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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER आदेश आदेश आदेश
PER D. KARUNAKARA RAO, AM :
There are two appeals by the Revenue under consideration involving Assessment Years 2007-08 and 2008-09. They are filed against the common order dated 14-07-2016 passed by the CIT(A)-13, Pune. Revenue raised similar grounds in both these appeals, therefore, the said appeals are being disposed off in this composite order.
We shall first take up the appeal for the A.Y. 2007-08 as the standard one for the sake of facts.
ITA Nos.2447 & 2448/PUN/2016 Magic Software Enterprises India Pvt. Ltd.,
ITA No.2447/PUN/2016 A.Y. 2007-08
Grounds raised by the Revenue are extracted as under :
“1. The order of the Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case.
2.Whether on the facts and under the circumstances of the case, the CIT(A)- 13, Pune was justified in deleting the penalty levied u/s 271(1)(c) of the Act of Rs. 11,03,966/ - on account of adjustment made to the international transaction.
Whether the CIT(A)-13, Pune erred in not appreciating all the facts of the case and not appreciating the meaning, tests and requirements enumerated for interpretation of terms 'due diligence' by the Hon'ble court in their judgment in the case of J. Samual and Others V/s Gattu Mahesh and others (2012) in 2 SCC 300.
Whether the CIT(A)-13, Pune erred in not applying the interpretation of the terms 'Good faith' and with 'Due diligence' correctly, as per the interpretation of the terms made and as per the tests and requirements laid down by the Hon'ble Supreme Court in their judgment in the case of J. Samual and Others V/s. Gattu Mahesh and others (2012) in 2 SCC 300. He also erred in not appreciating the facts that as per the interpretation by the Supreme Court, the actions of the assessee cannot be construed to have done in 'good faith' and it cannot be construed that 'due diligence' was adhered to by the assessee who failed to follow the mandatory requirement.
Whether the CIT(A)-13, Pune erred in relying upon the decision of Bombay High Court in the case of Laxman v/s CIT the facts of which were totally different and in that case the specially provided Explanation- 7 for 'deemed concealment of income' was not applicable. In the present case the as per the explanation -7 of the section 271(1)(c) the disallowance or addition on account of international transactions or specified domestic transactions is] s 92C is deemed to be concealed Income.
Whether the CIT(A)-13, Pune erred in not appreciating the facts that have been revealed and proved by the Transfer Pricing Officer that the comparable companies selected by the assessee were not from identical/ same activities and financial data of which was not available on Prowess and Capitaline database and the assessee could not prove anything in its support. The facts have been upheld and the assessee has been blamed for its actions by the Hon'ble CIT(A)-IT/TP, Pune vide his order dated 31/07/2013. Thus, it is evident that the assessee had not determined arms length price in 'Good faith' and with 'Due diligence'.
Whether the CIT(A)-13, Pune grossly erred in not appreciating the specially provided Explanation -7 to section 271 that shifts the onus on the assessee to prove to the satisfaction of the Assessing Officer that the price charged or paid on international transaction in accordance with provisions contained in section 92C and in the manner prescribed under that section, in good faith and with due diligence. However, the CIT(A) erred in shifting of onus on the assessing officer to establish the absence of 'due diligence' and lack of 'good faith' on part of the assessee.
ITA Nos.2447 & 2448/PUN/2016 Magic Software Enterprises India Pvt. Ltd.,
Whether the CIT(A)-13, Pune grossly erred in not appreciating the provisions of Explanation -7 to section 271, which unlike the cases of penalty levied on account of other additions, the Explanation- 7 provides deeming provisions in respect of addition or disallowance made u/s 92C(4) which are deemed to represent the concealed income or furnished inaccurate particulars. 9. For these and such other reasons as may be urged at the time of hearing, the order of the Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored. 10. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the ITAT.
Briefly stated relevant facts include that the assessee is company
engaged in the business of software development. Assessee filed the return
of income declaring Nil income. The TPO made adjustment of
Rs.85,63,973/- to the international transactions with AEs undertaken by
the assessee. Consequent to the assessment made u/s.143(3) r.w.s.147,
the AO levied penalty of Rs.11,03,966/. AO opined that the assessee
concealed the particulars of its income and committed default within the
meaning of section 271(1)(c) of the Act. In the First Appellate proceedings,
the CIT(A) deleted the penalty levied by the AO. Aggrieved with the deletion
of penalty, the Revenue filed the present appeal before the Tribunal.
Ld. DR relied on the order of the AO dutifully and prayed for
confirming the penalty levied by the AO.
Before us, at the outset, Ld. Counsel for the assessee submitted that
the assumption of jurisdiction by the TPO was held as invalid by the
Tribunal by virtue of appeal in ITA No.1801/PUN/2013 & Co
No.97/PUN/2014, dated 31-01-2017. Thus, the addition of Rs.85,63,973/-
stands deleted and in favour of the assessee. Ld. Counsel, therefore,
ITA Nos.2447 & 2448/PUN/2016 Magic Software Enterprises India Pvt. Ltd.,
prayed for confirming the order of Ld.CIT(A). In this connection, Ld.
Counsel filed the following written submissions :
“1. The order passed by the TPO u/s.92CA(3) making upward TP adjustment of Rs.85,63,973/- to the Arm’s Length Price of the international transactions ‘was a nullity in law and void ab initio’ due to the fact that AOs reference to the TPO was made when no assessment proceedings were pending before the AO and the determination of ALP by the TPO was without jurisdiction. The order passed by TPO was not valid material for the AO to entertain a belief that income chargeable to tax had escaped assessment within the meaning of section 147 of the Income Tax Act and the AO had no jurisdiction to issue notice u/s.148.
The preliminary issue raised by the assessee regarding the assumption of jurisdiction has been decided in favour of the assessee the finalised assessment u/s.143(3) r.w.s.147 and 144C has been quashed (Kindly refer Para 14 Page 10 and Paras 20 to 22 Pages 22 and 23 highlighted portion of the copy of the order Honourable Tribunal passed in quantum appeal).
In the quantum appeal the addition made to total income has not survived. It is prayed that deletion of penalty be confirmed.”
We heard both the sides and perused the orders of the Revenue and
the order of Tribunal dated 31-01-2017 deleting the quantum addition on
the technical issue of jurisdiction. We find it relevant to extract the finding
given by the Tribunal below (Para 20 & 21 of the order of the Tribunal) :
“20. As referred to by us in the paras hereinabove the factual aspects of the present case before us are identical to the facts before the Tribunal in Maximize Learning (P.) Ltd. vs. ACIT (s upra) and hence the ratio laid down by the Co-ordinate Bench of the Tribunal squarely applicable to the facts of the case. Further, we also apply the principle laid down by the Hon'ble High Court of Delhi in CIT Vs. XL India Business Services (P) Ltd. (supra). In view thereof, we hold that when no assessment proceedings were pending in relation to the relevant assessment year, the Assessing Officer was precluded from making a reference to the TPO under section 92CA(1) of the Act for the purposes of computing the arm's length price in relation to the international transaction. Consequently, order passed by the TPO under section 92CA(3) proposing an adjustment of Rs.85,63,973/- to the arm's length price of the international transaction was a nullity in law and void ab initio. In view of the above-said facts and circumstances, such an order passed by the TPO was not a valid material for the Assessing Officer to entertain a belief that certain income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. Consequently, we hold that the reasons recorded for reopening the assessment under section 147of the Act do not meet the requirements of the section and hence the Assessing Officer had no jurisdiction to issue notice under section 148 of the Act. Consequently, the subsequent order passed by the Assessing Officer
ITA Nos.2447 & 2448/PUN/2016 Magic Software Enterprises India Pvt. Ltd.,
under section 143(3) r.w.s. 147 and 144C of the Act is liable to be quashed. Accordingly, we hold so.
As the preliminary issue raised by the assessee regarding the assumption of jurisdiction by the Assessing Officer has been decided in favour of the assessee and the impugned assessment has been quashed, the remaining grounds of Cross Objections raised by the assessee regarding the merits of the addition become academic and hence the same are not adjudicated for the present.”
From the above, it is evident that the quantum addition has been deleted
by the Tribunal. Thus, the penalty levied has no legs to stand. Considering
the above stated position, we dismiss the grounds raised by the Revenue.
In the result, the appeal filed by the Revenue is dismissed.
We shall now take up the appeal of the Revenue for the A.Y. 2008-09.
ITA No.2448/PUN/2016 A.Y. 2008-09
Briefly stated, relevant facts of the case are that the TPO made an
upward adjustment of Rs.1,64,21,243/- to the international transactions
undertaken by the assessee. In the assessment u/s.143(3) r.w.s. 147 of
the Act, the AO initiated penalty proceedings u/s.271(1)(c) of the Act and
eventually levied penalty of Rs.43,91,583/-. Being aggrieved, the assessee
filed an appeal before the CIT(A) and the CIT(A) deleted the penalty levied by
the AO. Aggrieved with the order of CIT(A), the Revenue filed the present
appeal challenging the deletion of penalty.
Before us, at the outset, Ld. Counsel for the assessee raising the oral
ground relating to recording of satisfaction by the AO submitted that this is
a case where the AO failed to record valid and legally sustainable
satisfaction in the assessment order while initiating the penalty
proceedings. Highlighting the legal requirement of making a specific
ITA Nos.2447 & 2448/PUN/2016 Magic Software Enterprises India Pvt. Ltd.,
reference to the specific limb of clause (c) of section 271(1) of the Act and
relying on various binding judgments in the case CIT Vs. Shri Samson
Perinchery (2017) 392 ITR 4 (Bom.) as well as the judgment of Hon’ble
Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and
Ginning Factory 359 ITR 565, Ld. Counsel demonstrated that the penalty
levied by the AO is unsustainable in law. In this regard, he brought our
attention to the assessment order as well as the penalty order highlighting
the above legal deficiencies. Thus, Ld. Counsel prayed for confirming the
order of CIT(A) deleting the penalty levied by the AO.
Per Contra, Ld. DR for the Revenue relied on the order of AO
dutifully.
We heard both the parties on the said legal issue raised by the Ld.
Counsel for the assessee and perused the orders of the Revenue. We
proceed to adjudicate the issue relating to recording of proper satisfaction
by the AO. In this connection, we perused the assessment order dated
28-02-2012 and find the satisfaction recorded by the AO for initiating the
penalty proceedings u/s.271(1)(c) of the Act is relevant for extraction.
Therefore, the same is reproduced as under :
“ 4. Since the assessee has concealed the particulars of its income by furnishing inaccurate particulars thereof, I am satisfied that it has committed default within the meaning of section 271(1)(c) of the I.T. Act, 1961. Penalty proceedings u/s.271(1)(c) have, therefore, been initiated separately.”
11.1 We also perused the penalty order dated 31-03-2015 and find the
satisfaction recorded by the AO for levying the penalty u/s.271(1)(c) of the
Act is relevant for extraction. The said satisfaction reads as under:
ITA Nos.2447 & 2448/PUN/2016 Magic Software Enterprises India Pvt. Ltd.,
“08. In view of the above discussion, I am satisfied that the assessee has concealed the particulars of its income to the extent of Rs.1,29,17,715/-. I, therefore, direct the assessee to pay a sum of Rs.43,91,583/- (Rupees Forty Three Lakhs, Ninety One Thousand, Five Hundred and Eighty Three only) by way of penalty u/s.271(1)(c) of the Act....”
From the above, it is evident that at the time of initiation of penalty
proceedings in the assessment, AO did not mention any limb of section
271(1) of the Act whereas at the time of levy of penalty, the AO mentioned
the limb stating that the assessee “concealed the particulars of its
income”. This manner of recording of satisfaction suggests the existence of
ambiguity with reference to applicability of specific limb. Therefore, we are
of the opinion that considering the above referred binding judgments such
penalty order is unsustainable in law legally. It is a settled legal
proposition that the AO is under obligation to specify the correct limb at the
time of initiation as well as at the time of levy of penalty. In view of the
above deliberation on this issue, without going into the merits of the
penalty, we are of the opinion that the penalty order is liable to be quashed
on this legal issue. Thus, the grounds raised by the Revenue are
dismissed.
In the result, appeal filed by the Revenue is dismissed.
To sum up, both the appeals filed by the Revenue are dismissed.
Order pronounced on this 15th day of November, 2018.
Sd/- Sd/- (िवकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �ाियक सद�/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER
पुणे / Pune; िदनांक / Dated : 15th November, 2018. Satish
ITA Nos.2447 & 2448/PUN/2016 Magic Software Enterprises India Pvt. Ltd.,
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत
अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-13, Pune 3. आयकर आयु� / The Pr.CIT-6, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / DR ‘A’, 5. ITAT, Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार आदेशानुसार
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune.