Deputy Commissioner of Income-tax, V. Atlas Copco (India) Ltd., Pune

ITA 428/PUN/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5451 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-08-2019
• Assessment Year: 2005-2006
• Appeal Filed On: 09-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IS DIRECTED AGAINS T PASSED
• Keywords: Gift; Depreciation; Transfer pricing; Document seized; International transaction; Documents seized
• Section: 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.428/PUN/2015 / ASSESSMENT YEAR : 2005-06 DCIT, CIRCLE-8, PUNE VS. ATLAS COPCO (INDIA) LIMITED, MUMBAI-PUNE ROAD, DAPODI, PUNE 411 012 PAN : AAACA4074D (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 30-01-2015 DELETING THE PENALTY OF RS.1,66,08,506/- IMPOSE D BY THE ASSESSING OFFICER (AO) U/S.271(1)(C) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESS MENT YEAR 2005-06. ASSESSEE BY SHRI R. MURLIDHAR & SHRI PRASHANT GANDHI REVENUE BY SHRI NEERAJ BANSAL, CIT DATE OF HEARING 19-08-2019 DATE OF PRONOUNCEMENT 20-08-2019 ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS MENT ORDER IN THIS CASE WAS PASSED U/S 143(3) READ WITH SECTION S 144/145 OF THE ACT ON 24-12-2008 DETERMINING TOTAL INCOME AT RS.73,04,65,590/- AS AGAINST THE DECLARED INCOME OF RS.43,04,85,517/-. THEREAFTER, THE AO IMPOSED PENALTY W ITH REFERENCE TO CERTAIN ADDITIONS. THE ASSESSEE CHALLENGED TH E SAME BEFORE THE LD. CIT(A), WHO PREFERRED TO DELETE THE PENA LTY. THE REVENUE IS AGGRIEVED BY THE DELETION OF PENALTY. CHALLENGE TO THE DELETION OF THE PENALTY IS IN RESPECT OF CERTAIN ITEMS OF ADDITIONS/DISALLOWANCES, WHICH WE WILL TAKE UP FOR CONSIDERATION AND DECISION. 3. THE FIRST ITEM ON WHICH THE ASSESSING OFFICER HAS IMPOSE D PENALTY IS TRANSFER PRICING ADDITION OF RS.15.58 CRORE, WHICH WAS CONFIRMED IN THE FIRST APPEAL TO THE TUNE OF RS.2.24 CRORE. 4. IT CAN BE SEEN FROM PAGE 11 OF THE PENALTY ORDER THAT THE PENALTY IS RESTRICTED TO THE TRANSFER PRICING ADDITION MADE IN THE INTERNATIONAL TRANSACTION OF EXPORT OF MANUFACTURED FINISHED GOODS. THE ASSESSEE APPLIED TRANSACTIONAL NET MARGINAL ME THOD (TNMM) IN AN AGGREGATE MANNER CONSIDERING TWO OTHER TRANSACTIONS INCLUDING PAYMENT OF ROYALTY. THE TRANSFER ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 3 PRICING OFFICER DID NOT APPROVE THE AGGREGATION APPROACH OF THE ASSESSEE. HE SEPARATED THE INTERNATIONAL TRANSACTION OF `EXP ORT OF MANUFACTURED FINISHED GOODS. CONSIDERING THE FACT THAT THE ASSESSEE SOLD CERTAIN SIMILAR PRODUCTS TO NON-AES AS WELL, THE TPO MADE ADDITION OF RS.2.24 CRORE UNDER THIS TRANSACTION. WHEN THE MATTER CAME UP BEFORE THE TRIBUNAL IN ITA NO. 736/PUN/20 11 AND ITA NO.732/PUN/2011, IT HELD VIDE ORDER DATED 05-08-20 19 THAT CONSIDERING NON-AE TRANSACTIONS AT PAR WITH AE TRANSACTION S ON SALE OF SIMILAR PRODUCTS WAS NOT APPROPRIATE IN AS MUCH AS THERE WAS DIFFERENCE IN QUANTITY SOLD TO AES AND NON-AES, LOCATION DIFFERENCES AND CUSTOMIZATION OF PRODUCTS. THUS, THE TRIBUNAL OVERTURNED THE APPLICATION OF THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS APPLIED BY THE TPO. SINCE SUCH TRANSACTION WAS REQUIRED TO BE BENCHMARKED INDEPENDE NTLY, THE TRIBUNAL RESTORED THE MATTER TO THE FILE OF AO/TPO FOR FRES H DETERMINATION OF THE ARMS LENGTH PRICE OF THE TRANSACTION UND ER ANY APPROPRIATE METHOD. 5. ON GOING THROUGH THE DETAILED REASONING GIVEN BY THE TRIBUNAL IN ITS ORDER PASSED IN QUANTUM PROCEEDINGS, IT CAN B E SEEN THAT THE ASSESSEE COMPUTED THE ALP OF THE INTERNATIONAL ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 4 TRANSACTION AS PER THE MANNER PRESCRIBED IN THE SECTION. SU CH COMPUTATION WAS DONE IN GOOD FAITH AND DUE DILIGENCE. SIMP LY BECAUSE NOW THERE REMAINS SOME DIFFERENCE IN THE MANNER OF DETERMINATION OF THE ALP, IT CANNOT BE HELD THAT THE ASSESSEE EITHER CONCEALED THE PARTICULARS OF ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. WE, THEREFORE, HOLD THA T THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY ON THIS ISSUE. SIM ILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN MITSUI PRIME ADVANCED COMPOSITES INDIA (P) LTD. VS. DCIT (2016) 1 78 TTJ 490 (DELHI) . RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER ON THIS SCORE. 6. THE AO MADE DISALLOWANCE TOWARDS EXPENSES INCURRED FO R INCREASE IN SHARE CAPITAL AFTER AMALGAMATION U/S.35DD OF THE A CT. PENALTY WAS IMPOSED W.R.T. SUCH ADDITION, WHICH CAME TO BE DELETED IN THE FIRST APPEAL. 7. IT IS PERTINENT TO MENTION THAT THE TRIBUNAL HAS DELETED THE ABOVE ADDITION IN ITS ORDER PASSED IN QUANTUM PROCEEDINGS. SINCE THE VERY FOUNDATION FOR THE IMPOSITION OF PENALTY, BEING THE ADDITION MADE IN THE ASSESSMENT, CEASES TO EXIST, THERE CAN BE NO QUESTION OF IMPOSITION OF ANY PENALTY THEREON. WE, THEREFOR E, ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 5 ACCORD OUR IMPRIMATUR TO THE VIEW TAKEN BY THE LD. CIT(A) ON THE ABOVE ISSUE. 8. THE NEXT ITEM ON WHICH THE AO IMPOSED PENALTY IS DISALLOWANCE OUT OF CERTAIN MISCELLANEOUS EXPENSES. THE ASS ESSEE CLAIMED DEDUCTION OF RS.11,13,64,581/- UNDER THE HEAD MISCELLANEOUS EXPENSES. THESE EXPENSES INCLUDED SOFTWAR E DEVELOPMENT EXPENSES OF RS.23,99,234/-; EXPENSES ON P REMISES AT RS.82,70,109/-. HE ALLOWED 50% DEPRECIATION ON SOFTWAR E EXPENSES AND FOLLOWING HIS VIEW FOR THE PRECEDING YEAR, CAPITALIZED 80% OF EXPENSES ON REPAIRS. SINCE NECESSARY DE TAILS WERE NOT AVAILABLE IN RESPECT OF THE REMAINING EXPENSES, HE DISALLOWED 20% OF SUCH EXPENSES WHICH LED TO THE FURTHER ADDITION OF RS.1,94,57,964/-. THE TRIBUNAL ALLOWED FULL DE DUCTION TOWARDS SOFTWARE EXPENSES AND FEES FOR HANDLING SHARE R ECORD AND MADE FULL DISALLOWANCE FOR WARRANTY EXPENSES, GIFTS AND DON ATION AND RESTRICTED THE ADDITION TO 15% OF THE BALANCE EXPENSES. F ROM THE ABOVE NARRATION OF FACTS, IT IS CLEAR THAT THE AUTHORITIES BELO W HAVE MADE DISALLOWANCE PRIMARILY ON AD HOC BASIS. EVEN IN RESPECT OF CERTAIN SPECIFIC EXPENSES FOR WHICH THE LD. CIT( A) AND THE TRIBUNAL SUSTAINED THE DISALLOWANCES, THE REASON IS NOT THE ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 6 CONCEALMENT BY THE ASSESSEE OR FURNISHING OF ANY INACCU RATE PARTICULARS BY THE ASSESSEE, BUT NON-AVAILABILITY OF RELEVANT EVIDENCE TO SUBSTANTIATE THE CLAIMS. IN SUCH CIRCUMSTANCES, WE ARE SATISFIED THAT NO FAULT CAN BE FOUND WITH THE LD. CIT(A) IN DELETING THE PENALTY ON ADDITION TOWARDS DISALLOWANCE OUT OF MISCELLANEOUS EXPENSES. 9. THE LAST ITEM ON WHICH PENALTY HAS BEEN IMPOSED IS ADDITION TOWARDS EXPENSES ON PREMISES WHICH WAS MADE BY THE AO A T RS.66,16,087/- AND CONFIRMED IN THE FIRST APPEAL TO THE TUN E OF RS.33,08,043/- @40% OF EXPENSES ON PREMISES. 10. THE TRIBUNAL CONFIRMED CAPITALIZATION OF EXPENSES IN RELATION TO PREMISES @ 40% BUT DIRECTED TO ALLOW DEPRECIATION ON SUCH CAPITALIZED ACCOUNT. IT IS OBSERVED THAT THE ADDITION HAS BEEN MADE ON ESTIMATE BASIS WHICH AGAIN CAME TO BE REDUCED IN TH E FIRST APPEAL ON ESTIMATE BASIS. 11. IT IS SETTLED LEGAL POSITION THAT NO PENALTY U/S 271(1)(C) OF THE ACT CAN BE IMPOSED WHEN ADDITION IS MADE ON OR SUSTAINED ON ESTIMATE BASIS. IN CIT VS. AERO TRADERS (P.) LTD. (2010) 322 ITR 316 (DEL), THE ASSESSEE FILED RETURN DECLARING LOSS OF RS. 83,64,468. A NOTE WAS ATTACHED STATING THAT IT WAS IMPOSSIBLE FOR ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 7 THEM TO SUBSTANTIATE ITS CLAIM OF LOSS BY WAY OF ANY EVIDENCE AS THE RELEVANT RECORDS WERE LYING SEIZED WITH THE POLICE AUTHOR ITIES. THE AO, AFTER BEING UNABLE TO OBTAIN COPIES OF THE SEIZED DOCUMENTS, BASED HIS ASSESSMENT ORDER ON THE LIMITED DOCUM ENTS PROVIDED AND REJECTED THE BOOK RESULTS DECLARED BY THE ASS ESSEE. HE ESTIMATED THE INCOME OF THE ASSESSEE AT RS.61,00,000/- AS AGAINST THE RETURNED LOSS OF RS.83,64,468/-. THE CIT(A) R EDUCED THE ASSESSMENT TO AN ESTIMATED INCOME OF RS.1,02,980/-. THEREAFTER, THE AO IMPOSED PENALTY, WHICH GOT DELETED BY THE CIT(A) AS WELL AS THE TRIBUNAL ON THE REASONING THAT AN ADD ITION MADE ON THE BASIS OF GUESS WORK CANNOT BE SUBJECTED TO P ENALTY FOR CONCEALMENT OF INCOME. THE REVENUE PREFERRED AN A PPEAL BEFORE THE HONBLE HIGH COURT, WHICH FOUND NO PERVERSITY IN THE FINDING OF TRIBUNAL. THE FACTS OF THIS CASE ARE QUITE CLOSE TO THE PRESENT CASE. HERE ALSO, THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM OF INTEREST PAYMENT BECAUSE PRESENTING BOOKS OF ACCO UNT WERE BEYOND ITS CONTROL. THE AO MADE DISALLOWANCE OF INTERES T AT A HIGHER LEVEL, WHICH GOT REDUCED TO A LOWER LEVEL ON ESTIMA TE BASIS IN THE APPELLATE PROCEEDINGS. IN MY VIEW, THERE IS NO QUALITATIVE DIFFERENCE BETWEEN THE DETERMINATION OF INCOME ON ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 8 `ESTIMATE BASIS AND DISALLOWANCE OF EXPENSES ON `ESTIMATE BASIS IN SO FAR AS IMPOSITION OF PENALTY IS CONCERNED. 12. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE GUJARAT HIG H COURT IN CIT VS. SUBHASH TRADING CO. (1996) 221 ITR 110 ( GUJ) HOLDING THAT WHERE INCOME IS ASSESSED ON ESTIMATE BASIS AFTER REJECTING BOOK RESULTS, PENALTY UNDER S. 271(1)(C) CANNOT B E IMPOSED BY MERE APPLICATION OF EXPLANATION THEREOF IN THE ABSENCE OF ANY EVIDENCE TO CONCLUDE A POSITIVE FINDING THAT THERE WAS CONCEALMENT OF INCOME. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS REITERATED THIS VIEW IN HARI GOPAL SINGH VS. CIT (2002) 258 ITR 85 (P&H). 13. WHAT FOLLOWS FROM THE ABOVE DISCUSSION IS THAT WHE RE INCOME IS ESTIMATED OR DISALLOWANCE OF EXPENSES IS MADE ON ESTIMATE BASIS, THERE CAN BE NO PENALTY. THE REASON FOR N ON- IMPOSITION OF PENALTY IN BOTH THE SITUATIONS IS THAT THERE IS A LACK OF PRECISION AS TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE OF PARTICULARS OF INCOME. IT IS ONLY AN ESTIMATION S HORN OF ANY CERTAINTY OR ACCURACY. REVERTING TO THE FACTS OF T HE INSTANT CASE, IT IS CLEARLY ESTABLISHED THAT SUSTENANCE OF DISALLOWANCE OF EXPENSES @ 40% IS MERELY AN ESTIMATION, WHICH IS DEVOID OF ANY ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 9 PROPER AUTHENTICATION. AS SUCH, IT DOES NOT CALL FOR IMPOSITION OF ANY PENALTY. 14. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 20 TH AUGUST, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-I, NASHIK 4. 5. 6. THE CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.428/PUN/2015 ATLAS COPCO (INDIA) LIMITED 10 DATE 1. DRAFT DICTATED ON 19-08-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 19-08-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *