DCIT, CHENNAI vs. AUTONEUM NITTOKU SOUND PROOF PRODUCTS INDIA PRIVATE LIMITED, KANCHEEPURAM

आयकर अपीलीय अिधकरण, ’ए’ �यायपीठ, चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI �ी चं� पूजारी, लेखा सद�य एवं �ी जी. पवन कुमार, �याियक सद�य के सम� BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER अपील अपील अपील संसंसंसं./I.T.A. No. 1956/Mds/2016 अपील िनधा�रण वष� िनधा�रण वष� /Assessment Year : 2009-10 िनधा�रण िनधा�रण वष� वष� Deputy Commissioner of Income M/s. Autoneum Nittoku Sound Proof Tax, Vs. Products India Private Limited, Corporate Circle -1(1), Plot No. RNS 15, SIPCOT Industrial Chennai - 600 034. Growth Centre, Oragadam, Vadakupattu Post, Kanchipuram, 603 204. [PAN: AAECR 1409H]

(अपीलाथ� अपीलाथ� अपीलाथ�/Appellant) अपीलाथ� (��यथ� ��यथ� ��यथ�/Respondent) ��यथ� अपीलाथ� क� ओर से/Appellant by : Shri Shiva Srinivas, JCIT ��यथ� क� ओर से/Respondent by : Shri Sandeep Bagmar, Advocate सुनवाई क� तारीख/Date of Hearing : 15.09.2016 घोषणा क� तारीख/Date of Pronouncement : 30.11.2016 आदेश आदेश /O R D E R आदेश आदेश PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The Revenue has filed an appeal against the order of CIT(A) - 1, Chennai I.T.A. No. 275//CIT(A)-1/14-15 dated 04.04.2016 passed u/s. 271AA and 250 of the Income Tax Act.

:-2-: I.T.A. No.1956/Mds/2016

Before we proceed for hearing there is a delay of 4 days in filing the 2.

appeal of the Revenue. The ld. DR filed condonation petition and explained

the circumstances for delay which are not deliberate. Further, ld. AR of the

assessee has no serious objections for condonation of delay. After hearing

the submissions, we are satisfied with the reasonable cause submitted in

affidavit for filing the appeal belatedly. Therefore, the delay is condoned and

appeal is admitted.

3.1 The Ld. CIT(A) has erred allowing the appeal of the assessee by holding

that the penalty order does not survive since the matter has been

remitted back to the TPO for reconsideration.

3.2 The Ld. CIT(A) failed to appreciate that fact that the Hon'ble ITAT has

only directed the TPO to compute ALP for the product development

expenses, which has no relevance to penalty levied for failure/non-

maintenance of information/documents.

3.3 The Ld. CIT(A) ought to have appreciated the fact that the original

assessment being remitted back to the TPO, it is premature to conclude

the fate of the penalty levied in the assessee's favour.

:-3-: I.T.A. No.1956/Mds/2016

manufacturing of sophisticated sound proof system solutions for the automobiles

and filed Return of income electronically on 30.09.2009 declaring Nil Income and

complied the provisions of section 115JB of the Act with a loss of Rs. 84,48,950/-

and the Return of income was processed u/s. 143(1) of the Act. Subsequently, the

case was selected for scrutiny and notice u/s. 143(2) was issued. The Ld. AR of the

assessee appeared from time to time and filed the details. The Assessing Officer

made the reference to the Transfer Pricing Officer for determining of arm's length

price of International Transactions. The Ld. TPO passed order C.R. No. R-510/TPO-

V/AY 2009-10 dated 23.01.2013 with observations that the assessee company has

determined Rs. 1,90,72,196/- which is also the ALP of development fees against

actual amount of Rs. 3,49,10,547/- and the difference of the total development fee

be reduced and since, the assessee company has capitalised the entire sum,

adjustment is compulsory, the Ld. AO passed Draft Assessment Order with TPO

observations on 15.03.2013, the rectification petition was also filed.

before the DRP and also rectification of mistake crept in the order. Subsequently,

the DRP passed directions to the TPO u/s. 144C(5) of the Act on 20.12.2013. The

Ld. TPO made reduction to Rs. 77,68,082/- instead of Rs. 1,58,38,351/-. Further,

the company is in the first year of its operations and yet to commence the

commercial operations and development fee of Rs. 3,49,10,547/- was capitalised as

"capital working progress". Whereas, as per the directions of the TPO, the capital

working progress was reduced as on 31.03.2009 to Rs. 2,71,48,465-. The Assessing

:-4-: I.T.A. No.1956/Mds/2016

Officer as per the directions of the DRP passed the final assessment order u/s. 143

r.w.s. 144(c) on 24.02.2014, subsequently the Assessing Officer initiated penalty

proceedings and issued notice u/s. 271AA of the Act in respect of maintenance of

documents as prescribed u/s. 92D(1) & (2) of the Act and report of transaction and

non-maintenance of proper documents. The Ld. AR of the assessee filed

explanation on 16.04.2014 and 25.09.2014. The Ld. Assessing Officer found that

the assessee company has failed to report transactions and non-furnishing of

information, the assessee prayed the penalty proceeding may kept in abeyance till

the disposal of appeal filed with Tribunal on additions. The Assessing Officer on

perusal of the findings of the TPO observed that the assessee company has to

maintain documents and could not comply the conditions of international transaction

reported in form 3CEB Rs. 18,59,95,547/- and assessee has failed to maintain

document as prescribed u/s. 92D r.w.r. 10D of Income Tax Rules 1962 and has not

submitted the Market Analysis Report. The Ld. AO passed penalty order u/s.

271(1)(c) of the Act for Rs. 37,19,911/- being 2% of international transactions of

order dated 27.08.2014. Aggrieved by the order assessee filed an appeal before the

CIT(A) in the appellant proceedings there was a delay of 78 days in filing the appeal

and was condoned. The Ld. AR filed judicial decisions and the Tribunal order in

assessee's own case. The Ld. CIT(A) observed on the findings of the TPO on non-

maintenance of documents as prescribed u/s. 92D r.w.s.10D. The appellant has

incurred development cost of Rs. 3.49 Crores examined by the Ld. TPO and order

passed u/s. 92CA of the Act. The quantum appeal filed with the Tribunal was

disposed off by order in ITA No. 1425/Mds/2014, dated 14.09.2015 where the

Tribunal remitted the matter to the file of TPO with directions to determine ALP for

:-5-: I.T.A. No.1956/Mds/2016

the product development expenses incurred by the assessee. The Ld. CIT(A) based

on ITAT decision of remitting the matter to the file of TPO is of the opinion that

penalty order does not survive and allowed the appeal.

The Ld. DR argued the grounds that the Ld. CIT(A) erred in observing that penalty

does not survive as the matter has been remitted to the file of TPO for

reconsideration for computation of ALP. Further, Ld. CIT(A) erred as the penalty is

levied in accordance with the provisions for non-maintenance of information and

documents in respect to international transactions and market analysis and prayed

for set aside of the order of CIT(A) and allow the revenue appeal. Contra, the Ld.

AR of the assessee relied on the order of the CIT(A) and the Tribunal order in

quantum appeal.

judicial decisions, the sole crux of the issue argued by the DR that the CIT(A) has

erred in deleting the penalty on the grounds that the matter has been remitted back

to TPO for reconsideration or determining the ALP of international transactions of

product development expenses and the assessee has not maintained the information

as required u/s. 92 r.w.s. rule 10D. On perusal, we found that the Ld. TPO has

examined the records and made the adjustments to the international transactions

which was considered by the DRP. The fact being the assessee company is in the

business of manufacturing of sound proof system and the Ld. AR has explained the

:-6-: I.T.A. No.1956/Mds/2016

assessee has maintained records and submitted before TPO and there is no specific

findings in respect of any failure by the Assessing authority on applicability of

provisions. We found the Tribunal in Appeal ITA No. 275/CIT(A)-1/2014-15 dated

14.09.2015 has remitted the issue to the file of TPO for reconsideration and

calculation of the ALP. We support our view with the decision of the co-ordinate

bench in the case of ACIT Vs. Pentasoft Technologies Ltd., ITA No. 809, 810, 816 &

817/Mds/2011 dated 25.11.2011 were it is held

"Submission of the assessee is that it had maintained all records which were required under Rule 10D of the Rules. What comes out of the proceedings before the TPO and the Assessing Officer are that they had not come to any findings regarding the specific failure, if any, of the assessee. If we have a look at Rule 10D, various types of records are required to be maintained and these are enumerated under clauses (a) to (m) thereunder. If the Revenue alleges that there has been a failure of the assessee with regard to production of any of these records, it is required to point out specifically where such failure occurs. It cannot go by a general statement that assessee had not maintained information as envisaged under Rule 10D. The specific record which assessee was required to maintain and which was not maintained has to be pointed out. This has not been done. In other words, assessee's contention that it had all such records was not effectively rebutted by the Revenue at any point of time. In any case, assessee had followed Cost Plus Method, whereas AO had followed TNMM method, but, both the methods finally gave the same value for the international transactions. In other words, no change was considered necessary to the Arms Length Price. This being the case, even if there was a failure, it was only a benign one which had no effect whatsoever on the value of international transactions entered into by the assessee. In so far as the case of G. I. Systems Org. India (P) Ltd, relied on by the Ld. DR is concerned, there assessee had not filed audit reports in prescribed Form No. 3CEB for the international transaction entered into by it. As against this, here, para 1 of the order of TPO dated 16th March, 2006 (paper-book page 45) clearly shows that Form No. 3CEB was filed by the assessee. Hence, we are of the opinion that the decision of Hyderabad Bench would not have any application in the given case. We find that Ld. CIT(A) was justified in deleting the penalty levied u/s. 271AA of the Act. No interference is called for.

:-7-: I.T.A. No.1956/Mds/2016

Appeals of the Revenue for assessment year 2003-04, in the case of M/s. Pentasoft Technologies Ltd. stand dismissed."

Order pronounced on Wednesday, the 30th day of November, 2016 at Chennai.

Sd/- Sd/- (चं� चं� चं� पूजारी चं� पूजारी पूजारी) पूजारी (जी जी जी. . . . पवन जी पवन पवन कुमार पवन कुमार कुमार) कुमार (CHANDRA POOJARI) (G. PAVAN KUMAR) लेखा लेखा सद�य लेखा लेखा सद�य सद�य /ACCOUNTANT MEMBER सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य/JUDICIAL MEMBER सद�य चे�ई/Chennai, �दनांक/Dated: 30th November, 2016 JPV आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF. 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR