WATSON PHARMA P.LTD, MUMBAI V. ITO WD 8(3)(4), MUMBAI

ITA 6785/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3160 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 07-11-2014
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: HITENDRA BHANDRI
• Keywords: Transfer pricing; International transaction; Difference of opinion
• Section: 115JB

Judgement Text

1 ITA NO.6785 /MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACOUNTANT MEMBER) I.T.A. NO.ITA NO.6785/MUM/2014 (ASSESSMENT YEAR : 2008-09) WATSON PHARMA PVT LTD 21-22, KALPATARU SQUARE OFF ANDHERI KURLA ROAD ANDHERI (E), MUMBAI 400 059 VS ITO, WD.8(3)(4), MUMBAI PAN :AAACW6074D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI HITENDRA BHANDRI RESPONDENT BY SHRI A RAMACHANDRAN DATE OF HEARING : 01-06-2016 DATE OF PRONOUNCEMENT : 15-06-2016 O R D E R PER ASHWANI TANEJA, AM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) [HEREINAFTER C ALLED LD.CIT(A)] DT 30-04- 2013 PASSED AGAINST THE PENALTY ORDER U/S 271(1)(C) DATED 30 TH APRIL, 2013 FOR A.Y. 2008-09 ON THE FOLLOWING GROUNDS: 1. THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOL DING PENALTY ON ADDITION OF RS. 1,01,39,4901- U/S 271 (1 )(C) OF TH E ACT. THE REASONS 2 ITA NO.6785 /MUM/2014 GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO TH E FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. 2. THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOLD ING PENALTY U/S 271 (1 )(C) OF THE ACT SOLELY ON THE BASIS OF ADDITIONS MADE IN THE ASST. ORDER WITHOUT DISCHARGING THE ONUS OF PROVING CONCE ALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME BY T HE ASSESSEE 3. THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOLD ING PENALTY D/S 271 (1 )(C) ON THE ADDITION MADE IN THE ASSESSMENT ORDE R IN RESPECT OF ADJUSTMENT TO ALP OF INTERNATIONAL TRANSACTIONS, EV EN THOUGH SUCH ADDITION IS MADE DUE TO DIFFERENCE OF OPINION BETW EEN DIFFERENT AUTHORITIES AND I OR ASSESSEE HENCE SUCH ADDITION DOES NOT ATTRACTS PENALTY. 4. THE ABOVE GROUNDS / SUB-GROUNDS ARE WITHOUT PREJ UDICE TO EACH OTHER. 2. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY THE LD.COUNSEL THAT IN THIS CASE ASSESSEE HAD FILED ITS RETURN DECLARING N IL INCOME AFTER SETTING OFF BROUGHT FORWARD UNABSORBED DEPRECATION / LOSSES, BU T THE BOOK PROFIT WAS COMPUTED U/S 115JB AT RS.11,85,71,056 AND TAX WAS P AID IN THE RETURN ON THIS AMOUNT. IT WAS FURTHER SUBMITTED THAT EVEN AFTER M AKING ADDITION / DISALLOWANCES IN THE ASSESSMENT ORDER, THE INCOME O F THE ASSESSEE WAS ASSESSED ON THE BOOK PROFIT ONLY. IT WAS THUS SUBM ITTED THAT IN THIS CASE, THERE WAS NO EVASION OF TAX AND THUS IT CANNOT BE SAID TH AT THERE WAS ANY TAX SOUGHT TO BE EVADED AND THEREFORE, IT WAS NOT A FIT CASE F OR LEVY OF PENALTY. IN SUPPORT OF HIS ARGUMENTS, HE RELIED UPON THE JUDGMENT OF HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS NALWA SONS INVESTMENTS LTD 327 I TR 543 (DEL). HE ALSO RELIED UPON THE CIRCULAR OF THE CBDT NO.25 OF 2015 DT 21-1 2-2025 WHEREIN IT HAS BEEN PROVIDED BY THE BOARD THAT AMENDMENT MADE BY FINANC E ACT, 2015 VIDE EXPLANATION 4 TO SUB SECTION (1) OF SECTION 271 OF THE ACT HAS BEEN BROUGHT ON 3 ITA NO.6785 /MUM/2014 THE STATUTE TO TACKLE SUCH SITUATIONS, BUT THIS EXP LANATION SHALL BE APPLICABLE PROSPECTIVELY I.E. WEF 01-04-2016. 3. PER CONTRA, THE LD.DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. IN RESPONSE TO THE QUERY OF THE BENCH WITH RESPECT TO CIRCULAR RELIED UPON BY THE LD.COUNSEL, THE LD.DR HAD NO COMMENTS TO BE MADE TO DISTINGUISH ITS APPLICABILITY OR OTHERWISE. 4. WE HAVE GONE THOUGH THE ORDERS OF LOWER AUTHORIT IES AND COPIES OF JUDGMENT AND CIRCULAR PLACED BEFORE US. THE ADMIT TED FACTS IN THIS CASE ARE THAT INCOME OF THE ASSESSEE HAS BEEN ACCEPTED AT BO OK PROFIT ONLY. NO ADJUSTMENT HAS BEEN MADE IN THE BOOK PROFIT. THE A SSESSEE HAS CONTENDED THAT UNDER THESE FACTS AND CIRCUMSTANCES THERE IS N O EVASION OF TAX AND, THEREFORE, AS PER SECTION 271(1)(C), NO TAX HAS BEE N SOUGHT TO BE EVADED AND SINCE NO TAX HAS BEEN EVADED, THERE CANNOT BE ANY P ENALTY UPON THE ASSESSEE. IT IS NOTED BY US THAT CBDT HAS CLARIFIED THIS SITU ATION BY WAY OF ITS AFORESAID CIRCULAR. WE FIND IT APPROPRIATE TO REPRODUCE RELE VANT PART OF THE CIRCULAR BELOW: C CIRCULAR NO. 25/2015, DATED: 31-12-2015 31/12/2015 PENALTY U/S 271(1)(C) WHEREIN ADDITIONS/ DISALLOWAN CES MADE UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 BUT TAX LEVIED UNDER MAT PROVISIONS U/S 115JB/115JC , FOR CASES PRIOR TO A.Y. 2016-17-REG.- SECTION 115JB OF THE ACT IS A SPECIAL PROVISION FOR LEVY OF MINIMUM ALTERNATE TAX ON COMPANIES, INSERTED BY FINANCE ACT 2000 WITH EFFECT FROM 1-4-2001. 4 ITA NO.6785 /MUM/2014 2. UNDER CLAUSE (III) OF SUB-SECTION (1) OF SECTION 271 OF THE ACT, PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING INA CCURATE PARTICULARS OF INCOME IS DETERMINED BASED ON THE 'A MOUNT OF TAX SOUGHT TO BE EVADED' WHICH HAS BEEN DEFINED INTER-A LIA, AS THE DIFFERENCE BETWEEN THE TAX DUE ON THE INCOME ASSESS ED AND THE TAX WHICH WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INC OME BEEN REDUCED BY THE AMOUNT OF CONCEALED INCOME OR INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAD BEEN FILED. 3. IN THIS CONTEXT, HON'BLE DELHI HIGH ,COURT IN IT S JUDGMENT DATED 26.8.2010 IN ITA NO. 1420 OF 2009 IN THE CASE OF NA LWA SONS INVESTMENT LTD. = 2010-TIOL-890-HC-DEL-IT HELD THAT WHEN THE TAX PAYABLE ON INCOME COMPUTED UNDER NORMAL PROCEDURE I S LESS THAN THE TAX PAYABLE' UNDER THE DEEMING PROVISIONS OF SECTIO N 115JB OF THE ACT, THEN PENALTY UNDER SECTION 271(1)(C) OF THE AC T COULD NOT BE IMPOSED WITH REFERENCE TO ADDITIONS /DISALLOWANCES MADE UNDER NORMAL PROVISIONS. THE JUDGMENT HAS ATTAINED FINAL ITY. 4. SUBSEQUENTLY, THE PROVISIONS OF EXPLANATION 4 TO SUB-SECTION (1) OF SECTION 271 OF THE ACT HAVE BEEN SUBSTITUTED BY FIN ANCE ACT, 2015, WHICH PROVIDE FOR THE METHOD OF CALCULATING THE AMO UNT OF TAX SOUGHT TO BE EVADED FOR SITUATIONS EVEN WHERE THE INCOME D ETERMINED UNDER THE GENERAL PROVISIONS IS LESS THAN THE INCOME DECL ARED FOR THE PURPOSE OF MAT U/S 115JB OF THE ACT. THE SUBSTITUTE D EXPLANATION 4 IS APPLICABLE PROSPECTIVELY W.E.F. 01.04.2016. 5. ACCORDINGLY, IN VIEW OF THE DELHI HIGH COURT JUD GEMENT AND SUBSTITUTION OF EXPLANATION.4 OF SECTION 271 OF THE ACT WITH PROSPECTIVE EFFECT, IT IS NOW A SETTLED POSITION TH AT PRIOR TO 1/4/2016, WHERE THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT IS LESS THAN THE T AX PAYABLE ON THE BOOK PROFITS U/S 115JB OF THE ACT, THEN PENALTY UND ER 271(1) (C) OF THE ACT, IS NOT ATTRACTED WITH REFERENCE TO ADDITIONS / DISALLOWANCES MADE UNDER NORMAL PROVISIONS. IT IS FURTHER CLARIFIED TH AT IN CASES PRIOR TO 1.4.2016, IF ANY ADJUSTMENT IS MADE IN THE INCOME C OMPUTED FOR THE PURPOSE OF MAT, THEN THE LEVY OF PENALTY U/S 271(1) (C) OF THE ACT, WILL DEPEND ON THE NATURE OF ADJUSTMENT. 5 ITA NO.6785 /MUM/2014 6. THE ABOVE SETTLED POSITION IS TO BE FOLLOWED IN RESPECT OF SECTION 115JC OF THE ACT ALSO. 7. ACCORDINGLY, THE BOARD HEREBY DIRECTS THAT NO AP PEALS MAY HENCEFORTH BE FILED ON THIS GROUND AND APPEALS ALRE ADY FILED, IF ANY, ON THIS ISSUE BEFORE VARIOUS COURTS/TRIBUNALS MAY BE W ITHDRAWN/NOT PRESSED UPON. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. F.NO.279JMISC./140/2015J/ITJ SD/- (RAMANJIT KAUR SETHI) DCIT (OSD)(IJT) CBDT NEW DELHI 5. A PERUSAL OF THE CIRCULAR CLEARLY SHOWS THAT THE CIRCULAR HAS BEEN BROUGHT IN BY THE LEGISLATURE TO NULLIFY THE EFFECT OF JUDG MENT OF HONBLE DELHI HIGH COURT IN THE CASE OF NALWA SONS INVESTMENTS LTD (SU PRA) IN WHICH IT WAS HELD THAT WHERE ASSESSMENT WAS MADE ON AN INCOME COMPUTE D U/S 115JB AND TAX HAD BEEN PAID ON THE INCOME SO COMPUTED, DISALLOWAN CES / ADDITIONS MADE IN THE ASSESSMENT ORDER WOULD NOT LEAD TO TAX EVASION, AND THEREFORE, NO PENALTY CAN BE IMPOSED IN SUCH CIRCUMSTANCES, ON THE ASSESS EE. IT HAS BEEN CLEARLY PROVIDED IN THE CIRCULAR THAT THOUGH AN EXPLANATION 4 HAS BEEN ADDED IN SECTION 271(1)(C) OF THE ACT TO TACKLE ALL SUCH SITUATIONS AND TO ENABLE THE ASSESSING OFFICER TO COMPUTE THE AMOUNT OF TAX SOUGHT TO BE E VADED WHERE THE INCOME IS DETERMINED U/S 115JB, BUT IT HAS BEEN CLEARLY PROVI DED THAT THIS AMENDMENT NEED NOT BE MADE APPLICABLE IN THE CASE PRIOR TO 01 -04-2016. IN THESE CIRCUMSTANCES, WE FIND THAT THE LAW LAID DOWN BY HO NBLE DELHI HIGH COURT IN THE CASE OF NALWA SONS INVESTMENTS LTD WOULD BE APP LICABLE AND, THEREFORE, IT IS HELD THAT PENALTY COULD NOT HAVE BEEN LEVIED IN THIS CASE AND, THEREFORE, THE SAME IS DIRECTED TO BE DELETED. THE APPEAL FILED B Y THE ASSESSEE IS ALLOWED ON THIS GROUND. 6 ITA NO.6785 /MUM/2014 6. WE ARE NOT GOING INTO THE OTHER LEGAL ISSUES RAI SED BY THE ASSESSEE AS THE PENALTY HAS BEEN DELETED ON THE PRELIMINARY ISSUE I TSELF. 7. AS A RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON THIS 15 TH DAY OF JUNE, 2016. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 15 TH JUNE, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , G-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES