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Income Tax Appellate Tribunal, MUMBAI BENCHES “K” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
Date of Hearing: 22.11.2016 Date of Pronouncement: 28.11.2016 ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2008-09. It is directed against the order of Commissioner of Income Tax (Appeals)-10, Mumbai and arises out of the order u/s. 271 (1) (c) of the Income Tax Act, 1961 (‘the Act’).
The sole ground raised by the assessee in this appeal is that the AO, before levying penalty u/s 271(1)(c), erred in not appreciating that all the facts relating to the International Transactions which are material to the computation of the total income have been fully disclosed by the appellant and the explanations given by the appellant were bona fide. It is further stated that the AO has erred in not appreciating that mere addition to the income of assessee on account of transfer pricing adjustment under section 92CA(3) cannot automatically lead to levy of penalty under section 271(1)(c). Also it is raised that the AO has erred in placing undue reliance on the fact that the appellant company did not contest the basic addition of Rs. 56,21,491/- made u/s 92CA(3) of the Act and that the AO ought to have appreciated that the subject addition was not challenged since it was tax neutral and to avoid delaying the process of winding-up on account of pending tax issues.
In a nutshell, the facts are that the assessee-company is engaged in business of processing and marketing of fruits and vegetable products in the form of pulps and concentrates. It filed its return of income for the A.Y. 2008-09 on 29/09/2008 declaring total loss at Rs. 1,35,01,345/-. The AO complete the assessments u/s 143(3) on 24/11/2011 at a total loss of Rs. 78,79,854/-. In the assessment order the AO made an addition of Rs. 56,21,491/- u/s 92CA(3) of the Act. Then the AO initiated penalty proceedings u/s 271(1)(c). Then considering the submission made by the assessee dated 29/05/2012, the AO imposed a minimum penalty of Rs. 19,10,744/- u/s 271(1)(c) of the Act. The assessee preferred an appeal before the ld. CIT (A) against the order of the AO imposing the above penalty. The ld. CIT(A) has dismissed the said appeal.
Before us, the ld. counsel of the assessee submits that the details of international transaction in dispute are as under :-
Party Status Sale price charged Remarks DEL MONTE Appellant Company To AE-USD 1200per FOODS INDIA MT PRIVATE LIMITED GTL Ltd. AE in Singapore To ultimate AE has no margin in customer-USD the transaction and 1200 per MT accordingly no question of under invoicing, contravening TP provisions. M/s. Dohler Ultimate Customer NA Holland B.V. in Netherlands 4.1 It is further stated that the assessee-company had no working capital to execute the orders from ultimate customer, thus, the orders were routed through GTL Ltd. (Singapore), Associated Enterprise (AE) of the assessee- company, for the same order value. Thus, assessee-company could get working capital from AE in form of customer advance. To take care of working capital requirement of assessee-company, purchase orders by GTL were finalised in March 2007 itself. In view of peculiar situation in which assessee-company was operating, it had to raise invoice on AE instead of ultimate customer at same price. Thus, actual sale price should only be considered. The shortfall in ALP was due to difference in exchange rate at the time of obtaining purchase orders and at the time of actual exports.
4.2 The ld. counsel of the assessee further submits that all facts relating to international transaction which were material to computation of total income had been fully disclosed. Sample copies of purchase order from AE to assessee-company, from ultimate customer to AE, invoice raised by assessee-company on AE, Form 3CEB, detailed explanations as to the determination of ALP using CUP method was submitted to lower authorities. In fact, the customs data on the basis of which adjustment is made by TPO, was furnished by the appellant itself in the Form 3CEB.
The ld. DR supports the order of the ld. CIT(A) upholding the penalty of Rs. 19,10,744/- imposed by the AO u/s 271(1)(c) of the Act.
We have heard the rival submissions and perused the relevant material on record. It is relevant to refer here the order of the TPO on the above aspects. The TPO went through the international transactions reported by the assessee-company with its AEs. Then the TPO asked the assessee-company to show-cause as to why transfer pricing adjustment should not be made based on customs data available from other concerns dealing in the same products. The TPO has mentioned that in response to the show-cause, the assessee had submitted documents and evidences explaining the logic for the adjustments made to the customs data to arrive at the arms length price. The TPO has also mentioned at para 5 of his order dated 31/03/2011 that as per the assessee’s submission of Form -3CEB, there was short fall in the value of international transactions as per the following details.
S. No. Nature of Value of Comparable Value of Comparable Shortfall International Sale to Value Sale to Value (Rs. (Rs. Cr) Transaction GTL (Rs. Cr.) DMPI Cr.) Ltd. (Rs. Cr.) (Rs. Cr.) 1 Sale of Totapuri 3.83 3.79 - - - Mango Puree (TMP) 2 Sale of Mango Puree 4.99 5.55 - - 0.56 (AMP) 3 Sale of Sindura 0.39 0.30 - - - Mango Puree (SMP) 4 Sale of Totapuri 0.16 0.17 - - 0.00 Mango Concentrate (TMC) 5 Sale of White Guava 0.16 0.15 0.31 0.27 - Puree (WGP) Total 0.56 6.1 The TPO has also mentioned that “the assessee had explained that the Purchase Orders from GTL Ltd. were received much before the Mango season, to help it to get Customer Advance for funding its working capital, by arriving at the sale price using exchange rate prevalent at that time, while at the time of actual exports the Rupee had appreciated very much, effecting the values in Indian Rupees, and hence the shortfall as compared to ALP.”
6.2 We find that the assessee-company has proved that the price charged or paid in an international transaction was computed in accordance with the provisions of section 92C and in the manner prescribed under that section in good faith and with due diligence. Also the assessee-company had furnished all the required details called for from time to time, and had disclosed all material facts before the TPO. Being a deeming fiction Explanation 7 to Section 271 (1) (c ) cannot apply when the transfer price is computed in the prescribed manner in good faith and with due diligence.
In view of the forgoing reasons, the order of the ld. CIT(A) upholding order of penalty of Rs.19,10,744/- imposed by the AO is cancelled.
In the result the appeal is allowed.
Order pronounced in the open court on 28/11/2016