The ADIT(Int.Taxn.), Ahmedabad V. Shell Global Solutions International B.V., Ahmedabad

ITA 533/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0552 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 06-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 28-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANTONY PARIATH
• Keywords: Double taxation relief; Bonafide belief
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM, & SHRI MANISH BORA D, AM. ITA NO.533/AHD/2013 ASST. YEAR: 2005-06 ASSTT. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION), AHMEDABAD. VS. SHELL GLOBAL SOLUTION INTERNATIONAL B.V., C/O/ S. R. BATLIBOI & CO., CAS, 2 ND FLOOR, SHIVALIK ISHAN, NEAR C. N. VIDYALAYA, AHMEDABAD. APPELLANT RESPONDENT PAN AAICS 3589H APPELLANT BY SHRI ANTONY PARIATH, SR.DR RESPONDENT BY SHRI PRASHANT MAHESHWARI, AR DATE OF HEARING: 6/9/2016 DATE OF PRONOUNCEMENT: 08/9/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), GANDHINAGAR DATED 21/12/2012 IN APPEAL NO.C IT(A)GNR/64 /INTL.TAXN/2011-12 PASSED AGAINST ORDER U/S 271(1)( C) OF THE IT ACT, 1961 (IN SHORT THE ACT) DATED 29.03.2011 FRAMED BY ADIT(INTL.TAXN), AHMEDABAD. FOLLOWING GROUNDS HAVE BEEN RAISED BY TH E REVENUE :- I) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D IRECTING THE A.O. TO CANCEL THE PENALTY LEVIED U/S 271 (L)(C) OF THE ACT HOLDING TH AT IT IS NOT A FIT CASE FOR LEVY OF PENALTY. ITA NO. 533/AHD/2013 ASST. YEAR 2005-06 2 II) THE LD.CIT(A) HAS FURTHER ERRED IN LAW AND ON F ACTS IN NOT CONSIDERING THE FACT THAT THE ASSESSEE HAS ARTIFICIALLY BIFURCATED THE C OMPOSITE SERVICE INTO TWO DIFFERENT SERVICES. III) THE APPELLANT CRAVES LEAVE TO ADD/ALTER/MODIFY/DELE TE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE BEING A NON-RESIDENT COMPANY FILED ITS RETURN OF INCOME FOR ASST. YEAR 2005- 06 ON 28.10.2005 DECLARING TOTA LOSS OF RS.71,02,50 ,442/-. ASSESSMENT U/S 143(3) OF THE ACT WAS FRAMED ON 29/0 3/2008 DETERMINING TOTAL INCOME AT RS.74,73,70,493/- AFTER MAKING ADDITION OF RS.9,47,69,516/- ON ACCOUNT OF COMMERCIAL SERVIC ES PROVIDED TO RELIANCE INDUSTRIES LTD. TREATING AS TECHNICAL SERV ICES AND ON ACCOUNT OF REIMBURSEMENT AND SIMULTANEOUSLY PENALTY PROCEED INGS UNDER SECTION 271(1)(C) OF THE ACT WERE ALSO INITIATED. T HE ADDITION WAS CONFIRMED BY LD. CIT(A). PURSUANT THERETO PENALTY O RDER U/S 271(1)(C) OF THE ACT WAS FRAMED ON 29.3.2011 FOR FURNISHING I NACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALING INCOME OF RS.76,92,936/-. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) AGAINST THE IMPUGNED PENALTY ORDER U/S 271(1)(C) OF THE ACT . LD. CIT(A) ALLOWED THE APPEAL OF ASSESSEE AND DELETED THE PENA LTY U/S 271(1)(C) OF THE ACT BY OBSERVING AS FOLLOWS :- 4. HAVING GONE THROUGH THE FACTS OF THE CASE, THE O RDER OF THE AO IMPOSING THE PENALTY AND THE APPELLANT'S CONTENTIONS; I AM O F THE CONSIDERED OPINION THAT IT IS NOT A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(L)(C) IN THE FACTS AND _CIRCUMSTANCES OF THE CASE AS IT HAS NOT BEEN E STABLISHED THAT THE APPELLANT HAS EITHER CONCEALED OR FURNISHED INACCUR ATE PARTICULARS OF ITS ITA NO. 533/AHD/2013 ASST. YEAR 2005-06 3 INCOME. THE ISSUE ON WHICH THE ADDITION HAS BEEN MA DE TO THE TOTAL INCOME IS A DEBATABLE ISSUE. WHETHER THE CLAIMED COMMERCIAL S ERVICES COULD BE SEPARATED AS NOT BEING FTS (FEE FOR TECHNICAL SERVI CE) FROM THE BASIC REFINERY PACKAGE OF THE TECHNICAL SERVICES AGREEMEN T OR NOT, CANNOT BE CONSIDERED TO BE AN ISSUE WHERE 'THE ANSWER IS UNDI SPUTEDLY, ONE. THE FACT THAT THE LOWER DEDUCTION OF TAX CERTIFICATE WAS ISS UED TO IT UNDER SECTION 195(2) WHERE IT WAS HELD THAT 50% OF THE SERVICES WERE COM MERCIAL IN NATURE AND HENCE NOT TAXABLE; ALSO RENDERS SUPPORT TO THE CLAIM OF THE APPELLANT THAT THE INCOME SHOWN LESS THAN AS ASSESS ED AND UPHELD BY CIT(A) WAS UNDER A BONAFIDE BELIEF. THE DECISION OF HON'BLE MUMBAI ITAT IN THE CASE OF ADIT VS R LINERS LIMITED (ITA NO. 85 1/MUM/2009) HAS BEEN TAKEN NOTE OF IN THIS RESPECT. FURTHER, IT IS A CAS E WHERE DETAILED NOTES ON THE CLAIM AND THE APPELLANTS REASONS FOR THE SAME W ERE APPENDED WITH THE RETURN FILED. IT IS NOT A CASE WHERE THE EXPLANATIO N GIVEN BY THE APPELLANT HAS BEEN PROVED TO BE INHERENTLY FALSE OR MALAFIDE. THE CASE DOES NOT FALL UNDER EXPLANATION 1 TO SECTION 271(L)(C). THE HON'B LE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (SUPRA) HAS HELD THA T MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM W AS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF W OULD NOT ATTRACT THE PENALTY UNDER SECTION 271(L){C). IN THE LIGHT OF ABOVE, HOLDING THAT IT IS NOT A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(L)(C) IN THE FACTS AND CIRCUMSTANCES OF THE CASE; THE PENALTY AS IMPOSED BY THE AO IS DIRECTED TO BE CANCELLED. 4. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL. 5. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER. 6. ON THE OTHER HAND, LD. AR AT THE OUTSET SUBMITTE D THAT THE APPEAL RELATING TO QUANTUM ISSUE HAS BEEN DECIDED B Y THE CO- ORDINATE BENCH IN ITA NO.1283/AHD/2010 FOR ASST. YE AR 2005-06 VIDE ITS ORDER DATED 10.11.2015 WHEREIN THE MATTER HAS B EEN REMITTED BACK TO THE FILE OF ASSESSING OFFICER WITH DIRECTIO NS. ITA NO. 533/AHD/2013 ASST. YEAR 2005-06 4 7. LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS N O OBJECTION IF THE ISSUE RELATING TO PENALTY U/S 271(1)(C) OF THE ACT IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDER ATION. 8. LD. DR DID NOT RAISE ANY OBJECTION TO THE CONTEN TIONS OF LD. AR. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE DECISION OF THE CO-O RDINATE BENCH REFERRED AND RELIED ON BY THE LD. AR. SOLE GRIEVANC E OF REVENUE IS AGAINST THE ORDER OF LD. CIT(A) DELETING THE PENALT Y OF RS.76,92,936/- IMPOSED U/S 271(1)(C) OF THE ACT. 10. WE OBSERVE THAT QUANTUM ISSUE ON WHICH PENALTY HAS BEEN IMPOSED BY THE ASSESSING OFFICER HAS BEEN DECIDED B Y THE CO- ORDINATE BENCH IN ITA NO.1283/AHD/2010 FOR ASST. YE AR 2005-06 VIDE ITS ORDER DATED 10.11.2015 AND THE MATTER HAS BEEN REMITTED BACK TO THE FILE OF ASSESSING OFFICER BY HOLDING TH E PLEA OF THE ASSESSEE IN PRINCIPLE AND THE ASSESSING OFFICER HAS BEEN DIRECTED TO APPORTION THE CONSIDERATION FOR BASIC REFINERY PACK AGES BY OBSERVING AS UNDER :- 23. WE HAVE NOTED THAT THE ASSESSING OFFICER, AT TH E TIME OF ISSUING ORDER UNDER SECTION 195(2) IN RESPECT OF THE REMITTANCES OF CONSIDERATI ON UNDER THE BASIC REFINERY PACKAGE TO THE ASSESSEE, HAD HELD THAT FIFTY PERCENT OF CONSIDERAT ION FOR BASIC REFINERY PACKAGE CAN BE TREATED AS ATTRIBUTABLE TO THE SERVICES WHICH ARE NOT TAXAB LE AS 'FEES FOR TECHNICAL SERVICES'. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS, THIS ASPECT OF T HE MATTER WAS NOT EXAMINED AT ALL. IN THE COURSE OF THE APPELLATE PROCEEDINGS, LEARNED CIT(A) HAS REJECTED THE APPORTIONMENT ON THE GROUND THAT IT IS NOT POSSIBLE TO DO SO. HE HAS OBSERVED THAT 'THE UNDERLYING PURPOSE OF THE PACKAGE IS OPERATIONALISING THE REFINERY ' AND ' OB VIOUSLY IN SUCH A SCENARIO THE VARIOUS SERVICES ARE INTERDEPENDENT AND COMPLIMENTARY AND C ANNOT BE SEGREGATED'. WE ARE, FOR THE DETAILED REASONS SET OUT ABOVE, UNABLE TO SEE A NY MERITS IN THIS APPROACH. WE HAVE ALSO ITA NO. 533/AHD/2013 ASST. YEAR 2005-06 5 NOTED THAT THE LEARNED CIT(A) WAS IN ERROR IN REJEC TING THE APPORTIONMENT BY OBSERVING THAT 'TOTAL MAN-HOURS LISTED FOR THREE YEARS FOR THE PUR POSE ARE 52690, AND THAT 'THIS AMOUNT OF TIME SPENT IS NOT POSSIBLE FOR BASIC REFINERY PACKA GE WHICH WAS FOR 1200 HRS PER YEAR, I.E. AT THE MOST THE RIL COULD HAVE CLOCKED IN 3600 MAN- HOURS' AND THUS COMING TO THE CONCLUSION THAT 'OBVIOUSLY, ITEMS COVERED BY OTHER PACKAGES HAVE BEEN INCLUDED IN THIS CHART'. HE WAS IN ERROR IN CONCLUDING THE TOTAL TIME SPENT FOR SERVICE RENDERED IN CONNECTION WITH BRP CANNOT EXCEED 3,600 MAN-HOURS I.E. 1,200 M AN-HOURS PER CONTRACT YEA. THE AFORESAID LIMIT APPLIED TO SERVICES RENDERED BY THE APPELLANT UNDER THE CATEGORY OF 'HELP DESK SERVICES' WHICH WERE TO BE RENDERED WITHIN THE BRP AND NOT FOR THE VARIOUS SERVICES TO BE RENDERED UNDER THE BRP. THE ACTION OF THE C1T(A) CA NNOT, THEREFORE, BE SUSTAINED IN LAW. WE HAVE ALSO NOTED THAT THERE IS NO SPECIFIC DISCUSSIO N ABOUT THE VALUES TO BE ASSIGNED TO THE CONSULTANCY SERVICES WHICH ARE NON TECHNICAL IN NAT URE AND TO THE PHYSICAL DELIVERABLES. WE HAVE ALSO NOTED THAT IN THE 195(2] ORDER, THE ASSES SING OFFICER HAS CATEGORICALLY OBSERVED THAT 'ONLY A PART OF THE TOTAL SERVICES UNDER THE AGREEM ENT ARE TAXABLE ON ACCOUNT OF ITS BEING A COMPOSITE CONTRACT AND ALSO BECAUSE THE COM MERCIAL SERVICES RENDERED BY THE ASSESSEE ARE SAVED FROM TAXATION IN VIEW OF ARTICLE 12 OF THE INDO DUTCH DTAA READ WITH PROTOCOL TO DTAA BETWEEN INDIA AND USA' AND THEN PROCEEDED TO ADOPT 50% OF TOTAL PAYMENT UNDER BASIC REFINERY PACKAGE AS NON TAXABLE , ON A BEST JUDGMENT BASIS. NO DOUBT THIS ORDER DOES NOT BIND THE ASSESSING OFFICER BUT THEN IT CANNOT BE OPEN TO HIM TO SIMPLY BRUSH IT ASIDE, WITHOUT ANY COGENT MATERIAL, TO COME TO A CO NCLUSION DIRECTLY OPPOSED TO THE - STAND TAKEN THEREIN. AS LONG AS THE ASSESSING OFFICER CAN DEMONSTRATE, AFTER COLLECTING NECESSARY DETAILS FROM THE ASSESSEE, THAT THE NON TAXABLE CON SIDERATION COMPONENT (I.E. CONSIDERATION 'FOR PHYSICAL DELIVERABLES, CONSIDERATION FOR SERVI CES OTHER THAN TECHNICAL SERVICES AND CONSIDERATION FOR SERVICES WHICH DO NOT TRANSMIT TH E TECHNICAL KNOW HOW ETC.) IS LESS THAN FIFTY PERCENT OF THE OVERALL CONSIDERATION PAID BY THE ASSESSEE FOR BASIC REFINERY PACKAGE, HE CAN CERTAINLY COME TO THAT CONCLUSION. IT IS, THERE FORE, NECESSARY THAT ALL THE REQUISITE DETAILS, AS MAY BE AVAILABLE TO THE ASSESSEE AND AS MAY BE R EQUISITIONED BY THE ASSESSING OFFICER, MUST BE TAKEN INTO ACCOUNT TO FACILITATE THIS APPOR TIONMENT. WE ARE, HOWEVER, NOT INCLINED TO CONDUCT THIS EXERCISE DIRECTLY AT THE STAGE OF SECO ND APPEAL. WE, THEREFORE, REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER BY UPHOLDING THE PLEA OF THE ASSESSEE IN PRINCIPLE AND DIRECTING THE ASSESSING OFFICER TO APPORTION THE CO NSIDERATION FOR BASIC REFINERY PACKAGE ON THE ABOVE LINES. 11. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH, WE REMIT BACK THE ISSUE BEFORE US REGARDING PENALTY U/S 271(1)(C) OF THE ACT, TO THE FILE OF ASSESSING OFFICER TO DECIDE AFRESH AFTER GIVING EFFECT TO THE ORDER OF CO-ORDINATE BENCH WITH REFER ENCE TO THE QUANTUM ISSUE. THIS GROUND OF REVENUE IS ALLOWED F OR STATISTICAL PURPOSES. ITA NO. 533/AHD/2013 ASST. YEAR 2005-06 6 12. OTHER GROUNDS ARE OF GENERAL NATURE, WHICH NEED NO ADJUDICATION. 13. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH SEPTEMBER, 2016 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 8/9/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 8/09/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 8/09/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 8/9/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: