Johnson Matthey India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4509/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9595 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 23-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Keywords: Transfer pricing; International transaction; Question of law; Difference of opinion; Change of opinion; Set aside
• Section: 271(1)(c); 92C; 14A; 37(1); 250; 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4509/DEL./2016 (ASSESSMENT YEAR : 2007-08) ITA NO.4510/DEL./2016 (ASSESSMENT YEAR : 2008-09) M/S. JOHNSON MATTHEY INDIA PVT.LTD., VS. DCIT, CIRC LE 13 (2), C/O LUTHRA & LUTHRA, NEW DELHI. LAW OFFICES, 103, ASHOKA ESTATE, BARAKHAMBA ROAD, NEW DELHI 110 001. (PAN : AAACJ2919A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUMIT MANGAL, ADVOCATE SHRI SAKSHAM SINGHAL, CA REVENUE BY : SMT. NIDHI SRIVASTAVA, CIT DR DATE OF HEARING : 24.09.2019 DATE OF ORDER : 01.10.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN THE AFORESAID APPEALS, THE SAME ARE BEING DISPOS ED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSIO N. ITA NO.4509/DEL./2016 ITA NO.4510/DEL./2016 2 2. APPELLANT, M/S. JOHNSON MATTHEY INDIA PVT. LTD. (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESEN T APPEALS SOUGHT TO SET ASIDE THE IMPUGNED ORDERS BOTH DATED 30.06.2016 PAS SED BY THE COMMISSIONER OF INCOME - TAX (APPEALS)-37, NEW DEL HI AFFIRMING THE PENALTY ORDERS BOTH DATED 19.12.2014 PASSED U/S 271 (1)(C) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT), QUA THE ASSESSMENT YEARS 2007-08 & 2008-09 ON THE IDENTICAL GROUNDS INTER AL IA THAT :- 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 37 ('LD. (A)') UNDER SECTION 250 OF THE ACT IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANCE S OF THE CASE. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE BY NOT APPRECIATING THAT THE APPELLANT HAD COMPUTED THE PRICE OF INTERNATIONAL TRANSACTION S IN ACCORDANCE WITH LAW IN GOOD FAITH AND WITH DUE DILI GENCE. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN HOLDING THAT THE APPEL LANT HAS CONCEALED THE PARTICULARS OF ITS INCOME / FURNISHED INACCURATE PARTICULARS OF INCOME AS THE APPELLANT HAD MADE FUL L AND COMPLETE DISCLOSURE. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE BY NOT APPRECIATING THAT WHERE TWO VIEWS ARE POSSIBLE, NO PENALTY IS LEVIABLE UNDER SE CTION 271(1)(C) OF THE ACT. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE BY NOT APPRECIATING THAT THE TRANSFER PRICING ADDITIONS, MADE BY THE LEARNED TRANSFER PRI CING OFFICER ('LD. TPO') /LEARNED ASSESSING OFFICER (' AO') AND SUSTAINED BY THE LD. CIT(A), WERE MADE ON ACCOUNT OF DIFFEREN CE OF OPINION BETWEEN THE APPELLANT AND THE LD. TPO. 6. THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE DIFFERENCE BETWEEN ASSESSMENT PROCEEDINGS AND PENAL TY PROCEEDINGS; AND THEREBY APPLYING A DIFFERENT BURDE N OF PROOF ON THE APPELLANT (THAT OF PROVING THE CASE ON MERITS) AS OPPOSED TO THE BURDEN OF PROVING DISCLOSURE MADE BONE FIDE, IN GOOD FAITH AND WITH DUE DILIGENCE, WHICH THE APPELLANT HAS SAT ISFIED. ITA NO.4509/DEL./2016 ITA NO.4510/DEL./2016 3 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : ASSESSEE IS INTO THE BUSINESS OF MANUFAC TURE OF AUTO EXHAUST CATALYST AND ON THE BASIS OF ASSESSMENT FRAMED UNDE R SECTION 143 (3) READ WITH SECTION 144C OF THE ACT FOR ASSESSMENT Y EARS 2007-08 & 2008-09 VIDE WHICH ADDITION OF RS.4,54,54,937 & RS. 2,41,93,000/- ON ACCOUNT OF TP ADJUSTMENT AND SALES-TAX SUBSIDY RESP ECTIVELY FOR AY 2007-08 AND ADDITION OF RS.3,18,10,000/- IN TP ADJU STMENT ON ACCOUNT OF ROYALTY AND RS.2,10,11,348/- IN RESPECT OF TP AD JUSTMENT ON ACCOUNT OF COST RECHARGE TO ASSOCIATED ENTERPRISES (AE), PE NALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT HAVE BEEN INITIATED FOR FURNIS HING INACCURATE PARTICULARS OF INCOME. DECLINING THE CONTENTIONS R AISED BY THE ASSESSEE, ASSESSING OFFICER (AO) LEVIED THE PENALTY OF RS.1,5 1,77,400/- & RS.71,41,757/-FOR AYS 2007-08 & 2008-09 RESPECTIVEL Y @ 100% OF THE TAX SOUGHT TO BE EVADED. 4. ASSESSEE CARRIED THE MATTER BY WAY OF APPEALS BE FORE THE LD. CIT (A) WHO HAS CONFIRMED THE PENALTIES BY DISMISSING T HE APPEALS. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBU NAL BY WAY OF FILING THE PRESENT APPEALS. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS RELIED UP ON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF TH E FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.4509/DEL./2016 ITA NO.4510/DEL./2016 4 6. UNDISPUTEDLY, IN AY 2007-08, LD. CIT (A) VIDE IM PUGNED ORDER CONFIRMED THE PENALTY LEVIED BY THE AO ON THE INCOM E OF RS.2,08,97,308/- QUA COST RECHARGES TO AES AND CONF IRMED THE PENALTY LEVIED BY THE AO QUA TRANSFER PRICING ADJUSTMENT PE RTAINING TO ADDITION OF RS.1,94,52,958/- ON ACCOUNT OF COST RECHARGES TO AES FOR AY 2008- 09. IT IS ALSO NOT IN DISPUTE THAT FOR AY 2007-08, THE TRIBUNAL IN QUANTUM APPEAL HAS DELETED THE ADDITION ON ACCOUNT OF SAP MAINTENANCE CHARGES AND COST SHARING CHARGES AND FOR AY 2008-09 , THE TRIBUNAL DELETED THE ADDITION ON ACCOUNT OF SERVER CHARGES A ND COST SHARING CHARGES. IT IS ALSO NOT IN DISPUTE THAT SO FAR AS ADDITION MADE ON TP ADJUSTMENT ON ACCOUNT OF SALES COMMISSION IS CONCER NED, HONBLE DELHI HIGH COURT HAS ADMITTED THE APPEAL OF THE ASSESSEE AND HAS FRAMED SUBSTANTIAL QUESTION OF LAW. 7. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FACT S & CIRCUMSTANCES OF THE CASE, ORDER PASSED BY THE LOWE R REVENUE AUTHORITIES AND ARGUMENTS ADDRESSED BY THE LD. AUTH ORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, THE S OLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS:- AS TO WHETHER THE ASSESSEE HAS CONCEALED PARTICULA RS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS O F SUCH INCOME DURING ASSESSMENT PROCEEDINGS? 8. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) CONTENDED INTER ALIA THAT THE PE NALTY LEVIED BY THE AO ITA NO.4509/DEL./2016 ITA NO.4510/DEL./2016 5 AND SUSTAINED BY THE LD. CIT (A) IS NOT SUSTAINABLE BECAUSE ADDITION HAS BEEN MADE JUST ON THE MERE DIFFERENCE OF OPINION AS TO USE OF METHOD OF TRANSACTIONAL NET MARGIN METHOD (TNMM) AND COMPARAB LE UNCONTROLLED PRICE (CUP) FOR MAKING ADJUSTMENT ON A CCOUNT OF TRANSFER PRICING; THAT THE TPO HAS MERELY CHANGED THE METHOD FOR TP ADJUSTMENT, MADE ADDITION ON SALES COMMISSION WHICH IS NOT COVE RED FOR LEVYING THE PENALTY U/S 271(1)(C) OF THE ACT; THAT THE ISSUE ON WHICH PENALTY HAS BEEN LEVIED/UPHELD BY AO/CIT(A) HAS SINCE BECOME DE BATABLE AS HONBLE HIGH COURT HAS ADMITTED THE APPEAL BY FRAMI NG SUBSTANTIAL QUESTION OF LAW AND RELIED UPON THE DECISION RENDER ED BY HONBLE DELHI HIGH COURT IN CIT VS. LIQUID INVESTMENT & TRADING C O. IN ITA 240/2009 ORDER DATED 05.10.2010, HONBLE BOMBAY HIG H COURT IN CIT VS. NAYAN BUILDERS & DEVELOPERS (2015) 56 TAXMANN.C OM 335 (BOMBAY) AND COORDINATE BENCH OF THE TRIBUNAL IN MI TSUI PRIME ADVANCED COMPOSITES INDIA (P.) LTD. VS. DCIT (2016) 178 TTJ 490 (DELHI-TRIB.). 9. WHEN UNDISPUTEDLY ADDITION HAS BEEN MADE BY THE TPO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT QUA THE INTE RNATIONAL TRANSACTIONS BY USING A PARTICULAR METHOD, TNMM IN THIS CASE, WI TH BEST OF ITS WISDOM AS PER PROVISIONS CONTAINED U/S 92C, ANY FUR THER ADDITION BY CHANGING THE MOST APPROPRIATE METHOD (MAM) FROM TNM M TO CUP BY THE TPO IS NOT SUFFICIENT TO ATTRACT PROVISIONS CONTAINED U/S 271(1)(C) OF THE ACT AS IT IS A MERE CHANGE OF OPINION. IDEN TICAL ISSUE HAS BEEN ITA NO.4509/DEL./2016 ITA NO.4510/DEL./2016 6 DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF MITSUI PRIME ADVANCED COMPOSITES INDIA (P.) LTD. (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 19. COMING BACK TO THE EXPLANATION 7 TO SECTION 2 71 (1), WE FIND THAT NO DOUBT THE ADDITION OF RS. 3.31 CRORE H AS BEEN MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPEC T OF THESE THREE INTERNATIONAL TRANSACTIONS, BUT, THE SAME CAN NOT BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICU LARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNI SHED BECAUSE THE ASSESSEE HAS PROVED THAT THE PRICE PAID BY IT U NDER SUCH TRANSACTIONS WAS COMPUTED IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 92C AND IN THE MANNER PRESCRIBED UNDER THE TNMM IN GOOD FAITH AND WITH DUE DILIGENCE. FURTHER THE ACTI ON OF THE TPO IN CHANGING THE MOST APPROPRIATE METHOD FROM TNMM T O CUP WITHOUT BRINGING ON RECORD ANY COMPARABLE INSTANCE, IS ITSELF FAULTY. IN ANY CASE, IT WAS THE AO WHO WAS TO DETER MINE WHETHER OR NOT SUCH EXPENSES WERE DEDUCTIBLE IN TERMS OF SE CTION 37(1) AND NOT THE TPO, AS HAS BEEN DONE. WE HAVE NOTICED ABOVE THAT THE EXERCISE DONE BY THE TPO IN DETERMINING NIL ALP ON THE PREMISE THAT EITHER NO SERVICES WERE AVAILED BY THE ASSESSEE OR IN ANY CASE IT WAS A CASE OF DUPLICATION OF SERVICES, IS NOT ONLY UNSUBSTANTIATED BUT CONTRARY TO THE MATERIAL ON REC ORD. THE MERE FACT THAT THE TPO DETERMINED NIL ALP OF THE INTERNA TIONAL TRANSACTIONS CANNOT BE A REASON TO IMPOSE PENALTY U /S 271(L)(C) OF THE ACT. 10. UNDISPUTEDLY, ASSESSEE HAS CHALLENGED THE ADDIT ION ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIED U/S 271(1)(C) OF T HE ACT BEFORE THE HONBLE DELHI HIGH COURT VIDE ITA 732/2018 & ORS. A ND HONBLE HIGH COURT VIDE ORDER DATED 12.11.2018 FRAMED THE FOLLOW ING SUBSTANTIAL QUESTION OF LAW :- 'WHETHER INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT ROYALTY AND SALES COMMISSION PAID WERE SEPARATE AND INDEPENDENT INTERNATIONAL TRANSACTIONS WHICH WERE REQUIRED TO B E BENCHMARKED SEPARATELY BY APPLYING THE COMPARABLE UNCONTROLLED PRICE METHOD?' 11. IT IS SETTLED PRINCIPLE OF LAW THAT WHEN SUBSTA NTIAL QUESTION OF LAW HAS BEEN FRAMED BY THE HONBLE HIGH COURT IN THE AP PEAL FILED BY THE ITA NO.4509/DEL./2016 ITA NO.4510/DEL./2016 7 ASSESSEE CHALLENGING THE ADDITION CONFIRMED BY THE TRIBUNAL, THE ISSUE BECOME DEBATABLE AND NO PENALTY IN SUCH CIRCUMSTANC ES CAN BE LEVIED. HONBLE DELHI HIGH COURT IN CASE OF CIT VS. LIQUID INVESTMENT & TRADING CO. (SUPRA) CONFIRMED THE ORDER PASSED BY THE TRIBUNAL SETTING ASIDE THE PENALTY CONFIRMED BY THE LD. CIT (A) U/S 271(1)(C) ON THE GROUND THAT THE ISSUE HAS BECOME DEBATABLE BY RETUR NING FOLLOWING FINDINGS :- BOTH THE CIT(A) AS WELL AS THE ITAT HAVE SET ASIDE THE PENALTY IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 271( 1)(C) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT THE ISSUE O F DEDUCTION UNDER SECTION 14A OF THE ACT WAS A DEBATABLE ISSUE. WE MA Y ALSO NOTE THAT AGAINST THE QUANTUM ASSESSMENT WHERE UNDER DEDUCTIO N UNDER SECTION 14A OF THE ACT WAS PRESCRIBED TO THE ASSESSEE, THE ASSESSEE HAS PREFERRED AN APPEAL IN THIS COURT UNDER SECTION 260 A OF THE ACT WHICH HAS ALSO BEEN ADMITTED AND SUBSTANTIAL QUESTION OF LAW FRAMED. THIS ITSELF SHOWS THAT THE ISSUE IS DEBATABLE. FOR THES E REASONS, WE ARE OF THE OPINION THAT NO QUESTION OF LAW ARISES IN THE PRESE NT CASE. THIS APPEAL IS ACCORDINGLY DISMISSED. 12. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT THE PENALTY LEVIED BY THE AO A ND CONFIRMED BY THE LD. CIT (A) FOR AYS 2007-08 & 2008-09 IS NOT SUSTAI NABLE IN THE EYES OF LAW, HENCE ORDERED TO BE DELETED. CONSEQUENTLY, AP PEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 1 ST DAY OF OCTOBER, 2019. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 1 ST DAY OF OCTOBER , 2019 TS ITA NO.4509/DEL./2016 ITA NO.4510/DEL./2016 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)- 37 , NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.