TMI Blog2022 (10) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... alty in relation to the transfer pricing adjustment, when the said Explanation was neither referred nor relied upon at the time of initiation of the penalty proceedings under the Act. Another noteworthy point is that in our view, the additions on which penalty has been levied is a debatable issue. This is evident from the fact that 'Base Erosion' [ 2016 (7) TMI 760 - ITAT KOLKATA] issue was dealt by the Special Bench -Kolkata ITAT. Further, Pune ITAT has also upheld argument of Base Erosion and hence, two views are possible since at the time of hearing before Pune ITAT, it took an independent view since Kolkata SB decision was rendered after the Pune ITAT decision. The fact that Gujarat High Court has admitted the issue for consideration also supports the assessee s contention that the issue involved is debatable. So far as penalty with regards to reimbursement of expenses is being treated as FTS is concerned, in our view, it is a debatable issue whether reimbursement of expenses qualifies as FTS and there are various decisions which have held that reimbursement of expenses does not qualify as FTS. Accordingly, we are of the considered view that no penalty can be levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-09 to 2011-12. 2. Since common facts and issues are involved for all years under consideration, all the appeals and Cross Objections are being disposed of by way of a common order. We shall start with assessment year 2007-08 as the lead year. Assessment Year: 2007-08: 3. The assessee and the Department has filed appeal and cross objections respectively against the order of the ld. Commissioner of Income Tax (Appeals)-13, u/s. 271(1)(c), vide order dated 25/07/2019. 4. The assessee has taken the following grounds of appeal:- Shell Global Solutions International B.V. ('Appellant') craves leave to prefer appeal against the order dated 25 July 2019 passed by the Commissioner of Income-tax (Appeals)-13, Ahmedabad ['the learned CIT(A)'] under Section 250 of the Income-tax Act, 1961 ('the Act'), in respect of order dated 20 July 2017 passed by the Deputy Commissioner of Income Tax, International Taxation -1, Ahmedabad ('the learned AO') under Section 271(l)(c) of the Act, on the grounds v. as set out herein: The following grounds are independent and without prejudice to one another: 1. On the facts and in the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 3 of the Diplomatic 85 Consular Officers (Oaths Fees) Act, 1948 ; b. On the facts and circumstances of the case and in law, whether The Netherlands falls under the list of such nations which are authorized by the Central Government in Section 14 of the Notaries Act, 1952 ; c. On the facts and circumstances of the case and in law, whether the Power of Attorney has been stamped within 3 months after bringing it into India and if the same was done, whether done in the presence of Indian Diplomatic or Consular Officer ; d. On the facts and circumstances of the case and in law, whether the Power of Attorney has been executed in accordance with Section 26 of The Registration Act, 1908. e. On the facts and circumstances of the case and in law, whether the Power of Attorney has been executed in accordance with The Power of Attorney Act, 1882. f. On the facts and circumstances of the case and in law, whether the Power of Attorney is covered by the Hague Convention of 5 October, 1961 (Apostille Convention) g. On the facts and circumstances of the case and in law, whether the Power of Attorney falls within the definition of a Public document as defined in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration of the submissions filed by the assessee, proposed the following adjustments/addition to the draft assessment order: (i) TP adjustment in relation to services rendered to HLPL and HPPL amounting to ₹ 8,53,03,582/- (ii) Adjustment on account of the reimbursement of expenses ₹ 49,28,754/-. 7.1 The AO also initiated proceedings against the assessee u/s 271(1)(c) of the Act in respect of the above adjustments. Aggrieved with the adjustment/addition made in the final assessment order, the assessee filed an appeal before the ITAT Ahmedabad. In the interim, on a similar issue a Special Bench was constituted before the Kolkata ITAT in the case of M/s Instrumentarium Corporation v. ADIT in ITA number 1549/Kol/2009, to consider this issue and the assessee also took part in the proceedings in the capacity of an intervener. However, the Kolkata ITAT Special Bench in the aforementioned case (reported in 71 Taxman.com 193 (Kolkata) decided the issue of base erosion against Instrumentarium and consequently also against the assessee. Subsequently, the ITAT Ahmedabad in the assessee s own case, following the decision of Honourable Kolkata ITAT in the case of Instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eming fiction under Explanation 7 to Section 271(l)(c) of the Act cannot apply when assessee is able to show that price charged or paid in respect of related international transaction was computed in accordance with the scheme of Section 92C of the Act, and in the manner prescribed therein, in good faith and due diligence. However, as clearly mentioned above that both Special bench and Ahmedabad ITAT has already taken a view against the Appellant and hence now it cannot be claimed that the Appellant has acted in good faith and with due diligence. Reliance is also placed on the various decisions to argue that penalty should not be levied when two views are possible. However, in the case of the Appellant, there is no difference of opinion as far as transfer pricing adjustment is concerned. Hence, all these decisions are of no help 10 the appellant. Appellant has further submitted that it has reported all the transactions in Form No. 3CRB and provided detailed transfer pricing analysis and hence it has acted in good faith and with clue diligence is clearly not sustainable in law. Merely reporting of transaction in Form No. 3CKB but not giving effect to the transfer pricing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Hon'ble Special Bench, therefore it is a clear case of two views and hence it is not a fit case for levy of penalty. However, the Appellant has not brought on record the conflicting decisions because of which the ease of the Appellant was referred to special bench. Cases can be referred to the Special Bench on account of special importance of the case. The Hon'ble Special bench heard this case on account of unique issue involved and impact of this issue on larger group of assessees. In view of the same, the said argument of the appellant is rejected. .. Thus, it is noted that the theory of base erosion has been dealt with by the special bench and rejected. Therefore, the said theory is not based on legal principles but on the effective result of transfer pricing adjustments on Indian and foreign entity which is not relevant while deciding an issue on legal principles as per the existing law. . Further, mere admission of appeal by Hon'ble High Court does not justify that the issue involved was purely a question of law and hence penalty cannot be levied in such cases. This interpretation is just like putting an end to the penalty proceedings in eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since, there is specific observation of the ITAT, I would like to clarify that penalty is not sustained merely on account of not pressing the ground by the appellant before the ITAT. It is sustained on account of non submission of any satisfactory justification for non-levy of penalty. 12.2 In view of the above, Ground No. 3 is dismissed. 13. In the result, the appeal of the appellant is Dismissed. 9. Before us, the counsel for the assessee primarily reiterated the submissions made before. Ld. CIT(Appeals), which can be summed up as below: 1. Reliance is placed on Circular No. 14/2001 read with section 92(3) of the Act to contend that the purpose of transfer pricing provisions is to be applied in the cases wherein there is overall reduction in the taxes in India. In the instant ease, if the Appellant would have charged higher amount of fees for technical services, MLPL and HPPL would have claimed equivalent amount of deduction. The appellant being a foreign company would have paid taxes at: the rate of 10 percent, and Indian company would have saved taxes at the rate of 30 percent, hence effectively Indian tax base would have eroded. 2. Computation of arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition, even for the years when the Indian Associated Enterprises of the assessee had started making profits that is to say that in the years when the Indian AE started making profits, the assessee continued to charge the AE s at the same lower average weighted rate as compared to third parties (as was done in the impugned assessment year). The assessee, vide submission dated 3rd October 2022 confirmed that even in the years when the AE of the assessee had started making profits, the assessee was charging at the same weighted average rate for services rendered to them as in the earlier years when the AE s were incurring losses. Accordingly, the assessee had taken a consistent position so far as the principal of base erosion is concerned, in instant set of facts. On the levy of penalty, we are in agreement with the arguments put forward by the counsel for the assessee to the effect that the assessee has consistently taken the position that the lower mark-up charged in respect of services rendered to associated enterprises, for the reason that transfer pricing provisions are not attracted in cases where there is no base erosion, so far as taxes are concerned. Further, we also observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is barred by 880 days. On being requisitioned, no substantial reason was given to account for the delay in filing of the Cross objection beyond the stipulated period. In fact, from the records we observe that no affidavit has been filed by the Department in support of the delay in filing the Cross objection by 880 days. In our considered view, in the instant facts, the Department has not brought on record any cogent reason for delay in filing of appeal. In the case of Tractors Farm Equipments Ltd.[2007] 104 ITD 149 (Chennai) (TM) , the ITAT held that where assessee justified delay of 310 days in filing appeal before Tribunal by stating that Commissioner (Appeals) s order was misplaced and forgotten and when same was found while sorting out unwanted papers , steps were taken for preparation of appeal, the delay in filing of appeal before Tribunal could not be condoned as same was due to negligence and inaction on part of assessee and assessee could have very well avoided delay by exercise of due care and attention. While rejecting the assessee s application for condonation of delay, the Tribunal made the following observations: The delay cannot be condoned simply because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 15. In the result, CO filed by the Department is hereby dismissed. 16. In the result, for assessment year 2007-08, appeal of the assessee is allowed and CO filed by the Department is dismissed. Assessment Year: 2008-09: 17. The Assessee and the Department has filed appeal and cross objections respectively against the order of the order of the ld. Commissioner of Income Tax (Appeals)-13, u/s. 271(1)(c), vide order dated 25/07/2019. 18. The assessee has taken the following grounds of appeal Shell Global Solutions International B.V. ('Appellant') craves leave to prefer appeal against the order dated 25 July 2019 passed by the Commissioner of Income-tax (Appeals)-13, Ahmedabad ['the learned CIT(A)'] under Section 250 of the Income-tax Act, 1961 ('the Act'), in respect of order dated 20 July 2017 passed by the Deputy Commissioner of Income Tax, International Taxation -1, Ahmedabad ('the learned AO') under Section 271(l)(c) of the Act, on the grounds as set out herein: The following grounds are independent and without prejudice to one another: 1. On the facts and in the circumstances of the case and in law, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped within 3 months after bringing it into India and if the same was done, whether done in the presence of Indian Diplomatic or Consular Officer ; d. On the facts and circumstances of the case and in law, whether the Power of Attorney has been executed in accordance with Section 26 of The Registration Act, 1908. e. On the facts and circumstances of the case and in law, whether the Power of Attorney has been executed in accordance with The Power of Attorney Act, 1882. f. On the facts and circumstances of the case and in law, whether the Power of Attorney is covered by the Hague Convention of 5 October, 1961 (Apostille Convention) g. On the facts and circumstances of the case and in law, whether the Power of Attorney falls within the definition of a Public document as defined in Section 74 of the Indian Evidence Act, 1872, in order to avail the benefit of the Hague Convention of 5 October, 1961 (Apostille Convention). 20. Since, the facts and issues for consideration are same as that for assessment year 2007-08, the decision for assessment year 2007-08 would apply for assessment year 2008-09 as well. 21. Accordingly, the appeal of the assessee is allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserves the right to add, amend, alter or vary all or any of the above grounds of appeal as they or their representative may think fit. 24. The Department has taken the following cross objections a. On the facts and circumstances of the case and in law, whether the executed Power of Attorney notarized in The Netherlands is done in the presence of Diplomatic Consular Officer authorized under Section 3 of the Diplomatic 85 Consular Officers (Oaths 85 Fees) Act, 1948 ; b. On the facts and circumstances of the case and in law, whether The Netherlands falls under the list of such nations which are authorized by the Central Government in Section 14 of the Notaries Act, 1952 ; c. On the facts and circumstances of the case and in law, whether the Power of Attorney has been stamped within 3 months after bringing it into India and if the same was done, whether done in the presence of Indian Diplomatic or Consular Officer ; d. On the facts and circumstances of the case and in law, whether the Power of Attorney has been executed in accordance with Section 26 of The Registration Act, 1908. e. On the facts and circumstances of the case and in law, whether the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to the services rendered to HLPL and HPPL; and b) Higher profit attribution to the PO 27. The assessee made the following submissions before Ld. CIT(Appeals) on this issue: 3.5 The summary of the submission dated 15 February 2013 made by the Appellant is as under: a) The profit attribution report is a planning document prepared to determine the profitability of the transaction vis-a-vis a transfer pricing report which is prepared to determine whether the profitability meets the arm's length criteria or not. Hence, the profit attribution report should not be equated with a transfer pricing report/ analysis required to be prepared under section 92 of the Act. b) The profit attribution report is prepared by utilizing the OECD authorized approach for attributing profits to a permanent establishment. Arguably, while the approach has similarities to the transfer pricing guidelines, the whole exercise is not that of a transfer pricing analysis. Hence, the Indian transfer pricing regulations (including Rule 10B of the Rules) per se would not apply in the present case. c) In any case, where the OECD authorized approach has been adopted and found accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptioned year. 3.10 In view of the above, the Appellant submits that it has not furnished any inaccurate particulars of income and thus, penalty levied under Section 271(l)(c) of the Act should be deleted in the interest of the justice. In this regard, the Appellant relies on the detailed legal submissions made in para 2.5 above. For the sake of brevity, the same is not reproduced again. 3.11 In relation to the higher profit attribution to PO, your Honors would appreciate that the issue of considering multiple year data vis-a-vis single year data was highly debatable at the time of filing return of income for the captioned year. In this regard, the Appellant relies on the detailed legal submissions made in para 2.6.17 and 2.6.18 above. For the sake of brevity, the same is not reproduced again. 3.12 Apart from the above, the Appellant also relies on the following contentions in relation to levy of penalty for higher profit attribution to the PO: Mere difference of opinion does not justify the levy of penalty (Ground No. 9) - For this contention, the Appellant relies on the detailed legal submissions made in para 2.7 above. For the sake of brevity, the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r activities in similar industry. Based on the same, certain companies were identified as comparable companies and a markup of 16.7% was determined based on the average margins earned by such comparable companies during financial year 2006- 07, financial year 2007-08 and financial year 2008-09 to the extent available as of the date of preparation of the report. However, the AO was of the view that in terms of Rule 10B (4), the margins earned by such comparable companies for financial year 2008-09 alone could be used and therefore the AO determined the profits attributable at 24.81%. The assessee s contention was the that profits were attributed basis the OECD authorised approach which is a complete method by itself specifying the manner in which the profit attributable is required to be undertaken and accordingly there is no need to place reliance on the Rules drafted under the Indian Transfer Pricing Regulations. Therefore, while preparing the profit attributable report by third-party consultant, view was taken that single year data would not adequately capture the market and business cycle of the broad range of comparables. Therefore, multiple year data for undertaking a compatib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed appeal and cross objections respectively against the order of the order of the ld. Commissioner of Income Tax (Appeals)-13, u/s. 271(1)(c), vide order dated 25/07/2019. 34. The assessee has taken the following grounds of appeal: Shell Global Solutions International B.V. ('Appellant') craves leave to prefer appeal against the order dated 25 July 2019 passed by the Commissioner of Income-tax (Appeals)-13, Ahmedabad ['the learned CIT(A)'] under Section 250 of the Income-tax Act, 1961 ('the Act'), in respect of order dated 20 July 2017 passed by the Deputy Commissioner of Income Tax, International Taxation -1, Ahmedabad ('the learned AO') under Section 271(l)(c) of the Act, on the grounds as set out herein: The following grounds are independent and without prejudice to one another: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming levy of penalty under Section 271(l)(c) of the Act even in a situation wherein the learned AO in the notice issued under Section 274 r.w.s. 271(l)(c) did not specify under which limb of Section 271(l)(c) of the Act, penalty proceedings had been initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Power of Attorney has been executed in accordance with Section 26 of The Registration Act, 1908. e. On the facts and circumstances of the case and in law, whether the Power of Attorney has been executed in accordance with The Power of Attorney Act, 1882. f. On the facts and circumstances of the case and in law, whether the Power of Attorney is covered by the Hague Convention of 5 October, 1961 (Apostille Convention) g. On the facts and circumstances of the case and in law, whether the Power of Attorney falls within the definition of a Public document as defined in Section 74 of the Indian Evidence Act, 1872, in order to avail the benefit of the Hague Convention of 5 October, 1961 (Apostille Convention). 36. Since, the facts and issues for consideration are same as that for assessment year 2007-08, the decision for assessment year 2007-08 would apply for assessment year 2010-11 as well. 37. Accordingly, the appeal of the assessee is allowed and CO filed by the Department is being dismissed for assessment year 2010-11. 38. In the combined result, appeals of the assessee are allowed and the COs filed by the Department are dismissed for all assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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