Commissioner Of Income Tax,Chennai v. M/S.ssl-Ttk Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM The Honourable Mr.Justice T.S.SIVAGNANAMandThe Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP T.C.A.No.776 of 2014 Commissioner of Income Tax,Chennai. ...Appellant/Appellant -vs- M/s.SSL-TTK Ltd.,No.6, Cathedral Road,Chennai-600 086. ...Respondent/Respondent Appeal under Section 260A of the Income Tax Act, 1961against the order dated 15.02.2012 made in I.T.A.No.544/Mds/2011on the file of the Income Tax Appellate Tribunal 'D' Bench,Chennai for the assessment year 2006-07.Against the order of the Commissioner of Income Tax(Appeals)V,Chennai600034dated19.01.2011inI.T.A.No.371/2009-2010 in the Assessment year 2006-2007.Against the order of the Assistant Commissioner of IncomeTax, Company Circle VI(1) Chennai 34 dated 21.12.2009 GIRNo./PAN S-141/ in the Assessment year 2006-2007. For Appellant:Mr.J.Narayanaswamy,Senior Standing CounselFor Respondent :Mr.R.Vijayaraghavan JUDGMENT(Delivered by T.S.Sivagnanam, J.) This appeal, filed by the appellant/Revenue, under Section260A of the Income Tax Act, 1961 (hereinafter referred to as“the Act”) is directed against the order dated 15.02.2012, madein I.T.A.No.544/Mds/2011 on the file of the Income Tax AppellateTribunal 'D' Bench, Chennai (for brevity “the Tribunal”) for theassessment year 2006-07. 2.The appeal was admitted on 13.07.2015, on the followingsubstantial question of law:- https://hcservices.ecourts.gov.in/hcservices/ “Whether on the facts and in thecircumstances of the case, the Appellate Tribunalwas right in upholding the order of the CIT(A)directing the Assessing Officer to delete thepenalty levied under Section 271G of the IncomeTax Act, 1961?” 3.The assessee is a Public Limited Company engaged in themanufacture of foot care and footwear products to the domesticand export markets. It is a joint venture between a UK Companyand an Indian Company. For the assessment year underconsideration 2006-07, the assessee filed its return of incomeadmitting total loss. The case referred to the Transfer PricingOfficer (TPO) under Section 92CA of the Act for computing theArms Length Price. The TPO held that there is no need foradjustment and the Assessing Officer, in his order, accepted thetotal income/loss returned by the assessee. The AssessingOfficer initiated penalty proceedings under Section 271G of theAct on the ground that the assessee-company did not comply withthe letter issued by the TPO requiring the assessee to furnishinformation in terms of Section 92D and Section 92E of the Actand proceeded to levy penalty at 2% of the value ofinternational transaction. 4.The assessee filed appeal before the Commissioner ofIncome Tax (Appeals)-V, Chennai (for brevity “the CIT(A)”), whoby order dated 19.01.2011, allowed the appeal. Aggrieved by thesame, the Revenue preferred appeal before the Tribunal, whichwas dismissed. Challenging the said order, the Revenue isbefore us raising the aforementioned substantial question of lawfor consideration. 5.We have elaborately heard Mr.J.Narayanaswamy, learnedSenior Standing Counsel appearing for the appellant/Revenue andMr.R.Vijayaraghavan, learned counsel for the respondent/assessee. 6.The crucial fact, which we have to note at the veryoutset, is that though the Assessing Officer made a reference tothe TPO, the TPO, on going through the documents filed by theassessee, was satisfied and passed an order stating that noaddition was required to be made and this was accepted and thetotal income/loss returned by the assessee was accepted and theassessment was completed. It is thereafter, the AssessingOfficer proposed to levy penalty by invoking his power underSection 271G of the Act. 5.We have elaborately heard Mr.J.Narayanaswamy, learnedSenior Standing Counsel appearing for the appellant/Revenue andMr.R.Vijayaraghavan, learned counsel for the respondent/assessee. 6.The crucial fact, which we have to note at the veryoutset, is that though the Assessing Officer made a reference tothe TPO, the TPO, on going through the documents filed by theassessee, was satisfied and passed an order stating that noaddition was required to be made and this was accepted and thetotal income/loss returned by the assessee was accepted and theassessment was completed. It is thereafter, the AssessingOfficer proposed to levy penalty by invoking his power underSection 271G of the Act. 7.In terms of Section 92D of the Act, which deals withmaintenance, keeping and furnishing of information and documentby such person, the Assessing Officer or the Commissioner(Appeals) is empowered to require any person referred to in sub- section (1) of Section 92D to furnish any information ordocument referred therein within a period thirty days from thedate of receipt of a notice by exercising power under sub-section (3) of Section 92D of the Act. 8.If the assessee fails to furnish the information calledfor, Section 271G provides for penalty. The said provisionstates that if any person who has entered into an internationaltransaction or specified domestic transaction, fails to furnishany such information or document as required under sub-section(3) of Section 92D, the Assessing Officer or the TPO, asreferred to in Section 92CA, or the Commissioner (Appeals) maydirect that such person shall pay, by way of penalty, a sumequal to two per cent of the value of the internationaltransaction or specified domestic transaction for each suchfailure. Thus, to invoke the power under Section 271G, theauthority, viz., the Assessing Officer or the TPO or theCommissioner (Appeals) has to render a finding that the assesseehas failed to furnish information called for under Section 92D(3) of the Act. 9.The TPO, during the course of the proceedings before him,sent a communication dated 25.11.2008 along with a questionnaireinforming the assessee that his case has been referred to himunder Section 92CA and the assessee was requested to furnishcertain information in terms of Section 92D and Section 92E ofthe Act as given in the enclosed questionnaire. These detailswere directed to be furnished by 24.12.2008 and also sent copiesof the annual reports for the three years and also copy of thecomputation of total income. The assessee argued before theTribunal that the TPO's communication dated 25.11.2008 cannot beconsidered as a notice under Section 92D(3) of the Act. Thoughthe Tribunal states that the question to be decided is whetherthe letter issued by the TPO, as mentioned above dated25.11.2008, is a notice under Section 92D(3) or not, it does notrender any finding. In our considered view, the TPO's noticedated 25.11.2008, undoubtedly, is a notice under Section 92D(3)of the Act. It is not necessary for the authority to verbatimrepeat the statutory provision. Sub-section (3) of Section 92Dempowers the Assessing Officer or the Commissioner (Appeals) torequire any person who has entered into an internationaltransaction to furnish any information or document, as may beprescribed under sub-section (1) within a period of thirty days. 10.On going through the TPO's notice dated 25.11.2008, allthe ingredients required to be satisfied for a notice to bevalidly treated as a notice under Section 92D(3), are containedin the TPO's notice. Therefore, we find that there is no defectin the notice. Nevertheless, the TPO did not initiate penaltyproceedings. It is the Assessing Officer, who did so. The 10.On going through the TPO's notice dated 25.11.2008, allthe ingredients required to be satisfied for a notice to bevalidly treated as a notice under Section 92D(3), are containedin the TPO's notice. Therefore, we find that there is no defectin the notice. Nevertheless, the TPO did not initiate penaltyproceedings. It is the Assessing Officer, who did so. The Assessing Officer did not dispute the fact that out of 16documents/items, which the assessee was called upon to comply bythe TPO, 12 of them have been complied by the assessee. Aboveall, the TPO was satisfied that whatever documents, which werecalled for, were produced by the assessee at a later point oftime and ordered that no addition is required to be made. Theexplanation given by the assessee dated 15.12.2009 is by statingthat the company had no experience relating to transfer pricingregulations, as it was the first transaction, which was referredto the TPO. 11.We are not convinced with the said explanation for morethan one reason. Firstly, the assessee is a Public LimitedCompany. Secondly, it is a joint venture company between a UKCompany and an Indian Company and the nature of productmanufactured by them was an international popular brand of footcare and footwear products. 12.Be that as it may, it is not a case of total failure, butit may be a case of belated compliance. The learned SeniorStanding Counsel appearing for the respondent submitted that noleniency is required to be extended to the assessee and in fact,on an individual assessee, the High Court of Kerala did not showany indulgence with regard to the penalty, which was imposedunder Section 271C and Section 273B of the Act in the case ofCIT v. Thomas Muthoot reported in (2015) 61 taxmann.com 76(Kerala). The assessee pleaded that he was under the bonafidebelief that under Section 194A, they were not liable to deducttax at source on the interest paid by a partner to the firm andthus, pleaded ignorance of the statutory liability to deducttax. This plea was held to be not acceptable and not bonafide.We find, factually the case cannot be compared with that of thecase on hand, where there are several distinguishing factualfeatures, which would go to justify the decision taken by theTribunal affirming the order passed by the CIT(A). Though wehave held that the explanation offered by the assessee statingthat they are a novice to transfer pricing transactions, whichis not prima facie acceptable, but the conduct of the assesseein complying with 12 items out of 16 items as called for by theTPO can be considered to be reasonable and the act cannot beheld to be an unreasonable act, but can be considered as areasonable act of an organization acting with prudence undernormal circumstances without negligence or inaction or want ofbonafides. There is no finding recorded by the AssessingOfficer that the conduct of the assessee lacks bonafide or therewas supine indifference on the part of the assessee in notproducing the records called for by the TPO, despite notice anddespite fixing time frame and not furnishing all the details wason account of inaction leading to failure on the part of theassessee to invoke Section 271G of the Act. Therefore, we are of the view that on facts, the Tribunal rightly held in favourof the assessee by affirming the order passed by the CIT(A). 13.Mr.R.Vijayaraghavan, learned counsel for the assesseesubmitted that the notice issued was defective and did notcomply with the provisions of Section 92D(3) of the Act and insupport of such contention, reliance was placed on the decisionin the case of CIT vs. Leroy Somer & Controls reported in (2014)360 ITR 0532 (Delhi). We find that there is a slight factualdifference in the said case and in any event, on perusal of thenotice and the wordings contained therein, we are satisfied thatit is in full compliance of the statutory provision, viz.,Section 92D(3) of the Act. of the view that on facts, the Tribunal rightly held in favourof the assessee by affirming the order passed by the CIT(A). 13.Mr.R.Vijayaraghavan, learned counsel for the assesseesubmitted that the notice issued was defective and did notcomply with the provisions of Section 92D(3) of the Act and insupport of such contention, reliance was placed on the decisionin the case of CIT vs. Leroy Somer & Controls reported in (2014)360 ITR 0532 (Delhi). We find that there is a slight factualdifference in the said case and in any event, on perusal of thenotice and the wordings contained therein, we are satisfied thatit is in full compliance of the statutory provision, viz.,Section 92D(3) of the Act. 14.For the above reasons, this tax case appeal, by theRevenue, is dismissed and the substantial question of law isanswered against the Revenue. No costs. s/d- Assistant Registrar(CS-V) True Copy Sub-Assistant Registrar abrTo 1.The Assistant RegistrarIncome Tax Appellate Tribunal 'D' Bench,Rajaji Bhavan, Besant Nagar,Chennai. 2.The Commissioner of Income Tax (Appeals-V)Chennai 600 034.Chennai 600 034. 3.The Assistant Commissioner of Income TaxCompany Circle VI(1)Chennai 600 034Company Circle VI(1)Chennai 600 034 +1 CC to Mr.J.Narayanaswamy, Advocate sr 38938. T.C.A.No.776 of 2014 MG(CO)SP(28/10/2021)