Income Tax Appellate Tribunal - Hyderabad
Karvy Computershare Pvt.Ltd. Hyd, ... vs Addl. Cit, Range-2, Hyd, Hyderabad on 7 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA Nos. 737, 738, 739 & 740/Hyd/2016
Assessment Years: 2010-11 & 2011-12
Karvy Computershare Pvt. Ltd., Vs. Addl. Commissioner of
Hyderabad. Income-tax, Range - 2,
Hyderabad.
PAN - AACCK 2193D
(Appellant) (Respondent)
Assessee by : Shri K. Gopal
Revenue by : Shri H. Phani Raju
Date of hearing : 21-06-2017
Date of pronouncement : 07-07-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
These four appeals pertain to the assessee are directed against the orders of the learned Commissioner of Income-tax (A) - 2 Hyderabad, all dated 29/02/2016 for AYs 2010-11 and 2011-12 ITA Nos. 737 & 740/Hyd/2016 for AYs 2010-11 & 2011-12
2. As the issue in both the appeals are common, which is pertaining to levy of penalty u/s 271BA, we refer to the facts from AY 2010-11.
3. The assessee is engaged in providing registry services to various companies and mutual funds. During the scrutiny proceedings, the AO noticed that the assessee did not furnish report in form No. 3CEB as required u/s 92E r/w rule 10E. As there was a 2 ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
non-compliance, penalty proceedings u/s 271BA were initiated by way of issue of notice dt. 25/03/2013. In response to the said notice, the assessee filed written submissions, the contents of which are as under:
a) The assessee was under the impression that separate compliance u/s.92E is not required once approval was obtained for payment of royalty. Even in the assessment proceedings, the report could not be filed due to paucity of time and as the assessee had doubts about the legal validity of the reports.
Further, the transactions are disclosed in the financial reports .
b) The details are available in audit report u/s 44AB.
c) The assessee is paying royalty since A.Y 2004-05 and the previous officers were accepting the non-filing of report in form 3CEB.
d) The relevant details were filed when called for and no adjustment is also made to ALP. Therefore, the mistake is only technical in nature and there is no revenue loss
e) Reliance placed on the decision in the cases of Ravi Kumar Rawat (2011) (10 Taxmann.com 248) wherein it was held that when there is a bona fide mistake in not obtaining form 3CEB, the same will not invoke levy of penalty. Reliance is also placed on the decision of ITAT, Kolkata Bench in the case of J.J. Exports Ltd (2011) (15 Taxmann.com 348) where in it was held that when the accounts are duly audited u/s 44AB and evidences were with the AO, penalty cannot be levied u/s 271BA."
4. After considering the facts and submissions of the AR, the AO made the following observations:
(a) Statute casts clear obligation on the assessee to furnish report in form no. 3CEB within 'due date. This obligation is compulsory. The specific purpose for imposing such obligation was to ensure that the assesses who are entering into international transactions would report them. Ignorance of law is no excuse, more so when the assessee engages qualified professionals for audit and representations.3
ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
(b) Obtaining permission for payment of royalty from RBI or any other government authority is a totally different process and there is no exception u/s 92E or rule IDE for such a case. The assessee cannot decide for itself that report in form 3CEB is not necessary.
(c) If the case were not to be selected under scrutiny, the fact that form no. 3CEB was not filed could not have been noticed. Even during the scrutiny proceedings, the report was not filed. Therefore there is deliberate default.
(d) The adjustment to ALP is not a criterion to determine whether there is default or not. It is quite unlikely that the Department would have noticed that there are international transactions because 3CEB report is the only source from which the Department would get' to know the same. On account of the default of the assessee, this opportunity was deprived to the Department.
(e) The argument that earlier officers were accepting the case without filing of report in form 3CEB is not acceptable. Merely because an officer is ignorant of' law or negligent does not mean that the successor cannot implement the law correctly. Such an illegal demand is cannot be entertained.
(f) The argument that all the details are available as the case is audited u/s 44AB and evidence is in record is also devoid of merit.
(g) Firstly, there is no column in audit report u/s 44AB on international transactions. If such were the case, there was no need for the Government of India to prescribe a specific report on the Act/Rules vide form no. 3CEB. Secondly, as already referred, if the case were not selected in scrutiny, the Department cannot cone to notice of the international transactions at all without 3CEB report. In its decision in 4 ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
the case of J.J. Exports Ltd, ITAT did not consider this aspect at all. Therefore, the case is distinguishable.
(h) The assessee can escape from the levy of penalty, if he can establish reasonable cause. In the present case, no such reasonable cause is established by the assessee except stating that no adjustment was made to ALP. As there is no reasonable cause on the part of the assessee and the claim is also not bona fide, the decision of ITAT in the case of Ravi Kumar Rawat is not applicable.
4.1 In view of the above observations, the AO held that this is a fit case for levy of penalty u/s 271BA and accordingly, penalty of Rs. 1,00,000/- was levied.
5. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(A) and contended before the CIT(A) that assessee being law abiding company has not defaulted on any of its obligations till now. It was submitted that the transfer pricing being emerging subject, the assessee's Finance Manager was not aware of his obligations in this regard and no proper advice had been given to the assessee to comply with the provisions of section 92E of the Act. Further, it was submitted that the assessee had tried to file the certificate during the course of assessment proceedings but it could not obtain due to paucity of the time and also doubts raised about the legal validity of the same. He relied on few case laws in support of its case, which were extracted by the CIT(A) at pages 6 to 9 of his order.
6. After considering the submissions of the assessee, the CIT(A) observed that the AO has dealt the issue involved elaborately in the relevant paras of the assessment order, which were proper and justifiable. As the AR of the assessee has not got any material to contradict the conclusions drawn by the AO, the penalty levied by the AO u/s 271BA was confirmed by the CIT(A).
5ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
7. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising the following grounds of appeal:
"1. The Ld. Commissioner of Income-tax (Appeals)-2, Hyderabad [hereinafter. referred to as "CIT(A)"] erred in confirming the action of the Ld. A.O. in levying penalty of Rs.1,00,000/- under section 271BA of the Act without appreciating the fact and circumstances of the case. The Appellant, therefore, submits that the levy of penalty under section 271BA may be deleted.
2. The Ld. CIT(A) failed to appreciate that the Appellant was under the bona fide belief that the report under section 92E is not required as it has paid the royalty after obtaining the RBI approval. Hence, levy of penalty amounting to Rs. 1,00,000/- under section 271BA is unjustified and the same may be deleted.
3. The Ld. CIT(A) further failed to appreciate that the Appellant has furnished an explanation for not furnishing the audit report under section 92E on time and the same has not found to be false. Hence, levy of penalty under section 271BA is without any basis and the same may be deleted."
8. Ld. AR reiterated the submissions as made before the CIT(A) and prayed for deletion of penalty as the assessee was in bonafide belief that report u/s 92E is not required. The information required was submitted during the assessment proceedings, which was found to be correct. He prayed that penalty may be deleted.
9. Ld. DR relied on the orders of revenue authorities.
10. Considered the rival submissions and perused the material facts on record. The AR of the assessee has pleaded that the non- submission was not intentional but bonafide belief and ignorance of Finance Manager in complying the provision u/s 92E. Mere ignorance and bonafide belief that will not be considered as reasonable cause to delete the penalty. It is clearly the obligation on the part of the assessee to comply with the provisions of section 92E. Hence, the action initiated by the AO in levying penalty u/s 271BA is proper in 6 ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
these cases. Accordingly, we uphold the order of the CIT(A) in confirming the penalty levied by the AO.
10.1 As the facts and issue in AY 2011-12 are materially identical to that of AY 2010-11, following the conclusions drawn therein, we uphold the order of CIT(A) and dismiss the grounds raised by the assessee.
11. In the result, both the appeals under consideration are dismissed.
ITA Nos. 738 & 739/Hyd/2016 for AYs 2010-11 & 2011-12
12. As the issue in both the appeals are common, which is pertaining to levy of penalty u/s 271G, we refer to the facts from AY 2010-11.
13. During the scrutiny proceedings for AY 2010-11, the assessee was required to file the TP study maintained u/s 92D(3) r/w rule 10D. Accordingly, a request was made by the AO to this effect and the assessee filed its report on 12/02/2013. On verification of the same, the AO noticed that it does not comply with the requirements laid down under Rule 10D and, hence, penalty proceedings u/s 271G were initiated by way of issue of notice on 25/03/2013. In response, the assessee filed its written submissions on 16/04/2013, which were as under:
"a) Full information was filed on 10-02-2013.
b) The assessee obtained permission from RBI to pay royalty @ 5% but paid only 1%. The assessee adopted the RBI rate as the bench mark for determination of ALP.
c) No notice was issued as required u/s 92D(3).7
ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
d) Reliance was placed on the decision of ITAT, Hyderabad bench in the case of Annapurna Business Solutions (2012) (17 Taxmann.com 125), wherein it was held that when the assessee furnished all particulars on the basis of which the assessing officer could determine the ALP, no penalty can be levied u/s 271G.
e) Reliance was also placed on the decision of ITAT, Chennai Bench in the case of Magic Woods Exports Pvt Ltd (2012) (25Taxmann.com) where in it was held that delay in filing details of international transactions was justifiable when the AO did not make additions to ALP and penalty cannot be levied."
14. After considering the facts and submissions of the AR, the AO made the following observations:
(a) The assertion that no notice was issued u/s 92D(3) is incorrect.
Section 92D(3) does not prescribe any format for notice. Notice does not mean that a separate letter has to be issued. An order sheet noting is also a notice. In the present case, such notice was issued on 04-02-13 and the assessee filed report on 12-02-13. Therefore, the argument that there was paucity of time is also an argument of convenience. In fact, for the purpose of filing 3CEB report, determination of ALP is vital and without the study u/s 92D(3), ALP could not have been ascertained by the assessee.
(b) - Specific methods for determination of ALP are prescribed in 92C(1). The argument that the permission of RBI is a bench mark does not find place in any of the methods prescribed u/s 92C(1).
(c) In the report filed by the assessee, the method adopted for TP study is stated to be "CUP" method. CUP means "comparable uncontrolled price" and permission of RBI to the assessee or any other entity cannot be treated as a reference price under "CUP" by any stretch of imagination. It appears that the Auditor who conducted the TP study does not know even the fundamentals in this regard.
8ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
(d) The adjustment to ALP or not is not a criterion to determine whether there is default or not. In this case even 3CEB report was not filed. It is quite unlikely that the Department would have noticed that there are international transactions because 3CEB report is the only source from which the Department would get to know the same. On account of further default of the assessee in filing an improper TP study, the Department was further deprived. The argument that no data is available in public domain is not acceptable. In fact the requirements under the Act are placed on the assessee for the very reason that it was obligatory on the part of the assessee to search for such data.
(e) When the assessee claims that he is following CUP method, it is incumbent on him to show the comparables. The assessee did not show a single comparable. It may also be mentioned here that the undersigned was seriously constrained in determination of ALP on account of the fact that an improper and incomplete study was filed by the assessee.
(f) This is not a case where full details are filed to enable the Assessing Officer to determine ALP nor there is issue of delay in filing. Hence, the case laws cited are not applicable.
14.1 In light of the above observations, the AO held that this is a fit case for levy of penalty u/s 271G and penalty of Rs. 4,23,634/- was levied being 2% of the value of international transactions of Rs. 2,11,81,697/-.
15. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). The CIT(A) after considering the contentions of the assessee, which were extracted at pages 5 to 11 of his order, the CIT(A) confirmed the penalty levied by the AO on the ground that the 9 ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
AR of the assessee has not got any material to contradict the conclusions drawn by the AO.
16. Aggrieved by the order of the CIT(A), the assesse is in appeal before us raising the following grounds of appeal:
"1. The Ld. Commissioner of Income-tax (Appeals)-2, Hyderabad [hereinafter referred to as the "CIT(A) erred in confirming the action of the Ld. A.O. in levying the penalty of Rs. 4,23,634/- under section 271G of the Income Tax Act, 1961 [hereinafter referred to as the "Act"] without appreciating the fact and circumstances of the case. The Appellant, therefore, prays that the levy of penalty under section 271G of the Act is not justified and the same may be deleted.
2. The Ld. CIT(A) failed to appreciate that the Appellant has furnished all the information and particulars before the Ld. A.O. to enable him to determine the Arm Length Price and the same was accepted by the Ld. A.O. without finding it incorrect. Thus, the penalty of Rs. 4,23,634 levied under section 271G of the Act is unjustified and the same may be deleted.
3. Without prejudice to the above the Ld. CIT(A) failed to appreciate that the Appellant has satisfied all the conditions prescribed under section 92D of the Act. Hence, the levy of penalty under section 271G of the Act is without any basis and the same may be deleted."
17. Ld. AR submitted that the AO has mentioned in the notice that the appellant has not filed the full information / documents as required u/s 92D (3) of the act. Ld. AR submitted that no notice what so ever has been served on the assessee so as to comply with such notice. He submitted that for levy of penalty under this section, it is necessary for the A.O to demonstrate how the non-filing of the information impacted the determination of the ALP so as to call for further info u/s 92D(3) of the act. He submitted that the information furnished by assessee has been accepted and assessment completed accordingly. In this regard, ld. AR relied on the following cases:
10ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
1. Annapurna Business Solutions v. Assistant Commissioner of Income-tax, Circle 6(1) [2012] 17 taxmann.com 125 (Hyd.) In this case, it was held that where assessee entered into international transaction with its associated enterprises and furnished all particulars on basis of which Assessing Officer could determine arm's length price of said transaction, no penalty could be levied under section 271G for non-
furnishing of information which was not in public domain.
2. DCIT Vs Magic woods Exports (P) Ltd 25 Taxmann.com 20 (Chennai) (2012) In this case, it was held that where delay in filing details of international transaction was reasonable and, moreover, TPO had not suggested any adjustment in ALP reported by assessee, penalty under section 271G was not to be levied.
3. ITO VS, Netsoft India Ltd [2013] 35 taxmann.com 579 (Mumbai Trlb.) In this case, It was held that Penalty under section 271G, for failure to furnish Information under section 92D, cannot be imposed unless notice Is issued specifying information to be produced by person entering into an International transaction.
18. Ld. DR relied on the orders of revenue authorities.
19. Considered the rival submissions and perused the material facts on record. Ld. AO initiated the penalty proceedings because assessee has not filed the information required as per Rule 10D. However, the assessee has filed the relevant information during assessment proceedings and accordingly, AO completed the assessment. On careful reading of section 271G & 92D(3), penalty can be levied only when AO issues notice u/s 92D(3) and assessee fails to furnish information for completing the assessment. Further, on application by 11 ITA Nos. 737, 738, 739 & 740/H/16 Karvy Computershare Pvt. Ltd.
the assessee, the AO can extend the period for submission by further period of 30 days. In the given case, AO has not issued any notice, however, AO opined that it is not necessary to issue notice but order sheet notice/entry also amounts to notice issued u/s 92D(3). We find that the assessee has in fact filed the relevant information as soon as it is brought to the notice and AO has completed the assessment without making any adjustment. It shows that the assessee has complied with the provisions of section 92D(3). Considering the facts on record and other judicial pronouncements relied on by the assessee, we are inclined to accept the contention of ld. AR and in our opinion, penalty u/s 271G is uncalled for and accordingly, it is deleted.
19.1 As the facts and issue in AY 2011-12 are materially identical to that of AY 2010-11, following the conclusions drawn therein, we delete the penalty levied u/s 271G and allow the grounds raised by the assessee.
20. In the result, both the appeals under consideration are allowed.
21. To sum up, appeals in ITA Nos. 737 & 740/Hyd/2016 are dismissed and appeals in ITA Nos. 738 & 739/Hyd/2016 are allowed.
Pronounced in the open court on 7 th July, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 7 th July, 2017.
kv
12
ITA Nos. 737, 738, 739 & 740/H/16
Karvy Computershare Pvt. Ltd.
Copy to:-
1) Karvy Computershare Pvt. Ltd., Karvy House, 46 Avenue 4, Street No. 1, Banjara Hills, Hyderabad - 500 034
2) Addl. CIT, Range - 2, Room No. 821, B-Block, 8 th Floor, IT Towers, Hyderabad
3) CIT(A) - 2, Hyderabad
4) Pr. CIT - 2, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File
Description Date Intls
S.No.
1. Draft dictated on Sr.P.S./P.S
2. Draft placed before author Sr.P.S/PS
Draft proposed & placed JM/AM
3 before the second Member
4 Draft discussed/approved by JM/AM
second Member
5 Approved Draft comes to the Sr.P.S./P.S
Sr.P.S./PS
6. Kept for pronouncement on Sr.
P.S./P.S.
7. File sent to the Bench Clerk Sr.P.S./P.S
8 Date on which file goes to the
Head Clerk
9 Date of Dispatch of order