ACIT 10(1), MUMBAI V. KODAK GRAPHIC COMMUNICATION ( I) P.LTD ( FORMERLY KODAK POLYCROME GRAFIC INDIA P.LTD), MUMBAI

ITA 6762/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3414 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 05-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIDAND DUBE
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. : 6762 /MUM/20 1 2 (ASSESSMENT YEAR: 20 06 - 07 ) D CIT - 10(1), 455, AAYAKAR BHAVAN, 4 TH FLOOR, M K ROAD, MUMBAI - 400 020 VS ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD, 3 RD FLOOR, KAL PATARU SUYNERGY OFF WESTERN EXPRESS HIGHWAY, VAKOLA, SANTACRUZ (EAST), MUMBAI - 400 055 PAN: AABCK 1644 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SACHIDAND DUBE RESPONDENT BY : SHRI JITENDRA JAIN /DATE OF HEARING : 03 - 08 - 201 6 / DATE OF PRONOUNCEMENT : 26 - 0 8 - 2016 ORDER , : PER AMIT SHUKLA , J M: THE AFORESAID APPEAL HAS BEEN FILED BY THE RE VENUE AGAINST IMPUGNED ORDER DATED 02.08.2012 , PASSED BY LD. CIT(A PPEALS ) - 15, MUMBAI IN RELATION TO THE PENALTY 2 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 PROCEEDINGS UNDER SECTION 271(1)(C) FOR ASSESSMENT YEAR 2006 - 07. THE REVENUE IS MAINLY AGGRIEVED BY THE DELETION OF PENALTY OF RS.79,21,852/ - . I N THE GROUNDS OF APPEAL FOLLOWING GROUNDS HAVE BEEN RAISED: - '1. O N THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN DELETING THE PENALTY U/S. 271(1)(C) OF THE ACT ON RS.1,72,53,390/ - , ADDITION OF WHICH WAS MADE BY THE AO AS P ER THE ORDER OF THE TPO WHICH RELATES TO IMPORT OF PLATE AND THEREFORE THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND CONCEALED THE SAME. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN DELETING THE PENALTY U /S. 271(1)(C) OF THE ACT HOLDING THAT RPM METHOD WAS NOT APPLICABLE IGNORING THE FACT THAT THE TPO AFTER SCIENTIFICALLY EVALUATING ALL THE OPTIONS HELD THAT THIS IS THE JUST & FAIR METHOD. FURTHER ERRED IN ADOPTING THE CUP METHOD OF THE ASSESSEE IGNORING T HE FINDINGS OF THE TPO & THE AO. 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN DELETING THE PENALTY U/S. 271(1)(C) OF THE ACT CONSEQUENT TO DELETING THE TP ADJUSTMENT OF RS.47,16,000/ - MADE IN RESPECT OF FEES FOR TECHNICAL SERVI CES. THE ASSESSEE FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE FOR THE CHARGE LEVIED BY THE AE WHICH IS IN THE NATURE OF SERVICES RENDERED BY THE PERSONNEL OF THE AE TO THE ASSESSEE COMPANY TO SUPPORT AND MAINTAIN EQUIPMENTS SUPPLIED TO CUSTOMERS IN INDIA. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN DELETING THE PENALTY U/S. 271(1)(C) OF THE ACT LEVIED ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON THE INTANGIBLE ASSET THE VALUE OF WHICH ON VERIFICATION WAS FOUND AT NIL BY THE AO. 5. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED 3 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 2. THUS, PENALTY HAS BEEN LEVIED ON TRANSFER PRICING A DJUSTMENT ON ACCOUNT OF: - (I) TRANSACTION OF DISTRIBUTION OF PLATES O F RS.1,72,53,390/ - ; AND (II) ON ACCOUNT OF TECHNICAL SERVICES OF RS.47,61,900/ - 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, SO FAR AS THE ISSUE OF TRANSFER PRICING ADJUSTMENT OF RS. 1, 72,53,390/ - MADE ON ACCOUNT OF I MPORT OF PLATES FROM AE IS CONCERNED , THIS ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION BY THE TRIBUNAL VIDE ORDER DATED 20.01.2014 IN ITA NO.8710/MUM/2010, THAT IS, IN THE QUANTUM PROCEEDINGS, THEREFORE, THE LEVY OF PENALTY ON THI S ADDITION DOES NOT STAND. WHILE DOING SO, THE TRIBUNAL HAS FOLLOWED THE EARLIER YEAR ORDER OF THE TRIBUNAL FOR THE AY 2004 - 05. 4. LD. DR ALSO ADMITTED THAT THIS ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE TPO. 5. AFTER CONSIDERING THE AFORESAID SUBMISSI ONS, WE FIND THAT, SO FAR AS THE LEVY OF PENALTY ON ACCOUNT OF TP ADJUSTMENT OF RS.1,72,53,390/ - IN RESPECT OF PURCHASES OF PLATES FROM AE, WE FIND THAT THE TRIBUNAL HAS SET ASIDE THIS ISSUE TO THE FILE OF THE TPO FOR FRESH ADJUDICATION AS PER THE DIRECTIO NS GIVEN BY THE TRIBUNAL IN THE QUANTUM PROCEEDINGS IN THE AY 2004 - 05. THUS, WHE N THE ENTIRE MATTER HAS B EEN SET ASIDE AND REMANDED BACK FOR FRESH ADJUDICATION, THE PENALTY LEVIED 4 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 ON THE BASIS OF IMPUGNED ASSESSMENT ORDER CANNOT BE SUSTAINED, HENCE THE SAM E IS DIRECTED TO BE DELETED. 6. SO FAR AS THE LEVY OF PENALTY ON T P ADJUSTMENT OF RS.41,61,900/ - , FACTS IN BRIEF ARE THAT, ASSESSEE HAD MADE PAYMENT OF RS. 47 , 61,900/ - TO KOTAK POLYCHROME GRAPHICS, SINGAPORE PTE. LTD TOWARDS TRAVEL AND SALARY COSTS OF SPE CIALIZED TECHNICAL PERSONNEL TO PROVIDE TECHNICAL SUPPORT IN CONNECTION WITH C OMPUTER TO P LATE E QUIPMENTS WHICH WERE NEWLY LAUNCHED AND HIGH END TECHNOLOGY PRODUCT AT THAT POINT OF TIME. THESE PAYMENTS RELATE TO THE PAYMENT FOR PERSONNEL WHICH INCLUDED COS TS RELATING TO THE TRAVELLING AS WELL AS FOR THE TIME SPENT IN INDIA BY THE TECHNICAL PERSON SENT BY THE AE. IN SUPPORT OF SUCH A PAYMENT, A DEBIT NOTE WAS ALSO PRODUCED. HOWEVER, THE TPO MADE THE ADJUSTMENT ON THE GROUND THAT, THERE ARE NO DOCUMENTARY E VIDENCE S FOR RENDERING OF SERVICES BY THESE PERSONNEL AND, THEREFORE, HE HAS TAKEN ALP OF THIS TRANSACTION AT NIL. HE FURTHER OBSERVED THAT, THERE IS NO DETAIL REGARDING RENDERING OF P ROFESSIONAL / TEC HNICAL SERVICES MENTIONED IN THE D EBIT N OTE , ACCORDIN GLY, THE A RMS LENGTH VALUE OF THIS TRANSACTION WAS TAKEN AT NIL AND ENTIRE PAYMENT OF RS.41,61,900/ - WAS ADJUSTED TO THE ARMS LENGTH PRICE. THIS WAS CONFIRMED BY THE DRP ALSO BY HOLDING THAT, TPO HAS RIGHTLY CONSIDERED THE ARMS LENGTH VALUE OF THE TRA NSACTION AT NIL. IN THE SECOND APPEAL BEFORE THE TRIBUNAL, WE FIND THAT THE TRIBUNAL HAS CONFIRMED THE SAID ADDITION AFTER OBSERVING AND HOLDING AS UNDER: - 5 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 WITH REGARD TO THE THIRD ISSUE, WE FIRSTLY OBSERVE THAT THE IMPUGNED DISALLOWANCE, AS SOUGHT TO B E ABUNDANTLY CLARIFIED PER THE ASSESSMENT ORDER, IS NOT U/S. 40(A)(IA). RATHER, WE FIND NO ADJUSTMENT TO THE RETURNED INCOME OF RS.702.89 LACS IN RESPECT OF THE SAID CLAIM; A FACT WHICH THE A.O. SEEKS TO EMPHASIZE. THE ASSESSEE'S GRIEVANCE IS, THUS, MISCON CEIVED. AS APPARENT FROM THE ASSESSMENT ORDER, THE DISALLOWANCE U/S. 40(A), AS INITIALLY PROPOSED BY THE A.O., WAS U/S. 37(1), I.E., IN THE ABSENCE OF THE REQUISITE DETAILS, AND ONLY ALTERNATIVELY, I.E., WITHOUT PREJUDICE, U/S. 40(A)(IA) (REFER PARAS 8.1 A ND 8.2 OF THE ASSESSMENT ORDER). EVEN BEFORE US THE ASSESSEE, APART FROM A DEBIT NOTE, WHICH IS NOT LEGIBLE AT ALL (PB PG. 168), COULD HARDLY FURNISH ANY MATERIAL OR EVIDENCE WITH REGARD TO THE RENDERING OF THE SERVICES, I.E., AS WAS THE CASE BEFORE THE RE VENUE AUTHORITIES. THE ID. AR ALSO CONCEDED BEFORE US TO NO MATERIAL BEING AVAILABLE WITH THE ASSESSEE TO ESTABLISH THE RENDERING OF THE RELEVANT SERVICES, WHICH THOUGH IS RENDERED OF NO CONSEQUENCE IN THE FACTS OF THE CASE. UNDER THE CIRCUMSTANCES, THE AS SESSEE'S GRIEVANCE, AS PROJECTED PER ITS GROUND NO. 10, IS WHOLLY MISCONCEIVED AND UN - MAINTAINABLE. WE DECIDE ACCORDINGLY 7. THE PENALTY HAS BEEN LEVIED ON SUCH AN ADJUSTMENT /ADDITION BY THE AO WHICH HAS BEEN DELETED BY THE CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE PARTIES BEFORE US AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE FINDING GIVEN IN THE QUANTUM PROCEEDINGS UP TILL THE STAGE OF THE TRIBUNAL. THE ASSESSEE HAS MADE PAYMENT OF US $ 1 ,00,000, EQ UIVALENT TO INR.41,61,900/ - RELATING TO CHARGE INCURRED DURING THE YEAR TOWARDS VISIT OF SPECIALIZED TECHNICAL PERSONS FORM SINGAPORE AE AS PER THE DEBIT NOTE RAISED . IN THE QUANTUM PROCEEDINGS, 6 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 THE ASSESSEE HAS STATED THAT THESE PAYMENTS WERE MADE TOWAR DS SALARY OF SPECIALIZED TECHNICAL PERSONS SENT FOR PROVIDING TECHNICAL SUPPORT IN CONNECTION WITH THE VARIOUS HIGH END TECHNOLOGY PRODUCTS AND EQUIPMENTS PROVIDED BY THE AE. THE VALUE OF THE SAID TRANSACTION FOR THE PURPOSE OF ALP HAS BEEN TAKEN AT NIL BY THE TPO/AO ON THE GROUND THAT DOCUMENTARY EVIDENCE S FOR RENDERING OF SERVICES HAS NOT BEEN GIVEN. THE ASSESSEES CASE BEFORE US AS WELL AS BEFORE THE AUTHORITIES BELOW HAS BEEN THAT, IT HAS BEEN RECEIVING TECHNICAL SUPPORT FROM THE AE ON THE REGULAR BAS IS AND THE AUDITORS IN THE AUDIT REPORT HAVE TAKEN A NOTE OF THIS FACT IN FORM 3CEB , WHICH ON THE BASIS OF RELEVANT DATA PROVIDED. SINCE THERE WAS A MERGER WITH KOTAK INDIA PVT. LTD W.E.F. 01.04.2008 UNDER THE ORDERS OF BOMBAY HIGH COURT ON 4 TH JULY, 2008 MANY OF THE EMPLOYEES HAD LEFT THE JOB POST MERGER, THEREFORE, THE ASSESSEE COULD NOT PRODUCE THE NECESSARY DOCUMENTS EXCEPT FOR THE DEBIT NOTE RAISED BY THE AE . IT WAS FURTHER CONTENTED BY THE LD. COUNSEL BEFORE US THAT THE ENTIRE TRANSACTION HAS BEEN B ENCHMARKED USING TNMM AS MAM AND ASSESSEE HAS DEDUCTED TDS ON THE ENTIRE PAYMENT @ 15.7% MADE TO THE AE, THE DETAIL OF WHICH W ERE PRODUCED BEFORE THE AO. ON THESE FACTS, IT CANNOT BE HELD THAT ALP ADJUSTMENT CAN BE OR SHOULD BE TAKEN AT NIL. LD. COUNSEL BEFORE US FURTHER STATED THAT THE OBSERVATION AND FINDING OF THE TRIBUNAL IN THE QUANTUM ORDER (WHICH HAS BEEN REPRODUCED BY US ABOVE) HAS PROCEEDED WITH THE ISSUE ON ERRONEOUS FOOTING WITHOUT PROPERLY APPRECIAT ING THE FACTS CORRECTLY. IT WAS NOT A CASE OF DISALLOWANCE U/S 7 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 40(A)(I) BY THE DEPARTMENTAL AUTHORITIES BUT THE ALP OF THE PAYMENT WAS TAKEN AT NILL AND MOREOVER, TRIBUNAL HAS HELD THAT D EBIT N OTE SUBMITTED WAS NOT LEGIBLE . N OW THE LEGIBLE COPY OF THE SAME HAS BEEN FILED. HENCE IT IS NOT A CASE O F A DISALLOWANCE OF ANY CLAIM OF EXPENDITURE UNDER SECTION 37(1) ALBEIT THE VALUE OF THE TRANSACTION HAS BEEN TAKEN AT NIL. WE FIND GREAT SUBSTANCE IN THE ARGUMENTS PLACED BY THE LD. COUNSEL, BECAUSE AS REITERATED ABOVE, HERE THE ISSUE RELATED TO TRANSFE R PRICING ADJUSTMENT WHICH HAS BEEN MADE BY DEPARTMENTAL AUTHORITIES BY TAKING THE VALUE OF THE INTERNATIONAL TRANSACTION AT NIL . W HILE ARRIVING AT SUCH A CONCLUSION, NEITHER THE TPO N OR THE DRP HAS GIVEN ANY ANALYSIS AS TO WHY SUCH AN ADJUSTMENT IS REQU IRED TO BE MADE WHEN TNMM HAS BEEN APPLIED AND WHEN OVERALL PROFIT MARGIN AND THE METHOD HAS NOT BEEN DISTURBED. THE TPO FOR MAKING AN ADJUSTMENT IN THE ALP H AS TO BENCHMARK THE TRANSACTION AND THE ALP WITH THE COMPARABLES UNDER THE PRESCRIBED INDIAN TRANS FER PRICING REGULATIONS. HE CANNOT VALUE THE ALP OF THE TRANSACTION AT NIL WITHOUT ADHERING TO THE PROPER PROCEDURE OF LAW LAID DOWN UNDER THE ACT AND RELEVANT RULES. IT IS FURTHER NOTICED THAT, NO PENALTY WAS LEVIED IN THE CASE OF THE ASSESSEE FOR NON - F URNISHING OF THE INFORMATION AND DOCUMENTS AS REQUIRED UNDER SECTION 92D(3) , FOR WHICH SEPARATE PENAL PROVISION UNDER SECTIO N 271G HAVE BEEN PRESCRIBED. THU S ON THESE FACTS AND CIRCUMSTANCES , PRIMA FACIE WE ARE OF THE OPINION THAT NO CASE CAN BE MADE FOR T HE LEVY OF PENALTY U/S 271(1)(C). ACCORDINGLY, WE HOLD THAT PENALTY LEVIED BY THE AO 8 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 UNDER SECTION 271(1) (C) CANNOT BE LEGALLY AND FACTUALLY SUSTAINED AND THEREFORE , THE DELETION OF PENALTY BY THE LD. CIT(A) IS AFFIRMED. THE RELEVANT OBSERVATION AND FINDI NG OF LD. CIT(A) WHICH READS AS UNDER : - UNDER FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE APPELLANTS BENCHMARKING OF THIS INTERNATIONAL TRANSACTION FOLLOWING TNMM HAS NOT BEEN DISPUTED, FURTHER WHEN SUCH PAYMENT IN THE FACTS HAS NOT BEEN DISPUTED THE MERELY FOR NONE FURNISHING OF DOCUMENTS EVIDENCING RECEIPT OF SERVICES BY THE APPELLANT, THERE CANNOT BE CONCLUSION THAT CAN ARRIVED THAT THE BENCHMARKING SO DONE BY THE APPELLANT EITHER WAS WITHOUT DUE DILIGENCE AND LACKED GOOD FAITH. ACCORDINGLY, PEN ALTY SO IMPOSED ON THIS AMOUNT OF ADJUSTMENT CANNOT BE SUSTAINED AND IS DIRECTED TO BE DELETED . I S UPHELD. THUS, GROUND NO.3 AS RAISED BY THE REVENUE IS DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2016 . SD/ - SD/ - ( ) ( ) ( B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 26 TH AUGUST, 2016. 9 ( ) M/S KODAK GRAPHIC COMMUNICATION( I) PVT LTD ITA 6762 /MUM/ 2012 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3 ) THE CIT (A) 15 , MUMBAI. 4 ) THE CIT - 10, CONCERNED___ , MUMBAI 5 ) , , / THE D.R. F BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS