KAYBEE P.LTD, MUMBAI V. ITO 10(1)(3) (ERSTWHILE JURIDICTIONAL ITO 8(2)(2), MUMBAI

ITA 4951/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8406 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Transfer pricing; International transaction; Bonafide belief; Reasonable cause; Set aside
• Section: 273B; 143(3); 92A; 92E; 274; 92

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL K BENCH MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.4951/MUM/2018 (ASSESSMENT YEAR 2007-08) ITA NO.4952/MUM/2018 (ASSESSMENT YEAR 2007-08) KAYBEE PRIVATE LIMITED. 301, A WING, SOLARIS- 1, SAKI VIHAR ROAD, ANDHERI (E), MUMBAI -400072. P AN: AAACK1715H VS. ITO-10(1)(3) ROOM NO. 25 B, GROUND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT APPELLANT BY : SHRI MADHUR AGARWAL (AR) RESPONDENT BY : SHRI AKHTAR H. ANSARI (DR) DATE OF HEARING : 29.06.2020 DATE OF PRONOUNCEMEN T : 29.06.2020 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE TWO APPEAL BY ASSESSEE ARE DIRECTED AGAINST T HE ORDER LD. CIT(A)-17, MUMBAI DATED 27.06.2018, CONFIRMING THE PENALTY ORD ERS PASSED UNDER SECTION 271AA AND 271BA FOR ASSESSMENT YEAR 2007-08 . IN ITA NO. 4951/MUM/2018, THE ASSESSEE HAS RAISED FOLLOWING GR OUNDS OF APPEAL: EACH OF THE GROUNDS 1 SUB-GROUNDS OF APPEAL IS INDE PENDENT 'AND WITHOUT PREJUDICE TO THE OTHER. 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) -17 ['CIT(A)'] GROSSLY ERRED IN LAW IN HOLDING THAT THE PENALTY ORDER DATED 23.0 3.2016 PASSED BY THE LD. ASSESSING OFFICER ('AO') UNDER SECTION 271AA OF THE INCOME-TAX ACT, 1961 ('ACT') IS A VALID ORDER EVEN WHEN - A. THE SHOW CAUSE NOTICE DATED 12.03.2013 ISSUED BY THE LD. AO UNDER SECTION 274 OF THE ACT WAS ISSUED IN A STANDARD PRI NTED FORMAT WITHOUT ITA NO. 4951 & 4952 MUM 2018-KAYBEE PRIVATE LIMITED. 2 POINTING OUT REASONS FOR INVOKING PENALTY PROCEEDIN GS UNDER SECTION 271AA IN THE PRESENT CASE OF APPELLANT; AND B. THAT EVEN IMPUGNED PENALTY ORDER DOES NOT POINT OUT THE SPECIFIC INFORMATION AND DOCUMENT WHICH ARE APPLICABLE IN TH E APPELLANT'S CASE WHICH THE APPELLANT FAILED TO KEEP AND MAINTAIN. THUS, THE IMPUGNED PENALTY ORDER DOES NOT MEET THE MANDATORY JURISDICTIONAL REQUIREMENT OF THE LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE IMPUGNED PENALTY OF RS. 79,2 31/- UNDER SECTION 271AA OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE LD. AO'S IMPUGNED PENALTY OR DER WITHOUT APPRECIATING THE FACT THAT THE APPELLANTS' QUANTUM APPEAL BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL ('ITAT') FOR THE SUBJECT ASSESSM ENT YEAR IS PENDING FOR ADJUDICATION. 4. (A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE IMPUGNED PENALTY UND ER SECTION 271M OF THE ACT WITHOUT APPRECIATING THAT WHETHER KAYBEE EXIM PTE. LTD., SINGAPORE ('KEPTL') AND THE APPELLANT ARE AES IS A DEBATABLE ISSUE AND WHERE THE APPELLANT FOLLOWS ONE OF THE BONAFIDE VIEW RELYING ON CBOT CIRCULAR A ND MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE ACT 2002, THE APPELLANT HAS A 'REASONABLE CAUSE' UNDER SECTION 273B OF THE ACT FO R NON MAINTENANCE OF DOCUMENTATION AS PER SECTION 920 OF THE ACT. (B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN NOT APPRECIATING THAT THE APPELLAN T WAS UNDER A BONAFIDE BELIEF THAT THE PROVISIONS OF SECTION 92 OF THE ACT ARE NO T APPLICABLE TO THE TRANSACTION BETWEEN THE APPELLANT AND KEPTL BASED ON WHICH THE APPELLANT DID NOT MAINTAIN DOCUMENTATION AS PER SECTION 920 OF THE AC T AND HENCE APPELLANT'S CASE FALLS WITHIN THE AMBIT OF SECTION 273B OF THE ACT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) GROSS ERRED IN UPHOLDING THE IMPUGNED PENALTY UNDER SECTI ON 271AA OF THE ACT WITHOUT APPRECIATING THAT THE APPELLANT FURNISHED R EQUIRED DOCUMENTS AND EVIDENCES IN THE COURSE OF PROCEEDINGS SO AS TO DEM ONSTRATE THAT THE TRANSACTIONS WITH RESPECT TO YARN BROKERAGE COMMISSION RATE WAS AT ARM'S LENGTH AND AS PER ITA NO. 4951 & 4952 MUM 2018-KAYBEE PRIVATE LIMITED. 3 MARKET RATE OF YARN BROKERAGE AND HENCE THE APPELLA NT HAS MADE SUFFICIENT COMPLIANCE UNDER THE LAW. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE LD. AO'S CALCULATION OF PENA LTY UNDER SECTION 271AA OF THE ACT AT RS 79,321/- BEING 2% OF TRANSFER PRICING ADJUSTMENT OF RS 33,66,603/- INSTEAD OF 2% OF THE AMOUNT OF THE TRANSACTION ENTE RED INTO BETWEEN THE APPELLANT AND KEPTL I.E. RS. 23,79,638/-. 2. THE ASSESSEE IN ITA NO. 4952/MUM/2018 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: EACH OF THE GROUNDS I SUB-GROUNDS OF APPEAL IS INDE PENDENT AND WITHOUT PREJUDICE TO THE OTHER. 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) -17 ['CIT(A)'] GROSSLY ERRED IN LAW IN HOLDING THAT THE PENALTY ORDER DATED 23.0 3.2016 PASSED BY THE LD. ASSESSING OFFICER ('AD') UNDER SECTION 271BA OF THE INCOME-TAX ACT, 1961 ('ACT') IS A VALID ORDER EVEN WHEN - A. THE SHOW CAUSE NOTICE DATED 12.03.2013 ISSUED BY LD. AO UNDER SECTION 274 OF THE ACT DOES NOT SPECIFY REASONS FOR INVOKIN G PENALTY PROCEEDINGS UNDER SECTION 271 BA IN THE PRESENT CASE OF APPELLA NT AND THUS DOES NOT MEET THE MANDATORY JURISDICTIONAL REQUIREMENT OF THE LAW 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE IMPUGNED PENALTY OF RS 1,00, 000/- UNDER SECTION 271 BA OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE LD. AO'S IMPUGNED PENALTY OR DER WITHOUT APPRECIATING THE FACT THAT THE APPELLANTS QUANTUM APPEAL BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL ('ITAT') FOR THE SUBJECT ASSESSM ENT YEAR IS PENDING FOR ADJUDICATION. 4. (A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE IMPUGNED PENALTY UND ER SECTION 271 BA OF THE ACT WITHOUT APPRECIATING THE FACT THAT WHETHER KAYB EE EXIM PTE. LTD., SINGAPORE ('KEPTL') AND THE APPELLANT ARE AES IS A DEBATABLE ISSUE AND WHERE THE APPELLANT FOLLOWS ONE OF THE BONAFIDE VIEWS REL YING ON CBDT CIRCULAR AND MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE ACT 2002, THE APPELLANT ITA NO. 4951 & 4952 MUM 2018-KAYBEE PRIVATE LIMITED. 4 HAS A 'REASONABLE CAUSE' UNDER SECTION 273B OF THE ACT FOR NON OBTAINING AUDIT REPORT IN FORM 3CEB AS PER SECTION 92E OF THE ACT. (B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN NOT APPRECIATING THAT THE APPELLAN T WAS UNDER A BONAFIDE BELIEF THAT THE PROVISIONS OF SECTION 92 OF THE ACT ARE NO T APPLICABLE TO THE TRANSACTION BETWEEN THE APPELLANT AND KEPTL BASED ON WHICH THE APPELLANT HAD NOT OBTAINED AUDIT REPORT IN FORM 3CEB AS PER SECTION 9 2E OF THE ACT AND HENCE APPELLANT'S CASE FALLS WITHIN THE AMBIT OF SECTION 273B OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN RUNNING A SERVICE CENTRE AND PROVIDING ASSISTANCE IN SOURCING AND PROCUREMENT OF YARN, TEXTILES, HOME FURNISHING FABRICS, GARMENTS, STEEL, TYRES ETC. FROM SOURCES WITHIN INDIA TO KAYBEE EXIM PTE LIMITED SINGAPORE ( KEPL). INITIALLY ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS COM PLETED UNDER SECTION 143(3) ON 25.11.2009. SUBSEQUENTLY, THE CASE WAS RE OPENED UNDER SECTION 148, VIDE NOTICE DATED 30.03.2012. THE ASSESSMENT W AS COMPLETED UNDER SECTION 147/143(3) ON 12.03.2013. THE ASSESSING OFF ICER WHILE PASSING RE- ASSESSMENT ORDER HELD THAT THE ASSESSEE IS ASSOCIAT E ENTERPRISES (AE) OF KEPL AND MADE ADDITION/ ADJUSTMENT ON ACCOUNT OF AR MS LENGTHS PRICE OF (ALP) OF RS. 39,66,063/- IN RESPECT OF THE SERVICE CHARGE RECEIVED FROM KEPL. THE ASSESSING OFFICER ALSO INITIATED PENALTY UNDER SECTION 271AA AND 271BA. THE ASSESSING OFFICER AND LEVIED PENALTY UND ER SECTION 271AA OF RS.79,321/- BEING 2% OF THE ALLEGED INTERNATIONAL T RANSACTION OF RS. 39,66,063/- BETWEEN ASSESSEE AND KEPL AND PENALTY U NDER SECTION 271BA OF RS. 100,000/-, VIDE ORDER DATED 23.03.2016. ON A PPEAL BEFORE LEARNED ITA NO. 4951 & 4952 MUM 2018-KAYBEE PRIVATE LIMITED. 5 CIT(A), BOTH THE ORDERS FOR LEVYING OF PENALTY UND ER SECTION 271AA AND 271BA WAS CONFIRMED. THUS, IN THE AFORESAID BACKGRO UND BOTH THE APPEALS ARE FILED BEFORE THIS TRIBUNAL. 4. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED AUTHOR ISED REPRESENTATIVE (LD AR) FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL R EPRESENTATIVE (DR) FOR THE REVENUE AND PERUSED THE RECORD CAREFULLY. AT T HE OUTSET OF HEARING THE LEARNED AR OF THE ASSESSEE SUBMITTED IN QUANTUM APP EALS BEFORE THE TRIBUNAL IN ITA NO. 2165/MUMBAI/2015 DATED 28 TH OF 2020, THE TRIBUNAL HELD THAT THE ASSESSEE AND KEPL SINGAPORE IS NOT AS SOCIATED ENTERPRISES (AE). IT WAS HELD THAT NO ARMS LENGTH PRICE ADJUSTM ENT COULD BE MADE ON THE TRANSACTION BETWEEN ASSESSEE AND KEPL. THE LEARNED AR OF THE ASSESSEE SUBMITS THEIR COPY OF DECISION OF TRIBUNAL DATED 28 TH FEBRURAY 2020 IS FILED. THE LEARNED AR FURTHER SUBMITS THAT ONE IT WAS HELD THAT ASSESSEE IS NOT ASSOCIATED ENTERPRISES OF KEPL, THEN IT COULD NOT B E SAID THAT ASSESSEE HAD ENTERED TO ANY INTERNATIONAL TRANSACTION. ACCORDING LY, THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS NO OCCASION TO REPORT THE INTERNATIONAL TRANSACTION OR FOR MAINTAINING ANY RECORD AS PROVID ED UNDER SECTION 92E. IT WAS ARGUED THAT ONCE, THE FOUNDATION OF IMPUGNED PE NALTY ORDERS DOES NOT SURVIVE, THEREFORE THE PENALTY ORDER UNDER SECTION 271 AA AND 271BA ARE LIABLE TO BE DELETED. THE LD. AR FOR THE ASSESSEE F URTHER SUBMITS THAT SIMILAR PENALTY ORDER FOR ASSESSMENT YEAR 2006-07 ON SIMILA R FACTS WERE DELETED BY TRIBUNAL VIDE ORDER DATED 28.02.2020. ITA NO. 4951 & 4952 MUM 2018-KAYBEE PRIVATE LIMITED. 6 5. ON THE OTHER AND THE LEARNED DR FOR THE REVENUE AFT ER GOING THROUGH THE ORDER OF TRIBUNAL IN QUANTUM ASSESSMENT WHEREIN THE COORDINATE BENCH OF THE TRIBUNAL HELD THAT ASSESSEE IS NOT ASSOCIATED E NTERPRISES OF KEPL SINGAPORE. THE LEARNED DR SUBMITS THAT HE STRONGLY RELIED UPON THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. WE HAVE AL SO GONE THROUGH THE ORDER OF COORDINATE BENCH OF TRIBUNAL IN ITA NO. 2165/MUM BAI/2015 DATED 20 TH FEBRUARY 2020, WHEREIN IT WAS HELD THAT THE ASSESSE E IS NOT AE OF KEPL. THE COORDINATE BENCH OF TRIBUNAL PASSED FOLLOWING O RDER 2. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, L EARNED SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THIS APPEAL INVOLVES SEVERAL LEGAL ISSUES, INCLUDING THE QUESTION ON VALIDITY OF THE REASSESSM ENT PROCEEDINGS, THE FUNDAMENTAL ISSUE IN THIS APPEAL DEALS WITH THE QUE STION AS TO WHETHER THE ASSESSEE CAN BE SAID TO BE AN ASSOCIATED ENTERPRIS ES, WITHIN MEANINGS ASSIGNED UNDER SECTION 92A, OF KAYBEE EXIM PTE LTD, A SINGAPORE BASED ENTITY, AND, IN THE EVENT OF THIS ISSUE BEING HELD IN FAVOU R OF THE ASSESSEE, ALL OTHER ISSUES WILL BE RENDERED ACADEMIC AND INFRUCTUOUS. H E, HOWEVER, HASTENS TO ADD THAT WHILE THIS ISSUE IS NOW REQUIRED TO BE DECIDED IN FAVOUR OF THE ASSESSEE IN THE LIGHT OF BINDING JUDICIAL PRECEDENTS FROM HONB LE COURTS ABOVE, THERE ARE DECISIONS AGAINST THE ASSESSEE, BY COORDINATE BENCH ES, IN ASSESSEES OWN CASES FOR PRECEDING ASSESSMENT YEARS. WE ARE THUS URGED T O TAKE UP THIS ISSUE FIRST, AND, THEREAFTER, IF NECESSARY, DEAL WITH OTHER ISSU ES IN THE APPEAL. LEARNED DEPARTMENTAL REPRESENTATIVE, EVEN THOUGH HE IS EMPH ATIC THAT THERE IS NO REASON TO DEVIATE FROM THE EARLIER DECISIONS OF THE COORDINATE BENCHES, DOES NOT OPPOSE THE APPROACH SUGGESTED BY THE LEARNED SE NIOR COUNSEL. WE, ITA NO. 4951 & 4952 MUM 2018-KAYBEE PRIVATE LIMITED. 7 THEREFORE, BEGIN BY TAKING UP THE RELATED GROUND OF APPEAL, I.E. GROUND NO. 3, WHICH IS AS FOLLOWS: THE LEARNED CIT(A) ERRED, IN FACTS AND IN LAW, IN U PHOLDING THAT KAYBEE EXIM PTE LTD SINGAPORE (KPEPTL) IS AN ASSOCIATED ENTERPRISE (AE) OF THE APPELLANT WITHIN THE MEANINGS OF SECTION 92A 3. -------- 4. --------- 5. ------- 18. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE C ASE OF THE ASSESSING OFFICER HINGES ONLY ON APPLICATION OF SECTION 92A(1) AND IT DOES N OT MEET ANY OF THE SPECIFIC CONDITIONS SET OUT IN SECTION 92A(2). ONCE WE HOLD THAT SECTION 92A(1) CANNOT BE APPLIED ON STANDALONE BASIS, AND HAS TO BE ESSENTIA LLY CONSIDERED IN CONJUNCTION OF SECTION 92A(2) ONLY WHEN IT SATISFIES AT LEAST ON E OF THE CONDITIONS SET OUT THEREIN, IT IS CLEAR THAT THE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND ITS KE-S CANNOT BE SAID TO BE THAT OF THE ASSOCIATED ENTERPRISES. THE CASE OF THE REVENUE MUST, THEREFORE, FAIL ON THIS TEST. 19. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARI NG IN MIND ENTIRETY OF THE CASE, WE HAVE TO HOLD THAT THE RELATIONSHIP BETWEEN THE ASSE SSEE AND THE KE-S WAS NOT OF THE AES, AND, ACCORDINGLY, NO ARMS LENGTH PRICE ADJUST MENTS COULD BE MADE ON THE TRANSACTIONS BETWEEN THESE TWO ENTITIES. GROUND NO. 3 IS THUS ALLOWED, AND, AS A COROLLARY THERETO, THE IMPUGNED ALP ADJUSTMENT MUST , THEREFORE, BE DELETED FOR THIS SHORT REASON ALONE. ORDERED, ACCORDINGLY. 20. AS WE HAVE DECIDED THE APPEAL ON THE SHORT ISSU E, AS DISCUSSED ABOVE, WE SEE NO NEED TO DEAL WITH THE OTHER LEGAL AND FACTUAL ISSUE S RAISED IN THIS APPEAL. THESE GRIEVANCES ARE ACADEMIC AT THIS STAGE. 21. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TER MS INDICATED ABOVE. 7. CONSIDERING THE FINDING OF COORDINATE BENCH OF TRIB UNAL THAT THE ASSESSEE IS NOT ASSOCIATED ENTERPRISES OF KEPTL FOR THE YEAR UN DER CONSIDERATION, WE ARE OF THE VIEW THAT WHEN THE VERY BASIS OF THE FOU NDATION OF IMPUGNED PENALTIES HAS BEEN SET ASIDE, THUS, THE PENALTY ORD ER WOULD ALSO NOT SURVIVE, THEREFORE WE DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY UNDER SECTION 271AA AND 271BA, LEVIED VIDE ORDER DATED 23.03.2016 . ITA NO. 4951 & 4952 MUM 2018-KAYBEE PRIVATE LIMITED. 8 8. IN THE RESULT, BOTH THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 / 06/2020. SD/- SD/- S. RIFAUR RAHMAN PAWAN SINGH ACCOUNTANT MEMBER JUDICIA L MEMBER MUMBAI, DATE: 29 .06.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR K BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI