Income Tax Appellate Tribunal - Chennai
Foster Wheeler India Private Limited, ... vs Department Of Income Tax on 7 April, 2010
IN THE INCOME-TAX APPELLATE TRIBUNAL
CHENNAI 'B' BENCH, CHENNAI.
(Before Shri.U.B.S. Bedi J.M. & Shri. Abraham P. George, A.M.)
I.T.A. Nos.1126 and 1127/Mds/2010
Assessment Year: 2002-03 and 03-04
The Assistant Commissioner of M/s. Foster Wheeler India Private
Income Tax, Company Circle II(1), Ltd., No. 184-187, 9th Floor, Temple
Chennai - 34. Steps, Anna Salai, Little Mount,
Vs.
Chennai 600 015.
[PAN: AAACF3204C]
(Appellant) (Respondent)
Revenue by : Shri P.B. Sekaran
Assessee by : Shri B. Ramanakumar
ORDER
PER BENCH.
These two appeals of the Revenue are directed against the separate orders passed by the ld. CIT(A) III, Chennai both dated 07.04.2010, whereby in the first appeal deletion of imposition of penalty of `.18,09,190/- (in the documents of lower authorities at some places wrongly mentioned as `.18,90,190/-) under section 271AA and in the second appeal directing the Assessing Officer to allow the deduction under section 80HHE on the basis of adjusted book profits under section 115JB of the Income Tax Act for the assessment years 2002-03 and 2003-04 respectively are challenged.
3. These appeals have been heard together and are being disposed of by this single order for the sake of convenience.
I.T.A. No. 1126/Mds/2010 for the assessment year 2002-03
4. Facts indicate that the assessee company is engaged in the business of exporting engineering design services to its group companies. The assessee 2 I.T.A. Nos. 1126 1126- 26-112 1127/Mds/10 field its return of income on 31.10.2002 declaring income at `. Nil. The assessment was completed under section 143(3) on 28.12.2004. The assessee had also filed a report from its Chartered Accountant as required under section 92 E certifying that all the documentation in respect of international transactions had been maintained and filed with the return of income. During the course of assessment, reference was made to the Transfer Pricing Officer who, vide order dated 20.02.2005, held that the transactions were at arms length price and did not require any adjustment. Subsequently, notice dated 10.03.2005 was issued by the ACIT, Company Circle II(1), Chennai proposing to levy penalty under section 271AA for non-maintenance of documents concerning the international transactions. The assessee responded by submitting that the Chartered Accountant's certificate clearly certified the assessee's compliance with section 92 D and also that the order of the Transfer Pricing Officer has upheld this stand and hence there was no justification for initiation of penalty under section 271AA. However, the penalty order under section 271AA was passed by the DCIT, Company Circle II(1) on 22.09.2005.
4.1 Aggrieved by the order of the Assessing Officer, the assessee took up the matter in appeal and besides challenging the order of the Assessing Officer in imposing penalty of `.18,09,190/- under section 271AA, the assessee has also agitated about not affording of opportunity of being heard before passing order and the ld. CIT(A), while rejecting plea of the assessee about not providing opportunity of being heard before imposition of penalty, he, on merit deleted the penalty by recording the contention in para 5 and concluding in para 5.1 of his order. Para 5 and 5.1 are reproduced as under:
3 I.T.A. Nos. 1126
1126- 26-112 1127/Mds/10
"5. The next ground pertains to deletion of penalty on merits. In this regard, the contentions of the appellant are as under:
"The assessment order does not contain any indication that penalty proceedings are to be initiated. Section 271AA envisages the levy of penalty for violation of Sec.92D. Section 92 D prescribes maintenance of a record of all details and particulars pertaining to international transactions, with which the assessee is engaged in. Section 92E further mandates a Chartered Accountant's certificate to be filed alongwith the return of income, certifying the details of the international transactions entered into by the assessee during the relevant period. Such information, which is verified by the Chartered Accountant is based on information maintained by the assessee as required by the provisions of section 92D. In the instance case, a Chartered Accountant's certificate under section 92E has been filed and the same has not been disputed. The Department has neither questioned nor alleged inaccuracy of the same. In fact, the Transfer Pricing Officer to whom a reference was made by the Assessing Authority, has passed an order dated 25th February, 2005, which accepts that the value of international transactions has been on at arms lengths basis. This order is based on an acceptance by the department of the documentation and particulars maintained by the assessee as mandated in Sec., 92D and the Chartered Accountant's certificate verifying the same. Since there has been a total compliance with the provisions of sec. 92D, it is submitted that penalty under section 271AA would not be attracted.
The appellant also placed reliance on the Delhi Tribunal in the case of Cargill India (P) Ltd. v. DCIT [300 ITR 223] in support of its case.
Further, the replies filed by the appellant to the show cause notice issued by the ACIT were not considered by the DCIT and placed reliance on the judgment of the Hon'ble Delhi High Court in the case of Moser Baer India Ltd. v. Addl. CIT [316 ITR 1] in which it was held that order passed without considering the replies filed by the assessee is a nullity".
5.1 I have carefully considered the facts of the case, the contentions of the ld. AR, transfer pricing order and the penalty order. I have also gone through the decisions relied on by the ld. AR. It is well settled that provision dealing with penalty should be strictly construed. They are to be construed within the terms and language of the particular statute. Penalty under section 271AA is leviable for failure to keep and maintain information and documents in respect of international transactions, as required by sec.92 D(1) or 92D(2) of the Act. In the instance case, the TPO (the Addl. CIT) has not observed any discrepancy in the maintenance of records of international transactions and has accepted that the value of international transactions are at arms' length price. He has not made any adjustment to the international transactions of the company. Further, the judgments cited by the learned AR also supplement the above view. I am of the considered opinion that it is not a fit case for levy of penalty. Therefore, I direct 4 I.T.A. Nos. 1126 1126- 26-112 1127/Mds/10 the Assessing Officer to delete the penalty levied by him. Accordingly, the appellant succeeds on this ground."
5. Aggrieved by this order of the ld. CIT(A), the Department has come up in appeal and it was contended that the ld. CIT(A) has erred in directing the Assessing Officer to delete the penalty demand of `.18,09,190/- raised under section 271AA of the IT Act. He ought to have seen that the assessee failed to comply with the requirement of section 92D of the Act. Further, the ld. CIT(A) failed to note the fact that no adjustments were made by the TPO to the international transactions entered into by the assessee, does not come in the way of levying penalty under section 271AA of the Act and ought to have seen that though the final order under section 92CA(3) was passed without making any adjustments, it does not alter the position that the assessee has not maintained the comparable data, as required under section 92D of the Act. It was further submitted that since the assessee has not been able to produce necessary material, in order to establish that it maintain the information and documents in respect of international transactions as per the requirement of section 92D. The assessee has also not furnished the comparable data to support the transactional nor marginal method so penalty proceedings were rightly initiated and after issuing notice, penalty has been lawfully imposed. The ld. CIT(A) has just deleted the penalty without considering these aspects when even before the ld. CIT(A), the assessee has not been able to produce necessary material as required under relevant provisions. Therefore, penalty is exigible in this case, which has rightly been imposed and the ld. CIT(A) was not 5 I.T.A. Nos. 1126 1126- 26-112 1127/Mds/10 justified in deleting the same. It was, thus, urged for setting aside the order of the ld. CIT(A) and restoring that of the Assessing Officer.
6. The ld. Counsel for the assessee strongly pleaded that the TPO, who is in the rank of Addl. CIT has passed order under section 92CA(3) of the Income Tax Act, who held that the international transactions referred are determined to be at arms' length price for the year under consideration and while replying the reference received for the assessment year 2002-03. So by filing copy of the said order dated 25.02.2005, it was pleaded that there was no justification for the Assessing Officer to impose the penalty and the ld. CIT(A) has justifiably deleted the same, whose action is free from any infirmity or flaw, which may be confirmed and the appeal of the Department needs to be dismissed, which may be dismissed.
7. We have heard both the sides, considered the material on record as well as order of the TPO-I, Chennai dated 25.02.2005 in which it has been categorically stated that after examination of international transaction as required, no adjustment is considered necessary to the value of international transaction entered into by the assessee and as per the ld. Counsel for the assessee, this data in regard to the international transaction has been taken from the source from which the Department is taking such data which has been found to be amenable to further adjustment as held by the TPO and no further material or evidence is found to have been placed on record or filed during the hearing and the ld. CIT(A) after considering all relevant facts and material has appropriately dealt with the issue as reproduced in earlier part of the order in which no fault has been found. Therefore, while concurring with the findings of 6 I.T.A. Nos. 1126 1126- 26-112 1127/Mds/10 the ld. CIT(A), we upheld the action of the ld. CIT(A) and dismiss the appeal of the Department being devoid of any merits.
I.T.A. No. 1127/Mds/2010 for the assessment year 2003-04
8. Facts indicate that the assessee company is engaged in the business of exporting engineering design services to its group companies. The assessee company filed its return of income for the assessment year 2003-04 on 31st October, 2003 declaring NIL income after adjusting carried forward business loss. The assessee had claimed deduction under section 80HHE on the book profit for the current year before adjusting the carried forward business loss. The return was processed under section 143(1) of the Income Tax Act. The assessee has submitted that no notice under section 143(2) was issued but notice under section 148 has been issued on 27th July, 2004. In response, the assessee had requested that the return already filed may be treated as having been filed pursuant to the aforesaid notice. The assessee also claimed that no reasons were provided for reopening. Finally, order under section 143(3) was passed on 30.11.2005.
8.1 The assessee aggrieved by the order of the Assessing Officer, besides challenging other disallowances has also challenged allowance/deduction under section 80HHE while computing book profit under section 115JB excluding the profit eligible for deduction under section 80HHE on the ground that the profit eligible for deduction under section 80HHE is to be computed as per sub-section 3 of section 80HHE and the computation of the deduction under section 80HHE without setting off of carry forward loss is not proper hence deduction claimed under section 80HHE was not allowed and against such disallowance, the 7 I.T.A. Nos. 1126 1126- 26-112 1127/Mds/10 assessee's contention was recorded at para 4.1 and the ld. CIT(A) deleted the impugned disallowance as per para 4.2 of his order, which is reproduced hereunder:
"4.2 I have carefully considered the facts of the case and the submissions made by the ld. AR. I have also gone through the precedents relied on by the ld. AR. I find that the claim of deduction u/s. 80HHE of the appellant while computing book profits is covered by the judgment of the Hon'ble ITAT, Chennai in its own case for assessment year 2002-03 in I.T.A. Nos. 347/Mds/2006 dated 21.09.2007. Therefore, respectfully following the above decision as well as the other decisions of the Hon'ble Madras High Court and other ITATs cited by the ld. AR, I direct the AO to allow the deduction u/s. 80HHE on the basis of adjusted book profits u/s. 115JB of the Act. Therefore, the appellant succeeds on this ground."
9. Aggrieved by this order of the ld. CIT(A), the Department has come up in appeal and it was contended that the ld. CIT(A) has erred in directing the assessing office to allow the deduction under section 80HHE on the basis of adjusted book profits under section 115JB of the Act. It was also submitted that the decision of ITAT, Special Bench, Mumbai in the case of Syncome Formulations (I) Ltd. 292 ITR 144 relied on by the ld. CIT(A) has not become final and the Revenue is contesting the decision relied on before higher appellate forums and the ld. DR has strongly contended for reversal of the order of the ld. CIT(A).
10. The ld. Counsel for the assessee submitted that the issue being agitated by the Department is squarely covered by the decision of the Special Bench of ITAT, Mumbai as contended in the grounds of appeal and the Department has not come out with any higher courts decision or any other materials to establish that the decision of the ld. CIT(A) is not proper and if some further appeal has been filed by the Department, which is stated to be pending, cannot be a ground to reverse the decision of the ld. CIT(A), which is based on the precedent cited 8 I.T.A. Nos. 1126 1126- 26-112 1127/Mds/10 and relied upon. Therefore, in view of the facts, circumstances and material on record, it was pleaded for confirmation of the impugned order.
11. We have heard both the sides, considered the material on record as well as precedents relied upon by the ld. CIT(A) and find that the issue raised in this appeal is covered against the Department and no contrary material or evidence are produced nor there is any higher court's decision produced which has overruled the said decision as followed by the ld. CIT(A). Since the issue is covered by the precedent, therefore, we do not find any ground to interfere in the order passed by the ld. CIT(A), which is confirmed and appeal of the Revenue being devoid of any merits is dismissed.
12. In the result, both the appeals of the Revenue are dismissed.
The order is pronounced soon after the conclusion of hearing on 16.11.10.
Sd/- Sd/- (ABRAHAM P. GEORGE) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 16.11.2010. Vm/- Copy to : Appellant/Respondent/CIT(A)- /CIT/DR