Annapurna Business Solutiions, Hyderabad V. ACIT, Hyderabad

ITA 675/HYD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53854 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: C N PRASAD
• Keywords: Transfer pricing; International transaction; Reasonable cause; Non compliance
• Section: 273B; 92D

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. & SMT. ASHA VIJAYARAGHAVAN, J.M. ITA NO.675/HYD/2009 ASSESSMENT YEAR 2005-06 M/S ANNAPURNA BUSINESS SOLUTIONS, GREENLAND ROAD, HYDERABAD VS ACIT, CI RCLE 6(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI C.N. PRASAD RESPONDENT BY : SHRI B.V. PRASAD REDDY, DR DATE OF HEARING : 18.10.2011 DATE OF PRONOUNCEMENT : 27.12.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A) IV, HYDERABAD DATED 27.2.2009 AND PERTAINS TO THE ASSESSMENT YEAR 2005-06, CONFIRMING THE ACTION OF T HE ASSESSING OFFICER IN LEVYING PENALTY OF RS. 7,73,975/- U/S 271G OF THE ACT STATING THAT THE ASSESSEE DID NOT FURNISH INFORMATION CALLED FOR BY THE ASSESSING OFFICER FOR THE PURPOSE OF DETERMINING THE ALP UNDER INTERNATI ONAL TRANSACTION WITH AN ASSOCIATED ENTERPRISE. 2. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND EXPORT OF THE SAME. IT HAD CLAIMED EXEMPTION U/ S 10A, IN RESPECT OF ITS INCOME FROM BUSINESS OF RS. 3,50,13,962/- FOR THE A SST. YEAR 2005-06. SINCE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSAC TIONS WITH VLS SYSTEMS INC., USA, VIDE A LETTER DATED 19.11.2007, THE ASSE SSING OFFICER CALLED FOR CERTAIN INFORMATION U/S 92D OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER PROVIDED FURTHER OPPORTUNITIES ON 30.11.200 7 AND 12.12.2007 TO ITA NO.675/HYD/2009 M/S ANNAPOORNA BUSINESS SOLUTIONS, HYD. FURNISH THE REQUISITE INFORMATION. HOWEVER, THE ASS ESSEE DID NOT FILE THE INFORMATION SO CALLED FOR WHICH COULD HAVE PROVIDED INFORMATION ON COMPARABLE TRANSACTIONS IN ORDER TO SHOW THAT THE C UP METHOD HAD BEEN FOLLOWED BY IT, AS STATED IN THE AUDIT REPORT. 3. AS THE ASSESSEE FAILED TO PROVIDE THE REQUISITE INFORMATION A PENALTY NOTICE U/S 271G WAS SENT TO THE ASSESSEE ON 18,.12. 2007. THE ASSESSING OFFICER ALSO ISSUED A FINAL SHOW CAUSE LETTER ON 21 .5.2008. IN RESPONSE, THE ASSESSEE ONLY FILED A LETTER DATED 27.6.2008, STATI NG THAT NO ADDITIONS WERE TO BE MADE IN REGARD TO ARMS LENGTH PRICE AND ONLY JUSTIFIED ITS TRANSACTIONS. HOWEVER, NO REASON WAS PROVIDED AS TO WHY THE INFOR MATION CALLED FOR BY THE ASSESSING OFFICER WAS NOT SUBMITTED. THE ASSESSING OFFICER FELT THAT THE ISSUE UNDER CONSIDERATION WAS NOT THE CONCEALMENT O F INCOME BUT WAS THE ASSESSEES FAILURE TO RESPOND TO THE NOTICE U/S 92D AND TO PROVIDE THE REQUISITE INFORMATION. DESPITE HAVING STATED IN TH E AUDIT REPORT THAT IT HAD FOLLOWED CUP METHOD, THE ASSESSEE HAD FAILED TO PRO VIDE INFORMATION IN THIS REGARD WITHOUT ANY REASONABLE CAUSE. ACCORDINGLY TH E ASSESSING OFFICER CONCLUDED THAT THIS WAS A FIT CASE FOR THE LEVY OF PENALTY U/S 271G. ACCORDINGLY, PENALTY @ 2% OF INTERNATIONAL TRANSACT IONS OF RS3,86,98,764/- FOR ONE FAILURE ONLY BEING RS.7,73,975/- WAS LEVIED . 4. DURING THE COURSE OF APPELLATE PROCEEDINGS THE REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF PROCEE DINGS BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAD FURNISHED A NOT E ON CUP METHOD STATING THAT IT WAS CHARGING FOR SERVICES AT AROUND $25 PER HOUR, KEEPING IN VIEW THE RATES PREVAILING IN THE INDUSTRY IN GENERAL. HE AVE RRED THAT IT WAS ALSO SUBMITTED THAT IT IS HIGHLY IMPOSSIBLE FOR THE ASSE SSEE TO FURNISH THE INVOICES, PRICE QUOTATION, OWNERSHIP OF OTHER COMPA NIES TO ESTABLISH THE RATE ADOPTED BY SUCH COMPANIES FOR THE SERVICES RENDERED BY THEM. ACCORDINGLY, IT WAS CONTENDED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING THE PENALTY FOR NOT FURNISHING THE INFORMATION WHICH WA S BEYOND THE CONTROL OF THE ASSESSEE. IT WAS SUBMITTED THAT THE REASON FOR ADOPTING THE ABOVE REFERRED PRICE WAS THAT IT IS THE NORMAL RATE ADOPT ED BY A MEDIUM SIZED ITA NO.675/HYD/2009 M/S ANNAPOORNA BUSINESS SOLUTIONS, HYD. COMPANY IN THE INDUSTRY OF SOFTWARE DEVELOPMENT. H E AVERRED THAT THE INFORMATION CALLED FOR WAS ALREADY ON THE RECORD OF THE ASSESSING OFFICER AND SOME OF THE INFORMATION SUCH AS INVOICES. PRICE QUO TATION OWNERSHIP ETC OF OTHER COMPANIES COULD NOT HAVE BEEN IN THE POSSESSI ON OF THE ASSESSEE, THE SAME BEING BEYOND ITS CONTROL IT WAS THEREFORE PLEA DED THAT NON FURNISHING OF SUCH INFORMATION WAS NEITHER WILLFUL NOR WANTON BUT WAS FOR THE REASONS AS STATED ABOVE WHICH CONSTITUTED A REASONABLE CAUS E. 5. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND THE ASSESSING OFFICER PASSED ORDER DATED 27.6.2008 U/S 271G OF TH E ACT LEVYING PENALTY OF RS. 7,73,975/- STATING THAT THE ASSESSEE DID NOT PR OVIDE INFORMATION AND DOCUMENTS CALLED FOR THE POINTS 2 AND 4 IN THE LETT ER DATED 19.11.2007 IN THE COURSE OF ASSESSMENT PROCEEDINGS. 6. ON APPEAL , THE CIT(A) HELD THAT A READING OF S EC. 92D IT CAN BE SEEN THAT THE SAID SECTION HAS BEEN BROUGHT ON TO THE ST ATUTE WITH A PURPOSE TO ENSURE MAINTENANCE, KEEPING OF INFORMATION AND DOCU MENTS BY PERSONS ENTERING TO AN INTERNATIONAL TRANSACTION. SUCH INFO RMATION AND DOCUMENTS ARE TO BE MAINTAINED BY SUCH A PERSON IRRESPECTIVE OF THE FACT WHETHER ANY PERIOD IN THIS REGARD IS PRESCRIBED BY THE BOARD OR NOT, AS MENTIONED IN SUB SECTION (2). THE ASSESSING OFFICER AND THE CIT(A) HAVE BEEN EMPOWERED TO REQUIRE ANY PERSON WHO HAS ENTERED INTO AN INTERNAT IONAL TRANSACTION, TO FURNISH SUCH INFORMATION OR DOCUMENT WITHIN THE P ERIOD OF 30 DAYS FROM THE DATE OF RECEIPT OF A NOTICE ISSUED IN THIS REGA RD. SUCH REQUIREMENT CAN BE MADE IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT. IF ANY SUCH A PERSON FAILS TO FURNISH ANY SUCH INFORMATION OR DOC UMENT, A PENALTY U/S 271G MAY BE DIRECTED TO BE PAID. 7. ON APPEAL THE CIT(A) HELD AS FOLLOWS FROM THE FACTS OF THE ASSESSEES CASE IT IS NOT DI SPUTED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION S ACCORDINGLY IT WAS REQUIRED TO MAINTAIN AND KEEP INFORMATION AND DOCUM ENTS AS REQUIRED IN TERMS OF SEC 92D(1). DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ITA NO.675/HYD/2009 M/S ANNAPOORNA BUSINESS SOLUTIONS, HYD. ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH SUCH INFORMATION AND DOCUMENTS SO AS TO JUSTIFY THE ADOPTION IF CUP METH OD, AS STATED IN AUDIT REPORT. HOWEVER, DESPITE HAVING BEEN GIVEN SU FFICIENT OPPORTUNITY IN THIS REGARD, THE ASSESSEE FAILED TO FURNISH ANY SUCH INFORMATION. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO IT HAS ONLY BEEN MAINTAINED THAT IT HAD FILED A LETTER DATED 27.6.20 08, WHEREIN IT WAS CONTENDED THAT NO ADDITIONS WERE MADE IN REGARD TO THE ARMS LENGTH PRICE. FROM THE COPY OF THE SAID LETTER IT IS FURTH ER SEEN THAT THE ASSESSEE HAD REFERRED TO ITS REPLY GIVEN EARLIER TH AT MEDIUM SIZED COMPANIES ARE CHARGING FROM $ 20 TO $35 PER HOUR DE PENDING UPON THEIR SERVICES AND MARKET CONDITIONS. IT WAS SUBMITTED TH AT THE ASSESSEE WAS CHARGING PER HOUR AN AVERAGE RATE OF $ 25 APPRO XIMATELY, BEING A MEDIUM SIZED COMPANY, IN LINE WITH THE INDUSTRY. H OWEVER, THE FACT REMAINS THAT THE SAID LETTER WAS FILED ONLY ON 27.6 .2008 AND NOT WITHIN 30 DAYS FROM THE DATE OF RECEIPT OF NOTICE U/S 271G WHICH WAS SENT ON 19.11.2007. IT IS ALSO CLEAR THAT THE SAID PERIOD OF 30 DAYS, WHICH COULD HAVE BEEN FURTHER EXTENDED BY ANOTHER 30 DAYS BY TH E ASSESSING OFFICER, WAS NOT SO EXTENDED AND THEREFORE, THERE W AS INDEED NON COMPLIANCE IN TERMS OF SEC 92D(3) R.W.S. 271G. DUR ING THE COURSE OF APPELLATE PROCEEDINGS ALSO THE ASSESSEE HAS NOT BEE N ABLE TO JUSTIFY ANY SUCH DELAY OR THE REASONS FOR NON COMPLIANCE. I T IS THEREFORE, CLEAR THAT DESPITE HAVING ENTERED INTO INTERNATIONAL TRAN SACTIONS AND HAVING TAKEN THE BENEFITS OF THE PROVISIONS OF SEC. 10A, T HE ASSESSEE WILLFULLY CONTRAVENED THE REQUIREMENT OF SEC 92D(3) WITHOUT A NY REASONABLE CAUSE. I THEREFORE, DO NOT FIND ANY INFIRMITY IN TH E LEVY OF PENALTY OF RS. 7,73,975/- BY THE ASSESSING OFFICER. IN THE RESULT, APPEAL IS DISMISSED. 8. THE FACTS ARE THAT THE ASSESSEE IN RESPECT OF I TS TRANSACTION WITH THE ASSOCIATED ENTERPRISE, HAS CONCLUDED IT TO BE AT AR MS LENGTH AS THEY ARE CHARGING $25 PER HOUR WHICH IS THE USUAL PRICE IN S UCH INTERNATIONAL TRANSACTION. THEY COULD NOT SUBSTANTIATE IT WITH SA MPLES OF INVOICES BY OTHER ITA NO.675/HYD/2009 M/S ANNAPOORNA BUSINESS SOLUTIONS, HYD. COMPANIES BECAUSE SUCH INFORMATION IS NOT IN PUBLIC DOMAIN. THE AOS MAIN OBJECTION IS THAT THE ASSESSEE HAD NOT REPLIED / FURNISHED DOCUMENTS IN RESPECT QUESTIONS NO 2 AND 4 RAISED IN HIS LETTER 1 9.11.2007. THE ASSESSEE SUBMITTED AS UNDER IN LETTER DATED 19.11.2007: 2. IT IS SEEN THAT YOU HAVE APPLIED CUP METHOD FOR CALCULATION OF A.L.P. IN THIS RESPECT PROVIDE FOR THE DETAILS OF T HE COMPARABLE TRANSACTION TAKEN SUCH AS COMPANY NAME AND ADDRESS, NATURE OF BUSINESS, THE EXACT TRANSACTION WHICH IS BEEN COMP ARED WITH SUPPORTING DOCUMENTS, SUCH AS OTHER COMPANIES INVOI CES OR PRICE QUOTATION, OWNERSHIP ETC., 4. MORE THAN ONE PRICE IS DETERMINED. (I.E., ARMS LENG TH IS THE AVERAGE OF DIFFERENT TRANSACTIONS) THE DETAILS FOR THE PRICE C ALCULATION FOR EACH OF THE TRANSACTION TAKEN HAS TO BE GIVEN. 9. FURTHER, IN THEIR REPLY DATED 27.6.2008, THE AS SESSEE SUBMITTED, WITH REGARD TO POINT NO.2 THAT IN THE COURSE OF THE PROC EEDINGS THE ASSESSEE HAD FURNISHED A NOTE ON COMPARABLE UNCONTROLLED PRICE M ETHOD ADOPTED BY IT IN ITS ARMS LENGTH TRANSACTION WHICH IS AS UNDER: THE PRICE CHARGED FOR SERVICES RENDERED OR FOR DEV ELOPMENT OF PRODUCT DEPENDS UPON THE OPEN MARKET PRICE. OUT ORG ANIZATION IS ALSO CHARGING OUR SERVICE RATES AT AN AVERAGE OF US $ 25 PER HOUR WHICH INCLUDES JUNIOR, MID LEVEL, SENIOR, SKILLED P ROGRAMMERS AND QUALITY ASSURANCE TESTERS FOR ALL THEIR WORK OR SE RVICES IN DEVELOPMENT OF SOFTWARE PRODUCT AND OTHERS SUPPORT SERVICES FOR THESE PRODUCTS. GENERALLY THE COMPANIES IN USA WHO PAY AN AVERAGE HOURLY RATE RANGES FROM US $ 25 TO US $ 50 BASED ON THE SKILL LEVEL AND SUPPLY AND DEMAND. THE RANGE OF HOU RLY RATE VARIES FROM COMPANY TO COMPANY AND FROM SERVICE TO SERVICE . ITA NO.675/HYD/2009 M/S ANNAPOORNA BUSINESS SOLUTIONS, HYD. IN GENERAL, MEGA COMPANIES LIKE INFOSYS, WIPRO, TCS AND SATYAM ARE CHARGING HIGH RATE PER HOUR FOR THEIR SERVICES I.E. US $ 25 TO US $ 50. MEDIUM SIZED COMPANIES ARE CHARGING FROM US $ 20 TO US $ 35 DEPENDS UPON THEIR SERVICES AND MARKET CONDITIONS. OUR ORGANIZATION IS ALSO CHARGING OUR SERVICES RATES AT AN AVERAGE R ATE OF US $ 25 PER HOUR APPROXIMATELY BEING A MEDIUM SIZED COMPANY IN LINE WITH THE INDUSTRY. 10. AS COULD BE SEEN FROM THE ABOVE NOTE THE ASSES SEE HAS ALREADY SUBMITTED THAT IT IS CHARGING FOR SERVICES AT AROU ND 25 $ PER HOUR KEEPING IN VIEW THE RATES PREVAILING IN THE INDUSTRY IN GEN ERAL. BEFORE US, THE ASSESSEE SUBMITTED THAT IT IS HIGHLY IMPOSSIBLE FOR THE ASSESSEE TO FURNISH THE INVOICES, PRICE QUOTATION, OWNERSHIP OF OTHER C OMPANIES TO ESTABLISH THE RATE ADOPTED BY SUCH COMPANIES FOR THE SERVICES REN DERED BY THEM. THEREFORE THE ASSESSING OFFICER IS NOT AT ALL JUSTI FIED IN LEVYING PENALTY FOR NOT FURNISHING THE INFORMATION WHICH IS BEYOND THE CONTROL OF THE ASSESSEE. 11. WITH REGARD TO POINT NO.4 RAISED BY THE AO, TH E ASSESSEE SUBMITTED THAT THE ASSESSEE TRANSACTED WITH ONLY ONE COMPANY AND THE PRICE QUOTED PER HOUR IS AROUND US $25. THE REASON FOR ADOPTING THE SAID PRICE IS ALREADY EXPLAINED ABOVE I.E., IT IS THE NORMAL RATE ADOPTED BY A MEDIUM SIZE COMPANY IN THE INDUSTRY OF SOFTWARE DEVELOPMENT. 12. IN VIEW OF THIS EXPLANATION, THE LEARNED COUNS EL FOR THE ASSESSEE SHRI C.N. PRASAD, SUBMITTED THAT THE INFORMATION CALLED FOR BY THE ASSESSING OFFICER IS ALREADY ON RECORD AND SOME OF THE INFORM ATION CALLED FOR I.E, INVOICES, PRICE QUOTATION, OWNERSHIP ETC., OF OTHER COMPANIES WILL NOT BE IN POSSESSION OF THE ASSESSEE COMPANY AND THEREFORE BE YOND ITS CONTROL. HENCE THE ASSESSEE SUBMITTED THAT NON FURNISHING OF CERTA IN INFORMATION IS NEITHER WILFUL NOR WANTON BUT FOR THE REASONS GIVEN ABOVE A ND HENCE THERE IS REASONABLE CAUSE FOR NOT FURNISHING CERTAIN INFORMA TION. 13. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI C.N. PRASAD RELIED ON CARGILL INDIA P. LTD. VS. DCIT (300 ITR (AT) 223 DE LHI) . ITA NO.675/HYD/2009 M/S ANNAPOORNA BUSINESS SOLUTIONS, HYD. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE SHRI B .V. PRASAD REDDY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND CI T(A). 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT RULE 10D PROVIDES FOR DOC UMENTS TO BE MAINTAINED BY ASSESSEES IN CASE OF INTERNATIONAL TRANSACTIONS. THEY ARE MANY AND VOLUMINOUS. ALL THE DOCUMENTS MAY NOT BE REQUIRED I N ALL THE TRANSACTIONS. THE AUTHORITIES HAVE TO APPLY THEIR MIND TO DETERMI NE WHAT DOCUMENTS ARE RELEVANT FOR DETERMINING THE ALP IN EACH ASSESSEES CASE. IN THE INSTANT CASE THE INFORMATION ALREADY FURNISHED BY THE ASSESSEE W AS APPARENTLY SUFFICIENT TO THE AUTHORITIES TO COME TO CONCLUSION THAT THE A SSESSEES TRANSACTION WITH THEIR ASSOCIATED ENTERPRISE WAS AT ARMS LENGTH AS THERE WAS NO ADJUSTMENTS ON THIS ACCOUNT. THERE WAS NO REQUIREMENT FOR THE F URTHER PARTICULARS THEY HAD ASKED FOR. SEC 273B PROVIDES THAT NO PENALTY CA N BE LEVIED U/S 271G IF THERE WAS A REASONABLE CAUSE FOR THE FAILURE. 16. IN THE CIRCUMSTANCES WE HOLD THAT, WHEN THE AS SESSEE HAD FURNISHED ALL THE PARTICULARS ON THE BASIS OF WHICH THE AO CO ULD COME TO THE CONCLUSION REGARDING THE ALP IN THE CASE OF THE INT ERNATIONAL TRANSACTION AND HENCE THE ADDITIONAL PARTICULARS REQUIRED WHICH WERE NOT AVAILABLE WITH THE ASSESSEE FOR THE REASON THAT SUCH INFORMATION W AS NOT IN PUBLIC DOMAIN WERE NOT REALLY NECESSARY AND FURTHER THE ASSESSEE CAUSE FOR NOT FILING THE REQUISITE PARTICULARS WITHIN THE TIME PERMITTED. 17. IN THE CIRCUMSTANCES WE ALLOW THE ASSESSEES A PPEAL AND DELETE THE PENALTY OF RS. 7,73,975/- LEVIED U/S 271G OF THE A CT. 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 27.12.2011 SD/- SD/- (CHANDRA POOJARI) ( (ASHA VIJAYA RAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 27 DECEMBER, 2011 ITA NO.675/HYD/2009 M/S ANNAPOORNA BUSINESS SOLUTIONS, HYD. COPY FORWARDED TO: 1. M/S ANNAPURNA BUSINESS SOLUTIONS, FLAT NO.401, 6-3- 866/A, MAHESWARI MEKINS MAYANK PLAZA, GREENLANDS ROAD, HYD ERABAD. 2. THE ACIT, CIRCLE 6(1), HYDERABAD 3. THE CIT(A)- IV, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/