DCIT CEN CIR 1(1), MUMBAI vs. EDELWEISS FINANCIAL SERVICES LTD, MUMBAI

Per Rajesh Kumar, Accountant Member:

2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored, 3. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”

3. The common issue challenged in all the three grounds is against the deletion of penalty of Rs.7.00 crore by Ld. CIT(A) as levied by the AO under section 271G of the Act.

a) As per section 92D(3J of the I.T. Act 1961, the assessee is required to furnish any information or document in respect of an international transaction or specified domestic transaction as prescribed under subsection (1) of Section b) 92D within a period of 30 days from the date of receipt of a notice issued in this regard. Provided that the AO or the CIT(A) may on an application made by such person extend the period of 30 days by a further period not exceeding 60 days.

The assessee submits that notice was received on 6th November 2015 and the assessee filed the details on 23rd December after requesting for further time on 18th November 2015. Pleas of reasonable cause: As per Section 273B of the Act no penalty can be imposed for failure of the person to furnish documents in time, if such failure is proved to be due to a reasonable cause. In this regards, the assessee submits that the assessee had a change of tax consultant in the period June to October 2015. The new tax consultants were appointed at the end of October 2015 and they took some time to inspect the records and represent. c) The assessee has also submitted that there was no intention of not submitting the information/documentation already maintained by the assessee under rule 10D of the IT. Rules 1962. The assessee therefore requests that as there was reasonable cause for filing the details immediately on receipt of notice, the penalty proceedings should be dropped. d) The assessee has relied on the following decisions i) ITAT decision in the case of Dy.CIT company circle IV(1) Chennai v/s Magick Woods Exports (P) Ltd (2012)25 taxmann.com -20(Chennai) wherein it was held that since default as to late filing of details was explain delay caused in filing details, and moreover TPO had not suggested any adjustment in ALP reported by assessee, the penalty imposed u/s 271G r.w.s. 92D is to be deleted. ii) The assessee has also relied on the Delhi HC decision in the case of CIT II v/s Jhonson of the Act was that based on the documentation filed by the assessee no addition was made to the value of international transaction entered by the assessee.”

4 M/s. Edelweiss Financial Services Ltd.

- CIT vs Johnson Matthey India (F) Ltd [2015- 229 Taxmann 0453 Delhi) - ACIT vs Global One India Pvt. Ltd \53 SOT 0106 Pel] - PCIT vs Leroy Somer & Control (India) P. Ltd fITA 1330/PeV2011] - Cargill India (P) Ltd vs DCIT[110ITD 0616 Del ITAT]

On reading of provision in the Act and judgments quoted above, I am of the view that the period of sixty days have to be counted from the notice issued u/s 92D(3) of the Act. The AO's action of counting the sixty days from the notice u/s 92CA(2) of the Act is contrary to the provisions of the Act. Therefore/ the AO's action is quashed and the Appeal of the Appellant is allowed on this point only. However, for the completeness of the order, the other arguments of the Appellant are also considered.

Next contention of the Appellant is that penalty u/s 271G of the Act cannot be levied as there is no TP adjustment and the Appellant's transaction have been accepted at the arms length price determined by the Appellant. This aspect has been considered by the TPO in paragraph 15.2 of the penalty order passed u/s 6 M/s. Edelweiss Financial Services Ltd. 271G of the Act. The Appellants contentions have been considered in the light of observation made by the TPO in the penalty order passed u/s 271G of the Act. The Appellant has correctly explained that section 271G of the Act has been inserted to curb the practice of tax avoidance which is evident from the Finance Act, 2001. I found force in the submission of the Appellant that there is no TP adjustment in the case of the Appellant and the transaction of the Appellant with AEs have been accepted at the arms length price determined by the Appellant; thus, there is no tax evasion in the case of the Appellant. On perusal of the documents on record and Finance Act, 2001 I am of the considered view that section 271G of the Act have been inserted as a measure to curb tax avoidance. In the case of Appellant, since the transaction have been accepted at ALP decided by the Appellant, there is no tax evasion on the Part of the Appellant; hence, the AO has not justified in levying the penalty u/s 271G of the Act. My above is also supported by the following judicial precedents: - CIT vs Tohnson Matthey India (P) Ltd [2015- 229 Taxmann 0453 Delhi] - PCIT vs Magick Wood Exports (P) Ltd [53 SOT 0293 Chenl - Mavar India Limited (ITA No. 1872fDel/2014) - Annapurna Business Solutions v. ACIT [2012117 taxmann.com 125 (Hyd.)

In view of the above provision in the law and judicial pronouncements I am of the view that penalty levied by the TPO is grossly unjustified as there is no adjustment in the transaction done by the Appellant with its AE.

Next contention of the Appellant was that all the details of the transaction have been furnished during the assessment proceeding of 2011-12. As per Rule 10D(4) if the transaction have effect over the years, then the assessee is not required to maintain fresh documentation separately in respect of each previous year unless there is any significant change in the nature of terms of the international transaction. The facts of the Appellants case that it has given the foreign currency loan to its AEs in the preceding year on which it has charged the interest @ 3.78% whereas in the present year under consideration the rate of interest charged from the AEs are 9.80 % to 10.54%. In order to fall in provision of Rule 10D(4) of the Rules the conditions needs to be satisfied are that there must be no significant change in (i) nature of transactions (ii) terms of transaction and (iii) assumption made. The variation in the interest rate clearly suggest that there is change in the terms of the transaction; therefore, the Appellant is not entitled to the benefit of Rule 10D(4) of the Rules. The Appellants contention to this effect is rejected.

The Appellant, in the alternative and without prejudice/ also submitted that it could not file details due to various reasonable causes such as (i) change in consultant (ii) change in employees / executive (iii) Compliance with Companies Act 2013 and tax consultant (iv)statutory compliance in November 2015. The TPO has considered the issue of reasonable cause in paragraph 7, 8,12,13,17 and 18 of the penalty order u/s 271G of the Act. On perusal of the detailed reasons given in the written submission by the Appellant I am of the view that the Appellant was precluded by the various valid reasons to not file the details before the TPO. I am of the considered view that in absence of executive familiar with the transaction who were involved at the time to transfer pricing audit, it is difficult to file information and documents before the TPO. I'm also of the view that in absence of a well versed

7 M/s. Edelweiss Financial Services Ltd. consultant, it is very difficult to represent the case before the departmental authorities. I am also ^convinced with the reasonable cause that the Appellant was busy with Income Tax Returns and Transfer Pricing Report in the month of November, 2015. The non-filing of returns, Tax Audit Report and Transfer Pricing Report has severe consequences in the Income Tax Law; therefore, the Appellant has rightly given the first priority to that the transfer pricing assessment were getting time barred. On study of TPO's order in juxtaposition with the submission of the Appellant, I am of the considered view that the Appellants case is covered u/s 273B of the Act (i.e. the Appellant could not file the details due to reasonable cause); therefore, the penalty levied by the TPO is deleted. My above view is fully supported by the following decisions:

- PCIT v. Magick Woods Exports (P.) Ltd. [20121 25 taxmann.com 20 (Chennai) - Cargill India Private Limited vs PCIT U110 ITD 0616 Del ITAT] - Gillette India Ltd. Vs. ACIT (IT A No. 598/TF/2012)

In view of the above facts and judicial pronouncements, I am of the view that the TPO has unjustified in levying the penalty u/s 271G of the Act; therefore, the penalty levied by the TPO is deleted.”

The Ld. D.R. submitted before us that the penalty as imposed by the AO under section 271G of the Act for failing to furnish documents required under section 92D(3) of the Act has wrongly been deleted by the Ld. CIT(A) without appreciating the fact that assessee despite three opportunities granted by the Ld. TPO has failed to furnish the documents as required by the TPO. Under these facts the penalty has rightly been iimposed under section 271G of the Act. The Ld. D.R. submitted that the TPO has called for specific details from the assessee vide three notices dated 11.11.2014, 06.05.2015 and 11.11.2015 and the details called for were not furnished within 30 days. The Ld. D.R. submitted that the assessee has not explained any reasonable cause for not complying with the notices ny not furnishing the detail even after 11 months after the issue of the notice dated 11.11.2014. The Ld. D.R. submitted that in the transfer pricing issues the TPO is required to examine whether the method and data chosen by the assessee to determine ALP

8 M/s. Edelweiss Financial Services Ltd. are in accordance with the provisions of the Act. However, the assessee has not co-operated and thus failed to furnish these information within the statutory time limit as provided in section 92D(3) as maintained by the assessee under rule 10D(i) and 10D(iii). Thus, the failure on the part of the assessee has resulted into putting the TPO in great jeopardy in properly and correctly evaluating the international transactions. The Ld. D.R. finally submitted that under these circumstances, the TPO has rightly imposed the penalty equal to 2% of the value of the international transactions which worked out to Rs.7,76,68,773/-. The Ld. D.R. submitted that the Ld. CIT(A) has completely mis-appreciated the facts of the case and deleted the addition by taking the period of default from the notice issued under section 92D(3) instead of 92CA(ii) of the Act and therefore the Ld. D.R. prayed that the Ld. CIT(A) has completely misconstrued the facts of the case and deleted the addition by taking the period from the notice issued under section 92D3 instead of 92CA(ii) of the Act and therefore the Ld. D.R. prayed that the order of the Ld. CIT(A) may be set aside and that of the AO may be restored.

9 M/s. Edelweiss Financial Services Ltd. (1) 11.11.2014 under section 92CA(ii) of the Act (2) 06.05.2015 under section 92CA(ii) of the Act (3) 06.11.2015 under section 92D3 of the Act.

The ld TPO imposed the penalty u/s 271G of the Act by taking 60 days from the date of the first notices issued under section 92CA(ii) . The Ld. CIT(A) has calculated the 60 days from the date of notice issued under section 92D of the Act. The Ld. CIT(A) also noted that if the 60 days are reckoned from the date of issue of notice under section 92CA of the Act then the provision of section 92D(iii) would become redundant and otious. The Ld. CIT(A) has relied on a series of decisions as has been reproduced hereinabove in the reproduction of operative part of Ld. CIT(A)’s order considering the provision of the section 92CA(iii), 92D(iii). We are in agreement with the Ld. CIT(A) that period of 60 days are to be reckoned from the date of issue of notice under section 92D(iii) of the Act.

Order pronounced in the open court on 22.10.2019.