DCIT, New Delhi V. M/s Kobelco Construction Equipments India Pvt. Ltd., New Delhi

ITA 6405/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4533 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 03-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: SUMIT KALRA
• Keywords: Transfer pricing; Reasonable cause; Difference of opinion
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DLEHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. NO.6405/DEL/2015 ASSESSMENT YEAR: 2008-09 DY. COMMISSIONER OF INCOME-TAX, VS M/S KOBELCO CONSTRUCTION EQUIPMENT CIRCLE 14(2), NEW DELHI. INDIA PVT. LTD., C-20, SOURTH EXTENSION PART-II, NEW DELHI. (PAN:AACCK9469N) (APPELLANT) (RESPONDENT) APPELLANT BY: MS ASHIMA NEB, SR. DR RESPONDENT BY: SHRI SUMIT KALRA, ADVOCATE DATE OF HEARING: 29.10.2018 DATE OF PRONOUNCEMENT: 29.10.2018 ORDER PER K. NARASIMHA CHARY, JM CHALLENGING THE DELETION OF PENALTY BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-5, NEW DELHI {FOR SHORT LD.CIT(A)} FOR ASSTT. YEAR 2008-09, REVENUE PREFERRED THIS APPEAL. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A COMPANY IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF HYDRAULIC EXCAVATORS WHICH PRIMARILY INCLUDE SALES OF MACHINERY, 2 SPARE PARTS, AFTER SALES SERVICE, AND SERVICING OF HYDRAULIC EXCAVATORS IN INDIA. FOR THE ASSTT. YEAR 2008-09, ASSESSEE FILED THE RETURN OF INCOME ON 30.9.2008 DECLARING A LOSS OF RS.1,12,02,974/- . DURING THE ASSESSMENT PROCEEDINGS, LEARNED AO MADE AN ADDITION OF RS.7,33,66,487/- IN RESPECT OF TRANSFER PRICING ADJUSTMENT, RS.63,53,939/- DUE TO DISALLOWANCE U/S 40(A)(IA) AND RS.9 LACS ON ACCOUNT OF THE DISALLOWANCES OF ADVANCE PAYMENTS TOWARDS THE CORPORATE MEMBERSHIP. IN THE APPEAL, THE FIRST APPELLATE AUTHORITY ALLOWED THE TRANSFER PRICING ADJUSTMENT ISSUE IN FAVOUR OF THE ASSESSEE BUT CONFIRMED THE OTHER TWO ADDITIONS. IT IS SUBMITTED THAT THE ASSESSEE DID NOT PREFER ANY APPEAL AGAINST THE SAID ORDER OF THE APPELLATE AUTHORITY CONFIRMING THE ADDITIONS ON ACCOUNT OF THE DISALLOWANCE U/S 40(A)(IA) AND ON THE ADVANCE PAYMENTS. 3. LEARNED AO INITIATED PENALTY PROCEEDINGS ON THE GROUND THAT THE ASSESSEE ACCEPTED THE ADDITIONS BY NOT PREFERRING ANY APPEAL AGAINST THE FIRST APPELLATE AUTHORITY AND LEVIED A PENALTY OF RS.24,65,700/- BY ORDER DATED 21.3.2014. 4. IN THE APPEAL, LEARNED CIT(A) RECORDED A FINDING THAT ALL THE FACTS ARE DISCUSSED IN THE RETURN OF INCOME AND THE TAX AUDIT REPORT AND AUDITED FINANCIALS SUBSEQUENTLY MAKE IT CLEAR THAT THE ASSESSEE DID NOT CONCEAL ANYTHING NOR DID THEY FURNISH ANY INACCURATE PARTICULARS. LEARNED CIT(A) FURTHER HELD THAT IN VIEW OF THE JUDGMENT OF THE HONBLE APEX COURT IN RELIANCE PETROPRODUCTS (P) LTD., 322 ITR 158 ANY DISALLOWANCE OF CLAIM DOES NOT PER SE AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS THEREOF. 5. LEARNED CIT(A) FURTHER HELD IN SO FAR AS THE APPLICABILITY OF THE DEEMING PROVISIONS IS CONCERNED, THE SAME ARE DIRECTED IF IT IS FOUND THAT FAILURE ON THE PART OF THE ASSESSEE UNDER THE PROVISIONS WAS WITHOUT ANY REASONABLE CAUSE AND 3 THE ASSESSEE STANDS DISCHARGED OF THE INITIAL BURDEN BY SHOWING THAT THERE EXISTED A REASONABLE CAUSE. ON THIS PREMISE, LEARNED CIT(A) DELETED THE PENALTY. HENCE, THE REVENUE IS IN THIS APPEAL BEFORE US. 6. IT IS THE SUBMISSION OF THE LEARNED DR THAT IN RESPECT OF THE SUSTAINED ADDITIONS, THERE IS NO FURTHER APPEAL BY THE ASSESSEE AND THEREBY THE ASSESSEE ACCEPTED THE SAME. NO EXPLANATION WAS OFFERED BY THE ASSESSEE DURING THE PENALTY PROCEEDINGS BUT THE LEARNED CIT(A) TREATED THE EXPLANATION OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AS SUFFICIENT EXPLANATION DURING PENALTY PROCEEDINGS WHICH IS FACTUALLY INCORRECT AND ON THIS PREMISE, THE FINDING OF THE LEARNED CIT(A) CANNOT BE ACCEPTED. LEARNED DR RELIED UPON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS ZOOM COMMUNICATIONS PVT. LTD., 327 ITR 510(DEL). ACCORDING TO THE LEARNED DR, THE TAX AUDIT REPORT SAYS THAT CERTAIN PROVISIONS HAVE TO BE DISALLOWED, BUT IN SPITE OF THE SAME, THE ASSESSEE DID NOT DO SO AND THEREBY FURNISHED THE INACCURATE PARTICULARS THEREOF. SO ALSO, IT IS HER FURTHER CONTENTION THAT THE CORPORATE MEMBERSHIP SUBSCRIPTION IS ANNUAL SUBSCRIPTION, AS SUCH, THE ASSESSEE CANNOT CLAIM THE ADVANCE SUBSCRIPTION PAID FOR 9 YEARS AND THIS ALSO AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS. 7. PER CONTRA, IT IS THE SUBMISSION OF THE LEARNED AR THAT THE EXPENSES ARE NOT DOUBTED AND THEY ARE ALL GENUINE EXPENDITURE. BY PLACING RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD. (SUPRA), HE SUBMITTED THAT IN THE ABSENCE OF ANY ALLEGATION THAT THE ASSESSEE SUPPRESSED ANY FACTUAL INFORMATION, MERELY BECAUSE SOME DISALLOWANCE WAS MADE, PENALTY DOES NOT VISIT AUTOMATICALLY. HE ALSO PLACED RELIANCE ON THE DECISION REPORTED IN THE CASE OF (I) CIT VS AT&T COMMUNICATION SERVICES INDIA (P) LTD. (2012) 18 4 TAXMANN.COM 144 (DEL); (II) NEW HORIZON INDIA LTD. VS DCIT, (2012) 19 TAXMANN.COM 44 (DEL); (III) MAG CONSTRUCTIONS PVT. LTD. VS ITO, ITA NO.6518/DEL/2013 (TRIBU.DEL); AND (IV) ACIT, CIRCLE 1(1), CHANDIGARH VS TORQUE PHARMACEUTICALS (P) LTD., ITA NO.972 (CHD)/2013 (TRIBU.CHANDIGARH). 8. WE HAVE GONE THROUGH THE RECORD. AT THE OUTSET, WE TAKE NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE IS GUILTY OF NOT MAKING DISCLOSURE OF ANY PARTICULARS OF THEIR INCOME AND DETAILS OF DEDUCTION CLAIMED THEREOF. AS A MATTER OF FACT, THE RECORD SPEAKS THAT THE AUDITED FINANCIAL AND TAX AUDIT REPORT REVEAL THE DISPUTED AMOUNTS. BY LOOKING AT THESE FIGURES ONLY, LEARNED AO DISALLOWED THE EXPENDITURE. FURTHER, THE NATURE OF EXPENDITURE IS NOT IN DISPUTE. NOWHERE THE REVENUE SAYS THAT THE ASSESSEE DID NOT INCUR THIS EXPENDITURE BUT CLAIMED DEDUCTION IN RESPECT OF BOGUS EXPENDITURE. ENTIRE DISPUTE REVOLVES AROUND WHETHER THE DISALLOWANCE OF THE EXPENDITURE U/S 40(A)(IA) IN RESPECT OF PROVISION MADE OR THE DISALLOWANCE OF CORPORATE MEMBERSHIP SUBSCRIPTION FOR 9 YEARS IN ADVANCE, AMOUNTS TO EITHER CONCEALMENT OF INCOME OR THE FURNISHING OF INACCURATE PARTICULARS THEREOF. WHEN THE ASSESSEE HAD REVEALED ALL THE FACTS AND THE ALLEGATION IS THAT IN SPITE OF THE VIEW OF THE AUDITORS THAT SINCE TAX HAD NOT BEEN DEDUCTED AT SOURCE ON SOME AMOUNT, THE DETAILS OF WHICH ARE WELL FURNISHED AND THE ASSESSEE ENTERTAINED AN INFORMATION THAT THE YEAREND PROVISION FOR EXPENSES WHICH ARE REVERSED AT THE BEGINNING OF THE NEXT YEAR ARE NOT LIABLE TO DEDUCTION AT SOURCE, SUCH AMOUNTS WERE PRIMA FACIE INADMISSIBLE U/S 40(A)(IA) OF THE ACT. THIS IS A DEBATABLE ISSUE. WHEN ALL SUCH MATERIAL IS AVAILABLE BEFORE THE AO WITH TWO VIEWS EXPRESSED AND THE AO TOOK ONE OF SUCH VIEWS THEN WHERE IS THE QUESTION OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS 5 THEREOF? LAW DOES NOT SAY THAT WHEREVER THE AO DISALLOW ANY CLAIM, PENALTY SHOULD INVARIABLY BE LEVIED. 9. ON THIS ASPECT, WE FIND THAT THE LEARNED CIT(A) IS PERFECTLY JUSTIFIED IN PLACING RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD. 9SUPRA). 10. IN SO FAR AS THE CORPORATE MEMBERSHIP PAYMENT IS CONCERNED, LEARNED CIT(A) FOUND THAT IT IS NOT AS IF THE AMOUNT WAS CLAIMED FRAUDULENTLY WITHOUT ACTUAL PAYMENT BUT IT WAS ONETIME PAYMENT FOR A PERIOD OF 10 YEARS AND IF THE INGREDIENTS OF SECTION 37(1) ARE EXAMINED, SUCH AN EXPENDITURE CANNOT BE DENIED. WE ARE IN AGREEMENT WITH THE OBSERVATION OF THE LEARNED CIT(A) THAT IT IS A MATTER OF DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE AO IN SO FAR AS THE ADVANCE NATURE OF THE PAYMENT IS CONCERNED AND MERELY BECAUSE THE ASSESSEE DOES NOT CARRY THE MATTER IN FURTHER APPEAL IN VIEW OF THE SMALLNESS OF THE AMOUNT INVOLVED, IT DOES NOT MEAN THAT THE ASSESSEE CONCEDED TO HAVE EITHER CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF. WHEN THERE CANNOT BE ANY PENALTY UNDER LAW, MERELY BECAUSE THE ASSESSEE DOES NOT PREFER FURTHER QUANTUM APPEAL, IT DOES NOT CREATE JURISDICTION FOR THE AO TO LEVY THE PENALTY. IN THIS MATTER THE ISSUES INVOLVED ARE DEBATABLE ONES AND THE HONBLE APEX COURT ABUNDANTLY MADE IT CLEAR THAT MERE DISALLOWANCE OF EXPENDITURE DOES NOT AUTOMATICALLY INVITE PENALTY PROCEEDINGS. IN VIEW OF THE FACTS INVOLVED AND SETTLED POSITION OF LAW, WE ARE OF THE CONSIDERED OPINION THAT PENALTY CANNOT BE SUSTAINED AND THE LEARNED CIT(A) RIGHTLY EXERCISED HIS JURISDICTION IN DELETING THE SAME. NO INTERFERENCE IS WARRANTED AT THE END OF THE TRIBUNAL. WE, THEREFORE, 6 WHILE UPHOLDING THE FINDINGS OF THE LEARNED CIT(A), FIND NO MERITS IN THIS APPEAL. APPEAL IS ACCORDINGLY DISMISSED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2018. SD/- SD/- (G.D. AGRAWAL) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER DATED: 29 TH OCTOBER, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) BY ORDER 5. DR, ITAT ASSTT. REGISTRAR, ITAT DRAFT DICTATED ON 29.10.2018 DRAFT PLACED BEFORE AUTHOR 29.10.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 29.10.2018 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 29.10.2018 APPROVED DRAFT COMES TO THE SR.PS/PS 29.10.2018 KEPT FOR PRONOUNCEMENT ON 29.10.2018 DATE OF UPLOADING ORDER ON THE WEBSITE 3 0 .10.2018 FILE SENT TO THE BENCH CLERK 3 0 .10.2018 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.