M/s. Verizon India (Pvt.) Ltd., New Delhi V. DCIT, New Delhi

ITA 5566/DEL/2011

• Counselvise Citation: 556620114 RSA 2011
• Duration Of Justice: 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 05-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: N VENKATRAM
• Keywords: Transfer pricing
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: H NEW DELHI BEFORE SHRI AD JAIN, JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO: 5566/DEL/2011 ASSESSMENT YEAR : - 2006-07 M/S VERIZON COMMUNICATION INDIA P.LTD. VS. DCIT A WING, 3 RD FLOOR, RADISSON COMMERCIAL CIRCLE 17(1) PLAZA, N.H. 8 NEW DELHI NEW DELHI PAN: : AACCM 2423 N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.VENKATRAM, SR.ADV.& MS.SHIKHA GUPTA, SRI ROHIT TIWARI, CAS RESPONDENT BY : SHRI B.R.R.KUMAR, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LD.CIT(A)-XIX, NEW DELHI DT. 01.09.2011 FOR THE AS SESSMENT YEAR 2006- 07. 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF PROVIDING MARKETING SUPPORT SERVICES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 29.11.200 6 DECLARING A LOSS OF RS.4,52,05,744/-. THE RETURN WAS SELECTED FOR S CRUTINY AND THE ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) RE AD WITH S.92CA(3) OF THE INCOME TAX ACT, 1961 ON 22.2.2010. A TRANSF ER PRICING ADJUSTMENT ITA 5566/DEL/2011 PAGE 2 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 OF RS.2,25,67,539/- WAS MADE. THE ASSESSING OFFICE R BEFORE FINALIZING THE ASSESSMENT PROCEEDINGS INITIATED PENALTY PROCEE DINGS UNDER SECTION 271(1)(C ) OF THE INCOME TAX ACT, 1961. SHOW CAUSE NOTICE DATED 22.2.2010 WAS SERVED ON THE ASSESSEE. ON 28.5.201 0THE ASSESSEE FILED HIS REPLY. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY, VIDE ORDER DT. 28.6.2010 LEVIED PENALTY UNDER SECTION 271(1)(C) BY HOLDING THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS. HE HELD THAT THE ASSESSEE HAS FAILED TO OFFER AND PROVE ANY BONAFIDE EXPLANATION FOR USING MULTI YEAR DATA. HE ALSO HELD THAT THE ASSESSEE HAS NOT DISCL OSED ALL THE FACTS MATERIAL IN THE COMPUTATION OF THE TOTAL INCOME. THE ASSESSEE CARRIED THE MATTER IN APPEAL. HE SUBMITTED THAT ACCEPTANCE OF THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER (TPO), IN VIEW OF THE FACT THAT THE ASSESSEE IS A LOSS MAKING UNIT, IS NO JUSTIFICATION FOR THE ASSESSING OFFICER TO LEVY THE PENALTY. HE RELIED ON A NUMBER OF CASE LAWS AND SUBMITTED THAT THE ISSUE IN QUESTION IS DEBATABLE A ND THE ASSESSEE HAD NO MALAFIDE INTENTION TO EVADE TAXES. IT WAS SUBMI TTED THAT THE EXPLANATION FURNISHED BY THE ASSESSEE WAS BONAFIDE. THE FIRST APPELLATE AUTHORITY CONFIRMED THE PENALTY BY OBSERVING THAT T HE ASSESSEE HAS CONCLUDED ITS COMPARABILITY ANALYSIS OF THE TRANSAC TIONS BASED ON EARLIER YEARS DATA AND NOT ON THE BASIS OF CURRENT YEAR DAT A. THE FIRST APPELLATE AUTHORITY GAVE DETAILED REASONS FROM PARA 18 TO 37 OF HIS ORDER. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUNDS. 1. BASED ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL S)-XIX ITA 5566/DEL/2011 PAGE 3 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 (HONBLE COMMISSIONER OF INCOME TAX (APPEALS) HAS E RRED IN UPHOLDING THE PENALTY ORDER PASSED BY THE LD.DCIT, CIRCLE 17(1), NEW DELHI (LD.AO) LEVYING PENALTY OF RS.80,00,000/- ON THE APPELLANT UNDER SECTION 271(1)(C ) OF THE INCOME TA X ACT, 1961. 2. BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN UPHOLDING THE ORDER OF THE LD.AO THAT THE APPELL ANT HAS FURNISHED INACCURATE DOCUMENTATION AND FAILED TO PR OVIDE A BONAFIDE EXPLANATION IN RESPECT OF THE ADDITION MAD E TO THE RETURNED INCOME. 2. LD.SR.ADVOCATE MR.S.VENKATRAMAN SUBMITTED THAT N O PENALTY CAN BE LEVIED ON T.P. ADJUSTMENT, WHEN CERTAIN COMPARA BLES ARE INCLUDED AND CERTAIN OTHER COMPARABLES ARE EXCLUDED. AS PER THE LD.COUNSEL ADDITION OF CERTAIN SAMPLES AND DELETION OF CERTAIN SAMPLES, WHICH CAUSED VARIATION, IS NO GROUND FOR LEVY OF PENALTY . HE SUBMITTED THAT AS THE ASSESSEE WAS HAVING A LOSS, IT DID NOT FILE ANY APPEAL ON THE T.P. ADJUSTMENT. HE FILED THE PAPER BOOK. HE RELIED O N THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S SONY INDIA P.LTD. VS DCIT 118 TTJ 865. HE ALSO RELIED ON THE FOLLOWING CASE LAWS- I. KANBAY SOFTWARE INDIA P.LTD. VS DCIT (2009)122 TTJ 721 (PUNE) II. DCIT VS. M/S VERTEX CUSTOMER SERVICES (INDIA) P.L TD. 126 TTJ 184 (DELHI) III. ACIT CIRCLE 4(2) VS M/S FIRMENICH AROMATICS (INDIA) P.LTD. ITA NO.4654/MUMBAI/2009 F BENCH OF THE TRIBUNAL ORDER D T. 17 TH MAY, 2010 IV. DCIT CIRCLE 1(1), BARODA VS ADVANCED SYSSTEK P.LTD. A BENCH ITAT AHMEDABAD ORDER DT. 11.5.2012 3. LD.D.R. MR.JH AHALWAL ON THE OTHER HAND SUBMITT ED THAT THE ARGUMENTS OF THE SR.COUNSEL THAT NO PENALTY CAN BE LEVIED UNDER SECTION 271(1)(C) ON ANY ADJUSTMENT MADE UNDER TRAN SFER PRICING ITA 5566/DEL/2011 PAGE 4 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 PROVISIONS IS NOT SUSTAINABLE IN LAW. HE SUBMITTED THAT WHEN A TRANSFER PRICING ADJUSTMENT IS MADE, IT LEADS TO A VARIATION BETWEEN THE RETURNED INCOME AND THE ASSESSED INCOME. HE RE LIED ON THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT NOT ONLY COMPAR ABLES WERE ADDED BUT ALSO THE ASSESSEE HAD TAKEN MULTIPLE YEAR DATA, WHICH IS AGAINST THE EXPRESS PROVISIONS OF THE INCOME TAX ACT, 1961. HE VEHEMENTLY CONTENDED THAT GIVING WRONG COMPARABLES AND WRONG DATA, IN CONTRAVENTION OF THE PROVISIONS OF THE INCOME TAX A CT, 1961 TANTAMOUNTS TO FURNISHING OF INACCURATE PARTICULARS . HE HIGHLIGHTED THE FACT THAT THE SELECTION OF BESANT RAJ INTERNATI ONAL LTD. AS A COMPARABLE WAS DELIBERATE, AS THIS COMPARABLE WAS N OT THROWN UP BY ANY SEARCH PROCESS PERFORMED ON PROWESS OR CAPITAL INE. THIS COMPANY WAS JUST ADDED TO THE LIST OF COMPARABLES WITHOUT ANY REASON AND ONLY WITH THE OBJECT OF FURNISHING INACC URATE PARTICULARS. HE SIMILARLY RELIED ON OTHER PORTIONS OF THE COMMIS SIONER OF INCOME TAX (APPEALS)S ORDER AND SUBMITTED THAT IT CANNOT BE LAID DOWN WHEN SOME COMPARABLES ARE INCLUDED AND OTHER COMPARABLES ARE EXCLUDED NO PENALTY CAN BE LEVIED. HE VEHEMENTLY CONTENDED THAT THE FACTS OF EACH CASE HAS TO BE LOOKED INTO. HE SUBMITTED THAT THE ASSESSEE HAS NOT PROVED ITS BONAFIDE. HE DISTINGUISHED THE CASE LAWS RELIED UPON BY THE ASSESSEE. IN REPLY, THE LD.COUNSEL FOR THE ASSESSEE REITERATED ITS CONTENTION THAT THE ENTIRE EXERCISE WAS BONAFIDE. ITA 5566/DEL/2011 PAGE 5 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 4. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS. 5. WE DO NOT AGREE WITH THE PROPOSITION STATED BY THE LD.SR.ADVOCATE MR.N.VENKATRAMAN THAT PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 CANNOT BE LEV IED IN CASES WHERE ADJUSTMENTS HAVE BEEN MADE UNDER TRANSFER PRICING PROVISIONS I.E. SECTION 92A(4). WHAT HAS TO BE SEEN, IS WHETHER TH E ASSESSEE HAS UNDERTAKEN A BONAFIDE EXERCISE FOR COMPUTING THE AR MS LENGTH PRICE. THE QUESTION WHETHER PENALTY IS ATTRACTED UNDER SEC TION 271(1)(C) OF THE INCOME TAX ACT, 1961 OR NOT IS TO BE DETERMINED BASED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. NO GENERAL PROPOSITION OF LAW CAN BE LAID DOWN THAT IN ALL CASES OF TRANSFER PRIC ING ADJUSTEMENTS, WHERE SOME COMPARABLES, REFERRED TO AS SAMPLES BY THE LD.SR.COUNSEL, ARE REJECTED AND CERTAIN OTHER COMP ARABLES ARE ADDED, PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX A CT, 1961 CANNOT BE LEVIED. THE POSITION OF LAW IS THAT, WHEN THERE IS A DIFFERENCE BETWEEN THE ASSESSED INCOME AND THE RETURNED INCOME, THERE IS A PRESUMPTION OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICUL ARS OF INCOME OR BOTH, AND THE BURDEN IS ON THE ASSESSEE TO EXPLAIN THE DIFFERENCE. THE A.O. WOULD THEN CONSIDER AS TO WHETHER THIS EXPLANA TION IS BONAFIDE AND ADOPT VARIOUS TESTS AND PROPOSITIONS LAID DOWN BY THE COURTS TO LEVY A PENALTY OR TO DROP THE PROCEEDINGS. ITA 5566/DEL/2011 PAGE 6 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 6. THERE CAN NOT BE ANY DISPUTE ON THE BROAD PROPO SITIONS OF LAW CANVASSED BY THE ASSESSEES COUNSEL, AS THESE A RE SUPPORTED BY CERTAIN CASE LAWS. THE PROPOSITIONS ARE, A) JUST BECAUSE THE ASSESSEE ACCEPTED THE TRANSFER PRI CING ADJUSTMENT, NO PENALTY CAN BE LEVIED; B) NO PENALTY CAN BE LEVIED WHEN THE ASSESSEES EXPLAN ATION IS BONAFIDE; C) PENALTY CANNOT BE LEVIED WHEN THERE ARE TWO POSSIBL E VIEWS; D) PENALTY CANNOT BE LEVIED WHEN THE ISSUE IN QUESTION IS DEBATABLE. 7. WE HAVE TO CONSIDER WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE ON HAND, THESE PROPOSITI ONS CAN BE APPLIED. THE ASSESSEE IN THIS CASE HAS USED MULTIP LE YEAR DATA IN COMPUTING THE ARMS LENGTH PRICE. THE TPO, THE ASS ESSING OFFICER AS WELL AS THE COMMISSIONER OF INCOME TAX (APPEALS) HA VE HELD THAT, SUCH ACTION BY THE ASSESSEE IS CONTRARY TO THE PROV ISIONS OF THE INCOME TAX ACT, 1961 AND THUS IT TANTAMOUNTS TO FUR NISHING OF INACCURATE PARTICULARS OF INCOME. BOTH THE ASSESSI NG OFFICER AS WELL AS THE COMMISSIONER OF INCOME TAX (APPEALS) RELIES ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF A ZTEK SOFTWARE & TECHNOLOGY SERVICES LTD. VS ACIT (2007) 294 ITR AT 32 BANGALORE(SB) AS WELL AS THE CASE OF MENTOR GRAPHICS P.LTD. (2007 ) 109 ITD 10. 8. IT CAN BE SEEN THAT BOTH THESE DECISIONS WERE DELIVERED AFTER JULY, 2007. PRIOR TO THAT THERE WAS A LEGAL DEBATE AS TO WHETHER MULTIPLE YEAR DATA CAN BE USED OR THE CURRENT YEAR DATA HAS TO BE USED. THE ARGUMENTS OF THE PARTIES ON THIS ISSUE C AN BE FOUND IN ITA 5566/DEL/2011 PAGE 7 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 THESE DECISIONS. THE ASSESSMENT YEAR IN QUESTION I S 2006-07. IN THE YEAR 2006, WHEN THE ASSESSEE COMPLETED ITS TRANSFER PRICING STUDY AND FILED THE RETURN OF INCOME, THIS DEBATE WAS VER Y MUCH ALIVE. THUS WE ARE OF THE CONSIDERED OPINION THAT, THIS BEING A DEBATABLE ISSUE AT THE POINT OF TIME WHEN THE ASSESSEE FILED ITS RETUR N OF INCOME, THE ASSESSEE ADOPTING MULTIPLE YEAR DATA FOR ARRIVING A T ARMS LENGTH PRICE IS A BONAFIDE EXERCISE. THUS PENALTY LEVIED ON TH AT ACCOUNT CANNOT BE SUSTAINED. THE LAW ON THIS ISSUE WAS EVOLVING. 9. COMING TO THE COMPARABLES BEING ADDED AND SOME BEING DELETED FROM THE T.P. REPORT, WHILE ADJUDICATING THE APPEL LANT FOR ASSESSMENT YEAR 2005-06, THIS BENCH OF THE TRIBUNAL HAS COME T O A CONCLUSION THAT THE FIRST APPELLATE AUTHORITY HAS RIGHTLY DEL ETED THE FOLLOWING COMPANIES AS COMPARABLES:- A) TCE CONSULTING ENGINEERS LTD. B) ENGINEERS INDIA LTD. C) RIGHTS LTD. D) WATER AND POWER CONSULTANCY SERVICES. 10. THUS DELETION OF THESE COMPARABLES CANNOT BE A GROUND FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF TH E INCOME TAX ACT, 1961. AS FAR AS SELECTION OF BESANT RAJ INTERNATIO NAL LTD. IS CONCERNED AS A COMPARABLE, THE TPO HAS ACCEPTED THE SAME IN THE EARLIER AYS. BE AS IT MAY, SELECTION OF COMPARABLES IS A SUBJECTIVE EXER CISE. THE ASSESSEE HAS SERIOUSLY CONTESTED THE CONCLUSIONS DRAWN BY THE TP O ON SELECTION OF COMPARABLES FOR BENCH MARKING OF INTERNATIONAL TRAN SACTIONS. IT IS ITA 5566/DEL/2011 PAGE 8 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 ANOTHER MATTER THAT THE ASSESSEE CHOSE NOT TO CARRY THE ISSUE IN APPEAL, THE REASONS OF WHICH HAVE BEEN EXPLAINED. THAT BY ITSELF DOES NOT WARRANT LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 11. IN OUR CONSIDERED OPINION THE ASSESSEE ACTED IN THE BONAFIDE MANNER IN CONDUCTING ITS TRANSFER PRICING STUDY AN D ARRIVING AT AN ARMS LENGTH PRICE. THE EXPLANATION IS BONAFIDE AND UNDE R THOSE CIRCUMSTANCES THE LEVY OF PENALTY UNDER SECTION 271 (1)(C) OF THE INCOME TAX ACT, 1961 IS NOT WARRANTED. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER,2012. SD/- SD /- (A.D. JAIN) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 17 TH SEPTEMBER, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR ITA 5566/DEL/2011 PAGE 9 OF 9 M/S VERIZON INDIA (P) LTD. ASSESSMENT YEAR 2006-07 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :