MEDUSIND SOLUTONS (I) P. LTD, MUMBAI V. ACIT RG 6(3), MUMBAI

ITA 6702/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9345 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 20-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Reasonable cause; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI P.M. JAGTAP (A.M.) ITA NO. 6702/MUM /2010 ASSESSMENT YEAR : 2005-06 MEDUSIND SOLUTIONS INDIA PVT. LTD., THE ARCADE, 6 TH FLOOR, THE GREAT OASIS, D-13, STREET 21, MIDC, MAROL, ANDHERI (EAST), MUMBAI 400 093. PAN AADCM 1806E VS. THE ASSTT. COMMISSIONER OF INCOME TAX- CIRCLE 6(1), AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI - 20. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI NITESH JOSHI DEPARTMENT BY : SHRI AJEET KUMAR JAIN & SHRI DINESH KUMAR DATE OF HEARING 20-11-2012 DATE OF PRONOUNCEMENT 23-11-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DTD. 30-7-2010 PASSED BY THE LD. CIT(A)- 12, MUMBAI FOR THE A.Y. 2005-06 SUSTAINING THE PENALTY OF RS. 1,88,451/- IM POSED BY THE A.O. U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) ON THE GROUND THAT THE APPEAL FILED BY THE ASSESSEE IS BARRED BY LIMIT ATION AND, HENCE, NOT ADMITTED. ITA NO. 6702/MUM/2010 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE COM PANY IS ENGAGED IN THE BUSINESS OF I.T. ENABLED SERVICES. IT FILED TH E RETURN DECLARING LOSS OF RS.96,90,840/-. HOWEVER, THE ASSESSMENT WAS COMPLE TED AT AN INCOME OF RS. 90,77,850/- INCLUDING THE ADDITION OF ARMS L ENGTH PRICE RS. 5,38,430/- VIDE ORDER DTD. 26-12-2008 PASSED U/S 14 3(3) OF THE ACT. WHILE COMPLETING THE ASSESSMENT, THE A.O. HAS ALSO INITIATED PENALTY PROCEEDING U/S 271(1)(C) OF THE ACT. IN RESPONSE T O SHOW CAUSE NOTICE U/S 271(1)(C) OF THE ACT, IT WAS STATED BY THE ASSE SSEE THAT THE COMPANY NEVER PERCEIVED THE NON-CHARGING OF INTEREST ON THE RECOVERY OF DEBTORS FROM THE ASSOCIATED ENTERPRISE AS AN INTERNATIONAL TRANSACTION. IT WAS FURTHER SUBMITTED THAT IN NORMAL INDUSTRY PRACTICE SUCH INTEREST IS NEITHER CHARGED NOR PAID. IT WAS FURTHER SUBMITTED THAT NO INFORMATION WAS WITHHELD AT THE TIME OF ASSESSMENT PROCEEDING A ND ALL THE DOCUMENTS WERE SUBMITTED. IT WAS FURTHER SUBMITTED THAT TRANSFER PRICING LEGISLATION BEING NEW CONCEPT, THE POSSIBIL ITY OF TWO OPINIONS CANNOT BE RULED OUT. IT WAS ALSO SUBMITTED THAT NON -FILING OF APPEAL AGAINST THE ORDER OF THE TPO WAS A CONSIDERED DECIS ION DUE TO SMALLNESS OF THE TAX EFFECT. HOWEVER, THE A.O. AFTER CONSIDER ING THE ASSESSEES EXPLANATION AND FOR THE REASONS AS STATED IN THE AS SESSMENT ORDER HELD THAT THE ASSESSEE COMPANY HAS COMMITTED THE DEFAULT IN FURNISHING IN- ACCURATE PARTICULARS OF ITS INCOME WITHOUT ANY REAS ONABLE CAUSE AND ACCORDINGLY HE IMPOSED PENALTY OF RS. 1,88,451/- VI DE ORDER DTD. 29-6- 2009 PASSED U/S 271(1)(C) OF THE ACT. ITA NO. 6702/MUM/2010 3 3. ON APPEAL, THE LD. CIT(A) OBSERVED THAT THE APPE AL FILED BY THE ASSESSEE IS LATE BY MORE THAN TWO MONTHS. ON BEING ASKED, IT WAS, INTER ALIA, EXPLAINED BY THE ASSESSEE THAT THE OFFICE CLE RK WHO RECEIVED THE PENALTY ORDER FILED THE SAID ORDER IN THE TAX FILE AND INADVERTENTLY FORGOT TO INFORM THE SR. FINANCE OFFICER OF THE COMPANY RE GARDING THE RECEIPT OF THE PENALTY ORDER. IT WAS FURTHER EXPLAINED BY THE ASSESSEE THAT AT THE TIME OF CONDUCTING TAX AUDIT IN THE LAST WEEK OF SE PTEMBER, 2009 FOR THE YEAR ENDING 31-3-2009, TAX AUDITORS DURING THE COUR SE OF COMPILING THE INFORMATION REQUIRED TO BE GIVEN IN FORM 3CD REQUES TED TO FURNISH THE TAX FILE FOR A.Y. 2005-06 TO ASCERTAIN THE POSITION OF RETURNED AND ASSESSED BROUGHT FORWARD LOSSES FOR THE PURPOSES OF REPORTING AGAINST ITEM 25 OF FORM 3CD AND AT THAT TIME IT WAS REALIZE D THAT THE PENALTY ORDER FOR A.Y. 2005-06 HAD ALREADY BEEN RECEIVED BY THE ASSESSEE AND IMMEDIATELY THEREAFTER THE APPEAL WAS FILED IN THE FIRST WEEK OF OCTOBER, 2009 AFTER COMPLETING THE NECESSARY PAPER WORK. TH E LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSION WHILE RELYING ON THE DECISION IN CIT VS. RAM MOHAN KABRA (2002) 257 ITR 773 (P&H) WH EREIN IT HAS BEEN OBSERVED THAT TIME LIMIT SHOULD NOT BE CONSTRUED LI GHTLY BY TREATING CONDONATION AS A MATTER OF RIGHT HELD THAT THERE WA S NO SUFFICIENT REASONS AND, HENCE, DISMISSED THE APPEAL AS UN-ADMI TTED. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE DENIAL OF CONDONATION ITA NO. 6702/MUM/2010 4 OF DELAY AND SUSTENANCE OF PENALTY IMPOSED BY THE A .O. U/S 271(1)(C) OF THE ACT. 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THE ORDER DTD. 29-6-2009 IMPOSING THE PENALTY U/S 271(1)(C) OF THE ACT WAS RECEIVED BY THE ASSESSEE ON 2-7-2009 AND TH E APPEAL WAS FILED ON 15-10-2009. HE FURTHER SUBMITS THAT THE DELAY O F ABOUT 73 DAYS WAS EXPLAINED TO THE LD. CIT(A), HOWEVER, THE LD. CIT(A ) DID NOT ACCEPT THE REASONS GIVEN BY THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO FILED A UN-NOTARIZED AFFIDAVIT DTD. 16-11-2012 OF S HRI VIPUL BANSAL, DIRECTOR OF THE COMPANY STATING, INTER ALIA, THE AL MOST SAME REASONS AS STATED BEFORE THE LD. CIT(A). HE, THEREFORE, SUBMI TS THAT THERE WAS A REASONABLE CAUSE FOR NON-FILING OF APPEAL WITHIN TH E TIME AND, THEREFORE, THE LD. CIT(A) HAS ERRED IN NOT CONDONING THE DELAY . HE, THEREFORE, SUBMITS THAT THE DELAY MAY KINDLY BE CONDONED AND T HE ISSUE MAY BE SET ASIDE TO THE FILE OF THE LD. CIT(A) TO DECIDE THE S AME ON MERITS WHICH WAS NOT OBJECTED TO BY THE LD. D.R. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS FILED ITS EXPLANATION SHOWING THE REASONS OF DELAY BEFORE THE LD. CIT(A). HOWEVER, THE LD. CIT( A) WAS OF THE VIEW THAT THE REASONS GIVEN BY THE ASSESSEE ARE NOT SUFFICIEN T REASONS TO CONDONE THE DELAY. ITA NO. 6702/MUM/2010 5 7. IN THE CASE OF COLLECTOR, LAND ACQUISITION V. MST. KATIJI REPORTED IN [1987] 167 ITR 471, HONBLE SUPREME COURT HELD AS F OLLOWS (PAGE 472) : THE LEGISLATURE HAS CONFERRED THE POWER TO CONDONE DELAY BY ENACTING SECTION 5 OF THE LIMITATION ACT OF 1963 IN ORDER TO ENABLE THE COURTS TO DO SUBSTANTIAL JUSTICE TO PARTIES BY DISP OSING OF MATTERS ON MERITS. THE EXPRESSION SUFFICIENT CAUSE EMPLOYE D BY THE LEGISLATURE IS ADEQUATELY ELASTIC TO ENABLE THE COURTS TO APPLY THE LAW IN A MEANINGFUL MANNER WHICH SUBSERVES THE ENDS OF JUSTI CETHAT BEING THE LIFE-PURPOSE OF THE EXISTENCE OF THE INSTITUTIO N OF COURTS. IT IS COMMON KNOWLEDGE THAT THIS COURT HAS BEEN MAKING A JUSTIFIABLY LIBERAL APPROACH IN MATTERS INSTITUTED IN THIS COUR T. BUT THE MESSAGE DOES NOT APPEAR TO HAVE PERCOLATED DOWN TO ALL THE OTHER COURTS IN THE HIERARCHY. AND SUCH A LIBERAL APPROACH IS ADOPTED O N PRINCIPLE AS IT IS REALIZED THAT : 1. ORDINARILY, A LITIGANT DOES NOT STAND TO BENEFIT BY LODGING AN APPEAL LATE. 2. REFUSING TO CONDONE DELAY CAN RESULT IN A MERITO RIOUS MATTER BEING THROWN OUT AT THE VERY THRESHOLD AND CAUSE OF JUSTI CE BEING DEFEATED. AS AGAINST THIS, WHEN DELAY IS CONDONED, THE HIGHEST T HAT CAN HAPPEN IS THAT A CAUSE WOULD BE DECIDED ON MERITS AFTER HEARI NG THE PARTIES. 3. EVERY DAYS DELAY MUST BE EXPLAINED DOES NOT M EAN THAT A PEDANTIC APPROACH SHOULD BE MADE. WHY NOT EVERY HOU RS DELAY, EVERY SECONDS DELAY ? THE DOCTRINE MUST BE APPLIED IN A RATIONAL, COMMONSENSE AND PRAGMATIC MANNER. 4. WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERA TIONS ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTIC E DESERVES TO BE PREFERRED, FOR THE OTHER SIDE CANNOT CLAIM TO HAVE VESTED RIGHT IN INJUSTICE BEING DONE BECAUSE OF A NON-DELIBERATE DE LAY. 5. THERE IS NO PRESUMPTION THAT DELAY IS OCCASIONED DELIBERATELY, OR ON ACCOUNT OF CULPABLE NEGLIGENCE, OR ON ACCOUNT OF MALA FIDES. A LITIGANT DOES NOT STAND TO BENEFIT BY RESORTING TO DELAY. IN FACT, HE RUNS A SERIOUS RISK. 6. IT MUST BE GRASPED THAT THE JUDICIARY IS RESPECT ED NOT ON ACCOUNT OF ITS POWER TO LEGALISE INJUSTICE ON TECHNICAL GROUND S BUT BECAUSE IT IS CAPABLE OF REMOVING INJUSTICE AND IS EXPECTED TO DO SO. ITA NO. 6702/MUM/2010 6 8. IN N. BALAKRISHNAN V. M. KRISHNAMURTHY REPORTED IN [1998] 7 SCC 123 THE APEX COURT EXPLAINED THE SCOPE OF LIMITATI ON AND CONDONATION OF DELAY, OBSERVING AS UNDER (HEADNOTE) : THE PRIMARY FUNCTION OF A COURT IS TO ADJUDICATE T HE DISPUTE BETWEEN THE PARTIES AND TO ADVANCE SUBSTANTIAL JUSTICE. THE TIME-LIMIT FIXED FOR APPROACHING THE COURT IN DIFFERENT SITUATIONS IS NO T BECAUSE ON THE EXPIRY OF SUCH TIME A BAD CAUSE WOULD TRANSFORM INT O A GOOD CAUSE. RULES OF LIMITATION ARE NOT MEANT TO DESTROY THE RI GHTS OF PARTIES. THEY ARE MEANT TO SEE THAT PARTIES DO NOT RESORT TO DILA TORY TACTICS, BUT SEEK THEIR REMEDY PROMPTLY. THE OBJECT OF PROVIDING A LE GAL REMEDY IS TO REPAIR THE DAMAGE CAUSED BY REASON OF LEGAL INJURY. THE LAW OF LIMITATION FIXES A LIFESPAN FOR SUCH LEGAL REMEDY F OR THE REDRESS OF THE LEGAL INJURY SO SUFFERED. THE LAW OF LIMITATION IS THUS FOUNDED ON PUBLIC POLICY. 9. IN SHANKARRAO V. CHANDRASENKUNWAR REPORTED IN [ 1987] SUPP SCC 338, THE SUPREME COURT TOOK THE VIEW THAT THE COURT SHOULD NOT ADOPT AN INJUSTICE-ORIENTED APPROACH IN REJECTING THE APPLIC ATION FOR CONDONATION OF DELAY. 10. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE TO SHOW THAT THE REASONS GIVEN BY THE ASSES SEE ARE FALSE OR UNTRUE, WE RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE DECISIONS, CONDONE THE DELAY IN FILING OF THE APPEAL BEFORE TH E LD. CIT(A) AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE LD . CIT(A) AND RESTORE THE ISSUE ON MERITS TO HIS FILE WITH A DIRECTION TO ADMIT THE APPEAL FILED BY THE ASSESSEE AND DECIDE THE MATTER ON MERITS AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GR OUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, PARTLY ALLOWED FOR STATIST ICAL PURPOSE. ITA NO. 6702/MUM/2010 7 11. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 23-11-2012. SD/- (P.M. JAGTAP ) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 23-11-2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 12, MUMBA I 4. COMMISSIONER OF INCOME TAX CITY 6, MUMBAI. 5. DEPARTMENTAL REPRESENTATIVE, BENCH K, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI