The ADIT(Intl.Tax), Ahmedabad V. Asence Inc., Baroda

ITA 972/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0218 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 06-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 10-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VARTIK R CHOKSHI
• Keywords: Transfer pricing; Double taxation relief; International transaction; Deemed to accrue or arise in india; Additional evidence
• Section: 143(3); 92F; 5(2); 92

Judgement Text

, I IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, AHMEDABAD BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA NO.932/AHD/2013 / ASSTT. YEAR: 2006-2007 M/S.ASCENCE IN., INDIA BRANCH SARABHAI CAMPUS WADI WADI BARODA 390 023. VS ADIT (INTERNATIONAL TAXATION) AHMEDABAD. ./ ITA NO.972 AND 973/AHD/2013 / ASSTT. YEAR: 2005-2006 AND 2006-2007 ADIT (INTERNATIONAL TAXATION) AHMEDABAD. VS M/S.ASCENCE IN., INDIA BRANCH SARABHAI CAMPUS WADI WADI BARODA 390 023. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI VARTIK R. CHOKSHI, AR REVENUE BY : SHRI S.K. DEV, SR.DR ! / DATE OF HEARING : 08/09/2016 '#$ ! / DATE OF PRONOUNCEMENT: 25/10/2016 %& / O R D E R PER SHRI S.S.GODARA, JUDICIAL MEMBER: THIS SET OF THREE APPEALS PERTAINS TO A SINGLE ASS ESSEE I.E. M/S.ASENCE INC. THE ASSESSEE AND THE REVENUE HAVE INSTITUTED CROSS ITA NO.932/AHD/2013 AND 2 OTHERS 2 APPEALS ITA NOS.932/AHD/2013 AND 973/AHD/2013 FOR A SSTT.YEAR 2006- 07 AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS) , GANDHINAGARS ORDER DATED 2.1.2013 PASSED IN CASE NO.CIT(A)GNR/22 /INTL.TAXN./2016- 11 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOM E TAX ACT, 1961 (IN SHORT THE ACT). THE REVENUES LATTER APPEAL, ITA NO.972/AHD/2013 ASSAILS CORRECTNESS OF THE VERY CIT(A)S ORDER DATE D 2.1.2013 PASSED IN CASE NO.CIT(A)GNR/66/INTL.TAXN./2011-12, IN PROCEED INGS UNDER SECTION 271(1)(C) OF THE ACT. 2. WE COME TO QUANTUM CROSS APPEALS FIRST. THE ASS ESSEES APPEAL ITA NO.932/AHD/2013 RAISES THE FOLLOWING SUBSTANTIV E GROUNDS: 1. ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN NOT HOLDING THAT THE ORDER PASSED BY T HE ASSESSING OFFICER ('AO') IS BAD IN LAW AND NEEDS TO QUASHED. 2. THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ORDER OF THE AO IN TAXING INCOME ARISING FROM OPERATIONS CONFINED T O PURCHASE OF GOODS IN INDIA BY TREATING IT AS INCOME DEEMED TO A CCRUE OR ARISE IN INDIA UNDER SECTION 9 OF THE INCOME-TAX ACT, 196 1 ('THE ACT') AND NOT ALLOWING THE BENEFIT OF EXCLUSION CLAUSE AS PER CLAUSE (B) OF EXPLANATION 1 TO SECTION 9(1 )(I) OF THE ACT. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH AT SECTION 5(2) AND SECTION 9 ARE MUTUALLY EXCLUSIVE AND ONCE INCOME IS FALLING WITHIN THE AMBIT OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA IT CANNOT FALL WITH THE AMBIT OF INCOME ACCRU ED OR ARISE IN INDIA AND VICE-VERSA. ACCORDINGLY LD. CIT(A) OUGHT TO HAVE HELD THAT NO INCOME OF THE APPELLANT COMPANY ACCRUES OR ARISES IN INDIA. NOT ADMITTING ADDITIONAL GROUNDS AND ADDITIONAL EVI DENCE 4. WITHOUT PREJUDICE TO THE ABOVE, ON FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN NOT ADMITTI NG ADDITIONAL GROUNDS OF APPEAL RAISED BEFORE HIM WHICH WERE INDI SPENSABLE FOR THE PURPOSE OF DETERMINING TAXABLE INCOME OF THE BR ANCH OFFICE IN INDIA. 5. THE LEARNED CIT(A) HAS FURTHER ERRED IN NOT APP RECIATING THE FACT THAT THE GROUNDS RAISED BEFORE HIM WERE NOT NE W CLAIMS AS THE SAID CLAIMS WERE MADE IN THE NOTES APPENDED TO THE RETURN OF ITA NO.932/AHD/2013 AND 2 OTHERS 3 INCOME. THE LEARNED CIT(A) ERRED IN NOT APPRECIATIN G THE FACT THAT THE AFORESAID CLAIMS WERE NOT PRESSED IN LIGHT OF T HE FACTS THAT, THE APPELLANT WAS CLAIMING BENEFIT OF CLAUSE (B) OF EXPLANATION 1 TO SECTION 9(L)(I)OF THE ACT. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS B Y NOT ADMITTING THE ADDITIONAL EVIDENCES FOR ADJUDICATING THE ADDIT IONAL GROUNDS AS WELL AS ALLOW ABILITY OF EXPENSES SOUGHT TO BE RAIS ED BY THE APPELLANT. THE LEARNED CIT(A) OUGHT TO HAVE ADHERED TO RULE 46A OF THE INCOME-TAX RULES, 1961 ('THE RULES'). ALLOCATION OF EXPENSES 7. WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT (A) ERRED IN NOT ADJUDICATING ON GROUNDS RAISED BEFORE HIM THAT AO H AS ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE DEDUCTIONS OF EXPENSES ALLOCATED AND ALLOWABLE UNDER SECTION 44C OF THE AC T. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) HAS ERRED IN NOT ALLOWING AND ADMITTING THE GROUND RAISED BEF ORE HIM THAT THE AO HAS ERRED IN NOT ALLOWING THE DEDUCTION OF E XPENSES IN RESPECT OF SALARY/REMUNERATION OF RS. 25,06,7077- P AID TO MR. MOHAL SARABHAI ( IN CHARGE OF MARKETING AND SALES A ND PROMOTION ) WHICH IS DIRECTLY ATTRIBUTABLE TO BRANCH OFFICE I N INDIA. 9. WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT(A) E RRED IN NOT ADMITTING GROUNDS RAISED BEFORE HIM THAT AO OUGHT T O HAVE ALLOWED ALL THE EXPENDITURE OF HEAD OFFICE INCURRED FOR THE PURPOSE OF BRANCH OFFICE AS PROVIDED FOR UNDER ARTICLE 7 OF INDIA-USA DTAA WITHOUT ANY LIMITATION OF SECTION 44C OF THE ACT. GROUNDS RELATING TO TRANSFER PRICING 10. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE AO ERRED IN FACTS AND IN LAW IN INVOKING THE PROVISIONS OF CHAP TER X OF THE ACT RELATING TO TRANSFER PRICING FOR THE PURPOSE OF ASS ESSING THE TOTAL INCOME FOR THE YEAR UNDER APPEAL. 11. WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE TRANSFER PRICING OFFICER ('TPO') ERRE D IN FACTS AND IN LAW IN ARRIVING THE ARM'S LENGTH PRICE OF REIMBURSE MENT OF EXPENSES AS NIL; IN DOING SO THE TPO HAS ACTED BEYO ND JURISDICTION. 12. WITHOUT PREJUDICE ABOVE, THE LEARNED CIT(A) OUG HT TO HAVE HELD THAT TPO HAS ERRED IN NOT APPRECIATING THE FAC T THAT EXPENSES ITA NO.932/AHD/2013 AND 2 OTHERS 4 OF RS. 16,61,5407- REPRESENTED ACTUAL AMOUNT REIMBU RSED AT COST AND ACCORDINGLY NO ADJUSTMENT WAS WARRANTED. 13. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED CIT( A) ERRED IN NOT APPRECIATING THE FACT THAT EXPENSES OF RS, 16,61,54 07- WERE ALREADY TESTED WHILE TESTING THE PURCHASES OF THE A PPELLANT WHEREIN THE TPO APPLIED ENTITY LEVEL OPERATING PROF ITS TO OPERATING SALES RATIO UNDER THE TRANSACTION NET MAR GINS METHOD. 14. ON FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED CIT(A) ERRED IN NOT DIRECTING THE AO NOT TO LEVY INTEREST UNDER SECTION 234A, B & C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF ABOVE APPEAL EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. REVENUES CROSS APPEAL ITA NO.973/AHD/2013 RAISES THE FOLLOWING SUBSTANTIAL PLEADINGS: I) THAT THE LEARNED CIT(APPEALS) HAS ERRED I N LAW AND ON FACTS IN RESTRICTING THE TP ADJUSTMENT OF RS.16,61, 540/- OUT OF THE TOTAL TP ADJUSTMENT OF RS.68,09,875/- MADE BY THE T PO. II) THAT THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN REJECTING THE TNMM METHOD ADOPTED BY THE TPO AND DE LETING THE TP ADJUSTMENT OF RS.51,48,335/- (RS.68,09,875 - RS. 16,61,540) MADE BY THE TPO HOLDING THAT THE SAME RELATED TO PU RCHASES. III) THAT THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN NOT CALLING FOR REPORT FROM THE ASSESSING OFFICER W HILE ADMITTING ADDITIONAL EVIDENCE DURING THE COURSE OF APPELLATE PROCEEDINGS AS PER RULE 46A(3) OF THE I.T. RULES, 1962. IV) THAT THE APPELLANT CRAVES LEAVE TO ADD/ ALT ER/MODIFY/DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING OF THE APPEAL. 3. THE ASSESSEE, AT THE OUTSET, SUBMITS IN THE COUR SE OF HEARING THAT ITS FIRST THREE SUBSTANTIAL GROUNDS CHALLENGE ACTIO N OF BOTH THE LOWER AUTHORITIES IN NOT GRANTING IT EXCLUSION BENEFIT UN DER SECTION 9(1)(I) CLAUSE (B) OF EXPLANATION 1 AFTER HOLDING THAT ITS BUSINESS OPERATIONS CARRIED OUT BY THE INDIAN BRANCH ARE NOT COVERED UN DER THE SAID ITA NO.932/AHD/2013 AND 2 OTHERS 5 EXPLANATION . THEY HAVE HELD THAT THE ASSESSEES ENTIRE BRANCH INCOME IS DEEMED TO HAVE BEEN ACCRUED OR ARISEN IN INDIA F ROM THE SAID BUSINESS CONNECTION. THE LD.COUNSEL FOR THE ASSESS EE SUBMITS THAT THIS TRIBUNAL IN ASSESSEES OWN CASES FOR THE ASSTT.YEAR S 2004-05 AND 2005- 06 IN RESPECTIVE ITA.NO.2246/AHD/2008 AND ITA NO.25 6-257/AHD/2010 DECIDED ON 6.12.2013 AND 10.1.2014 HAS REJECTED ITS IDENTICAL SUBSTANTIAL CONTENTIONS. HE THEREAFTER REFERS TO A BOVE STATED ORDERS ADOPTING NET PROFIT RATE OF 1.25% AT FLAT RATE. LD .DR DOES NOT DISPUTE THIS FACTUAL POSITION. WE FOLLOW JUDICIAL CONSISTE NCY IN THESE FACTS AND CIRCUMSTANCES OF THE CASE AND REJECT THE ASSESSEES FORMER THREE SUBSTANTIVE GROUNDS. WE DEEM IT APPROPRIATE, IN LA RGER INTEREST OF JUSTICE, PARTICULARLY IN THE ABSENCE OF ANY DISTINC TION OF FACTS INVOLVED IN THE IMPUGNED ASSESSMENT ORDERS VIS--VIS TWO ASSESS MENT YEARS THAT LD.AO SHALL ADOPT NET PROFIT @ 1.25% AS IN PRECEDIN G TWO ASSESSMENT YEARS. ORDERED ACCORDINGLY. THIS FIRST SUBSTANTIA L ISSUE IS PARTLY ACCEPTED IN ASSESSEES FAVOUR. 4. THE ASSESSEE THEN SUBMITS THAT ITS SUBSTANTIAL G ROUNDS I.E. SUBSTANTIVE GROUND NOS.10 TO 13 CHALLENGING TRANSFE R PRICING ADJUSTMENT OF RS.16,61,540/- ON EXPENDITURE ISSUE COVER ALL RE MAINING PLEADINGS. THE REVENUE AT THIS STAGE INVITES OUR ATTENTION TO CORRESPONDING GROUND IN ITS CROSS APPEAL ITA NO.973/AHD/2013 SEEKING REV IVAL OF ENTIRE TRANSFER PRICING ADJUSTMENTS OF RS.68,09,873/- INST EAD OF THAT RESTRICTED TO RS.16,61,540/-(FORMING SUBJECT MATTER OF ADJUSTM ENTS IN ASSESSEES REMAINING GROUNDS). WE THUS PROCEED TO ADJUDICATE THIS CONNECTED ISSUE IN BOTH APPEALS FOR THE SAKE OF BREVITY. 5. RELEVANT FACTS ARE IN NARROW COMPASS. THE ASSES SEE IS STATED TO BE A FOREIGN COMPANY UNDER SECTION 2(23A) OF THE AC T. IT EXPORTS VARIOUS PHARMACEUTICAL PRODUCTS SOURCED FROM WITHIN INDIA. THE ASSESSEE HAS SET UP AN INDIAN BRANCH FOR THIS PURPO SE. IT FILED RETURN ON 25.12.2006 DECLARING INCOME OF RS.11,58,281/-. THE SAME WAS ITA NO.932/AHD/2013 AND 2 OTHERS 6 PROCESSED. THE AO TOOK UP SCRUTINY THEREAFTER. HE NOTICED THAT THE ASSESSEE TO HAVE CARRIED OUT ITS INTERNATIONAL TRAN SACTION WITH ITS PARENT COMPANY VIZ. ASEL PERTAINED TO PURCHASE OF GOODS AN D OTHER SERVICES AND M/S.SYNBIOTICS LTD. WITH REGARD TO PURCHASE OF GOODS ONLY; AMOUNTING TO RS.1,87,83,623.78 AND RS.2,20,86,950/- ; RESPECTIVELY AGGREGATING TO RS.4,08,70,573.78. THE AO MADE SECTI ON 92CA(1) REFERENCE TO THE TRANSFER PRICING OFFICER HEREINAF TER REFERRED TO AS TPO FOR ASCERTAINING ARMS LENGTH PRICE (I.E. ALP ) OF THE SAME. THE TPO TOOK UP CONSEQUENTIAL PROCEEDINGS. THIS CASE F ILE REVEALS THAT HE ISSUED VARIOUS NOTICES TO THE ASSESSEE. IT DOES NO T SEEM TO HAVE APPEARED IN THE CORRESPONDING PROCEEDING. THIS MAD E THE TPO TO PROCEED FURTHER WITH THE IMPUGNED TRANSFER PRICING PROCEEDING WITH THE HELP OF ASSESSEES TRANSFER PRICING STUDY IN FORM N O.3CEB. HE THEN NOTICED THAT THE ABOVE GROSS FIGURES OF RS.4,08,70, 573.78 COMPRISED OF BULK DRUGS, VITAMINS AND FORMULATION PURCHASES OF R S.3,40,60,662.71 AND ALL DETAILS PERTAINED TO THE SAME STUDY DULY FU RNISHED AT ASSESSEES BEHEST. THE TPO FURTHER TOOK COGNIZANCE OF THE FAC T THAT REMAINING FIGURE OF RS.68,09,875/- PERTAINED TO THE ISSUE IN QUESTION REGARDING SERVICES AVAILED/RENDERED HEREINABOVE DID NOT DISCL OSE ALL THE NECESSARY PARTICULARS. HE ISSUED A SHOW CAUSE NOTICE DATED 1 .10.2009 FOR DETERMINING ALP OF THIS LATTER SEGMENT. THE TPO TH EN OBSERVED IN HIS ORDER DATED 9.10.2009 THAT THE ASSESSEE ITSELF HAD INDICATED IN CONSEQUENTIAL PROCEEDINGS THAT IT WOULD BE VERY MUC H READY TO PAY PENALTY IN SECTION 271B PROCEEDINGS THAN TO FILE NE CESSARY PARTICULARS. HE ACCORDINGLY DREW SUPPORTS FROM CIT(A)S ORDER IN ASSESSEES OWN CASE IN THE ASSTT.YEAR 2005-06 TO PROPOSE UPWARD AD JUSTMENT OF ENTIRE SUM IN QUESTION AMOUNTING TO RS.68,01,875/-. THE A SSESSING OFFICER ACCORDINGLY MADE IMPUGNED ADJUSTMENT OF THE VERY SU M QUA ASSESSEES SERVICE SEGMENT IN THE IMPUGNED ASSESSMENT ORDER PA SSED ON 24.2.2010. ITA NO.932/AHD/2013 AND 2 OTHERS 7 6. THE ASSESSEE PREFERRED APPEAL. IT FILED ADDITION AL EVIDENCE IN LOWER APPELLATE PROCEEDINGS INTER ALIA PLEADING THEREIN THAT TPO HAD ISSUED A SHOW CAUSE NOTICE ON 1.10.2009 FOR 9.10.20 09. IT RECEIVED THE SAME ON 3.10.2009 - THAT IS A SATURDAY FOLLOWED BY SUNDAY HOLIDAY. THIS WAS FURTHER FOLLOWED BY FESTIVAL SEASON FROM 1 ST WEEK OF OCTOBER, 2009 ON DIWALI OCCASION DUE TO WHICH ITS INDIAN BRANCH OPERATION WAS COMPLETELY CLOSED DOWN. THE ASSESSEE FURTHER STATE D THAT ITS OPERATIONS WERE CLOSED IN DECEMBER, 2006 AS WELL, AND ALSO THA T NONE OF ITS EMPLOYEES CONVERSANT WITH ON-GOING TAX LIS WAS PRESENT SO AS TO FILE DETAILS AT THE TIME OF IMPUGNED ASSESSMENT. THE LD .CIT(A) REJECTED ALL THESE PLEAS ON THE GROUND THAT THE IMPUGNED PROCEED INGS COULD NOT BE ALLOWED TO BE DRAGGED TILL INFINITY. HE THEREAFTER PROCEEDED TO DEAL WITH THIS ISSUE ON MERITS AS UNDER: 7.3 I HAVE GONE THROUGH THE ORDER OF THE TPO U/S 92 C(3), THE SUBMISSIONS AND THE FACTS OF THE CASE. THERE IS MER IT IN THE ARGUMENT OF THE APPELLANT THAT THE TPO HAS FIRST CO NSIDERED THE OPERATING PROFIT OVER SALES RATIO OF THE COMPANY AP PLYING TNMM METHOD AND AFTER COMPARING WITH COMPARABLE COMPANIE S HAS FOUND IT TO BE WITHIN THE RANGE OF 5% AS AVAILABL E TO THE ASSESSEE AS PER PROVISO TO SECTION 92C(2) OF THE AC T. IT MEANS THAT HE HAS CONSIDERED THE PURCHASES FROM THE ASSOC IATED CONCERNS TO BE AT REASONABLE PRICE. WHILE MAKING TH E ADDITION SUBSEQUENTLY, HE HAS DISALLOWED THE PURCHASES TOTAL LY FOR WHICH BILLS WERE NOT MADE AVAILABLE TO HIM. IN FACT WHILE PASSING THE ORDER, HE WAS UNDER WRONG IMPRESSION THAT THE ENTIR E RS.68,09,875/- FOR WHICH BILLS WERE NOT AVAILABLE W ERE WITH RESPECT TO SERVICES. IN FACT, ONLY RS.16,61,540/- W ERE PERTAINING TO CLAIM OF REIMBURSEMENT OF SERVICES AND THE BALAN CE RS.51,48,335/- WERE IN FACT PURCHASES. THE DISALLOW ANCE HAS BEEN INFLUENCED BY THE TP ADJUSTMENTS IN THE EARLIER YEA R WHICH WAS CONFIRMED IN APPEAL. THE TPO HAS LOST SIGHT OF THE FACT THAT IN THE EARLIER YEAR THE ADJUSTMENT WAS MADE BECAUSE THE RE SULTS DID NOT COMPARE WITH THAT OF THE COMPARABLES, IN THAT YEAR. THIS IS NOT THE CASE THIS YEAR. THE ENTIRE LEDGER ACCOUNTS AND MAJORITY OF PURCHASE BILLS WERE WITH THE TPO. NO DEFECTS HAVE B EEN FOUND IN THE BILLS ALREADY PRODUCED WHICH COVER MAJORITY OF THE PURCHASES. THE PROFIT MARGINS HAVE BEEN HELD REASONABLE BY HIM . I HAVE ALSO NOTED THAT THE APPELLANT HAS EXPORTED ALL ITS PRODU CTS AND E CLOSING STOCK WAS ZERO. THERE IS NO QUESTION OF EXP ORT WITHOUT ITA NO.932/AHD/2013 AND 2 OTHERS 8 PURCHASES. THEREFORE, IN THE ENTIRETY OF CIRCUMSTAN CES, THE DISALLOWANCE OF PURCHASES AMOUNTING TO RS.51,48,335 /- MADE BY THE TPO AFTER ACCEPTING THE RESULTS APPLYING TNMM M ETHOD IS NOT HELD TO BE JUSTIFIED AND IS DIRECTED TO BE DELETED. THE REMAINING DISALLOWANCE PERTAINS TO CLAIM OF REI MBURSEMENT OF SERVICES OF RS.16,61,540/-. THE APPELLANT HAS CLEAR LY NOT SUBMITTED THE EVIDENCES OF THE ACTUAL EXPENSES BEFO RE THE TPO. THESE EXPENSES ARE NOT OF SUCH A NATURE WHICH CAN B E SAID TO BE ESSENTIAL FOR THE PURPOSE OF EXPORT AND CANNOT BE S AID TO BE INEVITABLE. IF THE PAYMENT IS NOT PROVED FOR ACTUAL SERVICES; THE ARM'S LENGTH VALUE OF SUCH SERVICES WHICH HAVE NOT BEEN PROVED TO HAVE BEEN RENDERED HAS TO BE TAKEN AT NIL. THE O RDER OF TPO IS HELD TO BE JUSTIFIED ON THIS COUNT IN THESE CIRCUMS TANCES. THE DISALLOWANCE OR TP ADJUSTMENT OF RS.16,61,540/- IS UPHELD. 8. THE LAST GROUND OF APPEAL IS REQUESTING FOR PROV IDING THE COMPUTATION OF TAX AND INTEREST TO THE APPELLANT. W ITHOUT PREJUDICE TO THE FACT WHETHER IT HAS BEEN PROVIDED OR NOT; THERE IS NO NEED NOW FOR PROVIDING THE SAME AS THE TOTAL INC OME AFTER EFFECT TO THIS ORDER WOULD CHANGE AND CONSEQUENTIAL LY THE TAX AND INTEREST. THE AO IS DIRECTED TO GIVE WORKING OF TAX AND INTEREST WHILE GIVING EFFECT TO THIS ORDER. THIS LEAVES BOTH THE PARTIES AGGRIEVED TO THE EXTE NT INDICATED HEREINABOVE. 7. WE HAVE HEARD RIVAL CONTENTIONS. CASE FILES PERU SED. THE SOLE ISSUE BETWEEN THE PARTIES IS ABOUT CORRECTNESS OF A LP ADJUSTMENTS IN THE CASE OF SERVICES OF RS.68,09,875/-. THE TPO AD DED THIS ENTIRE SUM FOR WANT OF EVIDENCE AND NECESSARY SUPPORTIVE DETAI LS NOT BEING SUBMITTED. THE ASSESSEE IN TURN SUCCESSFULLY PROVE D IN THE COURSE OF LOWER APPELLATE PROCEEDINGS THAT A SUM OF RS.51,48, 335/- OUT OF IMPUGNED GROSS SUM OF RS.68,09,825/- FURTHER REPRES ENTED ITS PURCHASES OF GOODS AND CORRESPONDING EVIDENCES WAS ALSO ON RECORD AS TPO HAD HIMSELF FOUND THIS SEGMENT TO BE AT ARMS L ENGTH. THE LD.CIT(A) ACCEPTS THIS CRUCIAL PLEA SO FAR AS THE A BOVE PURCHASES OF RS.51,48,335/- ARE CONCERNED. SIMILAR FACTUAL POSI TION CONTINUES BEFORE THIS TRIBUNAL AS WELL. THE REVENUE DOES NOT LEAD U S TO ANY EVIDENCE ITA NO.932/AHD/2013 AND 2 OTHERS 9 THAT THE ABOVE SUM DID NOT REPRESENT ASSESSEES PUR CHASES. WE THUS FIND NO REASONS TO INTERFERE IN THE CIT(A)S ORDER UNDER CHALLENGE DELETING ARMS LENGTH ADJUSTMENT OF RS.51,48,335/- IN QUESTION. REVENUES SOLE SUBSTANTIAL CONTENTION IS ACCORDINGL Y DECLINED. SO IS THE OUTCOME OF ITS APPEAL ITA NO.973/AHD/2013. 8. WE NOW ADVERTS TO THE ASSESSEES GRIEVANCE THAT THE LD.CIT(A) HAS ERRED IN NOT ADMITTING ITS ADDITIONAL EVIDENCE QUA REMAINING SERVICE EXPENDITURE REIMBURSEMENT OF RS.16,61,540/-. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD FILED ALL THE RELEVANT DETAIL S CORRESPONDING TO THE SUM ONLY IN LOWER APPELLATE PROCEEDINGS AS ADDITION AL EVIDENCE. LD.CIT(A) TREATS THE SAME TO BE DILATORY TACTICS. WE AGAIN REVERT BACK TO TPOS SHOW CAUSE NOTICE ISSUED ON 1.10.2009 (SUP RA) FIXING NEXT DATE OF HEARING FOR 9.10.2009. THIS IS NOT THE REVENUE S CASE THAT THE ABOVE SHOW CAUSE NOTICE STOOD SERVED ON THE SAME DATE. T HERE CAN HARDLY BE ANY FURTHER DISPUTE THAT THE ISSUE IN QUESTION NEED S VERIFICATION OF ASSESSEES INTERNATIONAL TRANSACTION WHEREIN DETAIL S AND CONFIRMATIONS FROM ITS PARENT COMPANIES ARE REQUIRED TO BE SUBMIT TED IN SUPPORT OF TRANSFER PRICING. WE OBSERVE IN THESE PECULIAR FAC TS THAT LESS THAN A WEEKS TIME GRANTED AT THE TPOS BEHEST IN ASKING T HE ASSESSEE TO PRODUCE ALL THE RELEVANT DOCUMENTS IS PRIME FACIE AN ACTION IN HASTE. LD.CIT(A) HAS NOT CONSIDERED ASSESSEES ADDITIONAL EVIDENCE PLEA IN THE LIGHT OF THIS FACTUAL POSITION. HE HAS RATHER TREA TED ITS AVERMENTS TO BE DILATORY TACTICS AND TOO GENERAL IN NATURE. WE ARE OF THE OPINION THAT LARGER INTEREST OF JUSTICE WOULD BE SERVED IN CASE ASSESSEES CORRESPONDING GROUNDS ARE REMITTED TO THE FILE OF T PO FOR FURTHER PROCEEDINGS AS PER LAW AFTER AFFORDING ADEQUATE OPP ORTUNITY BEFORE TAKING A FINAL CALL. ASSESSEES SECOND SUBSTANTIAL GROUND RELATING TO IMPUGNED TRANSFER PRICING ISSUE ARE ACCORDINGLY ACC EPTED FOR STATISTICAL PURPOSE. ITS APPEAL IN ITA NO.932/AHD/2003 IS PART LY ALLOWED. ITA NO.932/AHD/2013 AND 2 OTHERS 10 9. THIS LEAVES US WITH REVENUES LATTER APPEAL ITA NO.972/AHD/2013 FOR ASSTT.YEAR 2005-06 TO SEEKING TO RESTORE SECTIO N 271(1)(C) PENALTY OF RS.54 LAKHS PERTAINING TO THE ABOVE TWO QUANTUM ISSUES I.E. ASSESSEES PLEA OF EXCLUSION BENEFIT UNDER SECTION 9(1)(I) EXPLANATION(1) OF CLAUSE (B) OF THE ACT RESULTING IN ADDITION OF R S.44,97,675/- ALONG WITH TRANSFER PRICING OF RS.68,09,875/-. THELD.CI T(A) UPHELD THE SAME ON 3.9.2009. THE ASSESSEE FILED ITA NO.257/AHD/201 0 BEFORE THIS TRIBUNAL. A CO-ORDINATE BENCH IN ITS ORDER DATED 1 0.1.2014 FOLLOWED TRIBUNALS DIRECTIONS FOR A.Y.2004-05 FOR DIRECTING THE ASSESSING AUTHORITY TO ADOPT NET PROFIT RATIO OF 1.25% ON ASS ESSEES GROSS RECEIPTS. QUANTUM ISSUE ATTAINED FINALITY AT THIS STAGE. 10. THE AO RESUMED WITH THE IMPUGNED PENALTY PROCEE DINGS. HE TREATED ASSESSEES ACT AND CONDUCT HEREINABOVE LEAD ING TO IMPUGNED TWO ADDITIONS AS CONCEALMENT ARISING FROM FURNISHIN G OF INACCURATE PARTICULARS OF INCOME. ALL THIS RESULTED IN PENALT Y IN QUESTION OF RS.54 LAKHS. THE LD.CIT(A) DELETED THE SAME BY OBSERVING AS FOLLOWS: 5.2 I HAVE GONE THROUGH THE PENALTY ORDER, THE SUBM ISSIONS, THE FACTS OF THE CASE, THE ORDER OF THE CIT(A) FOR AY 2 004-05 AND AY 2005-06, THE AUDIT AND FINANCIAL STATEMENT, FORM NO . 3CD ETC. I HAVE NOTED THAT ON SIMILAR FACTS, THE CIT(A)-XXI, FOR AY 2004-05 IN HIS ORDER DATED 26/03/2008 HAD ACCEPTED THE APPE LLANT'S VIEW POINT THAT ITS INCOME WAS NOT TAXABLE IN INDIA. HE HAS REFERRED TO SECTION 9(L)(I), CLAUSE (B), EXPLANATION 1 TO HOLD ON THE FACTS OF THE CASE THAT THE INCOME OF THE APPELLANT IS ONLY F ROM OPERATIONS WHICH ARE CONFINED TO PURCHASES OF GOODS IN INDIA F OR THE PURPOSE OF EXPORTS. HE HAS RELIED ON THE CBDT'S CIRCULAR NO .23 DATED 23/7/1969 AND CIRCULAR NO.163 DATED 29/5/1975 WHILE TAKING THE ABOVE VIEW. THE LD. CIT(A)-XXI HAD EXPRESSED HIS OP INION THAT A NON-RESIDENT CANNOT DO HIS BUSINESS OF PROCURING GO ODS IN INDIA AND EXPORT THEM OUTSIDE INDIA WITHOUT SETTING UP AN OFFICE OR AGENCY IN INDIA. HE HAS RELIED ON THE RATIO LAID DO WN IN CASE OF CIT VS N. K. JAIN (1994) 206 ITR692 (DEL) AND ANGEL GARMENTS LTD (2006) 287 ITR 341 (AAR). HE HAS FURTHER HELD T HAT THE INCOME OF THE NATURE OF INTEREST AND DEPB ENTITLEME NTS, WHICH WERE IN FACT OFFERED SUO MOTTO IN THE RETURN OF INC OME BUT LATER ON ITA NO.932/AHD/2013 AND 2 OTHERS 11 CHALLENGED IN APPEAL; ARISE FROM SOURCES IN INDIA A ND THEREFORE, ARE TAXABLE IN INDIA. THE CIT (A) FOR AY 2005-06 IN THE APPELLATE ORDER IN QUANTUM PROCEEDINGS HAS DIFFERED FROM THE VIEW TAKE N IN APPEAL FOR AY 2004-05 AS DISCUSSED BRIEFLY, ABOVE. MY PRED ECESSOR IN THIS ORDER DATED 3/9/2009 HAS CONCURRED WITH THE OBSERVA TIONS OF THE AO THAT THE GOODS PROCURED FROM INDIA BY THE BRANCH OFFICE ARE MARKETED DIRECTLY ABROAD, THE SALES REALIZATIONS AR E REMITTED BACK TO INDIA DIRECTLY AND THE COMMISSION TO FOREIGN AGE NTS ARE ALSO PAID BY THE INDIAN BRANCH AND THAT 'IN NUTSHELL, TH E ENTIRE BUSINESS OPERATION OF THE ASSESSEE IS DERIVED THROU GH INDIAN BRANCH ONLY.' HE WENT ON TO HOLD THE FOLLOWING: 'THEREFORE, IT IS VERY CLEAR THAT THE BRANCH OFF ICES ACTIVITY HAS LED TO ACCRUAL OF INCOME TO ASSESSEE. BECA USE THE TRANSACTION OF HAVE TAKEN PLACE FROM INDIA AND TH E CONSIDERATION FOR THE GOODS HAVE BEEN RECEIVED IN I NDIA, THEREFORE, THE ENTIRE BUSINESS CIRCLE HAS TAKEN PLA CE ON INDIAN SOIL. THEREFORE, IT IS IN INDIA THAT THE PRO FITS HAVE ACCRUED TO THE ASSESSEE, CONSEQUENTLY, IT GETS CLEA RLY COVERED BY PROVISIONS OF SECTION 5(2). AS HAS BEEN HELD BY THE VARIOUS COURTS, WHICH HAD BEEN QUOTED BY THE AO IN HIS WRITTEN SUBMISSIONS AS REPRODUCED EARLIER, IF ONE W ERE TO COME TO THE CONCLUSION THAT SECTION 5(2) IS APPLICA BLE, ONE NEED NOT TRAVEL TO SECTION 9(L)(I).' CLEARLY, THE TWO CS IT (A) ON SIMILAR FACTS HAVE DI FFERED IN THEIR OPINION. THE FACTS WHICH HAVE LED THE LATTER TO HOL D THAT THE ACTIVITIES ARE 'DIRECT EXPORT FROM INDIA' AND 'NOT PROCUREMENT FOR EXPORT' ARE BASICALLY (I) RECEIPT OF SALES REALIZAT IONS ARE REMITTED BACK TO INDIA DIRECTLY AND (II) THE COMMISSION TO F OREIGN AGENTS ARE ALSO PAID BY THE INDIAN BRANCH. BOTH THE FACTS WERE DISCLOSED IN BOTH THE YEARS BY THE APPELLANT IN THE RETURN OF INCOME ITSELF. IN FACT, RECEIPT OF SALES REALIZATIONS WAS BASIC REQUI REMENT TO BE FULFILLED FOR GETTING THE DEPB ENTITLEMENTS FROM TH E GOVT, OF INDIA. THE APPELLANT HAD DISCLOSED THIS INCOME AS TAXABLE IN INDIA IN ITS RETURNS. IN FACT, IN THE APPELLATE ORDER FOR AY 200 4-05, THERE WAS A GROUND FOR DEDUCTION U/S 80 HHC CONTENDING THAT T HE APPELLANT HAS FULFILLED THE BASIC REQUIREMENT AND THEREFORE, IT & CANNOT BE DISCRIMINATED AGAINST. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THOUGH THE C LAIM OF THE ASSESSEE THAT ITS INCOME IS NOT TAXABLE IN INDIA MA Y BE DISPUTED OR EVEN DENIED UNDER THE LAW; IT CANNOT BE SAID THA T ANY MATERIAL FACT OR PARTICULAR WAS EITHER FURNISHED FALSE OR WA S HIDDEN FROM ITA NO.932/AHD/2013 AND 2 OTHERS 12 THE REVENUE. IN THE CASE OF IKEA TRADING (HONG KONG ) LTD., IN RE, 308 ITR 422 (MR) FACTS WERE THAT THE GOODS W ERE EXPORTED DIRECTLY TO DIFFERENT COUNTRIES AND NOT TO THE COUN TRY WHERE THE PARENT COMPANY WAS SITUATED. THE CASE WAS HELD TO B E FALLING IN EXPLANATION 1 OF SECTION 9(L)(I), CLAUSE (B). THE I SSUE DECIDED AGAINST THE ASSESSEE FOR AY 2005-06 REQUIRES SUBJEC TIVE OPINION FORMED ON THE FACTS OF THE CASE. THEREFORE, THE IMP OSITION OF PENALTY U/S 271 (L)(C) IS NOT HELD TO BE JUSTIFIED ON THE FACTS OF THE CASE. IN ORDER TO BE COVERED FOR IMPOSITION OF PENA LTY, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE OR THE ASSESSEE MUST HAVE FURNISHED INACC URATE PARTICULARS OF HIS INCOME. PRESENT IS NOT THE CASE OF CONCEALME NT OF THE INCOME. IN THE PRESENT CASE NO INFORMATION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR INACCURATE. IT IS NOT AS IF ANY STATEMENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUALLY INCORRECT. HENCE, PRIMA FACIE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. THE HON'BLE S UPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT LTD 322 ITR 158 HAS OPINED THAT 'SUBMITTING AN INCORRECT CLAIM IN LAW W OULD NOT AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INC OME'. IT HAS THAT BY ANY STRETCH OF IMAGINATION, MAKING AN INCOR RECT CLAIM IN LAW PARTICULARLY WHERE THE CORRECTNESS OF WHICH REQ UIRES SUBJECTIVE OPINION BASED ON A NUMBER OF FACTS, CANNOT TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. IT HAS REFERRED TO THE HON'BLE SUPREME COURT DECISION IN THE CASE OF C IT V. ATUL MOHAN BINDAL [2009] 9 SCC 589, WHERE THE COURT HAS OBSERVED THAT THE ASSESSING OFFICER HAS TO BE SATISFIED THAT A PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME. THEREFORE, IN MY CONSID ERED OPINION, IT IS NOT A FIT CASE FOR IMPOSITION OF PENALTY U/S 271 (L)(C), JUST ON THE BASIS THAT ITS CLAIM FOR ITS INCOME OF ITS ACTIVITI ES IN INDIA BEING NOT TAXABLE IN INDIA BEING REJECTED. THE SECOND PART OF THE INCOME WHICH HAS BEEN ASSES SED AND ON THE BASIS OF WHICH THE PENALTY HAS BEEN IMPOSED IS RELATED TO ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS . I HAVE OBSERVED THAT THE FACT THAT THERE WERE TRANSACTIONS WITH ASSOCIATED ENTERPRISES WAS AMPLY DISCLOSED IN THE R ETURN AS CLAIMED BY THE APPELLANT. FURTHER, THE TRANSFER PRI CING ADJUSTMENTS FOLLOW THE MAIN ISSUE WHICH WAS FIRST D ECIDED IN FAVOUR OF THE ASSESSEE IN EARLIER YEAR AND THEN HEL D AGAINST IT. THE APPELLANT JUSTIFIABLY MAY HAVE HELD A BONAFIDE BELI EF IN THESE CIRCUMSTANCES THAT THE PROVISIONS OF SECTION 92 TO 92F CONTAINED IN CHAPTER X MAY NOT BE APPLICABLE TO IT. THE RELIA NCE OF THE APPELLANT ON THE JUDGMENT OF HON'BLE PUNJAB AND HAR YANA HIGH COURT IN THE CASE OF COCA COLA INC V. ACIT 309 ITR 194 IS ITA NO.932/AHD/2013 AND 2 OTHERS 13 PERTINENT TO THE FACTS OF THE CASE. IN THE TOTALITY OF THE FACTS; IN CONSIDERED VIEW THAT THE ADJUSTMENT IS ESSENTIALLY A COROLLARY CONSEQUENTIAL TO THE TAXABILITY OF INCOME OF THE BR ANCH OFFICE IN INDIA AND THE ASSESSEE CANNOT BE HELD GUILTY OF FUR NISHING INACCURATE PARTICULARS OR CONCEALING ANY PARTICULAR S OF INCOME. 11. WE HAVE HEARD BOTH THE PARTIES. THERE IS NO DI SPUTE THAT THE ASSESSEE HAS MAINLY FOLLOWED ITS PAST PRACTICE OF S EEKING SECTION 9(1)(I) EXPLANATION 1 CLAUSE (B) EXCLUSION. THE ABOVE LATT ER ADDITION IS ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS. THERE IS ALSO NO QUARREL THAT THE ASSESSEE HAD PLACED ON RECORD ALL NECESSARY DET AILS OF ITS INDIAN BRANCHS INCOME AS WELL AS INTERNATIONAL TRANSACTIO N LEADING TO BOTH THE QUANTUM ADDITIONS. THE LATTER ONE IS OF COURSE IS ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS BEING MADE ON THE BASIS OF ASSE SSEES NECESSARY PARTICULARS ALREADY FILED. WE FAIL TO UNDERSTAND H OW THE SAME CAN BE HELD TO BE A CASE OF FURNISHING OF INACCURATE PARTI CULARS LEADING TO UNDISCLOSED INCOME. WE THUS FIND NO REASON TO INTE RFERE IN THE CIT(A)S ORDER AND REASONS THEREIN. REVENUES INSTANT APPEA L IS REJECTED. 12. ASSESSEES APPEAL ITA NO.932/AHD/2013 IS PARTLY ALLOWED WHEREAS REVENUES APPEALS NOS.972 AND 973/AHD/2013 ARE DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 25 TH OCTOBER, 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER AHMEDABAD; DATED 25/10/2016