9911796707
TMI Blog2014 (5) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... since modified the stay order as passed by the Tribunal, and which would thus obtain, even as the certified copy of its order is as yet neither available from the Registry nor available on line. The hearing in the case was accordingly proceeded with on that basis. The order by the hon'ble court stood subsequently, i.e., vide its letter dated 18/2/2014, brought on record by the assessee. 3. The sole issue arising in the instant appeals, agitated per five grounds, identical for both the years, is the maintainability in law of the levy of penalty u/s. 271(1)(c) of the Act for the relevant years in facts and circumstances of the case, which again bear striking similarity. 4. We shall begin by recounting the back-ground facts of the case. The assessee, incorporated as a private limited company on 30/7/2001, is a joint venture company of Mastek Limited and Deloitte Consulting. While Mastek, which along with its affiliates holds 50.1 percent of shares, is a publically held Indian information technology application outsourcing company, Deloitte Consulting (DC), registered as a limited partnership in New York, USA, holding as a group the balance 49.9 percent shareholding, is a one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length price thereof at nil. The assessee had valued the same at the amount/s as booked and claimed, i.e., on actuals, at Rs. 5.86 crores and Rs. 6.61 crores for the two consecutive years under reference respectively. The assessee, apart from its reply on merits, had also informed the TPO that it had 'revised' its returns for the relevant years, i.e., on 29/3/2006 and 14/12/2007 respectively, disallowing the entire marketing expense as claimed, and that therefore no transfer pricing adjustment u/s. 92CA on account of this international transaction/s would arise. The TPO observed that no revised audit report per the requisite Form (# 3CEB) had been furnished for the said transaction/s, booked as reimbursement of actual expenses, along with the revised return/s. Accordingly, rejecting the declared value of the said transactions, he assessed the 'transfer price' thereof at nil, stating his reasons for the same. As regards the issue of deduction of u/s. 10A, claim under which had been correspondingly enhanced by the assessee consequent to the increase in the returned income on account of disallowance of the marketing expense per the 'revised return/s', the same would be considered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng though to no enhancement in income due to a corresponding increase in the deduction u/s.10A. However, no material to support its case on facts, which stood considered by the Transfer Pricing Officer (TPO) in framing his order u/s.92CA(3), being adduced, the assessee's contention did not pass muster. Even the revision was considered as not voluntary in-as-much as reference to the TPO had already been made, and who had already answered the reference thereto u/s. 92CA for the earlier years, valuing the said transaction at Nil. Accordingly, the 'revision' was only a deliberate attempt to avoid the applicability and rigor of section 92C(4), precluding the deduction inter alia u/s.10A for any enhancement in income upon adoption of the ALP as determined. Penalty u/s. 271(1)(c) was accordingly levied at 100% of the tax on the amount initially claimed as marketing expense. The same found confirmation in appeal; the ld. CIT(A) after an extensive review of the case law holding as under for both the years, which sums up the Revenue's case: '4.2.6 Thus from the careful reading of the provisions of section 271(1)(c) together with the explanation-1 there under and the various available judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference was already made to the TPO and the proceedings were in progress when the assessee filed his revised return. So admission/disclosure of additional income was not voluntary, more so when similar view was already taken in its earlier years (AY 2002 -03 & 2003-04). The deduction thereon was not admissible u/s. 10A by the virtue of the proviso to s. 92C (4). This is not a case where issue could be termed as debatable or even two views were possible; and as such in the facts of the case it has to be held that assessee had indeed furnished inaccurate particulars of its income and AO has rightly imposed penalty u/s. 271(1)(c) for that default. Accordingly levy of penalty of Rs. 2,05, 26,780/- (*) u/s. 271 (1) (c) in the year under consideration for the said default is confirmed.'[(*) Rs. 2,31,18,488/- for AY 2005-06] Aggrieved, the assessee is in second appeal. 5. We have heard the parties, and perused the material on record. 5.1 The respective cases of the parties inform the foregoing narrative of the events leading to the appeals to the tribunal, the second appellate authority under the Act. Before us, the assessee did not dispute the factual findings by the TPO, even as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to DC. There has been no rendering of any marketing services to the assessee, while the DC stands adequately compensated for undertaking the marketing function. The cost of the said services stood, accordingly, determined by him at Nil; there being in fact no revision by the assessee of the auditor's report/s u/s.92E (copy on record) supporting its 'revised' claim/s. Further, for A.Y. 2005-06, the assessee rather sought to justify the operating margin, being, at 17.68%, lower than the comparable mean of 27.31%, on the basis of 'disallowance' of its claim for marketing services availed, which would operate to increase its operating margin to 27.56%, i.e., more than the bench mark. Reference in this regard may also be made to para 33 of the tribunal's order dated 30.03.2012 (supra) by way of abundantly clarifying facts: '33. From the above, it is clear that the assessee company admits that (i) marketing services provided by Deloitte to the assessee company is a separate class of international transactions between the assessee and Deloitte; (iii) It is also clear that the assessee company's entire revenue are only from Deloitte and that too from job work. It is not a case where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that may follow for the current year/s, so that nothing turns on the TPO's reports for those years. However, reference to the TPO for the current year/s, which for both the years, being on 01.09.2005 and 23.01.2006 for the two years respectively, is much prior to the date of 'revision', is without doubt relevant in-as-much as an enquiry with regard to the ALP of the international transactions, including for marketing services, would follow. Rather, for all we know, even the notices to the assessee by the TPO would have been issued prior to the revision; the ld. CIT(A) in fact stating of the proceedings before the TPO being in progress at the relevant time. The 'revision' made in anticipation of the proposed adjustment is thus not voluntary but guided by the motive to eschew an adjustment and, resultantly, the debilitating impact of section 92C(4). Voluntariness, and bona fides, it is trite law, are essential ingredients of a valid revision u/s.139(5), while in the present case the assessee is well aware of having made a claim per its return, being in fact made year after year, for which it is unable to state, much less establish, any basis. In any case of the matter, the revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section.' We have already opined as to why the revision by the assessee in the instant case cannot be considered as a valid revision under law. That being the case, the 'revised return' is non-est in law and the only valid return by the assessee is its original return/s, whereby claim for marketing expenses has been made. Accordingly, notwithstanding a claim to revision, which is thus not valid in law, the enhancement of its income is only in consequence of its adjustment to the returned income u/s.92C(4) r/w.s. 92CA(4). The rigor of section 92C(4) is thus attracted, and despite the assessee's income bearing the same quality or character, would stand disqualified to that extent for being allowed deduction u/s.10A in its respect. In other words, the assessee's argument, valid in principle, fails in the facts and circumstances of the case and the specific provision of law governing the same. Further, we observe that the assessee is selectively reading para 51 of the tribunal's order dated 30.03.2012 (supra), overlooking its finding per para 53 thereof ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d may also be made to section 92(2) of the Act. Surely, the disallowance or, more precisely, the TP adjustment of the marketing expenses would not have resulted but for the reference being made to the TPO to determine the ALP of the relevant international transaction. It is in this view of the matter, and the incident legal framework, that the tribunal states of the income arising out of adjustment as being not derived from export. In fact, we do not think that we need to, in view of the express provision of section 92C(4), travel thus far, and the very fact that the TP adjustment stands made and upheld, would be sufficient to deny a claim for deduction u/s.10A. 5.4 Could it then be said with any measure of creditability that a deduction u/s.10A would yet ensue, or that the assessee's claim is legal, so that no penalty could arise? The argument, even otherwise, has a deep fault line. Any adjustment in assessment is only with reference to some provision of law, so that the issue by that score becomes legal, excluding penalty! The only and the true import of the argument is that where the issue is debatable, amenable to more than one view, penalty (for concealment or furnishing inac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the assessee seeks to justify the same on the basis that there is no provision for 'revision' of the said report, we find the same specious and per se unacceptable. Anything which is wrong, or discovered as so, is not valid. The same therefore has to be necessarily withdrawn, admitting the same as not correct and, further, furnishing in its stead, what it deems as the correct version. The same would only bring forth and inform the reason as to what infirmity attended the same as well exhibit the validity of the substituted, 'correct' report. The TP report, it needs to be appreciated, is the assessee's justification for having incurred the expenditure on an arm's length basis, i.e., constitutes its explanation, so that notwithstanding a disagreement or difference with the Revenue with regard to its quantum, the assessee can, in view of its explanation, duly substantiated in-as-much as the said report is only based on the assessee's books of account, underlying contracts, documents (which the law obliges it to maintain and furnish on being called upon to - s.92D), comparable cases, etc., whether construed with reference to Explanation 1 or Explanation 7 thereof, would save penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not available to it. This is precisely why the law, per Explanation 7 to section 271(1)(c) requires the assessee to justify its international transaction on the basis of bona fides - an essential attribute saving penalty, so that no penalty, despite enhancement in income due to denial of deduction u/s.10A on the amount of adjustment, shall follow. The assessee, thus, has no case at the threshold, which gets aborted by it disclaiming its transaction. The question of proving its international transactions, which would be its explanation, thus just does not arise. 5.5 The assessee's next plea is of a complete disclosure of material facts, made, adverting to the audit report u/s.92E. We are at loss to, in the given facts and circumstances of the case, fathom even the import of the argument. It is only on failing, and abysmally at that, to demonstrate any business purpose of its relevant international transaction that a TP adjustment, valuing the same at nil, was advised by the TPO and came to be made. Does the assessee's return or the TP report or its books of account, etc. on which the return is based, state so or likewise, i.e., that no services stood rendered or availed of by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re may be areas of overlap and, further, the Revenue has clearly made out a case for the latter. That a plausible explanation, the onus to substantiate which is on the assessee, saves penalty, represents trite law, expounded by the apex court over decades (refer: CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC); UOI v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros. v. CIT (1999) 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC), to cite some, and which is completely absent in the instant case. The ld. CIT(A), whose findings are comprehensive, has correctly appreciated both, the facts as well as the law in the matter, so that there has been no omission on his part to consider any aspect of the matter, even as the assessee did not press its Gd. # 1:4, alleging so, before us. We, on our part, have focused on facts inasmuch as an explanation in most cases, as indeed in the present case, is an issue of fact, to find the assessee's case to be sans any explanation and not maintainable ex facie. The assessee's case therefore fails whether the enhancement in its income is considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
