Indian Additives Limited, CHENNAI v. ACIT, CHENNAI

ITA 1454/CHNY/2014 | 2007-2008
Pronouncement Date: 18-10-2016

Appeal Details

RSA Number 145421714 RSA 2014
Assessee PAN AAACI1445G
Bench Chennai
Appeal Number ITA 1454/CHNY/2014
Duration Of Justice 2 year(s) 4 month(s) 20 day(s)
Appellant Indian Additives Limited, CHENNAI
Respondent ACIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2016
Appeal Filed By Assessee
Bench Allotted D
Date Of Final Hearing 17-10-2016
Next Hearing Date 17-10-2016
Assessment Year 2007-2008
Appeal Filed On 28-05-2014
Judgment Text
IN THE INCOME - TAX APPELLATE TRIBUNAL D BENCH CHENNAI . BEFORE SHRI SANJAY ARORA ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY JUD ICIAL MEMBER ./ I T.A. NO. 1454 /MDS/201 4 / ASSESSMENT YEAR:20 07 - 08 M/S. INDIAN ADDITIVES LIMITED EXPRESS HIGHWAY MANALI CHENNAI 600 0 6 8. [PAN: A A A C I1445G ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE II( 3 ) CHENNAI 600 0 34 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI M . VI SWANATHAN C.A. /RESPONDENT BY : SHRI M URUGA BHOOPATHY SR. DR / DATE OF HEARING : 17 . 1 0 .201 6 / DATE OF ORDER : 18 . 1 0 .201 6 / O R D E R P ER S ANJAY A RORA A M : THIS A PPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II CHENNAI [ CIT(A) FOR SHORT] DATED 06.02.2014 CONFIRMING THE LEVY OF PENALTY UNDER SECTION 271AA OF THE INCOME TAX ACT 1961 [ ACT FOR SHORT] VIDE PENALTY ORDER DATED 10.08.2011 FOR THE ASSESSMENT YEAR ( AY ) 2007 - 08. I.T.A. NO . 1454 /M/ 14 2 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSMENT IN THE INSTANT CASE WAS MADE UNDER SECTION 143(3) R.W.S. 92CA(3) OF THE ACT ON 25.02.2011 AT AN INCOME OF .1654.98 LAKHS INCLUDING A TRANSFER PRICING [TP] ADJUSTMENT OF .752 LAKHS BY DETERMINING THE ARM S LENGTH PRICE [ALP] OF PURCHASE S FROM AN ASSOCIATED ENTERPRISE [AE] AT .1653 LAKHS. PENALTY PROCEEDINGS UNDER SECTION 271AA OF THE ACT WERE INITIATED IN R ESPECT OF THE SAID PURCHASES DU RING THE ASSESSMENT PROCEEDINGS WITH THE ASSESSING OFFICER [AO] OBSERVING IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS NOT MADE AN ANALYSIS TO EVALUATE THE COMPARABILITY WITH INTERNATIONAL TRANSACTION S AS PROVIDED UNDER SE CTION 92D R / W R ULE 10D OF THE INCOME TAX RULES 1962 ( RULES HERE - IN - AFTER) . THE ASSESSEE WAS IN PENALTY PROCEEDINGS SHOW CAUSED ON THE NON - DISCLOSURE OF INTERNATIONAL TRANSACTION S WITH ITS AE ( AT .11.87 CR . ) I N THE REPORT UNDER SECTION 92 E R / W R .10 E IN FORM 3CEB THEREBY CONTRAVENING SECTION 92D(1) OF THE ACT. THE ASSESSEE S EXPLANATION OF NO ADJUSTMENT IN RESPECT OF THESE TRANSACTIONS HAVING BEEN MADE BY THE TRANSFER PRICING OFFICER ( TPO ) WAS FOU ND BY THE ASSESSING OFFICER (AO) AS IRRELEVANT I N VIEW OF THE CLEAR FAILURE TO REPORT THE TRANSACTIONS PER FORM 3CEB . W HETHER THE SAME RESULTED IN ANY R EVENUE IMPACT IN ASSESSMENT SUBSEQUENTLY WAS IMMATERIAL. THE ASSESSEE HA D ALSO NOT PLEADED ANY REASONABL E CAUSE MUCH LESS ESTABLISHED ONE ( REFER PARA 5 OF THE PENALTY ORDER ). P ENALTY UNDER SECTION 271AA OF THE ACT WAS ACCORDINGLY LEVIED A T .23.74 LAKHS I.E. AT 2 PER CENT OF THE UNREPORTED TRANSACTION S WHICH WAS CONFIRMED IN FIRST APPEAL FOR THE SAME REASONS. 3 . BEFORE US THE ASSESSEE S PLEA WAS OF HAVING I N FACT REPORTED THE TRANSACTION S PER FORM 3CEB AND THAT IT HAD WRONGLY CONCEDE D TO THE NON REPORTING IN THE EARLIER PROCEEDINGS FURNISHING A RECONCILIATION TOWARD THE SAME . T HE L D. DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE R EVENUE AUTHORITIES F U R THER C ONTEN DING THAT IN CASE OF ADMISSION OF THE ASSESSEE S PLEA THE MATTER MAY BE REMANDED TO THE FILE OF THE A O FOR VERIFICATION. I.T.A. NO . 1454 /M/ 14 3 4 . WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATERIALS ON RECORD. WE MAY BEGIN BY REPRODUCING SECTION 271AA WHICH READS AS UNDER: PENALTY FOR FAILURE TO KEEP AND MAINTAIN INFORMATION AND DOC UMENT ETC. IN RESPECT OF CERTAIN TRANSACTIONS. 271AA . WITHOUT PREJUDICE TO THE PROVISIONS OF SECTION 271 OR SECTION 271BA IF ANY PERSON IN RESPECT OF AN INTERNATIONAL TRANSACTION (I) FAILS TO KEEP AND MAINTAIN ANY SUCH INFORMATION AND DOCUMENT AS REQUIRED BY SUB - SECTION (1) OR SUB - SECTION (2) OF SECTION 92D; (II) FAILS TO REPORT SUCH TRANSACTION WHICH HE IS REQUIRED TO DO SO; OR (III) MAINTAINS OR FURNISHES AN INCORRECT INFORMATION OR DOCUMENT THE ASSESSING OFFICER OR COMMISSIONER (APPEALS) MAY D IRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY A SUM EQUAL TO TWO PER CENT OF THE VALUE OF EACH INTERNATIONAL TRANSACTION ENTERED INTO BY SUCH PERSON. WHILE SECTION 92D CASTS AN OBLIGATION ON ANY PERSON ENTERING AN INTERNATIONAL TRANSACTION TO KEEP AND MAINTAIN INFORMATION AND DOCUMENTS IN RESPECT THEREOF AS MAY BE PRESCRIBED S. 92E CASTS A FURTHER OBLIGATION TO REPORT THE SAME DULY VERIFIED AND SIGNED BY AN ACCOUNTANT IN THE PRESCRIBED FORM (FORM 3CEB) FURNISHING THE SAME BY A SPECIFIED DATE. T HE REQUIREMENT PER RULE 10D OF THE RULES INCLUDES EVALUATING THE COMPARABILITY OF THOSE TRANSACTIONS AND DETERMINING THEIR ALP. SECTION 271AA OF THE ACT SEEKS TO PENALIZE ANY OF THE DEFAULT S SPECIFIED THEREIN OF COURSE WITHOUT ANY REASONABLE CAUSE FOR T HE SAME BE ING SHOWN THE ONUS OF WHICH IS CLEARLY ON THE ASSESSEE (S. 273B ) . T HE LEGAL POSITION IN THE MATTER AND ON WHICH WE OBSERVE NO DISPUTE IS CLEAR. NON REPORTING OF THE INTERNATIONAL TRANSACTIONS WHICH ALONE BECOMES FINALLY RELEVANT ATTRACTS S. 271AA OF THE ACT EVEN AS WE OBSERVE THE LD. CIT(A) TO HAVE RELIED ON THE DECISION BY THE TRIBUNAL IN THE CASE OF G.I. SYSTEMS ORG. INDIA (P.) LTD. V. ITO [2012] 145 TTJ 94 (AHD) RELIED ON BY THE LD. CIT(A) . O N FACTS OU R FIRST OBSERVATION IN THE MATTER I S THAT THERE IS NO MENTION OF THE PURCHASE TRANSACTION S STATED AS UNREPORTED IN FORM 3CEB WHICH CONSTITUTE S THE DEFAULT BEING SOUGHT TO BE PENALIZED EITHER IN THE ASSESSMENT ORDER OR IN THE PENALTY I.T.A. NO . 1454 /M/ 14 4 ORDER OR EVEN THE APPELLATE ORDER. T H IS DESPITE THE IMPUGNED ORDER STAT ING AT TWO PLACES OF THE ASSESSEE HAVING NOT REPORTED THE ABOVE MENTIONED INTERNATIONAL TRANSACTION S ( AT PARA S 4.4 AND 4.7) REQUIRED TO BE FURNISHED BY LAW [ S. 92E] . WE AGREE WITH THE REVENUE S STAND THAT IT IS THE NON - REPORTING OF THE INTERNATIONAL TRANSACTIONS THAT IS RELEVANT AND CONSTITUTES TH E DEFAULT AND NOT WHETHER THE SAME LED TO ANY ADJUSTMENT TO THE RETURNED INCOME IN ASS ESSMENT A SUBSEQUENT EVENT . FURTHER TRUE THE ASSESSEE ADMITTED IT S DEFAULT BEFORE THE REVENUE AUTHORIT IES SEEKING TO EXPLA I N THE SAME IN THE MANNER A FORESAID BUT IT S CLAIM CANNOT BE OUSTED AT LEAST AT THE OUTSET IN - AS - MUCH AS THE TRANSACTION S CLAIMED TO BE UNREPORTED REMAIN UNSPECIFI ED . HOW DID THE TPO IN THE FACE OF NON REPORTING ONE MAY ASK FIND THE RELEVANT TRANSACTIONS ? EVEN ASSUMING THE SAME TO HAVE BEEN SO IN THE TPO S ORDER ( NOT ON RECORD ) THERE IS NO REFERENCE THERETO IN THE ASSESSMENT ORDER OR THE ORDERS FOLLOWING IT. WHY EVEN THE NAME OF THE AE/ S FROM WHOM THE UNREPORTED PURCHASES ARE MADE ALSO STATING OF NO COMPARATIVE ANALYSIS QUA THE INTERNATIONAL TRANSACTION S HAVING BEEN FURNISHED ARE NOT STATED IN THE PENALTY ORDER OR EVEN IN THE ASSESSMENT ORDER . THE ASSESSEE S CONDUCT ADMITTING THE DEFAULT OF N OT REPORT ING THE RELEVANT TRAN SACTION S BOTH IMPLICITLY AND EXPLICITLY JUSTIFYING THE SAME ON THE BASIS OF ABSENCE OF ANY ADJUSTMENT IN THE ASSESSMENT IS AGAIN QUIZZICAL TO SAY THE LEAST . IN FACT THE FIRST THING THAT THE ASSESSEE WOULD ASK IN CASE OF UNCERTAINTY IS FOR BEING SU PPL IED THE DETAILS OF THE UNREPORTED INTERNATIONAL TRANSACTIONS. THE ASSESSEE S VOLTE - FACE HAS NOT BEEN EXPLAINED . WE IN FACT OBSERVE ANOTHER CONTRADICTION. WHILE THE ASSESSEE STATES AND WHICH IN VIEW OF THE NON REBUTTAL IS THE ADMITTED POSITION THAT WH ILE NO ADJUSTMENT U/S. 92C(4) WAS MADE QUA THE RELEVANT PURCHASES THE AO (PER PARA 3.1 R/W PARA 3.2) STATES OF A DOWNWARD ADJUSTMEN T OF RS. 7.52 CR. QUA THE PURCHASES (FROM AE). THE SAME (THE TP ADJUSTMENT) WE MAY THOUGH CLARIFY BEING A SUBSEQUENT EVEN T IS OF NO CONSEQUENCE SO THAT IT BEING REVISED [FROM .7.52 CRORES] TO .5.91 CRORES [VIDE ORDER UNDER SECTION 154 DATED 17.09.2014] WOULD HAVE BEEN NO BEARING I N THE MATTER. THE ASSESSEE S RECONCILIATION ALSO LEAVES MUCH TO BE DESIRED AND IS HARDLY I.T.A. NO . 1454 /M/ 14 5 MOVING. THE TRANSACTION OF PURCHASE OF T HE PRODUCT OL OA 200 (AT 286.98 MT FOR RS 2.4 1 CR.) WHICH IS STATED TO BE IN FACT REPORTED TWICE ONCE AS FORMING PART OF THE TRANSACTIONS FOR RS. 2.81 CR. BEING PURCHASES FROM AE/S AND ANOTHER AS PART OF PURCHASE OF RAW MATERIALS PROPRIETARY IN NATURE (ANN. II TO F/3CEB ) AND BOTH OF WHICH STAND REDUCED FROM THE AGGREGATE TRANSACTIONS OF RS. 17. 09 CR. (PER ANN. II ) IN THE RECONCILIATION STATEMENT TO ARRIVE AT THE FIGURE OF RS. 11.87 CR. NOW IT IS PURCHASES (TO THE EXTENT OF) RS. 11.87 CR. AND NOT THAT REDUCED FROM THE TOTAL PURCHASES (RS. 5.22 CR.) THAT ARE STATED AS NOT REPORTED . THE RECONCILIATION RATHER THAN CLARIFYING FURTHER CONFOUNDS WHAT OUGHT TO BE A SIMPLE MATTER OF REPORT ING OR AS THE CASE MAY BE NON - REPORTING OF THE SOME PURCHASE TRANSACTIONS STATED BY THE ASSESSEE BEFORE US TO BE THAT OF OL OA 200 PER THE PRESCRIBED FORM 3CEB WHICH SHOULD ORDINARILY BE MANIFEST AND APPARENT FROM A BARE BROWSE OF THE SAID REPORT. 4 . W HAT EMERGES FROM THE FOREGOING ANALYSIS IS CONTRARY CLAIMS (BY EITHER SIDE) WHICH ARE ALSO INTERNALLY INCONSISTENT. SURELY NO AMBIGUITY QUA THE DEFAULT SOUGHT TO BE PENALIZED I.E. NON - REPORTING OF THE INTERNATIONAL TRANSACTIONS WHICH ALONE IS RELEV ANT CAN BE COUNTENANCED . UNDER THE CIRCUMSTANCES WE ONLY CONSIDER IT PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE AO. THE ASSESSEE AGITATING THE IMPUGNED LEVY ON NO OTHER GROUND WE MAY ALSO CLARIFY THAT THE SET ASIDE OF THE PENALTY ORDER T HUS IS LIMITED TO DETERMINING THIS ASPECT THEREOF ONLY I.E. IF ANY PART OF THE PURCHASE TRANSACTIONS FROM AE/S REMAIN UNREPORTED PER FORM 3CEB FURNISHED FOR THE YEAR AS IN FACT ADMITTED TO BE INADVERTENTLY SO BY THE ASSESSEE IN THE PENALTY AND THE APPEL LATE PROCEEDINGS. THE ASSESSEE CLAIMING REPORTING THE FURTHER QUESTION OF A REASONABLE CAUSE FOR THE DEFAULT DOES NOT STAND TO ARISE. THE AO SHALL DECIDE ON THE LEVY OF PENALTY BASED ON HIS DEFINITE FINDINGS OF FACT ISSUED AFTER HEARING THE ASSESSEE. I.T.A. NO . 1454 /M/ 14 6 5 . IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 17 2016 . SD/ - SD/ - ( DUVVURU RL REDDY ) JUDICIAL MEMBER ( SANJAY ARORA ) ACCOUNTANT MEMBER CHENNAI DATED THE 18 . 1 0 .201 6 VM / - / COPY TO: 1. / APPELLANT 2. / RESPONDENT 3. ( ) / CIT(A) 4. / CIT 5. / DR & 6. / GF.