ACIT,, New Delhi v. M/s IKEA Trading (India) Pvt. Ltd.,, New Delhi

ITA 1270/DEL/2017 | 2010-2011
Pronouncement Date: 05-03-2021 | Result: Dismissed

Appeal Details

RSA Number 127020114 RSA 2017
Assessee PAN AAACH1483Q
Bench Delhi
Appeal Number ITA 1270/DEL/2017
Duration Of Justice 4 year(s) 2 day(s)
Appellant ACIT,, New Delhi
Respondent M/s IKEA Trading (India) Pvt. Ltd.,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 05-03-2021
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 05-03-2021
Last Hearing Date 23-04-2020
First Hearing Date 23-04-2020
Assessment Year 2010-2011
Appeal Filed On 03-03-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SH. AMIT SHUKLA JUDICIAL MEMBER DR. B. R. R. KUMAR ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 1270/DEL/2017 : ASSTT. YEAR : 2010-11 ACIT CIRCLE-12(1) NEW DELHI VS IKEA TRADING (INDIA) PVT. LTD. DLF INFINITY TOWER-A 8 TH FLOOR DLF CYBERCITY SECTOR-25 GURGAON-122001 (APPELLANT) (RESPONDENT) PAN NO. A AACH1483Q ASSESSEE BY : SH. RAVI SHARMA ADV. & SH. RISHABH MALHOTRA ADV. REVENUE BY : SH. VED PRAKASH MISHRA SR. DR DATE OF HEARING: 13.01.2021 DATE OF PRONOUNCEMENT : 05.03.2021 ORDER PER DR. B. R. R. KUMAR ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF LD. CIT(A)-19 NEW DELHI DATED 16.12.2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENU E: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN DELETING THE PENALTY U/S 271(1)(C) OF THE IT ACT RELEVANT TO ASSESSMENT YEA R 2010-11. 3. IKEA TRADING (INDIA) PRIVATE LIMITED IS AN INDIA N COMPANY INCORPORATED IN INDIA ON 13 TH JUNE 1994. THE ASSESSEE A MERCHANT EXPORTER GRANTED A FOUR STAR EXPORT HOU SE STATUS BY THE GOVERNMENT OF INDIA IS ENGAGED IN THE TRADING OF HOME FURNISHING PRODUCTS. THE ASSESSEE PURCHASES DIFFERE NT HOME ITA NO.1270/DEL/2017 IKEA TRADING (INDIA) PVT. LTD. 2 FURNISHING PRODUCTS LIKE CARPETS TEXTILE AND METAL ETC. FROM VARIOUS SUPPORTING MANUFACTURERS IN INDIA AND EXPOR TS THE SAME OUTSIDE INDIA. 4. THE ASSESSMENT IN THIS CASE WAS MADE AT A LOSS O F RS.9 87 972/- AGAINST RETURNED LOSS OF RS.7 82 35 8 30/-. THE ADDITIONS WERE MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF SALE OF FIXED ASSETS AMOUNTING TO RS.6 1 7 03 289/- AND DISALLOWANCE ON ACCOUNT OF EXPENSES AMOUNTING TO RS.1 55 44 569/-. THE PENALTY PROCEEDINGS WERE INIT IATED DURING THE COURSE OF ASSESSMENT AND PENALTY OF RS.2 62 56 547/- WAS IMPOSED VIDE ORDER DATED 29.10.2014 ON THE ISSUE OF ADJUSTMENT ON ACCOUNT OF ALP OF FIXED ASSETS AND ON THE ISSUE OF DISALLOWANCE OF EXPENSES. A) PENALTY ON THE ISSUE OF ADJUSTMENT ON ACCOUNT OF ALP OF FIXED ASSETS: 5. THE ASSESSEE HAS UNDERTAKEN THE FOLLOWING INTERN ATIONAL TRANSACTIONS DURING THE FINANCIAL YEAR: INTERNATIONAL TRANSACTI O N VALUE (RS.) METHOD USED SALE OF FIXED ASSETS 63 680 884 CUP TRANSFER OF CURRENT ASSETS 12 406 737 CUP SALE RETURN BY AES 38 338 043 - REIMBURSEMENT OF REWORK AND OTHER EXPENSES 42 419 195 - 6. FOR ARRIVING AT THE ALP OF THE INTERNATIONAL TRA NSACTION PERTAINING TO TRANSFER OF FIXED ASSETS TO AES THE ASSESSEE HAD RELIED UPON VALUATION REPORT OF AN EXTERNAL VALUER WHO HAD VALUED THESE ASSETS AT RS.57 501 821/-. THE SALE PR OCEEDS RECEIVED FROM THE AE WERE MUCH HIGHER AT RS.63 680 884/- THAN THE VALUATION MADE OF RS.57 501 821/-. ITA NO.1270/DEL/2017 IKEA TRADING (INDIA) PVT. LTD. 3 7. DURING THE ASSESSMENT PROCEEDINGS THE TPO DISRE GARDED THE VALUATION REPORT OF AN EXTERNAL VALUER RELIED UPON BY THE ASSESSEE AND INSTEAD USED WRITTEN DOWN VALUE (WDV) OF SUC H ASSETS FOR DETERMINING THE ARMS LENGTH PRICE. THE TPO HELD TH AT THE ALP OF THE FIXED ASSETS SOLD SHOULD BE TAKEN AS PER THE CL OSING WDV OF FIXED ASSETS COMPUTED UNDER THE ACT WHICH WAS RS.1 19 205 110/- AND NOT AS PER THE VALUATION REPORT CARRIED OUT BY EXTERNAL VALUER. AFTER TAKING INTO CONSIDERATION WDV OF THE ASSETS AND VALUE OF THE ASSETS AS PER THE VALUATION CERTIFICATE THE AO DETERMINED THAT THE SHORTFALL AS PER ALP OF RS.61 703 289/- ON ADJUSTMENT OF THE ALP. 8. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 9. WE FIND THAT THE ASSESSEE HAS SOLD ASSETS AT THE WDV OF THE ASSETS AS PER COMPANY LAW WHEREAS THE TPO HELD THAT THE ASSESSEE OUGHT TO HAVE SOLD THE ASSETS AT THE VALUE OF THE WDV OF THE BLOCK OF ASSETS AS PER THE INCOME TAX ACT. THE WDV AS PER THE INCOME TAX ACT MAY NOT BE /CANNOT BE THE FAIR M ARKET VALUE OF THE ASSETS. THE ASSETS WERE TRANSFERRED AT THE B OOK VALUE AS PER THE AUDITED ACCOUNTS OF THE ASSESSEE WHICH IS A RECOGNIZED METHOD OF PROVIDING DEPRECIATION. SUCH SALE OF ASSE TS AFTER VALUATION AND THE ADJUSTMENT BY THE TPO BY RESORTIN G TO CUP METHOD CANNOT BE A GROUND FOR LEVY OF PENALTY U/S 2 71(1)(C). THE CASE OF CONCEALMENT OR FURNISHING OF INACCURATE OF PARTICULARS OF INCOME CANNOT ATTRACT THE PROVISIONS OF PENALTY U/S 271(1)(C). HENCE WE HOLD THAT PENALTY LEVIED ON THIS GROUND H AS BEEN RIGHTLY DELETED BY THE LD. CIT (A). ITA NO.1270/DEL/2017 IKEA TRADING (INDIA) PVT. LTD. 4 B) PENALTY ON THE ISSUE OF DISALLOWANCE OF EXPENSES : 10. THE ASSESSING OFFICER RESORTED TO DISALLOWANCE OF EXPENSES OF RS.155 44 569/- ON THE GROUNDS THAT THE CLAIM OF THE ASSESSEE WITH REGARD TO PERSONNEL EXPENSES OPERATIVE EXPEN SES AND FINANCE EXPENSES CANNOT BE ACCEPTED AS THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITIES DURING THE YEAR UNDER CONSIDERATION. 11. THE ASSESSEE SUBMITTED THAT THE OBSERVATIONS OF THE ASSESSING OFFICER WERE NOT CORRECT ON FACTS OF THE CASE AS THE ASSESSEE HAS CONDUCTED BUSINESS OPERATIONS AS MENTI ONED IN THE TABLE BELOW: S. NO. TRANSACTION FLOW SUPPORTING DOCUMENTS 1 GOODS PURCHASED BY IKEA INDIA FROM THE DOMESTIC VENDOR/ MANUFACTURE (I.E. MANUFACTURER TO IKEA INDIA) PURCHASE INVOICE FROM THE VENDOR IN INDIA 2 IKEA INDIA SELLS/ EXPORTS GOODS TO THE IKEA GROUP ENTITY SALES INVOICE TO IKEA GROUP ENTITY OUTSIDE INDIA 3 THE GROUP ENTITY SENDS THE DEFECTED GOOD TO INDIA FOR REPAIR AND RE-EXPORT PURCHASE INVOICE FROM IKEA GROUP ENTITY (RAISED ONLY FOR THE PURPOSE OF IMPORT OF GOODS AND SUBSEQUENT CLEARANCE BY THE CUSTOM AUTHORITIES) PACKING LIST BILL OF ENTRY FOR HOME CONSUMPTION 4 AS PER THE ARRANGEMENT BETWEEN IKEA INDIA AND THE VENDOR THE VENDOR COLLECTS THE DEFECTED GOODS FROM THE ICD DEPOT (DADRI) 5 IKEA INDIA PAYS THE REWORK CHARGES TO THE VENDOR AS PER THE INVOICE FROM THE VENDOR PURCHASE INVO ICE FROM THE VENDOR IN INDIA (IT IS CLEARLY MENTIONED ON THE INVOICE THAT THE GOODS WERE RE- IMPORTED VIDE BILL OF ENTRY FOR REPAIRS. AFTER DOING REPAIRS SUCH GODS ARE RE- EXPORTED THROUGH THIS INVOICE). ITA NO.1270/DEL/2017 IKEA TRADING (INDIA) PVT. LTD. 5 6 IKEA INDIA RE - EXPORTS RE - WORKED GOODS TO THE GROUP ENTITY SALE INVOICE TO THE GROUP ENTITY SHIPPING BILL FOR EXPORT/RE- EXPORT OF DUTY FREE GOODS NON- NEGOTIABLE WAY BILL FOR RE- EXPORT OF GOODS FROM INDIA EXCHANGE CONTROL DECLARATION (GR) FORM 12. ON GOING THROUGH THE ABOVE ACTIVITIES IT CAN BE HELD THAT THE ASSESSEE IS CONTINUING TO CARRY OUT BUSINESS ACTIVI TIES. THE ACTIVITIES UNDERTAKEN ARE IN CONNECTION WITH TERMS OF CONTRACT. IT CANNOT BE SAID THAT THE BUSINESS CEASED TO EXIST JU ST BECAUSE THERE WAS NO ACTIVITY OF TRADING OR MANUFACTURING D URING THE GIVEN PERIOD. THE ASSESSEE HAS UNDERTAKEN THE ACTIVITIES OF REWORKING AND REMOVING OF DEFECTS IN RESPECT OF GOODS SOLD EA RLIER AND ALSO EXPORTED CERTAIN GOODS. THE ASSESSEE HAS ALSO FILED THE STATUTORY RETURNS. THE DISALLOWANCE HAS BEEN MADE ON THE GROU NDS THAT THE BUSINESS HAS NOT BEEN CARRIED OUT BUT NOT ON THE GR OUNDS THAT THE EXPENSES ARE NOT RELATED TO THE BUSINESS. 13. WITH REGARD TO THE PENALTY LEVIED ON SUCH ISSUE WE FIND THAT SUCH DISALLOWANCE DO NOT FALL UNDER THE CATEGORY OF FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF SUCH PARTI CULARS OF INCOME. 14. IN THE BACKGROUND OF THESE FACTS WE HAVE GONE T HROUGH THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THIS ISSUE. 15. THE HONBLE PUNJAB & HARYANA HIGH CURT IN THE C ASE OF CIT VS AJAIB SINGH AND CO. (2002) 253 ITR 0630 HAS HELD THAT DISALLOWANCE OF AN EXPENSE PER SE CANNOT MEAN THAT THE ASSESSEE HAS FURNISHED INCORRECT PARTICULARS OF ITS INCOME. CONCEALMENT INVOLVES PENAL ACTION. IT HAS T BE PROV ED AS A CONSCIOUS ACT. THE ESSENTIAL PRE-CONDITION FOR INVO KING ITA NO.1270/DEL/2017 IKEA TRADING (INDIA) PVT. LTD. 6 EXPLANATION 1 TO SECTION 271(1)(C) OF THE INCOME TA X ACT 1961 IS THAT THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) TO BE FALSE.. IT IS ONLY IN SUCH A SITUATION THAT THE ASSESSING OFFICER CAN INVOKE THE EXPLANATION TO SECTION 271(1)(C) AND IMPOSE PENALTY. 16. WE ALSO HOLD THAT THE PENALTY CANNOT BE SUSTAIN ED IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF ACIT VS DELHI CLOTH & GENERAL MILLS CO. LTD. 157 ITR 822 WHEREIN IT WAS HELD THAT THE MERE FACT THAT A CLAIM FOR EXPENDITURE STANDS DISALLOWED DOES NOT BY ITSELF LE AD TO THE INFERENCE THAT THE ASSESSEE HAD FURNISHED INACCURAT E PARTICULARS IN REGARD TO THAT ITEM. 17. FURTHER THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETORPRODUCTS PVT. LTD. 322 ITR 158 (2010) HELD THA T INACCURATE AND PARTICULARS IN CONJUNCTION THEY MUST MEAN TH E DETAILS SUPPLIED IN THE RETURN WHICH ARE NOT ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO TRUTH OR ERRONEOUS. IN TH IS CASE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSE E IN ITS RETURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. S UCH NOT BEING THE CASE THERE WOULD BE NO QUESTION OF INVITING TH E PENALTY UNDER SECTION 271(1)(C). MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO F URNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. 18. ON GOING THROUGH THE ENTIRE FACTS AND CIRCUMSTA NCES OF THE CASE WE HEREBY CONFIRM THE ORDER OF THE LD. CIT (A ) WHICH HELD THAT IT A MERE DISALLOWANCE OF AN EXPENSE DOES NO T WARRANT A PENALTY FOR FILING INACCURATE PARTICULARS OF INCOME U/S 271(1)(C). ITA NO.1270/DEL/2017 IKEA TRADING (INDIA) PVT. LTD. 7 19. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/03/2021. SD/- SD/- (AMIT SHUKLA) ( DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 05/03/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR