2008 (2) TMI 453
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....grains, oil seeds and other food products including processed food. The taxpayer was also engaged in the business of processing crude oil. The taxpayer had carried various transactions with its foreign associate enterprises ('AEs' in short) of value of Rs. 20,23,20,68,761 and filed audit report in Form 3CEB along with the return. The summary of the transactions carried and the method applied by the taxpayer to show that transactions with AE were carried at arm's length is reproduced from para 2.1 of TPO's order dated 22-3-2006 and is as under: "2.1 During the year, the assessee has undertaken the following international transactions: S. No. Description of transaction Method Value (in Rs.) 1. Purchase of oil CUP 27,99,48,918 2. Contract cancellation penalty/charges CUP 5,27,796 3. Purchase of fertilizers CUP 1,38,26,80,957 4. Purchase of corn TNMM 72,05,26,464 5. Purchase of soyabean meals TNMM 73,92,33,814 6. Purchase of soyabeans TNMM 5,63,26,75,209 7. Sale of ferrous CUP 9,67,29,903 8. Sale of rice CUP 18,04,86,835 9. Sale of wheat TNMM 3,85,55,49,173 10. Sale of soyabean meals CUP 97,60,92,519 11. Sale of corn. TNM....
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.... cannot be treated as violation of section 92D(3) read with rule 10D of Income-tax Rules. On the other hand, the Assessing Officer observed that the relevant document prescribed under rule 10D from which arm's length price could have been determined were not filed within due date. Hence, the assessee failed to furnish the prescribed documents/information within due date. Considering both sides of point of view, I have to examine the documents which could be filed before 16-11-2005 and/ or after 21-11-2005 or not filed at all. On going through the penalty order, I find that the appellant has applied CUP method for some of the transactions while for certain transactions, it has applied Cost Plus Method (CPM) and Transactional Net Margin Method (TNMM). In this regard, I have to quote following observation of the Assessing Officer given in the penalty order with reference to CUP, CPM & TNMM. (A) The Assessing Officer's observation at Page 10, Para 21: "As seen from the above, the assessee has not furnished any comparable data with respect to the international transaction where CUP method is used as to determine the arm's length price. The actual working details of th....
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....ssee having maintained arm's length standards in the transactions it has proposed to cover under TNMM." (D) The Assessing Officer's conclusion at Page 13, Para 29: "As seen from the above paragraphs, the assessee-company had not furnished proper documentation as required statutorily in section 92CD read with rule 10D. Hence, the penalty under section 271G of the Income-tax Act is attracted. The reply furnished by the assessee is highly unsatisfactory. I am, therefore, satisfied that it is a fit case for imposition of penalty under section 271AA of the Act. The quantum of penalty leviable under section 271G of the Income-tax Act is 2 per cent of the value of the international transaction for each such failure." The Assessing Officer further observed that the assessee-company had not furnished the documentation as required statutorily with respect to the transaction shown in the chart prepared at page 14 of the assessment order. The total international transaction has been worked out in the chart for Rs. 2,023.20/- crore. (viii) On examination of the evidences and after going through the observation of Assessing Officer, I reached to the conclusion that the documents ....
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....y. Thus, the Assessing Officer has levied the penalty on the value of international transaction of Rs. 2,023.20/- crore, as argued by ld. AR. Hence, there is neither any difference in transaction nor any scope to interfere with that. In substance, I find that the appellant has committed default by not furnishing the prescribed document/information within due date. Hence, there was violation of provision of section 92D(3) read with rule 10D of the Income-tax Rules. With these observations, I hold that the Assessing Officer was justified to levy penalty under section 271G amounting to Rs. 40,46,41,376/- and, thus, the action of the Assessing Officer is upheld. In effect, the appeal is dismissed." 4.1 It is clear from above that penalty of Rs. 40,46,41,376/- has been imposed on the taxpayer for not furnishing documents and information called from him by due date which has been taken as 16-11-2005. In other words, the penalty has been levied for delay in furnishing the documents later than 16-11-2005. 5. We are, therefore, to see whether penalty of more than Rs. 40 crores in this case is justified for delay in the submission of the documents claimed to have been called by the T....
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....cumstances under which the default, if any, was committed. We would, therefore, examine various notices issued by the TPO and information furnished by the taxpayer in reply from time to time. Although audit report is not an information or document mentioned in rule 10D of Income-tax Rules, but report's connection with the rule 10D is important and is to be seen under section 92F. The report dated 27-11-2003 from RSM & Co., Chartered Accountant was duly furnished on the prescribed Form 3CEB is not in dispute. The report contained name and address of the taxpayer, list of the associated enterprises with whom the taxpayer had entered into international transactions, their names, relationship etc., particulars in respect of transactions of intangible properties given, name with details were entered. Other columns of the prescribed Form in respect of transactions were duly filled and information was given in Exhibits attached with the report. It is running into 18 pages and its copy is available at page Nos. 8 to 25 of paper book Vol. 1. The report claims that goods and services were transferred at arm's length price. The report further showed that taxpayer had carried transacti....
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....of Audit Report and Tax Audit Report filed with the Return. (b) Statement of Computation of income filed with Return for assessment year 2003-04. (c) Information and documents maintained as prescribed under section 92D of the Income-tax Act, 1961 read with rule 10D of the Income-tax Rules. If the above requirements are not complied with the arm's length price for 'international transactions' during the financial year 2002-03 shall be determined under section 92CA(3) of the Income-tax Act on merits and on the basis of material on record." 8. The taxpayer, vide application dated 10-10-2005 sought an adjournment on the ground that its representative was travelling and was not available. 9. The TPO issued second notice on 13-10-2005 to the taxpayer which is as under: "Sub: Notice under section 92CA(3) of the Income-tax Act, 1961 Computation of Arm's Length Price - Assessment Year 2003-04 - regarding: Please refer to this office letter dated 22-9-2005 requesting you to submit documentation as prescribed under rule 10D of the Income-tax Rules by 10-10-2005. However, the above-said documentation is yet to be submitted by your company. Please submit the desir....
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....ntation, as prescribed, under Section 92D of the I.T. Act read with Rule WD of the IT. Rules may be filed immediately and latest by 21.11.2005. If possible documentation may be filed earliest possible even before 21.11.2005. 11. It is claimed by Shri C.S. Agarwal, Sr. Advocate, the learned counsel for the taxpayer that TPO has himself extended time upto November 21,2005 as per his fresh notice. This was done under proviso to Section 92D(3) of Income Tax Act and, therefore, there could not be any default upto the aforesaid date. This inference of no default can be drawn by what has been observed by the TPO in his notice dated November 8, 2005 wherein it is clearly stated that the filing of statutory documentation is extendable by another 30 days. 11.1 The taxpayer has claimed that on November 16, 2005 it filed information and documents with covering letter from RSM and Co. with several annexures and Notes running into 54 pages (copies available at pages 95 to 145 of Paper Book Vol.1 ). The said information once again gave background of the taxpayer, referred to Chapter X i.e. to Indian Transfer Pricing Regulations (TPR). How above regulations were applied to determine ALP of vario....
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....tion 92D of the Act read with Rule WD of the Rules: Nature of Information/Documents prescribed under Rule 10D(1) Nature of InternationalTransaction (a) Description of the ownership structure of the assessee enterprise with details of shares or other owner ship interest held therein by other enterprises. Refer Annexure 3.1 (b) Profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions have been entered into by the assessee, and ownership linkages among them. Refer Annexure 3.2 (c) Broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted. Refer Annexure 3.3 (d) Nature and terms (including prices) of international transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction. Refer Annexure 3.4 (e) Description of functions performed, ....
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....s under: We trust the same (information) are in order. Should your goodself require any further clarification/information, we shall be glad to furnish the same. 12.2 During the course of hearing, the learned TPO instructed the taxpayer to furnish further information documents as per letter dated 12th December, 2005. which reads as under: In your 10D documentation there is nothing in suggestion and justification of Comparative Uncontrolled Price wherever it is used in the sense that, with what uncontrolled transaction your international transaction is benchmarked, is not provided. Similarly wherever Transactional Net Margin Method is used, your documentation does not provide which comparables are used, it further does not provide any functional details of comparables it is also not providing except reject matrix. In the case of payment of discounting charges which was not reported in 3CEB. Even in documentation of 10D at page 17 figures of payment is mentioned and it is justified at page 41 by an averment that the rate charged is LIBOR + 12.5 basis points and PLR is on higher side without actually demonstrating the same. In view of the above arguments please show cause wh....
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....te as per provisions of Section 92D of Income Tax Act read with Rule 10D of Income-tax Rules. Apart from the above the following documents which are critical in determination of arm's length price of international transaction were not submitted as part of documentation submitted on 16.11.2005. I. a record of uncontrolled transactions taken into account for analyzing their comparability including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties; II. a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction; III. a record of the actual working carried out. 3.6 The Assessing Officer may consider initiating proceeding under Section 271AA and 271G of Income Tax Act. 3.7 Further, it is worthwhile to mention that the assessee did not report a transaction related to "Payment of discounting charges". In documentation submitted on 16.11.2005 at page 17, the assessee has admitted that it did not report, thus transaction related to "Payment of discounting charges" in Form 3CEB. It is, therefore, evident that by due date of filing of 3CEB no statutory....
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....n also. 13.2 The Assessing Officer also considered the claim of the taxpayer on merit that it had maintained information and documents under Rule 10D of Income Rules read with Section 92D of Income-tax Act and furnished them within the prescribed time when called by the TPO. The Assessing Officer has recorded that report on the submission of the taxpayer was called from the TPO with relevant record of the proceedings. The TPO's report is dated 23.6.2006 where he had made reference to various order sheet entries of proceedings before him and stated that taxpayer had failed to furnish requisite documents as prescribed under Section 92D, read with Rule 10D of Income-tax Rules. Taxpayer's attention was also invited to the report of the TPO and objections were invited. These were submitted to the Assessing Officer, vide submission dated 29.8.2006. 13.3 In para 13 of his order, the Assessing Officer has briefly referred to the various notices issued to the taxpayer seeking information. The Assessing Officer rejected taxpayer's claim that it had submitted all the documents and information by 16.11.2005. According to the Assessing Officer, documents and information filed by t....
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....mated that profit level indicator used for benchmarking international transaction is OPM which means operating margin over sales/turnover. It is concluded in this paragraph that OPM of assessee is 0.09 percent which is better than 20 final set of comparables having OPM at -6.95%. The names of comparables, their financial data, their working of OPM and the details of their functional profile was not available in this document. The working of operating profit margin of the assessee was also not available in documentation submitted by the assessee on 16.11.2005. In totality, the approach is totally devoid of any merit whatsoever to draw any reasonable conclusion regarding the justification of the assessee having maintained arm's length standards in the transactions it has proposed to cover under TNMM. 13.7 The Assessing Officer also noted the contention of the taxpayer that it had furnished all documents under Rule 10D by 16.11.2005 and what was furnished on 12.12.2005, were actually "additional backup papers". The Assessing Officer held the view that documents furnished on 12.12.2005 were not additional backup papers but were inextricably linked with transactions and justifica....
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.... during the course of assessment proceedings. These can be initiated at any time. The Assessing Officer can adjudicate and pass an independent order Under Section 271G (ii) That penalty imposed was not time barred as limitation was to commence from the date of issue of show cause notice. Dates are not recorded. (iii) That it was not necessary for Additional C.I.T. to provide opportunity of being heard to the taxpayer before granting approval for the levy of penalty. (iv) That penalty proceedings Under Section 271G were different from penalty proceedings Under Section 271(1) where a "satisfaction" is required to be recorded during the course of assessment proceedings. There was no such requirement Under Section 271G. (v) The learned CIT (Appeals) further recorded that penalty proceedings Under Section 271G are different from penalty provisions of Section 271AA. In the appeal before him he was concerned with penalty imposed Under Section 271G only. (vi) On examination of various findings of the Assessing Officer at page 10, 11, 13 and in paras 21, 23, 24 and 29 of the order imposing penalty, the learned CIT (Appeals) reached the conclusion that documents furnished beyond du....
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....ed under Sub-section (3) of Section 92D.... It was argued that in fact no show cause notice for purported default allegedly committed under Clauses (g), (h), (I), (j) of Rule 10D was ever issued. The show cause notice issued is highly vague and non specific of the charge to which the taxpayer was expected to respond. In fact two show cause notices under Sections 271AA and 271G contradicted each other were issued. Shri Agarwal relied upon decision of Supreme Court in Reckitt & Colman of India Ltd. v. Collector of Central Excise wherein their Lordships have observed as under: 10. There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. ....
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....ITR 303 (Del), (vii) CIT v. Vikas Promoters (P) Ltd. 277 ITR 377 (Del), (viii) Saroop Lal Adlakha v. DCIT 97 ITD 6 (Del ITAT), (ix) CIT v. Super Metal Re-Rollers 265 ITR 82 (Del). He submitted that above mentioned decisions were in the context of Section 271(1)(c), yet the ratio of these judgments was equally applicable Under Section 271G. 15.6 Shri Agarwal also attacked reference made by the Assessing Officer to TPO Under Section 92CA(1) as illegal and not in accordance with law, yet when his attention was drawn to binding decision of Full Bench in the case of Aztech Software & Tech Ltd. v. ACIT 107 ITD 141 TM, he did not further address on this aspect. 15.7 The show cause notice is verbatim reproduction of penalty provision as laid in Section 271G without application of mind and without specifying the nature of default. Such a notice is clearly illegal and for this proposition, Shri Agarwal relied upon decision of Hon'ble Supreme Court in the case of Amrit Foods v. Commissioner of Central Excise UP 2005 (190) ELT 433, wherein their Lordship observed as under: The revenue has preferred an appeal from the order of the Tribunal setting aside the imposition of penalty ....
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....ing the show cause notice for initiating the penalty proceedings, the penalty levied is liable to be cancelled on this score alone, since the very issuance of the show-cause notice initiating the penalty proceedings, is invalid. 16. Shri Agarwal stated that even on merit there was no justification to impose any penalty recording that the taxpayer appellant had failed to furnish information or documents required by the statutory provision. As is clear from order, penalty has been levied for furnishing documents found to be "inadequate" and it has been held that documents filed on 16.11.2005 were insufficient which insufficiency was rectified by letters filed on 12.12.2005 and 23.12.2005. However, no such specific "inadequacy" was mentioned in the show cause notice. In this connection, Shri Aggarwal in support of above contention has drawn our attention to following observations at page 14 of order Under Section 271G: ...However as seen from the documentation filed by the assessee company vide submissions dated 16.11.2005 the documentation filed was quite inadequate..... It is clear from record that Assessing Officer was totally unspecific besides being unclear in respect of the ....
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....ustice or a quasi-judicial act is void or of no value. The Hon'ble SC in so holding has relied on its judgment in the case of State of Orissa v. Dr. (Miss) Binapani Dei Reported at [1967] 2 SCR 625. 16.3 Shri Agarwal also relied upon decision of Supreme Court in the case of Rajesh Kumar and Ors. v. DCIT and Ors. 287 ITR 91. He also relied upon Circular No. 12 dated August 23, 2001 of Central Board of Direct Taxes and drew our attention to the following observations: However, this is a new legislation. In the initial years of its implementation, there may be room for different interpretation leading to uncertainties.... While it is necessary to protect our tax base, there is a need to ensure that the tax-payers are not put to avoidable hardship in the implementation of these regulations. 16.4 Shri Agarwal reiterated that findings of the Assessing Officer were beyond jurisdiction and on appeal, learned CIT (Appeals) failed to consider that Assessing Officer had exceeded his jurisdiction and commented upon maintenance of documents under Rule 10D of Income-tax Rules in respect of international transactions with AE's in respect of which TPO did not make any adverse observati....
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.... appellant in relation to the international transactions. He submitted that the documentation requirements under Rule 10D are huge and cast onerous documentation responsibilities upon the appellant. A perusal of Rule 10D of the rules would show that the data required to be maintained is huge and can be considered as equivalent to separate and additional books of account. Shri Agarwal also referred to provision of Section 142(1)(ii) and 143(3) that even for purposes of regular assessment, the Assessing Officer has to exercise his discretion in a reasonable manner for assessment purposes. The T.P.O. adopted unreasonable and illegal approach. Shri Agarwal further argued that it is clear from the order of the TPO dated 22.3.2006 that all documents were filed by the taxpayer. The TPO has recorded as under: ...In response to notice Under Section 92CA, the authorized representative of the assessee appeared from time to time. The documentation under Rule 10D of the Income-tax Rules was submitted and placed on record. 16.6 Shri Agarwal further submitted that CIT (Appeals) failed to appreciate that no penalty Under Section 271G was leviable as all information and documentation, as per t....
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....absence of country financial controller. However, Assessing Officer imposed penalty without making any adverse comment on the pleaded cause. The learned CIT (Appeals) in appellate proceedings also did not record any adverse finding on the cause pleaded and explained by the taxpayer. Therefore, even if the alleged failure was proved, no penalty is exigible or sustainable as failure took place on account of a reasonable cause. The Assessing Officer and learned CIT (Appeals) have erred both on facts and in law in levying and upholding penalty without recording a finding on the reasonable cause. Shri Agarwal, in this connection, relied upon the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26 wherein it has been observed as under: Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. In the case of Woodward Governor India Pvt. Ltd. v. CIT and Ors. 253....
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....t case, the appellant had explained that despite significant movement of its key finance/accounting personnel responsible for coordinating, collating and compiling the information/documents maintained by the various business departments, the appellant extended complete cooperation in the assessment proceedings. The Country Finance Controller left the organization on 25.10.2005 and a new Controller was appointed who joined the organization on 07.11.2005 and was thus unfamiliar with the instant assessment proceedings. The new Controller is based out of the appellant's office in Pune. Further, the position of Manager (Corporate Accounts) fell vacant, and was filled on 01.09.2005. Thus, even for the sake of an argument it is presumed that the appellant furnished a part of the prescribed information/documents only after the statutorily prescribed deadline of 60 days, the above facts would, in terms of Section 273B of the Income-tax Act, would constitute reasonable cause for failure to do so. The delay too was rectified within 10 days of intimation of the same from the TPO. 17.1 As such the appellant humbly submits that, it has extended its full cooperation in the Transfer Pricing a....
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....posing penalty was not in accordance with law. Shri Pandey once again placed reliance on statutory provision of Section 92D which authorizes the TPO and the Assessing Officer to summon information and documents from the taxpayer. Shri Pandey further contended that authorities of Assessing Officer and TPO may be different in form but in substance they are one in this interregnum. 18.3 Shri Pandey further contended that claim of the taxpayer that notice issued by TPO was vague and invalid is also without any substance. Shri Pandey argued that once Assessing Officer had made order of the TPO as part of his assessment order, entire finding and recording of TPO was migrated to and became part of assessment order which was part of A.O.'s satisfaction and finding. The TPO in the order had made clear as to which documents the taxpayer had failed to furnish. Besides the taxpayer was provided adequate opportunity to appear before the A.O. and contest the proposed penalty. According to Shri Pandey, the specific documents and default attached thereto were explicitly explained to the taxpayer which is clear from the penalty order. Accordingly, it was submitted that there was no defect in t....
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....ea of reasonable cause taken by the taxpayer. It was, therefore, not correct that plea of the taxpayer relating to reasonable cause was not discussed. 18.8 Shri Pandey also challenged the argument of the taxpayer that documents filed after 16.11.2005 were merely supporting documents. The orders and annexures of the TPO's order in uncertain terms spell out that documents filed later should have been filed within the due time as in the absence of these documents the justification put forward by the taxpayer for ALP could not be understood or verified. 18.9 It was also wrong to claim that entire international transactions could not be made basis of levy of penalty. Shri Pandey justified the quantum of penalty imposed as the taxpayer has failed to furnish documents and information in respect of all the 24 international transactions. Hence no fault could be found with the basis of the penalty. 19. Shri Pandey further referred to impugned order of CIT (Appeals) wherein he has pointed out that under the provisions of Section 274(2) of the Act, no responsibility is cast on the Assessing Officer to provide opportunity of being heard to the taxpayer before making a reference to the TP....
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.... Section 271(1)(c) on the basis of prima facie adjustments and without issuing notice Under Section 143(2) of Income-tax Act. He emphasized that initiation of penalty proceedings can be totally independent of assessment proceedings. 19.4 Shri Pandey further referred to Section 275 providing for limitation for imposing penalty. Shri Pandey contended that limitation issues were serious issues and are governed by express statutory provisions and not by any implied law. Initiation and imposition of penalty provisions are governed by express statutory provisions. One penalty provision cannot be blindly applied to the other penalty provision. 19.5 Shri Pandey also argued that show cause notice issued by the Assessing Officer Under Section 271G was quite valid. He submitted that no format of show cause notice has been prescribed under the Act. Therefore, Assessing Officer is only required to quote section under which the show cause notice is issued. In case the default is not clear to the taxpayer, he may make necessary correspondence with the Assessing Officer to clarify any issue. In this case, copy of order of Assessing Officer and of TPO as also report of the TPO was duly furnished ....
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....ribunal, after considering parallel transfer pricing regulations in large number of countries, as also Indian Regulations on the subject, observed as under: 132. A dispassionate study of provisions of various countries on Burden of Proof would show, the following fundamental features: (i) That the burden to establish that international transaction is carried at ALP, is on the taxpayer who is to disclose all the relevant information and documents relating to prices charged and profit earned with related and unrelated customer. (ii) If the Assessing Officer has determined an ALP, other then the price declared by the assessee, A.O. has to prove that the price determined by him is reliable and reasonable and confirms the statutory requirement unless the case is covered by situation No. (111) below. (iii) In case of failure on the part of the taxpayer to comply with the statutory provisions, the tax authorities would have to determine the ALP. In such a situation, burden of proof on tax authorities is much reduced. 133. Having regard to the statutory provisions, particularly the mandate of Section 92(1) and 92D read with relevant rules, we hold that it is obligatory on the par....
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....be considered is amount of assets employed, risk involved, both in controlled and uncontrolled transactions. If there are such differences between transactions taken for comparison, which are likely to affect the price or cost charge etc in the open market then reasonable and accurate evaluation is to be done and adjustment made. Reliability of uncontrolled transaction would depend upon the degree of comparability. The uncontrolled transaction may not be taken "as comparable" if there are such material differences as can not be adjusted. If data found satisfy above requirements then further proceedings to find the most appropriate method, best suited to the facts and circumstances of a particular international transaction is to be selected. In other words, most appropriate method would be the method which provides most reasonable results having regard to the data available for determining arm's length price. If there are more than one ALPs determined on the application of most appropriate method then arithmetical mean of such prices or price at option of the assessee within 5% variation is to be adopted (Proviso to Section 92C(2)). 22. As in the present case, question of valid....
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....ciated enterprises involved in the international transaction ; (e)-same- (f) a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions entered into by the assessee ; (f)-same- (g) a record of uncontrolled transactions taken into account for analyzing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions ; (g)-same- (h) a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction ; (h)-same- (i) a description of the methods considered for determining the arm's length price in relation to each international transaction or class of transactions, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case ; (i)-s....
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....nnection with various transactions under the accounting practices followed. (4) The information and documents specified under Sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in Clause (iv) of Section 92F: Provided that where an international transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under Sub-rules (1) and (2) shall be maintained bringing out the impact of the change on the pricing of the international transaction. (5) The information and documents specified in Sub-rules (1) and (2) shall be kept and maintained for a period of eight years from the end of the relevant assessment year. 22.1 Sub-rule (2) of Rule 10D provides that no record in books may be maintained in case international transactions entered into by the....
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....h a nature that analysis and forecasts etc mentioned above have no connection or relevance for the determination of ALP. Depending upon the nature of the transaction question of application of assumptions, policies or price negotiations and, therefore, of Clause (k) of Sub-rule (1) would arise. This is itself indicated in the said clause by use of word 'if any'. It is, therefore, clear that one or more clauses of Sub-rule (1) are applicable and not all clauses of the Rule in a given case. It would all depend upon the facts and circumstances of the case more particularly the nature of international transactions carried or services involved. Likewise supporting documents, official publications, reports, market research studies, technical publications of Government or other institute of national or international repute, and all the documents mentioned in Rule 10D(3) may not be needed in case of every taxpayer. Stock exchange, price publication or commodity, market quotations would only be relevant in cases of international transactions involving stock or commodities. Such information would be totally irrelevant in cases of transactions, say for example relating to "intangible....
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....assessee. 3. The particulars required to be furnished under Section 92E are given in the annexure to this Form. In *my/our opinion and to the best of my/our information and according to the explanations given to *me/us, the particulars given in the annexure are true and correct. **Signed Name.... Address.... Membership No.... Place : ..... Date : ..... Notes : 1. *Delete whichever is not applicable. 2. **This report has to be signed by- (i) a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or (ii) any person who, in relation to any State, is, by virtue of the provisions in subsection (2) of Section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State. ANNEXURE TO FRORM NO. 3CEB Particulars relating to international transactions required to be furnished under Section 92E of the Income-tax Act, 1961 Part A 1. Name of the assessee : 2. Address : 3. Permanent account number : 4. Status : 5. Previous year ended : 6. Assessment year : Part B 7. List of associated enterprises with whom the assessee has entered into internationa....
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....ry of moveable/immovable property involved in the transaction. (d) Amount paid/received or payable/receivable in each transaction of purchase/sale, or lease rent paid/received or payable/receivable in respect of each lease provided/entered into- (i) as per books of account. (ii) as computed by the assessee having regard to the arm's length price, (e) Method used for determining the arm's length price [see Section 92C(1)] 9. Particulars in respect of transactions in intangible property: Has the assessee entered into any international transaction(s) Yes/No in respect of purchase/sale/use of intangible property such as know-how, patents; copyrights, licensees, etc.? If 'yes' provide the following details in respect of each associated enterprise and each category of intangible property: (a) Name and address of the associated enterprise with whom the international transaction has been entered into. (b) Description of intangible property and nature of transaction. (c) Amount paid/received or payable/receivable for purchase/sale/use of each category of intangible property- (i) as per books of account. (ii) as computed by the assessee having regard t....
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....he international transaction has been entered into. (b) Description of such mutual agreement or arrangement. (c) Amount paid/received or payable/receivable in each such transaction - (i) as per books of account. (ii) as computed by the assessee having regard to the arm's length price. (d) Method used for determining the arm's length price [see Section 92C(1)] 13. Particulars in respect of any other transaction : Has the assessee entered into any other international transaction Yes/No Yes/No not specifically referred to above, with associated enterprise ? If 'yes' provide the following details in respect of each associated enterprise and each transaction: (a) Name and address of the associated enterprise with whom the international transaction has been entered into. (b) Description of the transaction. (c) Amount paid/received or payable/receivable in the transaction - (i) as per books of account. (ii) as computed by the assessee having regard to the arm's length price. (d) Method used for determining the arm's length price [see Section 92C(1)] **Signed Name.... Address.... Place : .... Date : .... Notes : **This annexur....
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....ination of ALP. The relevant provisions of the scheme of assessment are as under: Computation of arm's length price 92C. (1) x x x (2) x x x (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that- (a) the price charged or paid in an international transaction has not been determined in accordance with Sub-Sections (1) and (2); or (b) any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in Sub-section (1) of Section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm's length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under Sub-section (3) of Section 92D, the Assessing Officer may proceed to determine the arm's length price in relation to the said international transaction in accordance with Sub-Sections (1) and (2), on the....
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....in Sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that Sub-section. (3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under Sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard: Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days. Penalty for failure to keep and maintain information and document in respect of international transaction. 271AA. Without prejudice to the provisions of Section 271, if any person fails to keep and maintain any such information and document as required by Sub-section (1) or Sub-section (2) of Section 92D, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of each international transactio....
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....important as it rules out option with the taxpayer and make it obligatory to furnish the requisite information. It is clear from above that power under above section can be used in the course of assessment proceedings i.e. in proceedings for determination of ALP and only for requiring to furnish prescribed information or documents under Rule 10D. It being a provision connected with procedure to help an assessment must be purposefully construed. But regulation does not provide any time or stage when power to issue notice is to be exercised. However, scheme of assessment do indicate the stage at which it is to be issued and the purpose, which is required to be achieved through the issuance of such a notice. We have already noted what are the implications and effect of prescribed Rule 10D on the powers to be exercised under Section 92D(3). We have also noted that taxpayer has filed preliminary or initial information of its ALP of international transaction when reference is received by the TPO Under Section 92CA(1). 24.7 The TPO is thereafter required to serve notice under Sub-section (2) of Section 92CA of the Act. The statutory scheme envisages that the TPO shall serve a notice req....
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....aving regard to purpose of the regulations, the notice Under Section 92D(3) must require specific information (or document) which the taxpayer failed to furnish Under Section 92CA(2) but which according to the TPO are necessary for determination of ALP of international transactions. Above view is fully supported by Sub-section (3) of Section 92CA of the act providing for the determination of the ALP by the TPO. Besides evidence/material referred to in the above Sub-section, the TPO is further required to consider "such evidence as TPO may require on specified points". Thus requirement of evidence on specific points is clearly stated. Therefore, notice Under Section 92D(3) can not be vague but must require specific information. This is established from clear language and scheme of the regulation. 26. In the case of The Barium Chemicals Ltd. and Anr. v. Sh. A.J. Rana and Ors., their Lordship of Supreme Court considered notice issued by the competent authority Under Section 19(2) of Foreign Exchange Regulation Act, 1992, which is as under: 2. (a) In case the said information, book or document is in the possession of any person, the Central Government or as the case may be, the Res....
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....2) considered by their Lordship and Section 92D(3) does not make any material difference. A corporate body like the taxpayer cannot be imprisoned but only fined which may be as heavy as more than Rs 40 crores imposed in this case. Consequences provided in Section 271G are quite severe. 27. Thus notice Under Section 92D(3) is different from other statutory notices. Here the Assessing Officer or CIT (Appeals) are empowered to require from the taxpayer or any person who has entered into an international transaction to furnish any prescribed information or document. Notice Under Section 92D(3) has to be confined to the furnishing of information or document as may be "prescribed". It is unauthorized to require the noticee to furnish non-prescribed information. If in the notice non-prescribed information is also called for, it would not be treated as notice under Section 92D(3) but under Section 92CA(3) or some other provision of the Act irrespective of the title or label given to such a notice. Relevant information can be sought under notice Under Section 92CA(3) also. Further, there is no restriction of furnishing prescribed information in response to notice Under Section 92CA(2) of t....
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.... into an international transaction but fails to furnish information or document as required under Sub-section (3) of Section 92D. On account of above default (failure), the defaulter is liable to pay penalty for a sum equal to 2% of value of international transactions for each such default. Provisions of Section 273B overrides Section 271G. In other words no penalty can be imposed for above failure of the person to furnish documents in time if such failure is proved to be due to a "reasonable cause". 30. With the above legal background, we proceed to consider facts and circumstances of the case. The TPO in this case issued first notice on September 22, 2005 which has been reproduced in the earlier part of this order. In para 1 of the notice, he asked the assessee to support and substantiate the computation of ALP in international transactions. This is required by Section 92CA(2). As per para No. 2 the T.P.O. further required to furnish information including the balance sheet, profit and loss account, statement of computation of income, audit report, tax report and also, "information and documents maintained as prescribed Under Section 92D of Income-tax Act, 1961 read with Rule 10D....
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....income etc was also required to be furnished from the taxpayer before the taxpayer could file evidence under Section 92CA(2). Not only primary documents necessary to support the computation of ALP of taxpayer, but also supporting documents detailed in Sub-rule (3) of Rule 10D were required to be furnished without considering which supporting documents out of several mentioned in various clauses of the said sub-rule were available with the taxpayer. The burden of selection/relevancy of clauses applicable was shifted to the taxpayer. The notice only increased burden of the taxpayer and confused the notice. Above notices issued without application of mind and without considering relevancy and requirement of all the prescribed information and documents under Rule 10D vitiated the legality of the notices. Above notices could not be treated as proper and legal notices in terms of Section 92D(3) of the act. The failure, therefore, of the taxpayer to comply such notices in time can not justify levy of penalty of Rs 40,46,41,376/-. The notice being illegal question of levy of penalty did not arise. 33. Apart from the decisions cited by Shri Agarwal, the learned counsel for taxpayer, our ab....
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....use of the rule or detail of the international transaction relating to which default was committed, were stated in the show cause notice issued by the A.O. The notices issued were prima facie illegal and bad in law. He relied upon the decision in the case of Reckitt & Colman of India Ltd. (supra) and on the case of Hindustan Polymers Co. Ltd. (supra). In the case of Amrit Foods v. Commissioner of Central Excise UP 2005 (190) ELT 433, wherein their Lordship observed as under: The revenue has preferred an appeal from the order of the Tribunal setting aside the imposition of penalty under Rule 173Q of the Central Excise Rules, 1944. The Tribunal has set aside the order of the Commissioner on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 1730 had been allegedly contravened by the appellant. We are of the view that the finding of the Tribunal is correct. Rule 1730 contains six clauses the contents of which are not same. It was, therefore, necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of the 173Q. This not having bee....
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....corded no finding on the "reasonable cause" pleaded by the taxpayer. In other words it was not held that the delay was without a reasonable cause. The same position continue unaltered in appellate proceedings before the learned CIT (Appeals). The case pleaded by the taxpayer was neither examined nor refuted before upholding the levy of penalty. The learned Departmental Representative tried to challenge above argument of Shri Agarwal. However, on facts we are of view that arguments of Shri Agarwal arewell taken. 39. As already discussed, provision of Section 271G is to be read alongwith provision of Section 273B of the Income-tax Act. The penalty Under Section 271G can be imposed only if the default is held to be proved to be without reasonable cause. Once a reasonable cause for delay is pleaded then it has to be examined in accordance with law. In the present case, no attempt has been made by the Revenue to look into, examine or refute the claim of reasonable cause put forth by the taxpayer. The case, therefore, cannot be taken to have been rejected. The penalty has been imposed without considering application of Section 273B of the Income-tax Act which as noted earlier overrides ....