LORD INDIA P.LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 4015/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7935 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 13-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARKAMAL SAHI
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Reasonable cause
• Section: 273B; 143(3); 92D; 92E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A, MU MBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.4015/MUM/2016 (ASSESSMENT YEAR- 2010-11) LORD INDIA PRIVATE LIMITED A/401-404,215 ATRIUM, ANDHERI KURLA ROAD, ANDHERI (EAST) MUMBAI- 400093 PAN: AAACU 0785H VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-4000 20. (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. M.P. LOHIA - AR REVENUE BY : MS. HARKAMAL SAHI ( SR D R) DATE OF HEARING 25.07.2018 DATE OF PRONOUNCEMENT 19.09.2018 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : 1. THE INSTANT APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER (APPEALS)-57, MUMBAI DATED 2 ND FEBRUARY 2016, WHICH IN TURN ARISES FROM THE PENALTY LEVIED BY ASSESSING OF FICER UNDER SECTION 271AA OF INCOME TAX ACT (ACT), FOR ASSESSMENT YEA R 2010-11. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: (1) THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRM ING THE ACTION OF DEPUTY COMMISSIONER OF INCOME TAX/ASSESSING OFFICER IN LEVYING PENALTY OF RS. 50,632/- UNDER SECTION 271 AA OF INCOME TAX ACT . (2) THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLDIN G THAT APPELLANT FAILED TO KEEP AND MAINTAIN INFORMATION AND DOCUMEN T THE SPECIFIED UNDER SECTION 92D(1) OF THE ACT ON THE GROUND THAT THE TR ANSACTION WAS NOT REPORTED IN FORM NO. 3CEB. ITA NO. 4015/M/2016, LORD INDIA P.LTD 2 (3) THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRM ING PENALTY UNDER SECTION 271 AA OF THE ACT ON THE GROUND THAT THE AP PELLANT HAS FAILED TO KEEP AND MAINTAIN INFORMATION AND DOCUMENT AS REQUIRED I N SECTION 92D(1) OF THE ACT, WHEREAS THE NOTICE UNDER SECTION 274 READ WITH SECTION 271 AA OF THE ACT WAS ISSUED FOR NONDISCLOSURE OF INTERNATIONAL T RANSACTION IN FORM NO. 3CEB. (4) THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLDING THAT APPELLANT HAS NOT BEEN ABLE TO SHOW ANY REASONABLE CAUSE FOR THE SAID FAILURE AS AN LICENSED IN SECTION 273B OF THE ACT (5) THE APPELLANT PRAYS THAT PENALTY OF RS. 50,632/- LE VIED UNDER SECTION 271 AA OF THE ACT SHOULD THEREFORE BE DELETED. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPANY I S WHOLLY OWNED SUBSIDIARY OF LORD CORPORATION, USA (LORD USA), E NGAGED IN BUSINESS OF MANUFACTURER AND SALE OF SPECIAL INDUSTRIAL ADHE SIVE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR D ECLARING TAXABLE INCOME OF RS. 21,49,63,680/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTIO N 143(3) ON 19 TH MARCH 2013. THE ASSESSING OFFICER WHILE PASSING ASS ESSMENT ORDER MADE ADDITION OF RS. 25,31,556/- ON ACCOUNT OF REMUNERAT ION OF SALES SUPPORT SERVICES PROVIDED BY ASSESSEE TO ITS ASSOCIATED ENT ERPRISES (AE). THE ASSESSING OFFICER INITIATED PENALTY PROCEEDING UNDE R SECTION 271AA. SHOW-CAUSE NOTICE UNDER SECTION 274 READ WITH SECTI ON 271AA DATED 19 TH MARCH 2013 WAS ISSUED TO ASSESSEE FOR NON-DISCLOSUR E OF INTERNATIONAL TRANSACTION IN FORM NO.3CEB ASKING THE ASSESSEE AS TO WHY THE PENALTY SHOULD NOT BE LEVIED. THE ASSESSEE FILED ITS REPLY AND OBJECTED TO THE LEVY ITA NO. 4015/M/2016, LORD INDIA P.LTD 3 OF PENALTY VIDE ITS REPLY DATED 19 TH JUNE 2013. IN THE REPLY THE ASSESSEE CONTENDED THAT NO FEES WAS CHARGED BY THE ASSESSEE FOR LICENSING AND COORDINATING ACTIVITIES PERFORMED IN CONNECTION WIT H THE SALE MADE BY ITS ASSOCIATED ENTERPRISES TO HINDUSTAN AERONAUTICAL LI MITED (HAL) WHICH WAS CONTRACT BOUND ACTIVITIES OF ITS AE AND NO COMM ISSION WAS PAID IN RESPECT OF THE SAID AGREEMENT TO THE ASSESSEE. THE ASSESSEE FURTHER CONTENDED THAT THE VIEW WAS TAKEN BY THE ASSESSEE T HAT IN ABSENCE OF ANY INCOME ARISING FROM SAID INTERNATIONAL TRANSACTION, THE TRANSFER PRICING PROVISION WOULD NOT APPLICABLE AND WAS NOT REPORTED IN FORM 3CEB. THE ASSESSEE ALSO CONTENDED THAT THERE IS REASONABLE CA USE FOR ITS FAILURE TO REPORT THE INTERNATIONAL TRANSACTION BASED ON THE A BOVE SUBMISSION/CONTENTION. THE REPLY OF ASSESSEE WAS NO T ACCEPTED BY ASSESSING OFFICER. THE ASSESSING OFFICER LEVIED PEN ALTY @ 2% OF ADDITION OF RS.25,31,556/-, FOR NOT MAINTAINING THE DOCUMENT S OF INTERNATIONAL TRANSACTION. THE ASSESSING OFFICER WORKED OUT PENAL TY OF RS. 50,632/- IN ITS ORDER DATED 27 TH SEPTEMBER 2013 PASSED UNDER SECTION 271AA OF THE ACT. ON APPEAL BEFORE THE LD. COMMISSIONER (APPEALS ) THE ACTION OF ASSESSING OFFICER WAS CONFIRMED. THEREFORE, FURTHER AGGRIEVED BY THE ORDER OF LD. COMMISSIONER (APPEALS) THE ASSESSEE HA S FILED PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED AUTHOR ISED REPRESENTATIVE (AR) OF THE ASSESSEE AND THE LEARNED DEPARTMENTAL R EPRESENTATIVE (DR) ITA NO. 4015/M/2016, LORD INDIA P.LTD 4 FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO DELIBERATED ON THE VARIOUS CASE LAWS CITED BY LOWER AUTHORITIES IN ITS ORDER. THE LEARNED AR OF THE ASSESSEE SUBMITS THE A SSESSING OFFICER LEVIED THE PENALTY UNDER SECTION 271AA FOR NOT REPO RTING THE TRANSACTION IN FORM NO. 3CEB AND LEVIED PENALTY OF RS. 50,362/- . THE PROVISION OF SECTION 271AA WAS INSERTED BY FINANCE ACT 2012, WHI CH IS APPLICABLE WITH EFFECT FROM 1 ST JULY 2012 AND NOT APPLICABLE FOR THE ASSESSMENT YE AR UNDER SECTION. THE ASSESSING OFFICER DURING THE ASS ESSMENT PROCEEDING MADE THE ADDITION OF RS. 25 LACKS(APPROX) WHILE PAS SING THE ASSESSMENT ORDER DUE TO NONDISCLOSURE OF INFORMATION RELATED W ITH THE SALE SERVICE SUPPORTED BY ASSESSEE TO ITS ASSOCIATED ENTERPRISES . THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE ADDITION MADE BY ASSES SING OFFICER. THE ASSESSING OFFICER INITIATED PENALTY UNDER SECTION 2 72(1)(C) AND LEVIED THE UNDER SECTION 271AA I.E. ON DIFFERENT ACCOUNT. THE LEARNED AR FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE ASSES SMENT ORDER DATED 19.03.2013, WHEREIN THE ASSESSING OFFICER INITIATED PENALTY UNDER SECTION 271(1)(C). IN SUPPORT OF HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED UPON THE DECISION OF BOMBAY HIGH COURT IN CA SE OF CIT VERSUS SAMSUNG PERINCHERY ITA NO.1154 OF 2014 DATED 05.01. 2017, KARNATAKA HIGH COURT IN CIT VERSUS MANJUNATHA COTTON & GINNIN G FACTORY 92 DTR 111. ON THE POINT THAT THE LEVY OF PENALTY IS T O LEVIED AS PER THE LAW AS ON DATE OF FILING RETURN OF INCOME. THE LEARNED AR RELIED UPON THE ITA NO. 4015/M/2016, LORD INDIA P.LTD 5 DECISION OF HONBLE PATNA HIGH COURT IN CIT VERSUS, KAMLA DEVI RATHI (213 ITR 177) , CIT VERSUS KRISHNA COLD STORAGE (20 7 TAXMANN 1 (GUJARAT) AND ACIT VERSUS UPSARA PROCESSORS (P.) LT D. (2 SOT 132 (AHD.) (SB). 4. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE SU PPORTED THE ORDER OF ASSESSING OFFICER. THE LEARNED DR FURTHER SUBMITS T HAT THE ASSESSEE HAS NOT RAISED SPECIFIC GROUND OF APPEAL ON VALIDITY OF THE PENALTY LEVIED UNDER SECTION 271(1)(C). THE LEARNED AR ALSO SUBMIT S THAT NO DOCUMENT WAS PREPARED FOR BENCHMARKING OF THE INTERNATIONAL TRANSACTION ON WHICH THE ASSESSING OFFICER MADE ADDITION IN THE ASSESSME NT. THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE SAID ADDITION. THE FINDING OF THE ASSESSING OFFICER HAS ATTAINED FINALITY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO DELIBERATED ON VARIOUS CASE LAW RELIED BY LEARNED AR OF THE ASSESS EE. THE ASSESSING OFFICER MADE ADDITION OF RS. 25,31,556/- ON ACCOUNT OF NON-REPORTING THE TRANSACTION IN FINANCIAL STATEMENT AND IN REPORT OF FORM-3CEB IN RESPECT OF SUPPORT SERVICES RENDERED BY ASSESSEE TO ITS AE. THE ASSESSING OFFICER INITIATED PENALTY UNDER SECTION 271(1)(C) FOR FURNI SHING INACCURATE PARTICULARS OF INCOME. WE HAVE NOTED THAT IN THE LA ST PARAGRAPH OF ASSESSMENT ORDER, THE ASSESSING OFFICER RECORDED P ENALTY PROCEEDING UNDER SECTION 271AA AND 271G ARE ALSO INITIATED FOR NON-DISCLOSURE OF ITA NO. 4015/M/2016, LORD INDIA P.LTD 6 INTERNATIONAL TRANSACTION IN 3CEB REPORT. THE ASSE SSING OFFICER IN PARA- 2 OF ITS ORDER AHS MENTIONED THAT THE PENALTY PROCE EDING WERE INITIATED FOR FAILURE TO KEEP AND MAINTAIN INFORMATION AND DOCUME NTS AS REQUIRED UNDER SUB-SECTION (1) OF SECTION 92D OF THE ACT, RELATED TO INTERNATIONAL TRANSACTION PERTAINING TO SERVICES RENDERED BY ASSE SSEE. THE ASSESSING OFFICER, FURTHER IN PARA-1 OF PAGE-4 OF ITS ORDER H AS MENTIONED THAT THE ASSESSEE FAILED TO KEEP AND MAINTAIN THE INFORMATIO N/DOCUMENTS IN RESPECT OF SUCH INTERNATIONAL TRANSACTION AS THE SAME WAS N OT REPORTED IN FORM NO. 3CEB IN THE RETURN OF INCOME AND LEVIED THE PEN ALTY @ 2% OF INTERNATIONAL TRANSACTION IN RESPECT OF WHICH INFOR MATION/DOCUMENTS WERE NOT KEPT AND MAINTAINED (RS.25,31,556/-). BEFORE LD . COMMISSIONER (APPEALS) THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS SHOWN REASONABLE CAUSE AS PROVIDED UNDER SECTION 273B BEFORE THE ASS ESSING OFFICER AND NO PENALTY WAS LEVIABLE. THE ASSESSEE ALSO CONTENDE D THAT TRANSFER PRICING PROVISION WERE NOT APPLICABLE ON THE SAID T RANSACTION, THEREFORE, IT WAS REPORTED IN FORM NO. 3CEB. THE ASSESSEE ALSO SU BMITTED THAT ASSESSING OFFICER HAS NOT CLEARLY STATED THE REASON S OF LEVYING THE PENALTY UNDER SECTION 271AA AS NO SPECIFIC INSTANCE FOR NON -COMPLIANCE WAS IDENTIFIED AND THAT SECTION 271AA IS SUBSTITUTED W. E.F. 01.07.2012, PENALTY CANNOT BE LEVIED FOR FAILURE OF INTERNATION AL TRANSACTION IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE CONTENTION OF ASSESSEE WAS NOT FOUND CONVINCIBLE BY LD. COMMISSIONER (APPEALS). TH E LD. ITA NO. 4015/M/2016, LORD INDIA P.LTD 7 COMMISSIONER (APPEALS) CONCLUDED THAT THAT ASSESSEE FAILED TO RECORD THE INTERNATIONAL TRANSACTION IN FORM NO. 3CEB FOR WHIC H THE ASSESSEE WAS BOUND TO KEEP AND MAINTAIN INFORMATION AND DOCUMENT S AS REQUIRED BY SECTION 92D(1) OF THE ACT. THE FAILURE OF NOT REPOR TING INTERNATIONAL TRANSACTION ATTRACT PENALTY UNDER SECTION 271AA OF THE ACT. THE LD. COMMISSIONER (APPEALS) ALSO NOT ACCEPTED THE CONTEN TION OF ASSESSEE THAT THEY HAVE SHOWN REASONABLE CAUSE AS PROVIDED UNDER SECTION 273B. 6. WE HAVE NOTED THAT SECTION 271AA WAS SUBSTITUTED BY FINANCE ACT, 2012 W.E.F. 01.07.2012 AND APPLICABLE FROM ASSESSMENT YE AR 2012-13. IN THE MEMORANDUM TO THE FINANCE BILL , IT WAS EXPLAINED T HAT PRESENTLY THERE IS NO PENALTY FOR NON-REPORTING OF AN INTERNATIONAL TR ANSACTION IN REPORT FILED UNDER SECTION 92E OR MAINTENANCE OR FURNISHING OF I NCORRECT INFORMATION OR DOCUMENTS, THEREFORE, THERE IS NEED TO PROVIDE E FFECTIVE DETERRENT BASED ON TRANSACTION VALUE TO ENFORCE COMPLIANCE WITH TRA NSFER PRICING REGULATION. THEREFORE, AMENDMENT TO SECTION 271A WA S PROPOSED FOR LEVY OF PENALTY @ 2% OF THE VALUE OF INTERNATIONAL TRANSACTION, IF TAX PAYER, (I) FAILED TO MAINTAIN PRESCRIBED OR INFORMA TION OF, (II) FAILED TO REPORT AN INTERNATIONAL TRANSACTION WHICH IS REQUIR ED TO BE REPORTED, OR MAINTAIN OR FURNISH ANY INCORRECT INFORMATION OR DO CUMENTS. THE AMENDMENT TOOK EFFECT FROM 01.07.2012. AT THE COST OF REPETITION, WE MAY REFER THAT THE ASSESSING OFFICER PROPOSED AND L EVIED PENALTY FOR NOT REPORTING THE INTERNATIONAL TRANSACTION IN FORM NO. 3CEB. THE PENALTY FOR ITA NO. 4015/M/2016, LORD INDIA P.LTD 8 NOT REPORTING INTERNATIONAL TRANSACTION OR SPECIFIE D DOMESTIC TRANSACTION WAS BROUGHT ON STATUTE BOOK BY FINANCE ACT, 2012 W. E.F. 01.07.2012. THE PRESENT CASE RELATED TO ASSESSMENT YEAR 2010-11. TH EREFORE, THE SUBSTITUTED PROVISION OF SECTION 271AA SUBSTITUTED VIDE FINANCE ACT, 2012 WOULD NOT BE APPLICABLE FOR YEAR UNDER CONSIDE RATION. HENCE, THE PENALTY LEVIED BY ASSESSING OFFICER IS NOT SUSTAINA BLE. THE HONBLE APEX COURT IN CIT VERSUS ONKAR SARAN & SONS (195 ITR 001 ) HELD THAT FOR LEVYING THE PENALTY, THE LAW APPLICABLE IS THE LAW PREVAILING AT THE TIME WHEN THE ORIGINAL RETURN WAS FILED. 7. CONSIDERING THE ABOVE FACTUAL AND LEGAL DISCUSSION, WE HOLD THAT THE PENALTY LEVIED BY ASSESSING OFFICER IS NOT SUSTAINA BLE. HENCE, THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF SEPTEMBER 2018. SD/- SD/- (N.K. PRADHAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 19/09/2018 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/