Income Tax Appellate Tribunal - Delhi
Global One India Pvt. Ltd., New Delhi vs Department Of Income Tax on 19 September, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'C' BENCH
BEFORE SHRI R.P. TOLANI, JM & SHRI A.N. PAHUJA, AM
ITA Nos.5164 & 5165/Del/2011
Assessment year :2005-06
A.C.I.T., Circle-12(1), V/s. M/s Global One India Pvt.
New Delhi Ltd., C-56, Neeti Bagh,
New Delhi-49
[PAN No.: AABCG 2558 B]
(Appellant) (Respondent)
Assessee by S/Shri Pawan Kumar & Jatin Jindal,ARs
Revenue by Shri Salil Mishra,DR
Date of hearing 08-02-2012
Date of pronouncement 17-02-2012
ORDER
A.N.Pahuja:- These two appeals filed on 18.11.2011 by the Revenue against two separate orders are dated 19.09.2011 of the learned CIT(A)-XX, New Delhi, raise the following grounds:-
I.T.A. no.5164/D/2011
1. "Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the penalty of ``22,58,827/- levied by the AO u/s 271G of the Act.
2. That appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing.
I.T.A. No.5165/D/2011
1) "Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the penalty of ``22,58,827/- levied by the Assessing Officer u/s 271AA of the Act.
2) That appellant craves leave to add, alter or amend any ground of appeal raised at the time of hearing."
2 ITA nos.5164&5165/Del./2011
2. Facts, in brief, as per relevant orders are that return declaring loss of ``36,03,300/- filed on 27.10.2005 by the assessee, providing telecommunication network services within India for Global contracts entered by the Indian customers with EGN BV, the parent company formed and registered under the laws of the Netherlands ,besides providing international bandwidth and international telecommunication facilities, after being processed u/s 143 (1) of the Income-tax Act, 1961 (hereafter referred to as the Act) was selected for scrutiny with the service of notice u/s 143(2) of the Act, issued on 30th October, 2006.Subsequently, the assessee submitted a revised computation, revealing loss of `7,23,56,799/- During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee had entered in to international transactions with its A.E. Since the value of such transactions exceeded `15 crores, the AO made a reference to transfer pricing officer[TPO] for determining arms length price[ALP] of the international transactions. Though the TPO did not suggest any adjustment in his order dated 16th September, 2008, he suggested initiation of penalty proceedings u/s 271AA, 271G and 271BA of the Act in the following terms:-
6. Recommendation for penalty:
On the basis reference received from Assessing Officer, a letter was issued to assessee 5th December, 2007, to furnish documentation by 28.12.2007. On the 27th December, it was informed by the company that, it was still in process of finalizing contract. It may be mentioned that no form 3CEB was received also. Another letter was issued to assessee on 20.02.08 for asking why penalty proceedings u/s 271AA, 271G, 271BA should not be initiated. A copy of audited accounts was filed on 20.02.08, however, a copy of form 3CEB was filed in 04.03.08. The detailed working of method was filed on 26.03.08.
I am convinced that assessee had committed default for imposition penalty u/s 271AA, 271G, 271BA of the Income-tax Act, 1961. I recommend that Assessing Officer shall impose penalty under the section mention above."
3 ITA nos.5164&5165/Del./2011 2.1 In terms of the aforesaid observations of the TPO, the AO issued a show cause notice on 30th December, 2008,seeking to levy of penalty u/s 271AA and 271G of the Act for failure to keep information and documents u/s 92D of the Act and also for failure to furnish the same. In response, the assessee replied that the delay, if any, to furnish the form 3CEB and the related balance details/documents occurred for the reasons beyond the control of the assessee and , as such, there was a reasonable cause of not furnishing the form 3CEB. However, the AO did not accept the submissions of the assessee and imposed a penalty of ``22,58,827/- u/s 271AA of the Act as under:-
"The submission of the assessee has been considered and found to be unacceptable and rejected as the assessee fails to keep and maintain information and document in respect of international transaction as required by sub-section (1) or sub section (2) of Section 92D of the I.T. Act, 1961 during the course of assessment of 'international transactions' before the TPO. Therefore, it is clear that it is a deliberate default of the assessee. Further, the case laws relied upon by the assessee company is distinguishable from the facts of the present case.
Therefore, I am convinced that the assessee had committed default for imposition of penalty u/s 271AA of the Act for failure to keep and maintain information and document in respect of international transaction. Hence, penalty u/s 271AA of the Act, 1961 leviable in this case is ``22,58,827/-. Therefore, penalty of ``22,58,827/- is hereby imposed."
3. Similarly, the AO imposed a penalty of ``22,58,827/- u/s 271G of the Act, holding as under:-
"The submission of the assessee has been considered and found to be unacceptable and rejected as the assessee fails to keep and maintain information and document in respect of international transaction as required by sub-section (1) or sub section (3) of Section 92D of the I.T. Act, 1961 during the course of assessment of 'international transactions' before the TPO. Therefore, it is clear that it is a deliberate default of the assessee. Further, the case laws relied upon by the assessee company is distinguishable from the facts of the present case.
4 ITA nos.5164&5165/Del./2011 Therefore, I am convinced that the assessee had committed default for imposition of penalty u/s 271G of the Act for failure to keep and maintain information and document in respect of international transaction. Hence, penalty u/s 271G of the Act, 1961 leviable in this case is ``22,58,827/-. Therefore, penalty of ``22,58,827/- is hereby imposed."
4.. On appeal, the led CIT(A) after having comments of the TPO on the written submissions filed by the assessee, cancelled the penalty u/s 271AA of the Act, holding as under:-
"5. The appellant had submitted chronology of events before the TPO. On 16 different occasions the appellant either presented the case before the TPO or submitted details as asked for. As can be clearly seen from the submission of the appellant, documents maintained by the company was furnished to the TPO. Even the remand report has not denied these facts. The TPO was satisfied with the documentation and that is why no adjustment was made to the international transaction. Nowhere it is proved that appellant did not furnish the documents as required under sub section 3 of Section 92D of the IT Act.
5.1. Failure of the appellant was in getting his books audited in time and file report in form no. 3CEB. The appellant has stated that many key employees of the company entrusted with the responsibility of looking after company's finance/ accounts left the company without proper handing over and also certain records were misplaced for certain accounts. However, documentation u/r 10D does not require an audited account to maintain such documents. Rather, section 92D and rule 10D contemplates contemporaneous documentation, by implication, these documents are pertaining to pre- audited period. The appellant was able to produce these documents before the TPO and therefore penalty u/s 271G is not justified in this case.
5.2. The issue of 'reasonable cause' for not getting the books of accounts audited was decided by the Hon'ble ITAT in the case of JJ Exports Ltd. vs. DCIT (136 TTJ
629). In this case the appellant company pleaded that the delay in obtaining/ filing of audit report was due to lack of 5 ITA nos.5164&5165/Del./2011 knowledge on the part of the accountant of the appellant company, who was at the relevant time more than 65 years old and due to health reasons he had ultimately left the organization. Hon'ble ITAT Calcutta Bench has decided the case in favor of the appellant and against the revenue by holding that this was a reasonable cause and therefore levy of penalty was deleted.
5.3 Compliance before the TPO clearly shows that the appellant had maintained the documentation u/s 92D of the IT Act and the same was produced before the TPO. Secondly, order of the AO has not established that the appellant had no reasonable cause as mandated u]s 273B of the IT Act. In view of the above, levy of penalty u/s 271G is not justified. The AO is directed to delete the penalty."
5. Likewise, the ld. CIT(A) cancelled the penalty levied u/s 271G of the Act in the following terms:-
"5. The appellant had submitted chronology of events before the TPO. On 16 different occasions the appellant either presented the case before the TPO or submitted details as asked for. As can be clearly seen from the submission of the appellant, documents maintained by the company was furnished to the TPO. Even the remand report has not denied these facts. The TPO was satisfied with the documentation and that is why no adjustment was made to the international transaction. Nowhere it is proved that appellant did not maintain the documents as required u/s 92D of the IT Act.
5.1. Failure of the appellant was in getting his books audited in time and file report in form no. 3CEB. The appellant has stated that many key employees of the company entrusted with the responsibility of looking after company's finance/ accounts left the company without proper handing over and also certain records were misplaced for certain accounts. However, documentation u/r IOD does not require an audited account to maintain such documents. Rather, section 92D and rule IOD contemplates contemporaneous documentation, by implication, these documents are pertaining to pre- audited period. The appellant was able to produce these documents before the TPO and therefore penalty u/s 6 ITA nos.5164&5165/Del./2011 271G is not justified in this case.
5.2. The issue of 'reasonable cause' for not getting the books of accounts audited was decided by the Hon'ble ITAT in the case of JJ Exports Ltd. vs. DCIT (136 TT J
629). In this case the appellant company pleaded that the delay in obtaining/ filing of audit report was due to lack of knowledge on the part of the accountant of the appellant company, who was at the relevant time more than 65 years old and due to health reasons he had ultimately left the organization. Hon'ble ITAT Calcutta Bench has decided the case in favor of the appellant and against the revenue by holding that this was a reasonable cause and therefore levy of penalty was deleted.
5.3 Compliance before the TPO clearly shows that the appellant had maintained the documentation u]s 92D of the IT Act. It was not possible for the assessee to produce documents if it had not maintained the documents. Even for the sake of argument, if assessee had not maintained the document, the order of the AO has not established that the appellant had no reasonable cause as mandated u]s 273B of the IT Act. In view of the above, levy of penalty u/s 271G is not justified. The AO is directed to delete the penalty."
6. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO while narrating the chronology of events as under:-
Chronology of events .Return of Income for A.Y. 2005-06 was filed on 27/10/2005 .
•:. The due date for filing return of income was 31/10/2005. Therefore, the prescribed TP documentation should have existed latest by 31/10/2005, in terms of Rule 10D (4).
• :. In the course of Assessment proceedings, a reference to TPO was made, with prior approval of CIT, to determine the ALP of international transactions.
* TPO issued notice under Section 92CA(3) read with Section 92D (3) of the Income Tax Act on 05/12/2007,
7 ITA nos.5164&5165/Del./2011 requiring the assessee to file the TP documentation.
• On 25/01/2008, a sketchy TP report was submitted, indicating margins of the comparable companies. The margins and financials of the tested party were not submitted with this TP report.
• On 01/02/2008, Authorized Representative submitted before the TPO that financials of the company had not yet been finalized. The Authorized Representative was asked to explain as to how the ALP could be computed in absence of complete financials for the year under consideration. It is reiterated here that the requisite TP documentation should have existed latest by the due date of filing return, i.e 31/10/2005, but the same was not ready even after lapse of nearly two years and three months • • :. On 20/02/2008, Authorized Representative submitted before the TPO that the Auditors Report in Form No. 3CEB is not yet finalized .
• :. The TPO issued a show cause to assessee on 20/02/2008, as to why penalty should not be imposed under Section 271AA, 271G and 271BA of the Income Tax Act .
• :. The Auditors Report in Form No. 3CEB along with other details/documents requisitioned by the TPO was filed by the assessee on 04/03/2008. It is reiterated here that the complete documents requisitioned by the TPO vide notice dated 05/12/2007 should have been filed within 30 days from that date. i.e latest by 05/01/2008. However, compliance to all the terms of the said notice issued by TPO was made after nearly 90 days from the date of notice. There is nothing on record to suggest that any extension of time period was sought by the assessee.
CONCLUSION In the facts and circumstances of the case, assessee has committed following defaults which are liable for penal action as per the provisions of Income Tax Act:-
A. Not maintaining the prescribed TP documentation The TP complete documentation should have existed latest by 31/10/2005. However, as per assessee's own admission
8 ITA nos.5164&5165/Del./2011 before the TPO, the TP documentation was not complete even by February 2008, i.e after lapse of 2 years & 3 months.
B. Not furnishing the information requisitioned by TPO The TPO issued notice on 05/12/2007 requiring details and documents in respect of the international transaction. The compliance to all the terms of the notice was made by 04/03/2008. i.e after nearly 90 days. The time period prescribed by the statute for such compliance is 30 days from date of receipt of the notice. The time period can be extended once for further time of 30 days, on an application made by the assessee. As per assessee own admission the said notice of TPO was received by it on 26/12/2007. Therefore, compliance with all the terms of the notice should have been made not later that 25/02/2008, even after taking into account the extended time period.
PLEA OF REASONABLE CAUSE .:. The assessee has taken the plea that the Accountant Report in Form No. 3CEB was filed belatedly due to non-finalization of company's accounts pursuant to certain unforeseen circumstances faced by the assessee.
• :. This plea does not come to assessee's rescue for following reasons:-
1) There could be no reasonable cause for not finalizing the company's accounts even lapse of 2 years and 11 months after the close of relevant financial year under consideration.
2) The penalty has been levied for not maintaining the TP documentation by the specified date. i.e by 31/10/2005 and for not furnishing the TP documentation and other information requisitioned by the TPO vide notice dated 05/12/2007. In other words, since no penalty has been levied for delay in furnishing the report in Form No. 3CEB, the explanation offered for the delay is not at all relevant for the case.
3) The TP documentation was required to have existed by 31/10/2005 but the same was not ready even by February 2008. Thus, the delay in finalizing the TP documentation is nearly 2 years & 3 months. By no stretch of imagination, the explanation offered for delay in finalization of accounts, can
9 ITA nos.5164&5165/Del./2011 be treated as a reasonable cause, having regard to facts and circumstances of the case."
7. On the other hand, the ld. AR on behalf of the assessee supported the findings of learned CIT(A) while relying upon decision dated 09.11.2011 of the Mumbai Bench in the case of ACIT Vs. Smith and Nephew Health Care Pvt. Ltd. in I.T.A. No.5779/Mum/2007 for the assessment year 2003-04 . It was further submitted that the assessee complied with the requirement of maintaining "contemporaneous documentation" in the form of TP study before the due date, i.e. October 31, 2005 and also furnished the documentation/ information as required by the TPO well within the stipulated time. Since there was a reasonable cause for delay in filing of Form 3CEB and which had no effect on preparation of documentation u/s 92D of the Act, levy of penalty u/s 271AA & 271G of the Act was not justified.
8. We have heard both the parties and gone through the facts of the case.. The issue before us relates to levy of penalty of ``22,58,830/- imposed u/s 271AA of the Act for failure to keep and maintain information and documents as stipulated under sec. 92D(1) & 92D(2) of the Act without any reasonable cause & also of levy of an equivalent amount of penalty of ``22,58,830/- u/s 271G of the Act for not furnishing information and documents within the time specified in notice u/s 92D(3) of the Act. Before proceeding further, we may have a look at the relevant provisions governing maintenance of information and documents and their submission before the Revenue authorities for determining the ALP. The AO/TPO requires certain information and documents on controlled and uncontrolled international transactions and other relevant evidence. In this connection relevant Rule 10D of Income-tax Rules,1962 lays down as under:
Rule 10D. Information and documents to be kept and maintained under section 92D.
"(1) Every person who has entered into an Time/form when international transaction shall keep and maintain information is to 10 ITA nos.5164&5165/Del./2011 the following information and documents, namely:- be furnished as per clause.
No.1 No.2
(a) a description of the ownership structure of (a) In the audit report the assessee enterprise with details of shares or other ownership interest held on form 3CEB.
therein by other enterprises;
(b) a profile of the multinational group of (b) - same - which the assessee enterprise is a part along with the name, address, legal status and country to tax residence of each of the enterprises comprised in the group with whom international transactions have been entered into by the assessee, and ownership linkages among them;
(c) a broad description of the business of the (c) - same - assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted;
(d) the nature and terms (including prices) of (d) In Form 3CEB in international transactions entered into with each associated enterprise, details of the audit report or u/s property transferred or services provided 92D(3) or u/s 92CA(2) and the quantum and the value of each such transaction or class of such transaction;
(e) a description of the functions performed, (e) - same - risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction;
(f) a record of the economic and market (f) - same -
11 ITA nos.5164&5165/Del./2011 analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions entered into by the assessee;
(g) a record of uncontrolled transactions (g) - same - taken into account for analyzing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions;
(h) a record of the analysis performed to (h) - same - evaluate comparability of uncontrolled transactions with the relevant international transaction;
(i) a description of the methods considered (i) - same - for determining the arm's length price in relation to each international transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case;
(j) a record of the actual working carried out (j) - same - for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction and the 12 ITA nos.5164&5165/Del./2011 comparable uncontrolled transactions, or between the enterprises entering into such transactions;
(k) the assumptions, policies and price (k) - same - negotiations, if any, which have critically affected the determination of the arm's length price;
(l) details of the adjustments, if any, made to (l) - same - transfer prices to align them with arm's length prices determined under these rules and consequent adjustment made to the total income for tax purposes;
any other information, data or document, including (m) - same - information or data relating to the associated enterprise, which may be relevant for determination of the arm's length price.
(2) Nothing contained in sub-rule (1) shall apply in a case where the aggregate value, as recorded in the books of account, of international transactions entered into by the assessee does not exceed one crore rupees :
Provided that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transactions entered into by him has been computed in accordance with section 92. (3) The information specified in sub-rule (1) shall be supported by authentic documents, which may include the following :
(a) official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country;
(b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute;
(c) price publications including stock exchange and commodity market quotations;
(d) published accounts and financial statements relating to the business affairs of the associated enterprises;
(e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions;
13 ITA nos.5164&5165/Del./2011
(f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise;
(g) documents normally issued in connection with various transactions under the accounting practices followed.
(4) The information and documents specified under sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F:
Provided that where an international transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under sub-rules (1) and (2) shall be maintained bringing out the impact of the change on the pricing of the international transaction.
(5) The information and documents specified in sub-rules (1) and (2) shall be kept and maintained for a period of eight years from the end of the relevant assessment year."
8.1 As is evident from the aforesaid Rule 10D, documents and information prescribed thereunder are voluminous and it would only be in rare cases that all the clauses of aforesaid sub-rules would be attracted. It would all depend upon the facts and circumstances of the case, more particularly the nature of international transactions carried or services involved. Likewise supporting documents, official publications, reports, market research studies, technical publications of Government or other institute of national or international repute, and all the documents mentioned in Rule 10D(3) may not be necessary in case of every assessee. Application of one or more clauses of sub-rule (3) would depend upon facts & circumstances involved in the international transactions. Apparently, the assessee and the tax authorities have to apply their mind to see as to what information and documents prescribed in sub-rules of Rule 10D and which particular clause are relevant and therefore, necessary for determining ALP. The consideration of these aspects is material before issuing notice u/s 92D(3) of the Act, if it is to serve its purpose. In fact, the initial information relating to international transactions is gathered from the asssessee in the 14 ITA nos.5164&5165/Del./2011 prescribed audit report in Form 3CEB in terms of provisions of sec. 92E of the Act. On the basis of form 3CEB, AO determines the question as to whether total value of the transactions is more or less than `15 crore to consider the question whether or not determination of ALP is to be referred to the Transfer Pricing Officer (TPO). If the total value exceeds the prescribed limits, the AO has to refer the matter to the TPO. Since the information prescribed under Rule 10D in different columns is voluminous & alternative , it has to be examined as to what information, from which clause, is required on the facts of the given case. Armed with the prescribed initial information and in the light of details of international transactions undertaken by the assessee and the method employed to determine the ALP of transactions, further proceedings are conducted towards determination of ALP in terms of provisions of sec. 92C ,92CA & 92D of the Act. Sec. 271AA stipulates penalty for failure to keep and maintain information and document in respect of international transaction while sec. 271G provides for penalty for failure to furnish information or document under section 92D of the Act. However, sec. 273B of the Act provides that penalty under these provisions shall not be imposable if the assessee establishes reasonable cause.
8.2 In the instant case, we are concerned with levy of penalty u/s 271AA for failure to keep and maintain information and documents as stipulated under sec. 92D(1) & 92D(2) of the Act without any reasonable cause & u/s 271G of the Act for failure to furnish information / documents required by sub-section (3) of Section 92D, which stipulates that the said provision can be applied in the following circumstances:
(i) in the course of the proceedings under the Act before the Assessing Officer or the Commissioner (Appeals).
(ii) Any documents or information prescribed under sub-section (1) & sub-
section (2) as may be required.
15 ITA nos.5164&5165/Del./2011
(iii) required to be furnished under sub-section (3) within 30 days (as extended by another 30 days) from the receipt of notice issued in this regard.
8.21 We have already mentioned the documents required to be kept and maintained in terms of provisions of sub-section(1) and sub-section(2) of sec. 92D of the Act. In terms of provisions of sec. 92D(3) of the Act, the AO may require from any person ,entering into international transaction, any information or document as may be prescribed. The word 'any' information or document does not mean 'all' the documents prescribed under rule 10D of the IT Rules,1962. The word 'required" is important as it rules out option with the assessee and makes it obligatory to furnish the requisite information. After having a report in form no. 3CEB in the first instance, next step is to issue notice u/s 92CA(2) of the Act to the assessee to produce evidence in support of ALP. Under sub-section (2) of Section 92CA of the Act, evidence in support of ALP may include information and documents referred to in sub-section (3) of section 92D, which are prescribed in various clauses of rule 10D(1) as aforesaid. If on consideration of evidence produced by the assessee, the TPO is satisfied that ALP has been properly and correctly determined by the assessee, it is the end of the matter. However, if complete information is not furnished, or otherwise, TPO is of the view that more information on specified points is required from the assessee, the TPO can issue notice under sub-section (3) of section 92D. TPO can also issue notice u/s 92CA(3) of the Act, depending upon the facts of the case and the information needed. Only in the event of failure of the assessee to support its ALP by filing necessary evidence, question of requiring assessee to furnish prescribed information would arise. There is no rationality in requiring information or documents from the assessee first under section 92D(3) and thereafter, provide opportunity to the assessee to support its ALP, as observed in Cargil India Private Ltd.,300 ITR (AT) 223 (Del.). Moreover, having regard to purpose of the regulations, the notice u/s 92D(3) must require specific information or documents which the assessee failed to furnish u/s 92CA(2) of the 16 ITA nos.5164&5165/Del./2011 Act but which according to the TPO are necessary for determination of ALP of international transactions. Therefore, notice u/s 92D(3) cannot be vague but must require specific information and has to be confined to the furnishing of information or document as may be "prescribed". Further, there is no restriction of furnishing prescribed information in response to a notice u/s 92CA(2) of the Act to support the computation of ALP by the assessee. However, there is no authority u/s 92D(3) with the T.P.O. to require the assessee to furnish non- specified information or such information or document already filed by the assessee or use of the provision, without asking the assessee to support first its ALP of International transactions. In nutshell, application of mind to ascertain and consideration of material on record and to see what further information on specific points is required, is essential before issuing notice u/s 92D(3) of the Act to the assessee. It is not a routine notice, which can be casually issued calling for any information or all prescribed information. Where the assessee has "option" to select relevant information, it is not a notice u/s 92D(3) as "option" and word "require" do not go together. In this connection we find that the assessee submitted the following reply before the AO in respect of maintenance and furnishing of prescribed information :
Nature of Information/ Nature of International Documents prescribed Transaction (Manner of under Rule 10D(1) Compliance with the provision)
a) A description of the The appellant has ownership structure of provided this as a part of the assessee enterprise its Group Overview on with details of shares or page 4 of the TP Report other ownership interest for FY 2004-05 filed with held therein by other the TPO.
enterprises
b) A profile of the The appellant has
multinational group of provided the profile of the
which the assessee multinational group as a
enterprise is a part along part of the TP Report filed
with the name, address, with Ld. TPO.
legal status and country
of tax residence of each The details (name,
of the enterprises address, legal status and
17 ITA nos.5164&5165/Del./2011
comprised in the group country of tax residence)
with whom international of the entities with whom
transactions have been GOIPL has entered into
entered into by the international transactions
assessee,and ownership during the financial
linkages among them year2004-05 are provided
in the Form 3CEB.
c) A broad description of The appellant has
the business of the provided this as a part of
assessee and the Group/Company Overview
industry in which the and Industry Analysis on
assessee operates, and pages 4-16 of the TP
of the business of the Report read with the Form
associated enterprises 3CEB for FY 2004-05.
with whom the assessee
has transacted
d) Nature and terms The appellant has
(including prices) of provided this as a part of
international the TP Report read with
transactions entered into Form 3CEB. As set out in
with each associated the TP report, the quantum
enterprise, details of and value of the
property international transactions
transferred or services is determined using the
provided and the global profit split method,
quantum and the value thereby indicating
of each such transaction maintenance and
or class of such availability of this
transaction. information with the
appellant.
e) Description of The appellant has
functions performed, provided this as a part of
risks assumed and its Functional Analysis on
assets employed or to pages 17-28 of the TP
be employed or to be Report for financial year
employed by .the 2004-05
assessee and by the
associated enterprises
involved in the
international transaction.
f) Record of the Since, the appellant is just
economic and market one of the participants of
analyses, forecasts, the profit split method
budgets or any other applied to the group
financial estimates globally, such financial
prepared by the estimates/
18 ITA nos.5164&5165/Del./2011
assessee for the budgets etc. (if any) at the
business as a whole and group/global level are
for each division or prepared/ maintained by
product separately, the overseas group
which may have a companies. The audited
bearing on the financial statements of the
international appellant were submitted to
transactions entered into the Ld. TPO.
by the assessee.
g) Record of uncontrolled The appellant has provided
transactions taken into record of uncontrolled
account for analysing transactions with respect to
their comparability with routine administrative/
the international support activities
transactions entered into, undertaken by GOIPL in
including a record of the India as a part of its
nature, terms and Economic Analysis on page
conditions relating to any 35 and Appendix C of the
uncontrolled transaction TP Report for FY 2004-05.
with third parties which
may be of relevance to
the pricing of the
international transactions.
h) Record of the analysis Further, with respect to
performed to evaluate routine administrative/
comparability of support activities
uncontrolled transactions undertaken by GOIPL in
with the relevant India, the appellant has
international transaction. provided this as a part of
its Economic Analysis
(basis and manner of
application of residual
PSM) on page 35 and
Appendix C of the TP
Report for FY 2004-05.
i) Description of the The appellant has provided this
methods considered for as a part of its Economic
determining the ALP in Analysis on pages 29-38 read
relation to each with Appendix C of the TP Report
international transaction for FY 2004-05.
or class of transaction,
the method selected as It is pertinent to note here
the most appropriate that the appellant has
method along with selected the Residual Profit
explanations as to why Split Method (PSM) as the
19 ITA nos.5164&5165/Del./2011
such method was so most appropriate method
selected and how such for establishing the arm's
method was applied in length standard for its
each case. international transactions.
In application of PSM, with
respect to the routine
administrative/support
services undertaken by
GOIPL, the company has
undertaken a comparability
analysis with due regard to
Rule l0B wherein the
comparability for this
purpose has been
established with reference
to the relevant Functional,
Asset and Risk analysis.
j) Record of the actual The appellant has provided
working carried out for this as a part of its
determining the ALP, Economic Analysis on
including details of the pages 29-38 of the TP
comparable data and Report for FY 2004-05. It is financial information pertinent to note that the used in applying the arm's length price has most appropriate been defined under section method, and 92F as the "price which is adjustments, if any, applied or proposed to be which were made to applied in a transaction account for differences between persons other between the international than associated transaction and the enterprises, in uncontrolled comparable uncontrolled conditions". In the instant transactions, or between case, the quantum/ value the enterprises entering of international into such transactions. transactions is determined using the principles and computation mechanism set out and explained in detail in the transfer pricing report. Moreover, with respect to the routine administrative/ support activities undertaken by the Company, by computing the net margins achieved by comparable 20 ITA nos.5164&5165/Del./2011 uncontrolled companies, the appellant has complied with this requirement of determining the arm's length price for such activities in India.
k) The assumptions, The detailed methodology policies and price of arriving at the arm's negotiations, if any, length price of international which have critically transactions for the affected the appellant is discussed and determination of the provided in the transfer ALP. . pricing report. The TP Report is a summary of the prescribed information and any details required thereof would be timely provided by the appellant.
I) Details of the Not relevant as the transfer adjustments, if any, prices in the instant case made to transfer prices are determined/ fixed to align them with ALPs based on the arm's length determined under these price of such transactions rules and consequent applying the profit split adjustment made to the method.
total income for tax
purposes
m) Any other The TP Report provided to
information, data or the Ld. TPO is a summary
document, including of the prescribed
information or data information and any other
relating to the associated details required were
enterprise, which may be provided by the appellant,
relevant for as and when desired by
determination of the ALP the Ld. TPO
.
8.3 In the instant case, the assessee stated that they had kept and maintained all the documents in terms of provisions of sec. 92D(1)& 92D(2) of the Act. The TPO issued first notice on December 5, 2007 u/s 92CA(2) and 92D(3) of the Act, seeking information and evidence .According to the assessee, the said notice was served on 26.12.2007. Immediately thereafter on 27.12.2007, the assessee sought extension of time until 15th January,2008. The necessary documentation 21 ITA nos.5164&5165/Del./2011 was filed on 25.1.2008 while audited accounts were submitted on 20.2.2008. Apparently, the assessee submitted the documentation within the time prescribed u/s 92D(3) of the Act. These facts have not been disputed before us. Here we may point out that the AO also imposed a penalty of `1lac u/s 271BA of the Act for failure to submit a report of accountant in form 3CEB in accordance with provisions of the sec. 92E of the Act. However, the ld. CIT(A) cancelled the penalty vide order dated 19.9.2011 on the ground that the assessee had a reasonable cause for delay in submitting report in form no.3CEB. There is nothing to suggest as to whether or not any appeal has been preferred against this order of the ld. CIT(A). Neither the TPO/AO in their respective orders nor even the ld. DR appearing before us, specified the particular information or documentation which was not kept or maintained by the assessee or was not furnished before the TPO. In any case, the TPO observed that "The Transfer pricing documentation containing functional and economic analysis prescribed under Rule 10D of the Income tax Rules was submitted and placed on record."
8.31 After referring to the international transactions , the TPO further observed
4. "The Transfer Pricing documentation which contains the functional and economic analysis of comparables and of assessee, has been examined and placed on record.
5. In view of the functional and economic analysis of the assessee comparables, no adverse inference is drawn of the international transactions undertaken by the assessee during the FY 2004-05"
9. In the light of aforesaid findings of the TPO, the ld. CIT(A) concluded that the assessee had maintained the documentation u/s 92D of the Act and also produced before the TPO. Accordingly, the ld. CIT(A) cancelled the penalty levied u/s 271AA & 271G of the Act.. In the penalty orders passed by the AO, 22 ITA nos.5164&5165/Del./2011 there is nothing to suggest as to which particular information or document was not submitted by the assessee nor the exact nature of default has been brought out. In these circumstances, especially when the Revenue have not placed before us any material ,controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.1 these appeals is dismissed.
10. No additional ground having been raised before us in terms of residuary ground no.2 in these appeals, accordingly, this ground is dismissed.
11. In result, both these appeals are dismissed.
Order pronounced in Open Court
Sd/- Sd/-
(R.P. TOLANI) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. M/s Global One India Pvt. Ltd.,C-56,Neeti Bagh,New Delhi-49
2. A.C.I.T.,Circle-12(1),New Delhi
3. CIT(A)-XX, New Delhi.
4. CIT concerned.
5. DR, ITAT,'C' Bench, New Delhi
6. Guard File.
BY ORDER, Deputy/Asstt.Registrar ITAT, Delhi