Income Tax Appellate Tribunal - Delhi
Acit,, New Delhi vs M/S Ikea Trading (India) Pvt. Ltd.,, New ... on 5 March, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C', NEW DELHI
Before Sh. Amit Shukla, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
(Through Video Conferencing)
ITA No. 1270/Del/2017 : Asstt. Year : 2010-11
ACIT, Vs IKEA Trading (India) Pvt. Ltd.,
Circle-12(1), DLF Infinity Tower-A, 8th Floor, DLF
New Delhi Cybercity, Sector-25,
Gurgaon-122001
(APPELLANT) (RESPONDENT)
PAN No. AAACH1483Q
Assessee by : Sh. Ravi Sharma, Adv. &
Sh. Rishabh Malhotra, Adv.
Revenue by : Sh. Ved Prakash Mishra, Sr. DR
Date of Hearing: 13.01.2021 Date of Pronouncement: 05.03.2021
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the revenue against the order of l d. CIT(A)-19, New Delhi dated 16.12.2016.
2. Following grounds have been raised by the revenue:
"1. On the facts and circumstances of the case, the ld. CIT (A) has erre d in deleting the penal ty u/s 271(1)(c) o f the IT Act, relevant to asse ssment year 2010-11."
3. Ikea T rading (India) Private Limited is an Indian company incorpo rated in India on 13 t h June 1994. The assessee, a Merchant Exporter, granted a 'F our Star' export house status by the Government of India, is engaged in the trading of home furnishing products. The assessee purchases diffe rent ho me 2 ITA No.1270/Del/2017 IKEA Trading (India) Pvt. Ltd.
furnishing products like carpets, textile and metal etc. from various supporting manufacture rs in India and expo rts the same outside India.
4. The assessment in this case was made at a loss of Rs.9,87,972/- against returne d loss of Rs.7,82,35,830/-. The additions were made on account of transfer pricing adjustment in respect of sale of fixed assets amounting to Rs.6,17,03,289/- and disallowance on account of expenses amounting to Rs.1,55,44,569/-. The penalty proceedings were initiate d during the course of assessment and penalty of Rs.2,62,56,547/- was imposed vide order dated 29.10.2014 on the issue of adjustment on account of ALP of fixed assets and on the issue of disallo wance of expe nses.
a) Penalty o n the issue of adjustment on account of ALP of fi xed assets:
5. The assessee has undertaken the following international transactions during the financial year:
International Transaction Value (Rs.) Metho d used Sale of fixed assets 63,680,884 CUP Transfer of curre nt assets 12,406,737 CUP Sale Return by AEs 38,338,043 -
Reimbursement of rework and 42,419,195 - other expenses
6. For arriving at the ALP of the internatio nal transaction pertaining to transfer o f fixed assets to AEs, the assessee had relied upon valuation report of an external valuer, who had valued these assets at Rs.57,501,821/-. T he sale procee ds received from the AE we re much higher at Rs.63,680,884/- than the valuation made of Rs.57,501,821/-.
3 ITA No.1270/Del/2017IKEA Trading (India) Pvt. Ltd.
7. During the assessment proceedings, the TPO disregarded the valuation repo rt of an external valuer relied upon by the assessee and instead, used Written Down Value ("WDV") of such asse ts for determining the arm's length price. The TPO held that the ALP of the fixed assets sold should be taken as per the closing WDV of fixed assets computed under the Act, which was Rs.119,205,110/- and not as per the valuation report carried out by external value r. After taking into consideration, WDV of the assets and value of the assets as per the valuation certificate, the AO determined that the shortfall as per ALP of Rs.61,703,289/- on adjustment of the ALP.
8. Heard the arguments of both the parties and perused the material available on reco rd.
9. We find that the assessee has sold assets at the WDV of the assets as per company law whereas the TPO held that the assessee ought to have sold the assets at the value of the WDV of the block of assets as per the Income Tax Act. The WDV as per the Income Tax Act may not be /canno t be the fair market value of the assets. The assets were transferred at the book value as per the audited accounts of the asse ssee which is a re cognized method of providing depreciation. Such sale of assets after valuation and the adjustment by the TPO by resorting to CUP method cannot be a ground fo r levy of penalty u/s 271(1)(c). The case of concealment or furnishing of inaccurate of particulars of income cannot attract the provisions of penalty u/s 271 (1)(c). Hence, we hold that penalty levied on this ground has been rightly deleted by the ld. CIT (A).
4 ITA No.1270/Del/2017IKEA Trading (India) Pvt. Ltd.
b) Penalty on the issue of disallowance of expenses:
10. The Assessing Officer resorted to disallowance of expense s of Rs.155,44,569/- on the grounds that the claim of the assessee with regard to perso nnel expenses, operative expense s and finance expenses cannot be accepte d as the assessee has not carried out any business activities during the year under consideration.
11. The assessee submitted that the observations of the Assessing Officer we re not correct on facts of the case as the assessee has co nducted busine ss operations as mentio ned in the table belo w:
S.No. T ransa ction Flow Supporting Doc uments 1 G oods purchased b y Ikea I nd ia Purchase I nvoice f rom the from the dom estic Vendor/ Vendor in India Manufacture (i.e. Manufact urer to Ikea I ndi a) 2 Ikea I ndi a Sells/ exports good s Sal es Invoice to I kea to the Ik ea Group entity G roup entity outside India 3 The G roup entity se nds th e Purchase I nvoice from defected good to I ndia for rep air Ikea G roup entity (raised and re-exp ort only for the p ur pose of 4 A s p er the arrang ement between Imp ort of g ood s and Ikea I ndi a and t he ve ndor, th e subsequ ent clearance by vend or collects the def ected the Custom A uthori ties), go ods from the ICD Depot Packing list, Bill of E ntry (Dadri) for H om e cons um ption 5 Ikea I ndia pays the rework Purchase I nvoice from the charges t o th e Ven dor as per the Vendor in India (It i s invoice from the Ve ndor cl early mentioned on th e invoice that t he good s were re-imp orted vid e b ill of entry for rep airs. A fter doing repairs such god s are re-exported throu gh this invoice).5 ITA No.1270/Del/2017
IKEA Trading (India) Pvt. Ltd.
6 Ikea I ndia re-exp or ts re-worked Sal e Invoice t o th e G roup go ods to the Group entity enti ty, Shi pping Bill for export/re-exp ort of d uty free g ood s, No n-negotiab le way b ill for re-ex port of go ods from Ind ia, Exchange control declaration (G R) Form
12. On going through the above activities it can be held that the assessee is continuing to carry out business activities. The activitie s undertaken are in connection with te rms of contract. It cannot be said that the business ceased to exist just because there was no activity of trading or manufacturing during the given period. The assessee has undertaken the activities of reworking and removing of defects in respect of goods sold earlier and also exported ce rtain goods. The assessee has also filed the statutory returns. The disallowance has been made on the grounds that the business has not been carried out but not on the grounds that the expenses are not related to the business.
13. With re gard to the penalty levied on such issue, we find that such disallowance do not fall under the category of furnishing of inaccurate particulars or concealment of such particulars of income.
14. In the backgro und of these facts we have gone through the various judicial pronouncements on this issue.
15. The Hon'ble Punjab & Haryana High Curt in the case of CIT Vs Ajaib Singh and Co. (2002) 253 ITR 0630 has held that "disallo wance of an expe nse per se cannot mean that the assessee has furnished incorre ct particulars of its income. Concealment involves penal action. It has t be proved as a conscious act. The essential pre-condition for invoking 6 ITA No.1270/Del/2017 IKEA Trading (India) Pvt. Ltd.
Explanation 1 to section 271(1)(c) of the Income Tax Act, 1961 is that the assessee "fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false.". It is only in such a situation that the Assessing Officer can invoke the Explanation to Section 271(1)(c) and impose penalty.
16. We also hold that the penalty cannot be sustaine d in view of the judgment of the Hon'ble Jurisdictional High Co urt in the case of ACIT Vs Delhi Cloth & Gene ral Mills Co. Ltd. 157 ITR 822 wherein it was held that the mere fact that a claim for expenditure stands disallowed does not by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to that item.
17. Further, the Hon'ble Supreme Court in the case of Reliance Petorproducts Pvt. Ltd. 322 ITR 158 (2010) held that "inaccurate" and "particulars" in conjunction, they must mean the de tails supplied in the return, which are not accurate, not exact or correct, not acco rding to truth or erroneous. In this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or e rroneous or false . Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). Mere making of a claim, which is not sustainable in law, by itself, will no t amount to furnishing inaccurate particulars regarding the income of the assessee.
18. On going through the entire facts and circumstances of the case, we hereby confirm the order of the ld. CIT (A) which held that it a "mere disallowance" of an expense does not warrant a penalty for filing inaccurate particulars of income u/s 271(1)(c).
7 ITA No.1270/Del/2017IKEA Trading (India) Pvt. Ltd.
19. In the result, the appeal of the revenue is dismissed. Orde r Pronounced in the Open Court on 05/03/2021.
Sd/- Sd/-
(Amit Shukla) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 05/03/2021
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
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