CLIX FINANCE INDIA PVT. LTD. (Earlier known Clix Finance India Unlimited) , New Delhi V. DCIT, Circle- 10(1), New Delhi

ITA 2779/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7623 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2012-2013
• Appeal Filed On: 20-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD SHARMA
• Keywords: Transfer pricing; Question of law; Reasonable cause
• Section: 271(1)(c); 143(3); 144C; 274; 73; 13; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI (THROUGH VIDEO CONFERENCING] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 2779/DEL/2018 [A.Y 2012-13] CLIX FINANCE INDIA PVT LTD VS. THE DY. C. I.T [EARLIER KNOWN AS CLIX FINANCE INDIA LTD] CIRCLE 10(1) E029, 1 ST FLOOR, HAUZ KHAS NEW DELHI NEW DELHI PAN : AAACG 0239 L [APPELLANT] [RESPONDENT] DATE OF HEARING : 23.08.2021 DATE OF PRONOUNCEMENT : 23.08.2021 ASSESSEE BY : SHRI SACHIT JOLLY, AD V. MS. DISHA JHAM, ADV REVENUE BY : SHRI VINOD SHARMA, SR . DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] - 35, NEW DELH I DATED 26.02.2018 PERTAINING TO ASSESSMENT YEAR 2012-13. 2 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT T HE LD. CIT(A) ERRED IN CONFIRMING THE PENALTY OF RS. 90,27,690/- U/S 2 71(1)(C) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT' FOR SHORT]. 3. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH. CASE RECORDS CAREFULLY PERUSED. 4. THE ROOTS FOR LEVY OF PENALTY LIE IN THE ASSESSM ENT ORDER DATED 31.03.2016 FRAMED U/S 143(3) R.W.S 144C OF THE ACT. PURSUANT TO THE ORDER OF THE TPO DATED 20.01.2016 FRAMED U/S 92CA(3 ) OF THE ACT, THE ASSESSING OFFICER ENHANCED THE INCOME OF THE ASSESS EE BY RS. 2,78,24,585/-. WHILE PROPOSING ENHANCEMENT, THE TP O OBSERVED THE ASSESSING OFFICER MAY EXAMINE THE FEASIBILITY OF IN ITIATION OF PENALTY U/S 271(1)(C) OF THE ACT IN ACCORDANCE WITH EXPLANA TION 7 OF THE SAME. 5. THE TPO INITIATED PENALTY PROCEEDINGS BY ISSUING AND SERVING NOTICE U/S 274 R.W.S 271 OF THE ACT DATED 31.03.201 6, WHICH READS AS UNDER: 3 NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT-196 TO MIS GE CAPITAL SERVICES INDIA DATE 31.03.2016 401 & 402, 4TH FLOOR, AGGARWAL MILLENIUM TOWER, E-1-2-3, NETAJI SUBHASH PLACE, PITAMPURA, NEW DELHI- 110034 WHERE IN THE COURSE OF PROCEEDING BEFORE ME FOR THE ASSESSMENT YEAR 2012-13 IT APPEARS TO ME THAT YOU:- *HAVE WITHOUT REASONABLE CAUSE FAILED TO COMPLY WIT H A NOTICE UNDER SECTION 142(1 )/143(2) OF THE INCOME TAX ACT, 1961 DATED *HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR F URNISHED INACCURATE PARTICULARS OF SUCH INCOME N TERMS OF EX PLANATION 1,2,3,4 AND 5. YOU ARE REQUESTED TO APPEAR BEFORE ME AT 11:30 A.M./P.M. ON 29.04.2016 AND SHOW CAUSE WHY AN ORDER IMPOSING A PENALTY ON Y OU SHOULD NOT BE MADE UNDER SECTION 271 OF THE INCOME TAX ACT, 19 61. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF B EING HEARD IN PERSON OR THROUGH AUTHORISED REPRESENTATIVE YOU MAY SHOW CAUSE IN WRITING ON OR BEFORE THE SAID DATE WHICH WILL BE CO NSIDERED BEFORE ANY SUCH ORDER IS MADE UNDER SECTION 271. PLACE NEW DELHI DATE 31.03.2016 ASSESSING OFFICER [D.S. RATHI] DY. COMMISSIONER OF INCOME TAX, CIRCLE 10(1), C.R. BUILDING, NEW DELHI DELETE INAPPROPRIATE PARAGRAPHS AND WORDS. 4 6. ON 05.09.2016, THE ASSESSING OFFICER ONCE AGAIN ISSUED NOTICED AS UNDER: 5 7. IT CAN BE SEEN FROM THE ABOVE THAT THE NOTICE IS SUED ON 05.09.2016 IS, IN FACT, NOT A NOTICE BUT IN CONTINU ATION OF EARLIER NOTICE DATED 31.03.2016 ASKING THE ASSESSEE TO FURNISH REP LY TO THE NOTICE DATED 31.03.2016. 8. A SIMPLE PERUSAL OF THE NOTICE DATED 31,03.2016 WOULD SHOW THAT THE ASSESSING OFFICER WAS NOT CLEAR IN HIS MIND WHE THER HE WANTS TO LEVY PENALTY FOR FILING INACCURATE PARTICULARS OF I NCOME OR FOR CONCEALMENT OF INCOME. 9. IN OUR CONSIDERED OPINION, THE EXTRACTED NOTI CE IS VAGUE AND AMBIGUOUS, AS THE CHARGE FRAMED BY THE ASSESSING OF FICER IS NOT CLEAR AND IT IS NOT POSSIBLE FOR THE PERSON TO EXPLAIN TH E CHARGE WHETHER IT IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FIL ING INACCURATE PARTICULARS OF INCOME. 10. THE HONBLE APEX COURT IN CASE OF CIT VS. S SAS EMERALD MEADOWS - (2016) 73 TAXMANN.COM 248 (SC), WHILE DIS MISSING THE SLP FILED BY THE REVENUE QUASHING THE PENALTY BY TH E TRIBUNAL AS WELL AS HONBLE HIGH COURT ON THE GROUND OF UNSPECIFIED NOTICE HAS HELD AS UNDER:- 6 SECTION 274, READ WITH SECTION 271(L)(C), OF THE I NCOME-TAX ACT, 1961 - PENALTY - PROCEDURE FOR IMPOSITION OF (CONDI TIONS PRECEDENT) - ASSESSMENT YEAR 2009-10 - TRIBUNAL, RELYING ON DE CISION OF DIVISION BENCH OF KARNATAKA HIGH COURT RENDERED IN CASE OF CIT V. MANJUNATHA COTTON X GINNING FACTORY [2013] 359 1TR 565/218 TAXMAN 423/35 TAXMANN.COM 250, ALLOWED APPEAL OF AS SESSES HOLDING THAT NOTICE ISSUED BY ASSESSING OFFICER UND ER SECTION 274 READ WITH SECTION 271 (1 )(C) WAS BAD IN LAW, AS IT DID NOT SPECIFY UNDER WHICH LIMB OF SECTION 271 (1 )(C) PENALTY PRO CEEDINGS HAD BEEN INITIATED, I.E., WHETHER FOR CONCEALMENT OF PA RTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME - HIGH COURT HELD THAT MATTER WAS COVERED BY AFORESAID DEC ISION OF DIVISION BENCH AND, THEREFORE, THERE WAS NO SUBSTAN TIAL QUESTION OF LAW ARISING FOR DETERMINATION - WHETHER SINCE THERE WAS NO MERIT IN SLP FILED BY REVENUE, SAME WAS LIABLE TO BE DISM ISSED - HELD, YES [PARA 2] [IN FAVOUR OF ASSESSEE. 11. HONBLE DELHI HIGH COURT IN CASE OF PR. CI T VS. SAHARA INDIA LIFE INSURANCE COMPANY LTD. (SUPRA) WHILE DECIDING THE I DENTICAL ISSUE HELD AS UNDER: 21. THE RESPONDENT HAD CHALLENGED THE UPHOLDING OF THE PENALTY IMPOSED UNDER SEC. 271(1)(C) OF THE ACT, WHICH WAS ACCEPTED BY THE IT AT. IT FOLLOWED THE DECISION OF THE KARNATAK A HIGH COURT IN CIT V. MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 (KAR) AND OBSERVED THAT THE NOTICE ISSUED BY THE AO WOULD BE BAD IN LAW IF IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1) (C) TH E PENALTY 7 PROCEEDINGS HAD BEEN INITIATED UNDER I.E. WHETHER F OR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING OF INACC URATE PARTICULARS OF INCOME. THE KARNATAKA HIGH COURT HAD FOLLOWED TH E ABOVE JUDGMENT IN THE SUBSEQUENT ORDER IN COMMISSIONER OF INCOME TAX V. SSA'S EMERALD MEADOWS -73 TAXMANN.COM 241 (KAR), THE APPEAL AGAINST WHICH WAS DISMISSED BY THE SUPREME COURT O F INDIA IN SLP NO. 11485 BY ORDER DATED 5 TH AUGUST 2016. 12. FOLLOWING THE DECISIONS RENDERED IN THE CASES OF CIT VS. MANJUNATHA FACTORY, CIT VS. SSAS EMERALD MEADOWS AND PR. CIT VS SAHARA INDIA LIFE INSURANCE COMPANY LTD. (SUPRA), W E ARE OF THE CONSIDERED VIEW THAT WHEN THE NOTICE ISSUED BY THE AO IS BAD IN LAW BEING VAGUE AND AMBIGUOUS HAVING NOT SPECIFIED UNDE R WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY PROCEEDIN GS INITIATED U/S 271(1)(C) ARE NOT SUSTAINABLE. 13. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, FOLLO WING THE DECISIONS RENDERED BY HONBLE HIGH COURTS DISCUSSED IN THE PRECEDING PARAS AND WITHOUT ENTERING INTO THE OTHER ASPECTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE V ERY INITIATION OF THE PENALTY BY WAY OF ISSUANCE OF VAGUE AND AMBI GUOUS NOTICE U/S 271(1)(C) READ WITH SECTION 274 OF THE ACT WITH OUT SPECIFICALLY CHARGING THE ASSESSEE IF HE HAS CONCEALED THE PARTI CULARS OF INCOME 8 OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INC OME, SUBSEQUENT PENALTY PROCEEDINGS ARE NOT SUSTAINABLE, HENCE PENA LTY LEVIED BY THE AO AND CONFIRMED BY THE ID. CIT (A) IS NOT SUST AINABLE AND AS SUCH, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 14. CONSIDERING THE TOTALITY OF THE FACTS IN LIGHT OF THE JUDICIAL DECISIONS [SUPRA] WE DIRECT THE ASSESSING OFFICER T O DELETE THE PENALTY U/S 271(1)(C) OF THE ACT AMOUNTING TO RS. 90,27,690 /-. 15. WE WILL NOT REST OUR FINDINGS AT THIS STAGE, BU T WOULD LIKE TO PROCEED ON MERITS OF THE CASE. 16. FACTS ON RECORD SHOW THAT THE ASSESSEE HAS TAKE N HIS FOREIGN ASSOCIATED ENTERPRISE AS TESTED PARTY, WHICH BENCH MARKING WAS REJECTED BY THE TPO. OBSERVATIONS OF THE TPO ARE A S UNDER: 12. THE ASSESSEE HAS ALSO STATED THAT IT HAS NOT T ESTED OVERALL MARGIN OF THE AE BUT THE MARGIN EARNED FROM THIS PARTICULAR TRANSACTION. EVEN IF THAT POINT IS ACCEP TED ABOUT THE AE, TIRE QUESTION ABOUT THE DATA OF THE COMPARABLES STILL REMAINS. THERE IS NO DOUBT THAT WE ARE USING THE OV ERALL MARGIN OF THE COMPARABLES. IF THE ASSESSEE VERSION IS ACCE PTED, WE 9 ARE COMPARING THE OVERALL MARGINS OF THE COMPARABLE S WITH THE MARGIN EARNED BY THE AE IN ONE SEGMENT. THAT DOES N OT SEEM TO BE A GOOD COMPARISON WHEN WE DO NOT HAVE ENOUGH DATA ABOUT THE COMPARABLES. 13. THE MARGIN THAT A COMMERCIAL ENTITY MAKES IS A COMBINATION OF VARIOUS FACTORS. THE BEDROCK OF ANY COMPARABILITY' ANALYSIS IS THE AVAILABILITY OF ACCU RATE DATA. WE DO NOT HAVE SUFFICIENT AND ACCURATE DATA ABOUT THE FOREIGN COMPARABLES. WE DO NOT KNOW WHAT THE LANDS OF SERVI CES THAT THEY PROVIDE ARE AND WHAT ARE THE VARIOUS SOURCES O F THEIR REVENUE. WE DO NOT KNOW WHETHER THEIR HIGHER MARGIN S (AS COMPARED TO THE AES) ARE ON ACCOUNT OF THESE SERVIC ES OR ANY OTHER KIND OF INCOME. WE DO NOT KNOW THE CONTRACTUA L TERMS THAT THEY HAVE ENTERED INTO WITH THEIR CLIENTS. WE DO NOT KNOW WHETHER THEY SUPPLY THEIR SERVICES IN THE DOMESTIC MARKET OR DO THEY EXPORT THEIR SERVICES. THE AES ARE AFTER AL L EXPORTING THEIR SERVICES. 14. IN THE ABSENCE OF ALL THIS VITAL INFORMATION, T HIS BENCHMARKING ANALYSIS BY THE ASSESSEE DOES NOT HELP THE CASE. THERE IS ALSO NO LOGIC OF TAKING THE AES AS THE TES TED PARTY WHEN THE ASSESSEE IS RECEIVING THESES SERVICES FOR USE IN INDIA. WHAT WE NEED TO JUDGE IS WHETHER THE ASSESSEE IS MA KING A PAYMENT AT ARM'S LENGTH ON ACCOUNT OF THESE SERVICE S. THAT WILL BE THE ACTUAL SEPARATE BENCHMARKING OF THIS TRANSAC TION. THE 10 HONBLE ITAT DELHI HAS HELD IN GLOBAL VANTEDGE PVT. LTD. VS DCIT CIR-12(L), NEW DELHI. (ITA NOS 14328S2321/DEL/ 2009) THAT THE USE OF FOREIGN COMPARABLES AND FOREIGN TES TED PARTY WAS INCORRECT. 15. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID TH AT BY FOLLOWING THIS COURSE OF ACTION, THE ASSESSEE HAS ' SEPARATELY BENCHMARKED' THIS TRANSACTION. THIS BENCHMARKING AP PROACH OF THE ASSESSEE IS THEREFORE, REJECTED. ACCORDINGLY, T HE ASSESSEE SHALL BE CHOSEN AS THE TESTED PARTY AND WE SHALL AR RIVE AT THE AIM'S LENGTH PRICE THAT WOULD HAVE BEEN PAID IN UNC ONTROLLED CIRCUMSTANCES FOR THE RECEIPT OF SUCH SERVICES. 17. IN OUR CONSIDERED VIEW, THE TPO SIMPLY DID NOT ACCEPT THE BENCH MARKING OF THE ASSESSEE AND HAS DIRECTED THE ASSESS ING OFFICER TO CONSIDER THE LEVY OF PENALTY U/S 271(1)(C) OF THE A CT IN ACCORDANCE WITH EXPLANATION 7. 18. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF VERIZON INDIA PVT LTD ITA NO. 460/2016 CM APPL 26591/2016 ORDER DATE D 22.08.2016 HAS OBSERVED AS UNDER: 11 WE HAVE CONSIDERED THE CIRCUMSTANCES. THE ASSESSEE IN THIS CASE COULD NOT, IN THE OPINION OF THIS COURT, VISUALIZE THAT OUT OF THE TWELVE COMPARABLES FURNISHED, NINE WOULD BE REJECTE D AND THE MATRIX OF CALCULATIONS, AS IT WORKED, WOULD RADICAL LY UNDERGO CHANGE. PERTINENTLY, FOR THE PREVIOUS YEAR 2006-07, THE ASSESSEES COMPARABLES INCLUDING SOME OF THOSE WHICH WERE RE JECTED IN THE PRESENT ORDER, WERE IN FACT ACCEPTED WHEN THE MATTE R REACHED FINALITY. IN THESE CIRCUMSTANCES, THE INTERPRETATIO N ADOPTED BY THE AO WAS PLAINLY ERRONEOUS. THE COURT IS ALSO OF THE OPINION THAT IN THE ABSENCE OF ANY OVERT ACT, WHICH DISCLOSED CONSC IOUS AND MATERIAL SUPPRESSION, INVOCATION OF EXPLANATION 7 I N A BLANKET MANNER COULD NOT ONLY BE INJURIOUS TO THE ASSESSEE BUT ULTIMATELY WOULD BE CONTRARY TO THE PURPOSE FOR WHICH IT WAS E NGRAFTED IN THE STATUTE. IT MIGHT LEAD TO A RATHER PECULIAR SITUATI ON WHERE THE ASSESSEE WHO MIGHT OTHERWISE ACCEPT SUCH DETERMINAT ION MAY BE FORCED TO LITIGATE FURTHER TO ESCAPE THE CLUTCHES O F EXPLANATION 7. FOR THE ABOVE REASONS, WE ARE ALSO SATISFIED THAT N O SUBSTANTIAL QUESTION OF LAW ARISES. THE APPEAL IS ACCORDINGLY D ISMISSED ALONG WITH THE PENDING APPLICATION . 19. CONSIDERING THE FACTS OF THE CASE IN LIGHT OF T HE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI [SUPRA] WE DO NOT FIND ANY MERIT IN LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. 12 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 2779/DEL/2018 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23.08. 2021 IN THE PRESENCE OF BOTH THE RIVAL REPRESENTATIVES. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23 RD AUGUST, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 13 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER