L&T SUCG JV CC27, New Delhi V. Addl.CIT, Range-62, New Delhi

ITA 7866/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2102 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 10-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J SINGH
• Assessee Lawyers: HIREN MEHATA
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Set aside
• Section: 143(3); 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELH I BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) ITA NO.7866/DEL/2018 [A.Y 2014-15] M/S. L & T SUCG JV CC27, VS. ADDL. CIT 11 TH FLOOR, IFCI TOWER, 61, RANGE- 62, NEHRU PLACE, NEW DELHI-110019 NEW DELHI APPELLANT BY : SH. HIREN MEHATA, C A RESPONDENT BY : SH. K.J SINGH, CIT DATE OF HEARING : 27.10.2020 DATE OF PRONOUNCEMENT : 28. 10.2020 ORDER PER N. K. BILLAIYA , AM : WITH THIS APPEAL THE ASSESSEE CHALLENGED THE CORREC TNESS OF THE ORDER OF THE CIT(A)-20, NEW DELHI DATED 27.09.2018 PERTAINING TO A.Y.2014-15. 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT T HE CIT(A) ERRED IN CONFIRMING THE PENALTY LEVIED U/S. 271 AA OF THE AC T ON THE ALLEGED 2 GROUND THAT THE APPELLANT HAS NEITHER REPORTED THE TRANSACTIONS IN FORM 3 CEB AS REQUIRED U/S. 92 E OF THE ACT NOR HAS MAINTA INED THE RECORD AS PER SECTION 92 D OF THE ACT IN RELATION TO THE PURCHASE OF EQUIPMENT FROM SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT COMPAN Y LIMITED (SPMCECL). 3. THE ROOTS FOR THE LEVY OF PENALTY LIE IN THE ASS ESSMENT ORDER FRAMED U/S. 143 (3) OF THE ACT WHEREIN THE RETURNED INCOME OF RS.8.11 CRORES WAS ASSESSED AT RS. 297.18 CRORES. 4. FACTS ON RECORD SHOW THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT JV WAS ENGAGED IN EXECUTION OF A PROJECT AWARDED BY DELHI METRO RAIL CORPORATION (DMRC). THE WORK AWARDED TO THE JV INVOLVED CONSTRUCTION OF UNDERGROUND TUNNEL FROM SHANKAR VIH AR METRO STATION TO HAUZ KHAS METRO STATION AND CONSTRUCTION OF FIVE ME TRO STATIONS AT VASANT VIHAR, MUNIRKA, R. K. PURAM, IIT AND HAUZ KHAS IN D ELHI METRO PHASE-III. 5. IN ORDER TO EXECUTE THE ABOVE WORK A JOINT VENTU RE WAS FORMED BETWEEN LARSEN & TOUBRO LIMITED (L&T) AND SHANGHAI URBAN CONSTRUCTION (GROUP). 6. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS PROVISIONS OF SECTION 142 (2A) WERE INVOKED AND SPECIAL AUDIT WAS ORDERED VIDE ORDER DATED 30.12.2016. BASED ON THE CONTENTS AND RECOMM ENDATIONS IN THE SPECIAL AUDIT REPORT THE INCOME OF THE APPELLANT WA S ASSESSED AT RS.297.18 CRORES. SUBSTANTIAL ADDITIONS WERE MADE ON DIFFERENT ISSUES FOR WHICH THE APPELLANT GOT PART RELIEF FROM THE FIRST APPELLANT AUTHORITY AND FURTHER RELIEF WAS GRANTED BY THE TRIBUNAL IN ITA N O.4351/D/2018 AND 4457DEL/2018 VIDE ORDER DATED 10.07.2019. 3 7. THE BONE OF CONTENTION IN RESPECT OF THE PRESENT PENALTY PROCEEDINGS IS THE ADDITION OF RS.30 CRORES WHICH W AS MADE ON THE RECOMMENDATIONS IN THE SPECIAL AUDIT REPORT IN RESP ECT OF TRANSACTIONS PERTAINING TO PURCHASE OF TUNEL BORING MACHINES (TB M) BY THE ASSESSEE. 8. THE FIRST APPELLATE AUTHORITY HELD THAT SINCE TH E TRANSACTIONS PERTAINED TO ACQUISITION OF FIXED ASSETS, ADDITION OF RS. 30 CRORES WAS UNJUSTIFIED AND ACCORDINGLY DIRECTED THE AO TO DISA LLOW ONLY DEPRECIATION ON THE EXCESSIVE VALUE OF TRANSACTION. 9. WHILE DIRECTING THE AO THE CIT(A) WAS OF THE OPI NION THAT THE APPELLANT JV AND SPMCECL ARE RELATED PARTIES AND, T HEREFORE, THE TRANSACTION OF PURCHASE OF MACHINES WAS IN THE NATU RE OF INTERNATIONAL TRANSACTION AND SINCE THE ASSESSEE HAS FAILED TO MA INTAIN SPECIFIED DOCUMENTATION IN RESPECT OF THE SAME AND ALSO FAILE D TO REPORT THE SAME, PENALTY WAS LEVIED U/S. 271 AA OF THE ACT. 10. BEFORE US THE COUNSEL FOR THE ASSESSEE VEHEMENT LY STATED THAT THERE IS NO RELATIONSHIP OF ASSOCIATED ENTERPRISE. THE C OUNSEL FURTHER STATED THAT A LAW FIRM IN CHINA CONFIRMS THAT UNDER THE LA WS OF CHINA RELATIONSHIP DOES NOT FALL UNDER THE CATEGORY OF RE LATED PARTY. THE COUNSEL FURTHER POINTED OUT THAT 100% SHAREHOLDING IN THE JV PARTNER SHANGHAI URBAN CONSTRUCTION GROUP CORPORATION IS HE LD BY SHANGHAI (SASAC) STATE ASSET SUPERVISION AND ADMINISTRATION COMMISSION. WHEREAS THE SHARE HOLDING OF SHANGHAI PUDONG MACHINERY COMP LETE EQUIPMENT COMPANY LTD. IS HELD BY SHANGHAI MACHINERY COMPLETE EQUIPMENT (GROUP) CORP. 11. IT IS THE SAY OF THE COUNSEL THAT MERELY BECAUS E SHAREHOLDERS OF BOTH THE ENTITIES ARE GOVERNMENT ORGANIZATIONS, CAN NOT LEAD TO A 4 CONCLUSION THAT THESE ARE RELATED PARTIES. THE COUN SEL EMPHATICALLY SAID THAT THE TRIBUNAL HAS CATEGORICALLY HELD THAT THE T RANSACTION WITH SPMCECL FOR PURCHASE OF MACHINES WAS AT ALP AND ADD ITION WAS DELETED, THEREFORE, THERE WAS NO QUESTION OF ANY REPORTING O F INTERNATIONAL TRANSACTION WITH AE. 12. PER CONTRA THE DR STRONGLY SUPPORTED THE FINDIN GS OF THE CIT(A). IT IS THE SAY OF THE DR THAT THE SHARE HOLDING STRUCTU RE CLEARLY SUGGEST THAT THE TRANSACTION WITH SPMCECL IS IN THE NATURE OF IN TERNATIONAL TRANSACTION WITH AN AE AND SINCE THE ASSESSEE HAS FAILED TO REP ORT THIS TRANSACTION AND HAS FURTHER FAILED IN NOT MAINTAINING SPECIFIED DOC UMENTATION THE LEVY OF PENALTY IS FULLY JUSTIFIED. 13. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE TRIBUNAL WHILE DEALING THE QUANTUM DISPUTE IN ITA NO.4351 AND 4457/DEL/2018 VIDE ORDER DATED 10.07.2019 HAS DEALT THIS TRANSACTION AS UNDER :- 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE AUTHORITIES BELOW CONSIDERED THIS ISSUE IN THE LIGHT OF SPECIAL AUDIT REPORT WHICH REPORTED THAT ASSESSEE PURCHASED FIXED ASSETS AT UN FAVOURABLE PRICE. IT WAS NOTED THAT M/S. SHANGHAI PUDONG IS RELATED P ARTY TO THE ASSESSEE, BUT, THE DETAILS SUBMITTED ON RECORD CLEA RLY SUGGEST THAT ONE OF THE J.V. OF ASSESSEE SUCG WAS CONTROLLED BY SASAC WHO HAD CONTROLLED OTHER ENTITIES AS MENTIONED AT PAGE-89 O F THE PB AND ULTIMATELY, FAR-REACHING CONTROLLED COMPANY IS, SHA NGHAI - PUDONG. THEREFORE, ASSESSEE IS NOT DIRECTLY RELATED TO THE SELLER PARTY. THE 5 ASSESSEE PURCHASED THE CAPITAL ASSET FOR BUSINESS P URPOSE, FOR WHICH, NO EXPENSES HAVE BEEN CLAIMED IN THE P &L A/C. NO D EFINITE EVIDENCE OR MATERIAL HAS BEEN BROUGHT ON RECORD AS TO HOW TH E ASSESSEE MADE EXCESSIVE PAYMENT TO THE SELLER FOR PURCHASE OF TBM . THE ASSESSEE HAS EXPLAINED THAT DIFFERENCE IN THE PRICE OF GERMA N COMPANY HERRENKNECHT AND M/S. SHANGHAI - PUDONG WAS MERELY USD 0.03 MILLION. THE AUTHORITIES BELOW HAVE NOT CONSIDERED THAT THE TRANSACTION WITH SHANGHAI -PUDONG WAS WITHOUT L.C. AND IN THAT EVENT ASSESSEE WOULD HAVE SAVED THE INTEREST AND L. C. COST. FURTHER THERE WAS A DIFFERENCE BETWEEN THE INSTALLATION OF MACHINERY AND COMMISSIONING AS SHANGHAI - PUDONG SPECIALLY MANUFA CTURE TBM FOR ASSESSEES REQUIREMENTS. THE DETAILS OF ALL INVOICE S/BILLS ETC., ARE BROUGHT ON RECORD WHICH CLEARLY REVEAL THAT ASSESSE E HAS PAID REASONABLE PRICE FOR PURCHASE OF TBM TO M/S. SHANGH AI - PUDONG. THE ASSESSEE HAS, THEREFORE, BEEN ABLE TO EXPLAIN THAT ASSESSEE HAS PAID REASONABLE PRICE FOR PURCHASE OF TBM. THE AUTHORITI ES BELOW HAVE NOT BROUGHT ANY EVIDENCE OR MATERIAL ON RECORD TO JUSTIF Y THEIR FINDING. THE FINDINGS OF THE AUTHORITIES BELOW ARE BASED ON MERE PRESUMPTION AND SURMISES. THE A.O. CANNOT STEP INTO THE SHOES O F A BUSINESSMAN TO DETERMINE THE PRICE. THE ASSESSEE ALSO EXPLAINED THAT TBM WAS PURCHASED IN PRECEDING ASSESSMENT YEAR IN WHICH ASS ESSMENT UNDER SECTION 143(3) HAVE ALREADY BEEN COMPLETED. THEREFO RE, SUCH AN ITEM COULD NOT BE DISPUTED IN - ASSESSMENT YEAR UNDER AP PEAL. THE LD. CIT(A) WITHOUT ANY BASIS OR JUSTIFICATION HELD THAT ASSESSEE HAS PAID EXCESS PAYMENT FOR PURCHASE OF TBM. THE LD. CIT(A) WITHOUT ANY 6 JUSTIFICATION HAS DISALLOWED DEPRECIATION @ 25%. IT MAY ALSO BE NOTED THAT WHILE DECIDING GROUND NO. 15 IN THIS APPEAL, T HE LD. CIT(A) NOTED THAT ALL THE TRANSACTIONS WITH M/S. SHANGHAI - PUDO NG MACHINERY COMPLETE EQUIPMENT LTD., HAVE BEEN CONFIRMED BY THE COMMISSIONER OF CUSTOMS (IMPORTS) AND ALL THE INVOICES WERE FOUN D GENUINE AND AS PER PREVAILING RATES. CONSIDERING THE TOTALITY OF T HE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY JUSTIF ICATION BELOW TO MAKE ANY ADDITION AGAINST THE ASSESSEE. WE, ACCORDI NGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO.6 OF THE APPEAL OF ASSESSEE IS ALLOWED. H OWEVER, GROUND NO.2 OF THE DEPARTMENTAL APPEAL IS DISMISSED. 14. A PERUSAL OF THE SHARE HOLDING STRUCTURE WHICH IS EXHIBITED PAGE 4 AND 5 AT THE ORDER OF THE CIT(A) SHOW THAT THE SHAR E HOLDERS OF SHANGHAI STATE ASSET SUPERVISION AND ADMINISTRATION COMMISSI ON AND SPMCECL ARE GOVERNMENT ORGANIZATIONS. MERELY BECAUSE THE SHARE HOLDERS ARE GOVERNMENT ORGANIZATIONS WOULD NOT CONCLUDE THAT TH ESE ARE RELATED PARTIES. IN OUR VIEW IF WE GO BY THIS LOGIC THEN A LL THE PSUS IN INDIA AND ALL NATIONALIZED BANKS WILL BE TERMED AS RELATED PA RTIES SINCE THE GOVERNMENT OF INDIA HOLDS SHARE IN THESE GOVERNMENT UNDER TAKING. 15. AS MENTIONED ELSEWHERE IN THE QUANTUM PROCEEDI NGS THERE WAS NO INTERNATIONAL TRANSACTION ON WHICH ADDITIONS HAVE B EEN SUSTAINED. WE FURTHER FIND THAT IN RESPECT OF OTHER INTERNATIONAL TRANSACTIONS THE ASSESSEE HAS FURNISHED A REPORT U/S. 92 E OF THE AC T AND HAS REPORTED ALL THE TRANSACTION WITH OTHER AES COPY OF TRANSFER PR ICING REPORT IS ALSO FURNISHED. 7 16. CONSIDERING THE FACTS OF THE CASE IN TOTALITY WE DO NOT FIND ANY MERIT IN THE PENALTY SO LEVIED. WE ACCORDINGLY SET ASIDE THE FINDINGS OF THE CIT(A) AND DIRECT THE AO TO DELETE THE PENALTY SO LEVIED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.10.2020. SD/- SD/- [SUCHITRA KAMBLE] [ N. K. BILLAIYA] JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 28 .10.2020 *NEHA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR ITAT, NEW DELHI DATE OF DICTATION 27.10.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.10.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 28.10.2020 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS 28.10.2020 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 28.10.2020 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 28.10.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 28.10.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER