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TMI Blog2022 (10) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Section 74 of the Indian Evidence Act, 1872, in order to avail the benefit of the Hague Convention of 5 October, 1961 (Apostille Convention)." 6. The brief facts of case are that the assessee is a company incorporated as tax resident of Netherlands. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursement of expenses Rs. 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 Instrumentarium case, rejected the argument of base erosion and dismissed the appeal of the assessee in quantum proceedings. Subsequent to order of ITAT Ahmedabad in the assessee's own case, referred to above, the AO passed in order u/s 271(1)(c) of the Act levying penalty of Rs. 89,90, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 analysis in the computation of income is of no help to the Appellant. Had case of the Appellant would not have been picked up for the transfer pricing assessment, returned income filed by the appellant would have been accepted and actual income at ALP would not have been brought under taxation. Hence, mere re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 each and every case where appeal is admitted before the High Court. That is never the intention of the law. Admission of any issue before Hon'ble High Court is just a fact that High Court has considered this issue to be dealt as per the provisions of the law. Hence, this argument is of no help to the Appellant. .... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed. 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's length price of its international transaction is bonafide, in good faith and with due diligence. In this regard, reliance is placed on the losses incurred by the Indian AEs of the Appellant and argument that since the payee companies are incurring losses there is no loss to the Indian government. Further, reliance is placed on various case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide 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 observe that the assessee had made adequate disclosure of all the material facts in Form 3CEB, TPSR and also during the course of the transfer pricing assessment proceeding and scrutiny assessment proceedings. Therefore, there is no furnishing of any inaccurate particulars of income by the assessee. We also observe that it has been held by various Courts that Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the appellant's case is hard and calls for sympathy or merely out of benevolence to the party seeking relief. In granting the indulgence and condoning the delay, it must be proved beyond the shadow of doubt that the appellant was diligent and was not guilty of negligence, whatsoever. The sufficient cause within the contemplation of the limitation provision must be a cause which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 initiated. The Appellant, therefore, humbly submits that the said notice issued under Section 274 r.w.s. 271(l)(c) of the Act is bad in law and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 and CO filed by the Department is being dismissed for assessment year 2008-09. Assessment Year: 2009-10: 22. 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. 23. The assessee has taken the following grounds of appeal "Shell Global Solutions International B.V. ('Appellant') craves leave to pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 74 of the Indian Evidence Act, 1872, in order to avail the benefit of the Hague Convention of 5 October, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, 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 acceptable, the clarifications required, if any, on the practical implementation of the approach should be adopted from the OECD report on Attribution of Profits read with the OECD transfer pricing guidelines and not from the provisions relating to Indian transfer pricing regulations. d) Without prejudice to our contention that the provisions relating to the Indian transfer pricing regulations would not apply in the present case, utilizing the financial data of comparable companies for FY 2008-09 to determine the profit attributable to the PO, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebatable 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 not reproduced again. * Absence of Mens Rea - Penalty provisions are not attracted - For this contention, the Appellant relies on the detailed legal submissions made in para 2.8 above. For the sake of brevity, the same is not reproduced again. * Provisions dealing with Penalty must be strictly construed - For this contention, the Appellant relies on the detailed legal submissions made in para 2.13 above. For the sake of brevity, the same is not reproduced again. 4. CASE LAWS RELIED UPON BY THE APPELLANT INCORRECTLY DISTINGUISHED BY THE LEARNED AO 28. However, Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee'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 compatibility analysis was taken since it would produce better results and therefore use of such data is more appropriate than using a single year approach. In the quantum proceedings, while making the addition, the AO himself made the following observations while confirming the addition: "4.3 it is also the contention of the assessee that it cannot be forced to determine ELP office transactions on the basis of information that becomes available only subsequently. As already discussed above, that it is a post facto exercise to determine the correct profits attributable, therefore it is proper to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 initiated. The Appellant, therefore, humbly submits that the said notice issued under Section 274 r.w.s. 271(l)(c) of the Act is bad in law and as such the entire penalty proceedings should be quashed. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming levy of penalty under Section 271(l)(c) of the Act on account of the transfer pricing adjustment of Rs. 33,93,20,979 made in relation to the services rendered to Hazira LNG Private Limited, Hazira Port Private Limited and Shell India Markets Private Limited. 3. On the facts and in the circumstances of the case and in law ..... 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