2002. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, SO ME REASONABLE ESTIMATION OF INCOME OF THE ASSESSEE HAS TO BE MADE. THE AO HAS APPLIED A PROFIT RATE OF 4.7% ON THE BASIS OF DATA GATHERED FROM PROWESS DATABASE ONLY. THE ASSESSEE HAS FILED REPLY THERETO , WHICH WAS NOT FOUND ACCEPTABLE ON MERIT BY THE AO, NO SPECIFIC REASON FOR NOT ACCEPTING THE REPLY OF THE ASSESSEE HAS BEEN GIVEN BY THE AO IN THE ASSESSMENT ORDER. THE CIT(A) HAS RECORDED IN HIS AP PELLATE ORDER THAT IN THE EARLIER ASSESSMENT YEARS I.E. A.Y ,2002-2003 AND 2003-2004, THE REVENUE HAS ACCEPTED 'LOSS'' AND THAT THE NET PROFIT OF 1% IN THE SAME EXPORT BUSINESS WAS APPLIED IN THE ASSESSM ENT YEAR 2001-2002. WE FIND THAT THESE FACTS HAVE BEEN COMPLETELY IGNORED BY THE AO WHILE APPLYING FL AT RATE OF PROFIT, EVEN IN A CASE WHERE THE NET PROFIT HAS TO BE APPLIED, THE SAME HAS TO BE REASON ABLE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E CASE INCLUDING THE DATA GATHERED FROM PROWESS DATAB ASE BY THE REVENUE, AND THE PAST HISTORY OF THE ASSESSEE ITSELF, WHEREIN THE LOSS WAS ACCEPTED IN A .Y.2002-2003 AND 2003-2004 AND NET PROFIT OF 1% IN THE SAME EXPORT BUSINESS WAS APPLIED FOR A.Y. 2001- 2002 BY THE DEPARTMENT, WE HOLD THAT IT SHALL BE REASONABLE TO APPLY FLAT NET PROFIT RATE OF 1.25% O N THE GROSS RECEIPTS OF THE ASSESSEE AS AGAINST THE PROFIT RATE OF 4,7% APPLIED BY THE AO, AND THE AO I S DIRECTED TO DETERMINE THE TAXABLE INCOME ACCORDINGLY, AND THE GROUND NO.2 OF THE REVENUE IS PARTLY ALLOWED. 10. SINCE THE FACTS OF THE CASE IN THE YEAR UNDER A PPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR AS ADMITTED BY BOTH THE PARTIES BEFORE US, WE RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH IN ASS ESSEES OWN CASE IN ITA NO. 2246/AHD/2008 FOR A.Y. 04-05 DIRECT THE A.O. TO APPLY NET PROFIT RATE OF 1.25% ON THE GROSS RECEIPTS OF THE ASSESSEE. THE A. O. IS THEREFORE DIRECTED TO DETERMINE THE TAXABLE INCOME ACCORDINGLY. ITA NO 256 & 257/AHD/2010 . A.Y. 200 5- 06 5 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO. 257/AHD/2010 FOR A.Y. 2005-06. 12. IN THIS CASE, TPO IN HIS ORDER DATED 17.10.2008 HAD NOTED THAT ASSESSEE DID NOT SUBMIT ANY INFORMATION OR DOCUMENTATION AS REQU IRED UNDER SECTION 92D(3) OF THE I.T. ACT, DESPITE VARIOUS OPPORTUNITI ES GIVEN TO THE ASSESSEE FOR FURNISHING THE NECESSARY INFORMATION. IN VIEW OF TH E AFORESAID FACTS, PENALTY PROCEEDINGS UNDER SECTION 271G OF THE ACT WERE INIT IATED AND THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY PENALTY UNDER 271 G BE NOT INITIATED FOR FAILURE TO FURNISH INFORMATION OF DOCUMENTS. ASSESS EE INTERALIA SUBMITTED THAT THE INCOME ATTRIBUTABLE TO THE TAX OF INDIAN BRANCH WAS NOT TAXABLE IN INDIA AND THEREFORE THERE WAS NO REQUIREMENT OF MAINTENAN CE OF PRESCRIBED RECORDS. IT WAS FURTHER SUBMITTED THAT THE INDIAN BRANCH WAS COMPLETELY CLOSED AND ALL THE EMPLOYEES, STAFF ETC HAD LEFT TH E SERVICES AND THEREFORE THE ASSESSEE COULD NOT COMPLY WITH THE NOTICE ISSUED TP O. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O AN D HE WAS OF THE VIEW THAT SINCE THE ASSESSEE HAD FAILED TO FURNISH THE R EQUIRED INFORMATION CALLED BY THE TPO, THE ASSESSEE HAD COMMITTED DEFAULT UNDE R SECTION 271G OF THE ACT AND THEREFORE THE ASSESSEE WAS LIABLE FOR PENAL TY. HE ACCORDINGLY LEVIED PENALTY OF RS. 13,22,250/- VIDE ORDER DATED 13.03.2 009. AGGRIEVED BY THE AFORESAID ORDER OF A.O., ASSESSEE CARRIED THE MATTE R BEFORE CIT(A). CIT(A) CONFIRMED THE ORDER OF A.O. AGGRIEVED BY THE AFORES AID ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 13. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS , THE ONLY EFFECTIVE GROUND IS WITH RESPECT TO LEVY OF PENALTY UNDER SECTION 27 1G. 14. BEFORE US, THE LD. A.R. SUBMITTED THAT ASSESSEE HAD SET UP A BRANCH IN INDIA AND THE OPERATIONS OF THE COMPANY WAS CONFINED TO P URCHASE OF GOODS IN ITA NO 256 & 257/AHD/2010 . A.Y. 200 5- 06 6 INDIA FOR THE PURPOSE OF EXPORT. ASSESSEE WAS OF T HE VIEW THAT AS PER THE PROVISIONS OF SECTION 9(1)(I) OF THE ACT, THE INCOM E OF THE ASSESSEE DID NOT ACCRUE OR ARISE IN INDIA AND THEREFORE IT WAS NOT L IABLE TO TAX. HE ALSO PLACED RELIANCE ON CIRCULAR ISSUED BY CBDT. HE THEREFORE S UBMITTED THAT ASSESSEE WAS UNDER BONA FIDE BELIEF THAT THE INCOME PERTAINI NG TO OPERATION WHICH WERE CONFINED TO PURCHASE OF GOODS IN INDIA WERE NOT TAX ABLE IN INDIA. HE FURTHER SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR, C IT(A) HAD GIVEN A FINDING THAT THE PROFITS OF THE ASSESSEE ATTRIBUTABLE TO PR OCUREMENT OF GOODS FOR THE PURPOSE OF EXPORTS WERE NOT CHARGEABLE TO TAX IN IN DIA. THE ASSESSEE WAS THEREFORE UNDER BONA FIDE BELIEF THAT AS THE INCOME DID NOT ACCRUE OR ARISE IN INDIA, IT WAS NOT REQUIRED TO COMPLY WITH THE TRANS FER PRICING PROVISIONS. HE THEREFORE SUBMITTED THAT SINCE THE FAILURE WAS ATTR IBUTABLE TO A REASONABLE CAUSE, NO PENALTY BE LEVIED UNDER SECTION 271G OF T HE ACT. 15. THE LD. D.R. ON THE OTHER HAND POINTED TO THE F INDINGS OF A.O. AND SUBMITTED THAT DESPITE VARIOUS OPPORTUNITIES GRANTED TO THE A SSESSEE, THE NECESSARY INFORMATION AS REQUIRED BY THE TPO WAS NOT SUBMITTE D BY THE ASSESSEE. IN THOSE CIRCUMSTANCES, THE A.O. WAS FULLY JUSTIFIED I N LEVYING PENALTY UNDER SECTION 271G. HE THUS SUPPORTED THE ORDER OF A.O. A ND CIT(A). 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ORDER UNDER SECTION 143(3) WAS PASSED BY THE A.O. ON 29.12.2008 AND THE PENALTY ORDER UNDER SECTION 271G OF THE ACT WAS PASSED ON 13.03.2009. FROM THE AFFIDAVIT OF THE DIRECTOR O F THE ASSESSEE SUBMITTED THE ASSESSEE IN CONNECTION WITH THE CONDONATION OF DELAY, IT IS SEEN THAT THE BRANCH OPERATIONS OF THE ASSESSEE CLOSED DOWN IN TH E MONTH OF DECEMBER 2006 AND NO FURTHER BUSINESS ACTIVITIES HAVE STATED TO HAVE TAKEN PLACE IN THE BRANCH. WE ALSO FIND THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, ASSESSEE HAD SUBMITTED THAT IT WAS NOT LIABLE TO TA X IN VIEW OF THE PROVISIONS OF SECTION 9 OF THE ACT AND SINCE IT WAS NOT LIABLE TO TAX IT WAS ALSO NOT REQUIRED TO MAINTAIN THE DOCUMENTS REQUIRED FOR TRA NSFER PRICING. THESE ITA NO 256 & 257/AHD/2010 . A.Y. 200 5- 06 7 SUBMISSIONS MADE BY THE ASSESSEE APPEARS TO BE BONA -FIDE MORE SO WHEN THE SAME HAS NOT BEEN CONTROVERTED BY REVENUE BY BR INGING ANY CONTRARY MATERIAL ON RECORD. SECTION 273 B OF THE ACT STATE S THAT NO PENALTY SHALL BE IMPOSED WHEN THE ASSESSEE PROVES THAT THERE WAS REA SONABLE CAUSE. CONSIDERING THE PECULIAR FACTS OF THE CASE, WE ARE OF THE VIEW, THAT IN THE PRESENT CASE THE ASSESSEE WAS HAVING A REASONABLE B ELIEVE OF NOT BEING LIABLE TO TAX WHICH HAS NOT BEEN CONTROVERTED BY RE VENUE. IN VIEW OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT THE ASSESSE E IS NOT LIABLE FOR PENALTY IN THE PRESENT CASE. WE THUS DELETE THE PENALTY LEVIE D UNDER SECTION 271G OF THE ACT. 17. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO . 256/AHD/2010 IS PARTLY ALLOWED AND THE APPEAL OF ASSESSEE IN ITA NO. 257/A HD/2010 IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 01 - 2014. SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD