DCIT, CHENNAI V. Kone Elevator India P Ltd., CHENNAI

ITA 366/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86307 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 14-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Transfer pricing; International transaction
• Section: 92D

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 366/MDS/2014 ( / ASSESSMENT YEAR: 2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(4), 121, M.G.ROAD, CHENNAI-34. VS M/S. KONE ELEVATOR INDIA P.LTD. 50-55 & 58, VANAGARAM ROAD, AYANAMBAKKAM, CHENNAI-600 095. PAN:AAACK2567P ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S. DAS GUPTA, JCIT /RESPONDENT BY : DR .ANITA SUMANTH, ADVOCATE /DATE OF HEARING : 4 TH FEBRUARY, 2015 /DATE OF PRONOUNCEMENT : 13 TH FEBRUARY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNA I DATED 24.10.2013 FOR THE ASSESSMENT YEAR 2007-08. THE ON LY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE PENAL TY LEVIED UNDER SECTION 271AA OF THE ACT. 2. BRIEF FACTS ARE THAT ASSESSEE FILED ITS RETURN O F INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 31.10.2007 DECLA RING INCOME OF ` 53,67,99,170/- ENCLOSING FORM 3CEB CONTAINING 2 ITA NO.366/MDS/2014 THE DETAILS OF INTERNATIONAL TRANSACTIONS OF THE AS SESSEE. AS PER FORM 3CEB THE TOTAL INTERNATIONAL TRANSACTIONS OF THE ASSESSEE DURING THE FINANCIAL YEAR 2006-07 WAS ` 60.12 CRORES. THE ASSESSING OFFICER REFERRED THE MATTER UNDER SECTION 92CA(1) TO THE TRANSFER PRICING OFFICER ON 3.8.2009 FOR DETERMINING THE ARMS LENGTH PRICE OF THE TRANSA CTIONS. THE TRANSFER PRICING OFFICER PASSED AN ORDER UNDER SECT ION 92CA OF THE ACT ON 25.10.2010 HOLDING THAT ASSESSEES IN TERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH. HOWEVER, THE TRAN SFER PRICING OFFICER OBSERVED THAT ASSESSEE FAILED TO CO MPLY WITH RULE 10B(1) (A)-CUP (B)-RPM & (C)-CPM READ WITH RUL E 10D(1) BY NOT FURNISHING COMPARABLE UNCONTROLLED TRANSACTIONS UNDER THE RESPECTIVE METHODS ADOPTED AS THE MOST APPROPRIATE METHOD BY THE ASSESSEE. THEREFORE, HE RECOMMENDED PENALTY PROCEEDINGS UNDER SECTION 271AA OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER INITIAT ED PENALTY PROCEEDINGS UNDER SECTION 271AA OF THE ACT BY ISSUI NG NOTICE UNDER SECTION 274 READ WITH SECTION 271AA OF THE AC T. AFTER EXAMINING THE EXPLANATION SUBMITTED BY THE ASSESSEE , THE ASSESSING OFFICER OBSERVED THAT ASSESSEE FAILED TO MAINTAIN INFORMATION AND DOCUMENTS PRESCRIBED UNDER RULE 10D (1) OF THE ACT. HENCE, THE ASSESSING OFFICER LEVIED PENALT Y OF 3 ITA NO.366/MDS/2014 ` 83,40,998/- BEING 2% OF THE TOTAL INTERNATIONAL TRA NSACTIONS UNDER SECTION 271AA OF THE ACT. THE ASSESSEE PREFE RRED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS) CHALLENGING LEVY OF PENALTY UNDER SECTION 271AA OF THE ACT CONTENDING THAT NO PENALTY CAN BE LEVIED AS NO ADJ USTMENTS WERE MADE IN RESPECT OF INTERNATIONAL TRANSACTIONS. IT WAS THE SUBMISSION OF THE ASSESSEE THAT ASSESSEE HAS MAINTA INED ALL RELEVANT DOCUMENTS AND INFORMATION RELATING TO ITS INTERNATIONAL TRANSACTIONS AS REQUIRED UNDER 10D(1) OF THE INCOME TAX RULES. IT WAS THE SUBMISSION OF THE ASS ESSEE THAT TRANSFER PRICING OFFICER IN HIS ORDER ACCEPTED THAT ASSESSEES TRANSACTIONS WITH ITS AES ARE AT ARMS LENGTH AND NO ADJUSTMENT WAS PROPOSED. IN THE CIRCUMSTANCES, T HE ASSESSEE SUBMITTED NO PENALTY CAN BE LEVIED UNDER S ECTION 271AA OF THE ACT. ASSESSEE RELIED ON THE DECISION O F THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. FOSTER WHEELER INDIA PVT.LTD., IN ITA NOS.1126 & 1127/MDS /2010 DATED 16.11.2010. THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND THE DECISIONS RELIED ON BY ASSESSEE, DELETED THE PE NALTY LEVIED. THE REVENUE IS IN APPEAL BEFORE US. 4 ITA NO.366/MDS/2014 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN LEVYING PENALTY. 4. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS DECISION OF THIS TRIBUNAL IN THE CASE OF ACIT VS. P ENTASOFT TECHNOLOGIES LTD. (134 ITD 567). 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISION RELIED ON. ON GOING THROUGH THE OR DERS OF LOWER AUTHORITIES, WE FIND THAT ON SIMILAR CIRCUMS TANCES, THE TRIBUNAL DELETED PENALTY LEVIED UNDER SECTION 271AA OF THE ACT IN CASE WHERE THERE WERE NO ADJUSTMENTS MADE A ND THE TRANSACTIONS WERE ACCEPTED AS MADE AT ARMS LENGTH. THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE CO-OR DINATE BENCH OF THIS TRIBUNAL DELETED THE PENALTY OBSERVIN G AS UNDER:- 4.1 BEFORE THE UNDERSIGNED, THE ASSESSEE COMPANY SUBMITTED THE COMPANY HAS MAINTAINED ALL THE RELEVANT DOCUMENTS AND INFORMATION RELATING TO ITS INTERNATIONAL TRANSACTIONS AS REQUIRED UNDER RULE 10D(1) OF THE INCOME TAX RULES . IT ALSO SUBMITTED TPO IN HIS ORDER HAS ALSO ACCEPTED THAT THE ASSESSEE'S TRANSACTIONS WITH ITS AE ARMS LENGTH AND PROPOSED NO ADJUSTMENTS. HENCE, NEITHER THE TPO . IS JUSTIFIED IN RECOMMENDING THE PENALTY U/ S.271AA OF THE ACT, NOR THE 5 ITA NO.366/MDS/2014 ASSESSING OFFICER IS CORRECT . IN LEVYING THE PENALTY. FOR THIS PURPOSE, THE ASSESSEE ALSO RELIED ON THE DECISION OF THE CHENNAI (B) BENCH OF ITAT, IN THE CASE OF ACIT V. FOSTER WHEELER INDIA PVT. LTD. IN ITA NO. 1 1 26 & 1127/MDS/20L0 DATED 16.11 . 2010. 4.2 THE ABOVE SUBMISSIONS OF THE ASSESSEE ARE EXAMINED CAREFULLY. THE ASSESSEE IN THE PRESENT CASE HAS MAINTAINED ALL THE DETAILS OF ITS TRANSACTIONS WITH ASSOCIATED ENTERPRISES (AES) , INDICATING THE NATURE OF TRANSACTIONS, DATE OF TRANSACTIONS, VALUE, ETC . AND PREPARED A REPORT IN THE PRESCRIBED FORMAT IN FORM NO . 3CEB, CERTIFIED BY THE AUDITOR AND THE SAME WAS ENCLOSED ALONG WITH THE RETURN OF INCOME. NO LACUNA OR MISTAKES AS FAR AS THE NATURE OF THE TRANSACTIONS WITH THE AES AND THEIR V A LUES, ARE NOTICED BY THE TPO OR THE ASSESSING OFFICER , THE ONLY CONTENTION OF THE TPO AND THE ASSESSING OFFICER IS THAT THE METHOD ADOPTED BY THE ASSESSEE IN DETERMINING THE ALP IS NOT APPROPRIATE AND THE ASSESSEE FAILED TO MAINTAIN THE NECESSARY COMPARABLES, BEFORE INITIATING THE PENALTY PROCEEDINGS U/S.271AA. A SIMILAR CASE CAME UP BEFORE THE HONBLE ITAT OF CHENNAI IN THE CASE OF FOSTER WHEELER INDIA PVT. LTD. (IN ITA NO.1126 & 1127/MDS/2010) , WHEREIN THE BENCH HAS HELD THAT NO PENALTY U/S.271AA CAN BE LEVIED IF NO ADJUSTMENTS ARE MADE TO THE ALP . THE RELEVANT PORTION OF THE ORDER IS AS UNDER:- 7. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MATERIEL ON RECORD AS WELL AS ORDER OF THE TPO-1, CHENNAI DATED 25.02.2005 IN WHICH IT HAS BEEN CATEGORICALLY STATED THAT AFTER EXAMINATION OF INTERNATIONAL TRANSACTION AS REQUIRED, NO ADJUSTMENT IS CONSIDERED NECESSARY TO THE VALUE OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE AND AS PER THE LD. COUNSEL FOR THE ASSESSEE , THIS DATA IN REGARD TO THE INTERNATIONAL TRANSACTION HAS BEEN TAKEN FROM THE SOURCE FROM WHICH THE DEPARTMENT IS TAKEN SUCH DATA WHICH HAS BEEN FOUND TO BE AMENABLE TO FURTHER ADJUSTMENT AS HELD BY THE TPO AND NO FURTHER MATERIAL OR EVIDENCE IS FOUND TO HAVE BEEN PLACED ON RECORD OR FILED DURING THE HEARING AND THE LD. CIT (A) AFTER CONSIDERING ALL RELEVANT FACTS AND MATERI AL HAS 6 ITA NO.366/MDS/2014 APPROPRIATELY DEALT WITH THE ISSUE AS REPRODUCED IN EARLIER - PORT OF THE ORDER IN WHICH NO FAULT HAS BEEN FOUND. THEREFORE , WHILE CONCURRING WITH THE FINDINGS OF THE L D. CIT(A), WE UPHELD THE ACTION OF THE ID. CIT(A) AND DISMISS THE APPEAL OF THE DEPARTMENT BEING DEVOID OF ANY MERITS. IN FACT, THE ASSESSEE ALSO BROUGHT THE ABOVE DECISION TO THE NOTICE OF THE ASSESSING OFFICER, BEFORE LEVYING THE PENALTY U/S.271AA. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SAID DECISION ON THE GROUND THAT THE DECISION HAS NOT REACHED FINALITY. WHETHER IT HAS REACHED FINALITY OR NOT, THE DECISION OF THE JURISDICTIONAL ITAT IS BINDING ON ALL THE SUBORDINATE APPELLATE AUTHORITIES. 4.3. A SIMILAR VIEW WAS ALSO TAKEN BY THE HONBLE ITAT OF CHENNAI IN THE CASE OF ACIT VS. PENTASOFT TECHNOLOGIES LTD. (2012) 134 ITD 567 (CHENNAI). THE RELEVANT PORTION IS AS UNDER:- ACIT VS. PENTASOFT TECHNOLOGIES LTD.:- II - SECTION 271AA OF THE INCOME-TAX ACT, 1961 - PENALTY - FOR FAILURE TO KEEP AND MAINTAIN INFORMATION AND DOCUMENT IN RESPECT OF INTERNATIONAL TRANSACTIO N UNDER SECTION 92D - ASSESSMENT YEAR 2003 - 04 - A REFERENCE UNDER SECTION 92CA(1) WAS MADE BY ASSESSING OFFICER TO TRANSFER PRICING OFFICER (TPO) WITH REFERENCE TO TRANSACTIONS REPORTED BY ASSESSEE IN FORM NO. 3CEB - IN COURSE OF PROCEEDINGS, TPO CAME TO A CONCLUSION THAT ASSESSEE HAD NOT GATHERED AND MAINTAINED SUFFICIENT INFORMATION AS ENVISAGED UNDER RULE 10D OF INCOME-TAX RULES, 1962 FOR ITS CLAIM THAT COST PLUS METHOD ADOPTED BY IT FOR DETERMINING ARM'S LENGTH PRICE WAS MOST APPROPRIATE ONE - AS PER TPO, TRANSACTION NET MARGIN METHOD (TNMM) WAS IDEAL ONE - THEREUPON EVEN THOUGH TPO CAME TO A CONCLUSION THAT NO ADJUSTMENT WAS NECESSARY ON VALUE OF INTERNATIONAL TRANSACTION ENTERED BY ASSESSEE, YET HE RECOMMENDED ASSESSING OFFICER TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271AA - ASSESSING OFFICER THEREAFTER LEVIED PENALTY CITING SAM E REASONS AS M E NTION E D BY TPO - ON APPEAL, C OMMISSIONER (APPEAL S ) SET ASIDE PENALTY ORDER - ON REVENUE'S APPEAL , IT WAS NOTED THAT TPO AND ASS E SSING OFFICER HAD NOT COME O U T OF A F I NDING R E GARDING SPECIFIC FAILURE ON PA R T OF ASS E SSEE TO MAINTAIN RECORDS AS REQUIRED UNDER RUL E 10D OF 1962 RULE S - IN ANY C ASE, ASSESSEE HAD F OL L OWED COST PLUS M E THOD, WHEREAS ASSESSING OFFICER HAD FOL L OWED TNMM MET H OD , BUT, BOTH M E THODS FINALLY GAVE SAME VALUE FOR INTERNATIONAL TRANSACTIONS - WHETHE R ON FACTS, 7 ITA NO.366/MDS/2014 EVEN IF THERE WAS FAI L URE ON ASSESS EE' S PART TO MAINTAIN PROPER RECORD S , I T WAS ONLY A BENIGN ONE WHICH HAD NO E FFECT WHATSOEVER ON VALUE OF INT E RNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE - H E LD, YE S - WHETHER , TH E REFOR E, COMMISSION E R (APPEALS) WA S JUSTIFIED IN DELETING PENALTY LEVI E D UNDER SECTION 271AA - HE L D , YES 4 . 4 IN VIEW OF THE ABOVE DISCUSS IO NS AND DE C ISIONS OF THE ITAT, CHENN A I, TH E ASSESSING OFFICER IS NOT JUSTIFIED IN LEVYING PEN A LTY U/S.27LAA OF THE ACT . THE PEN A LTY IMPOSED BY THE ASSESSING OFFICER U / S . 271AA IS DE L ETED . 6. ON GOING THROUGH THE ABOVE ORDER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS) IN DELETING THE PENALTY. THUS, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REJ ECT THE GROUNDS RAISED BY THE REVENUE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 13 TH DAY OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 13 TH FEBRUARY, 2015 SOMU 12 32 / COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .