TMI Blog2020 (5) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : Ujjawal Kumar ORDER PER PRAMOD KUMAR, VP: 1. These two appeals, filed by the assessee, call into question correctness of the orders of the learned CIT(A)- both dated 27th June 2018 , confirming the penalties imposed on the assessee under section 271 AA and section 271 BA for the assessment year 2006-07. 2. While penalty under section 271AA is levied for non-maintenance of the requisite records under section 92D in respect of international transactions, the penalty under section 271BA is levied for non- filing of report as required under section 92E in respect of the international transactions. These penalties thus proceed on the basis that there were international transactions that the assessee had with its associated enterprises. 3. Vide our order of even date, however, we have held that the Kaybee Exim Pte Ltd, which is alleged to be an associated enterprises of the assessee, is not an associated enterprise of the assessee. While holding so, we have observed as follows: 1. This appeal, filed by the assessee, calls into question correctness of the order dated 2nd February 2015, passed by the learned CIT(A) in the matter of assessment under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of Kaybee Exim Pte Ltd (KE- S, in short). GK is also one of the three directors in KE-S. It was also noted by the Assessing Officer that KE-S website shows the assessee company as a representative company . It was in this backdrop that the Assessing Officer observed that under section 92A(1)(b) an associated enterprise, in relation to another associated enterprise, means an enterprise in respect of which one or more persons who participate, directly or indirectly or through one or more intermediaries, in its management or control or capital of the other enterprise . As regards plea of the assessee that relationship between the assessee company and KE-S does not satisfy the conditions laid out in section 92A(2), and, therefore, the assessee and KE-S cannot be treated as AEs, the Assessing Officer observed that sub section (2) [of section 92A] does not negate the provisions of section (1) [of section 92A] . In other words, according to the learned Assessing Officer, the provisions of Section 92A(1) are required to be read on standalone basis rather than in conjunction with Section 92A(2). The assessee and KE-S were thus held to be AEs. Aggrieved, assessee carried the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m) of ss. (2), the condition of participating in the management directly or indirectly or one or more intermediaries as per clause (a) of s.s. (1) does not get effected by the criteria prescribed under s.s. (2). The Co-ordinate Bench of this Tribunal in the case of Diageo India (P.) Ltd. (supra) had the occasion to consider the meaning of AE as per section 92A (1) (2) in para 10 11 as under:- 10. We find that, in terms of the provisions of section 92A(l)(a), the expression 'associated enterprises' refers to an enterprises which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise . The scope of 'associated enterprises' is expanded further by section 92A(I)(b), taking into account group concerns, and it is provided that 'associated enterprises' covers an enterprise in respect of which one or more persons who participate, directly or indirectly. or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these are equally good for application in situations involving more than two enterprise, as envisaged in section 92A(1)(b). Section 92A(2)(e), for example, refers to a situation in which more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons but this deeming fiction is equally applicable when the same person appoints, say, more than half of the directors of the governing board for three or more enterprises. A literal interpretation to this clause will mean that if this relationship is between two enterprises, these two enterprises are required to be treated as 'associated enterprises' but when the same basis extends to more than two enterprises, these enterprises will not be associated enterprises. That is clearly an incongruous result. In our considered view, as all clauses of deeming fictions set out in section 92:(2) are only illustration of the manner in which this de facto control on decision making exists, It is necessary that, while interpreting these deeming fictions, we interpret the same in such a man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol on decision making exists. We will now examine the facts of the case in hand in the context of the requirement of one enterprise participate directly or indirectly or through one or more intermediaries inter alia in the management of the other enterprise as per clause (a) (b) of s.s. (1) of section 92A. . There is no denial of the fact that Mr. Govind Karunakaran is Director and 99.9% shareholder of the assessee company and also is a Director and Chief Operating Officer of Kaybee Exim Pte Limited, Singapore. Therefore, Mr. Govind Karunakaran is not only participates in management of both the companies by he is holding the key position in the management of Kaybee Exim Pte Limited, Singapore and is part of decision making process of the said company since 1996. Shri Govind Karunakaran is a common director in both the company and participating in the management of both the companies not for the name sake but he is holding the key position in taking the Idecision being a Chief Operating Officer of Kaybee Exim Pte Limited, Singapore and almost the entire shareholding of the assessee company, therefore, the condition of one enterprise participates directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that by way of this amendment, the scope of Section 92A(1) was specifically restricted. Our attention is then invited to the CBDT circular No. 8 dated 27th August 2008), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year st 2002 which, in paragraph 50.3, states that the existing provisions contained in section 92A of the Income Tax Act, provide as to when the two enterprise will be deemed to be associated enterprises and then adds that the Finance Act, 2002, has amended sub section (2) of section 92A to clarify that where any of the criterion specified in sub section (2) is fulfilled, two enterprises shall be deemed to be associated enterprises . It is then pointed out that this aspect of the matter was missed out in the Diageo decision (supra). Subsequently, however, when this aspect of the matter was brought to the notice of the benches, the benches did proceed on the basis that section 92A(2) restricts the scope of section 92A(1)- an antithesis of the conclusions arrived in the Diageo decision. Learned counsel submits that the author of decision in the case of the assessee for the assessment year 2008-09 is co-au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the CBDT circular has been duly considered in the decisions that he has relied upon. As the matter is now before Hon‟ble jurisdictional High Court, he submits, there is all the more reason of our not taking a different stand in the case now. In response to a question whether the issue of AE relationship is decided once for all or is on year to year basis on facts, he fairly accepts that it‟s a factual question though he also submits that on the same set of facts we should not differ. 8. In brief rejoinder, learned counsel for the assessee submits that since the matter is before the Hon‟ble High Court, and there is already a binding decision by Hon‟ble non-jurisdictional High Court which will bind the special bench anyway, there is no point in referring the matter to a special bench. He urges us to take an independent view of the matter rather than, though he puts it very diplomatically, knowingly perpetuating an error. He also refers to certain judicial precedents in support of relevance of memorandum to the finance bills, but, for the reasons we will set out in a short while, it is not really necessary to deal with this line of reasoning. Suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low such orders, instructions and directions of the Board . Once a circular is issued, even if it is in deviation with the provisions of the law or relaxes the rigour of law, it binds the field authorities. As held by Hon‟ble Supreme Court in the case of UCO Bank Vs CIT [(1999) 237 ITR 889], The relevant circulars of the Board cannot be ignored. The question is not whether a circular can override or detract from the provisions of the Act; the question is whether the circular seeks to mitigate the rigour of a particular section for the benefit of the assessee in certain specified circumstances. So long as such a circular is in force, it would be binding on the departmental authorities in view of the provisions of section 119 to ensure a uniform and proper administration and application of the Act . In Diageo‟s case (supra) relied upon by the learned Departmental Representative, as indeed by the decisions in assessee‟s own case by the coordinate benches, there was no occasion to refer to this CBDT circular, and the fact that position laid out in the Supreme Court decisions that these CBDT circulars bind the Assessing Officer, as well. These aspects having been miss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfaction to a refusal to ascribe infallibility to others. On the second limb of this proposition, we are reminded of the words of Justice Bhagwati, in the case of Distributors (Baroda) (P.) Ltd. v. Union of India (1985) 155 ITR 120 (SC), to the effect that To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this, we derive comfort and strength from wise and inspiring words of Justice Bronson in Pierce v. Delameter :'a Judge ought to be wise enough to know that he is fallible, and, therefore, ever ready to learn; great and honest enough to discard all mere pride of opinion and follow the truth wherever it may lead; and courageous enough to acknowledge his errors . Clearly, therefore, our ego must not come in the way of rectifying a mistake that we have committed in past and the only relevant question that we have to ask ourselves is whether it is permissible in law to rectify the mistake so committed. In the case of K P Verghese vs ITO [(1981) 131 ITR 597 (SC)], Hon‟ble Supreme Court were dealing with a situation in which the construction of newly inserted statutory provisions came up for consideration. It was in this context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand in this assessment year vis-a-vis the stand taken by us in the earlier years in assessee‟s own case. We may also add that subsequent decision in the case of Veer Gems (supra), which has been approved by Hon‟ble Gujarat High Court (supra)- SLP dismissed by Hon‟ble Supreme Court, has observed as follows: As long as an enterprise participates in any of the three aspects of the other enterprise, i.e. (a) management; (b) capital; or (c) control, these enterprises are required to be treated as associated enterprise, as also is the position when common persons participate in management, control or capital of both the enterprises. However, the expression 'participation in management or capital or control' is not a defined expression. To find the meaning of this expression, one has take recourse to Section 92(2) which gives practical illustrations, which are exhaustive and not simply illustrative- as clarified in the Memorandum explaining the provisions of the Finance Bill 2002 which, while inserting the words For the purpose of sub section (1) of section 92A in Section 92A(2), observed that It is proposed to amend subsection (2) of the said section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rum takes a decision one way or the other, all the decisions of the Tribunal, whether division benches or special benches, cease to be relevant. In the case of Tej International Pvt Ltd Vs DCIT (118 Taxman 59 (Mag)/ 69 TTJ 650), a coordinate bench has, on this issue, observed that In the hierarchical judicial system that we have, better wisdom of the Court below has to yield to higher wisdom of the Court above and, therefore, one a authority higher than this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon earlier decisions of this Tribunal even if we were a party to them. Such a High Court being a non-jurisdictional High Court does not alter the position as laid down by Hon ble Bombay High Court in the matter of CIT v. Godavari Devi Saraf [1978] 113 ITR 589 (Bom.). Therefore, we do not consider it permissible to rely upon the earlier decisions of this Tribunal . We are in considered views with the views so expressed by the coordinate bench. As for the binding nature of the decision of Hon‟ble non-jurisdictional High Court, in the absence of anything to the contrary by the jurisdictional High Court, we may only refer to the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction (but) it does not extend beyond its territorial jurisdiction.' Their Lordships in the same paragraph also noted that 'A Division Bench of the High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court', and 'if one Division Bench differs with another Division Bench of the same High Court, it should refer the case to a larger Bench'. Having thus noted the proposition, Their Lordships proceeded to 'analyse the decisions of this Court, on which reliance has been placed by the learned counsel for the assessee, in support of his contention that decision of any other High Court on all India statute like Income-tax Act, is binding even on this Court and on the Tribunals outside jurisdictions of that High Court'. On Godavari Devi Saraf's case (supra), which was delivered by a Division Bench of equal strength of this very Hon'ble High Court, Their Lordships took note of revenue's stand as follows : Referring to the observations of Godavari Devi (supra), that an all India Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of equal strength of the Hon'ble jurisdictional High Court, i.e., in the cases of Thana Electricity Co. Ltd. (supra) and Godavari Devi Saraf (supra), in a harmonious manner. 11. Let us now take a look at the Hon'ble jurisdictional High Court's judgment in the case of Godavari Devi Saraf (supra). In this case, question before Their Lordships was as follows : Whether, on the facts and circumstances of the case, and in view of decision in the case of A.M. Sali Maricar ( 90 ITR 116), the penalty imposed on the assessee under section 140A(3) was legal? 12. The specific question before Their Lordships was whether the Tribunal, while sitting in Bombay, was justified in following the Madras High Court decision holding the relevant section as unconstitutional. Hon'ble High Court concluded as follows : It should not be overlooked that Income-tax Act is an all India statute, and if a Tribunal in Madras has to proceed on the footing that section 140A(3) was non-existent, the order of penalty under that section cannot be imposed by any authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt's judgment is in favour of the assessee. Now, as held by the Hon'ble Supreme Court's judgment in the case of CIT v. Vegetable Products Ltd. ( 88 ITR 192), when two interpretations are possible, one in favour of the assessee must be adopted. For this reason, in our humble understanding, the plea of the assessee deserves to be accepted. 15. We may, however, add that the observations that we have made are particularly with reference to the legal position in the jurisdiction in Hon'ble Bombay High Court, as the view so taken in Godavari Devi Saraf's case (supra) has not found favour with Hon'ble Karnataka High Court as well as Hon'ble Punjab and Haryana High Court, in the case of Patil Vijay Kumar v. Union of India ( 151 ITR 48) and CIT v. Ved Prakash ( 178 ITR 332). The observations made in this order are subject to this rider and, therefore, while we agree with the conclusions arrived at by a Co-ordinate Bench in Tej International (P.) Ltd. (supra), our reasons are not exactly the same as adopted by our distinguished colleagues. 12. Viewed thus, the views expressed by the coordinate benches, which have met approval of Hon‟ble Courts abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing, a parallel exercise and thus sit, directly or indirectly, in judgment over what a higher judicial forum has already decided. Secondly, Hon‟ble jurisdictional High Court has already admitted appeals of the assessee, so far as earlier years decided against the assessee are concerned, and it is only a matter of time that the views of Their Lordships, on this issue thus, are to be expressed, and all of us have the benefit of these well considered views. Whatever we decide at this stage is nothing more than a writing on the sand and anyway subject to what Their Lordships eventually decide. The relevance, of the decisions of this Tribunal, is thus unambiguously ephemeral. There is no point in prolonging the decision-making process at the Tribunal by sending the matter to the larger bench. Finally, in any case, as analysed in great detail above, the views of non- jurisdictional High Court will bind the special bench anyway, and constitution of special bench will be a meaningless ritualistic exercise. 17. The oral prayer for the constitution of special bench must, therefore, be rejected. 18. Learned representatives fairly agree that the case of the Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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