9911796707
TMI Blog2008 (2) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... d to require prescribed information but here both prescribed and un-prescribed information like balance sheet, profit and loss account, computation of income etc was also required to be furnished from the taxpayer before the taxpayer could file evidence under Section 92CA(2). Not only primary documents necessary to support the computation of ALP of taxpayer, but also supporting documents detailed in Sub-rule (3) of Rule 10D were required to be furnished without considering which supporting documents out of several mentioned in various clauses of the said sub-rule were available with the taxpayer. The burden of selection/relevancy of clauses applicable was shifted to the taxpayer. The notice only increased burden of the taxpayer and confused the notice. Above notices issued without application of mind and without considering relevancy and requirement of all the prescribed information and documents under Rule 10D vitiated the legality of the notices. Above notices could not be treated as proper and legal notices in terms of Section 92D(3) of the act. The failure, therefore, of the taxpayer to comply such notices in time can not justify levy of penalty of Rs 40,46,41,376/-. The notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, but in the light of our decision recorded above, no useful purpose would be served in dealing with each of those grounds. Therefore, on facts of the case, we hold that the penalty imposed is not exigible and the same is hereby cancelled. In the result, assessee s appeal is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... rated and addition on account of adjustments for transfer pricing was made in the assessment order. However, above addition on merit is subject-matter of a different appeal and not the issue before us. 3. It is claimed by the revenue that taxpayer failed to comply with directions of the TPO and did not submit documents sought from the taxpayer in time and, therefore, committed a default under section 271G of the Income-tax Act. The Assessing Officer imposed penalty of Rs. 40,46,41,376/- on the taxpayer under the above provision. 4. The learned CIT (A) while confirming levy of penalty and in the concluding paras has held as under: "(vii) On consideration of arguments and perusal of penalty order and ld. AR's submission and paper book, I find that the time-limit for furnishing the documents and detail was prescribed as on 21-11-2005. There is no dispute on this date from either of the sides. However, as per ld. AR, the assessee has furnished all the details prescribed under the Income-tax Act and rule 10D of the Income-tax Rules on or before 16-11-2005. The rest of details furnished later on 21-11-2005 were only supporting documents and back up paper and the same cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned at page 25 and selection of Transactional Net Margin Method as method for transfer pricing at page 39 of document-I dated 16-11-2005. The assessee has taken itself as the tested party and has stated its transactions to be at arm's length by selection of comparables from the Capitaline database. What the assessee has mentioned is merely a search process through which it has attempted to identify a set of comparables. In the conclusion at page 46 of document-I, the assessee has merely intimated that profit level indicator used for benchmarking international transactions is OPM which means operating margin over sales/turnover. It is concluded in this paragraph that OPM of assessee is 0.09 per cent which is better than 20 final set of comparables having OPM at 6.95 per cent. The names of comparables, their financial data, their working of OPM and the details of their financial profile was not available in this document. The working of operating profit margin of the assessee was also not available in documentation submitted by the assessee on 16-11-2005. In totality, the approach is totally devoid of any merit whatsoever to draw any reasonable conclusion regarding the justific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. (x) The ld. AR with an alternative argument pleaded that the penalty should not be levied on the total turnover but it should be levied on international transaction of Rs. 2,023.20/- crore. For the sake of convenience, the relevant portion of written submission at page 54 is reproduced below: "Without prejudice, it is submitted that assuming for the sake of an argument, but without admitting, that there was an alleged default committed by the assessee and penalty was rightly leviable, it could have been imposed only in respect of those international transactions forming part of the value of international transactions of Rs. 2,023.20/- crore, in respect of which there was an alleged non compliance of clauses (g) to (j) of rule 10D of the Income-tax Rules. It is thus evident that the penalty has been imposed mechanically and without application of mind." On going through the penalty order, I find that the Assessing Officer has worked out the international transaction vide chart given at page 14 of the penalty order (under dispute). Thus, the Assessing Officer after determining the international transaction at Rs. 20,23,20,68,788/-, levied the penalty at the rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith provisions of section 92D read with rule 10D of Income- tax Rules by not furnishing information in time and, therefore, action under sections 271AA and 271G should be taken by the Assessing Officer. Accordingly, penalty proceedings under section 271G were taken and after hearing the taxpayer and after obtaining report from the TPO, penalty in question was imposed and upheld by the ld. CIT(Appeals). 6. It is the claim of the tax authorities that TPO had called for certain information and documents under section 92D(3) which the taxpayer failed to submit within the specified period of 30 days as extended by another 30 days under proviso to the above section. The TPO, therefore, asked the Assessing Officer to take action under sections 271AA and 271G of the Income-tax Act. Information and documents prescribed under sub-section (1) of section 92D (rule 10D of Income-tax Rules) which the taxpayer has to keep and maintain and which the taxpayer can be asked to furnish as per sub-section (3) of section 92D were not furnished within the specified time. But how these documents were summoned in the present case is to be seen. Whether or not default for which penalty in question has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived under section 92CA(1) of the Income-tax Act from Cir. 3(1), New Delhi, the Assessing Officer, to determine under section 92CA(3) the arm's length price in respect of 'international transactions' entered into by you during the financial year 2002-03. You are, hereby required to attend my office on 10-10-2005 at 1.00 p.m. either in person or by a representative duly authorized in writing in this behalf or produce or cause thereby to be produced at the same time, any evidence and/or material, which has been relied upon by you in support of computation of arm's length price of the aforesaid international transactions. Further, in accordance with rule 10D(2) of the Income-tax Rules, please substantiate on the basis of material available with you that the income arising from aforesaid international transactions has been computed in accordance with section 92 of the Income-tax Act. 2. For the purpose of determination of 'arm's length price' under section 92CA(3) in respect of such international transactions, the following information/documents may also be filed in my office on or before the above mentioned date: (a) Balance sheet and profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy reference: Maintenance and keeping of information and document by persons entering into an international transaction. 92D. (1) Every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed: (2) Without prejudice to the provisions contained in Sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that Sub-section. (3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under Sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard: Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days. 5. It is reiterated that since time maximum permitted under the act for filing of statutory documentation is 30 days extendable by another t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In respect of item (I) above, as required by your goodself we have attached herewith the copies of the Balance sheet, Profit and Loss account, Audit Report and Tax Audit report filed with the ROI for the captioned AY (refer Annexure I). 2. In respect of item (2) above, as required by your goodself, we have attached herewith the statement of computation of income filed with the ROI for captioned AY (refer Annexure 2) 3. In respect of item (3) above, as required by your goodself, we have attached herewith our submissions (refer Annexure 3). We trust the above fully meets with your goodself s requirements and would be happy to provide further additional information/clarification that your goodself may desire. Further we also crave leave to add any documents in this regard. Certified copy of the Power of Attorney executed by our client in our favour to represent before your goodself is attached herewith. 12. We ignore for the purposes of this discussion Annexure 1 and 2 which were audit report and computation of income already filed by the taxpayer and proceed to consider Annexure 3. With annexure 3, the taxpayer had tried to give information prescribed under Rule 10D(1) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Refer Annexure 3.6 (j) Record of the actual working carried out for determining the ALP, 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 comparable uncontrolled transactions, or between the enterprises entering into such transactions. Refer Annexure 3.7 (k) The assumptions, policies and price negotiations, if any, which have critically affected the determination of the ALP. Refer Annexure 3.7 (1) Details of the adjustments, if any, made to transfer prices to align them with ALPs determined under these rules and consequent adjustment made to the total income for tax purposes. Not relevant (m) Any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the ALP. Not relevant 12.1 In the letter dated November 21, 2005, the assessee made reference to information filed in T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onse to above show cause, no reply was submitted on merits, instead on 20th December, 2005, the assessee submitted a reply which was dated 12.12.2005. This document contained working of TNMM in respect of wheat, Merchanting trading, Support services, support agency services and distribution services; (this document is hereinafter referred as document-II). The contents of this letter were supposed to be part of original statutory documentation. 3.4 Even at this stage the documentation was not complete and on 23rd December, 2005, CIPL submitted more backup papers in the form of Annexure's, substantiating applicability of Comparable Uncontrolled Price method in oil, fertilizer, soya meal, rice, discounting charges, purchase of assets, commission on ferrous etc. (Document-III). In this letter assessee defended its stand that the earlier documentation was complete and was adequate compliance the requirements of Rule 10D documentation. It may be seen that the assessee company, therefore, consumed all most 3 months in compliance of submission of statutory and contemporaneous documentation. The documentation was submitted in a piece meal manner spread over various dates. 3.5 CIPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings were not initiated during the course of assessment proceedings and, therefore, no penalty can now be levied. The Assessing Officer rejected this contention, as according to him Scheme of Section 271G was different from Scheme of Section 271(1) and, therefore, it is not necessary to initiate penalty proceedings during the course of assessment proceedings. The contention was rejected. The Assessing Officer further relied upon provision of Section 92D which, according to him, was to be read along with the provisions of Section 271G. Both the sections, according to the Assessing Officer, are independent of assessment proceedings. The decisions referred to and relied upon by the taxpayer and noted by Assessing Officer in para 7 of the impugned order were held to be not applicable. 13.1 The Assessing Officer also rejected the objection of the taxpayer that no specific ground of initiation of penalty proceedings was mentioned in the show cause notice. According to the Assessing Officer in the show cause notice, reference to penalty Under Section 271G was made and since the taxpayer failed to furnish information or documents as required under Sub-section (3) of Section 92D of the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od was not furnished." Hence the documentation filed by the taxpayer on 16.11.2005 was quite inadequate and did not satisfy the statutory requirement as per Rule 10D. 13.5 The taxpayer further failed to give backup documents/agreements on the basis of which cost plus method was applied. It failed to furnish comparable data of similar transactions undertaken by comparable in a similar industry. Hence documentation was incomplete. 13.6 As regards Transactional Net Margin Method (TNMM) applied by the taxpayer, the Assessing Officer has recorded as under: III. Transactional Net Margin Method (TNMM): 24. During the year under reference there are major international transactions termed as Export of Wheat and Merchanting trade and the functional analysis of which is mentioned at page 25 and selection of Transactional Net Margin Method as method for transfer pricing at page 39 of document-l dated 16.11.2005. The assessee has taken itself as the tested party and has stated its transactions to be at arm's length by selection of comparables from the Capitaline database. What the assessee has mentioned is merely a search process through which it has attempted to identify a set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue ("Payment of discounting charges") was not considered for the levy of penalty Under Section 271G since the levy of penalty Under Section 271AA for non maintenance of proper documentation was already considered against the assessee vide the order of even date. 13.10. The Assessing Officer computed penalty Under Section 271G at Rs 40,46,41,376/-, as under: 30. Hence, the total value of international transaction on which penalty Under Section 271G is to be levied is Rs 20,23,20,68,788 (excluding the transaction relating to "Payment of discounting charges" for which penalty Under Section 271AA is being levied). Amount of 2% of the same, amounting to Rs 40,46,41,376 is levied on the assessee company Under Section 271G of the IT. Act for non furnishing the information or document as required under Section 92D of the Act read with Rule 10D of the IT. Rules, 1962. 14. The taxpayer challenged levy of above penalty in appeal before the CIT (Appeals) and reiterated the submissions advanced before the Assessing Officer which are summarized by the learned CIT (Appeals) in para 2 of the impugned order. He has recorded his findings on various points in para 3 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of assessment proceedings and in the assessment order, that assessee had committed a default Under Section 271G of the Income-tax Act. This, according to Mr. Agarwal, was implied requirement of law. The learned Commissioner had also granted approval to the levy. of penalty in a mechanical manner and, therefore, such mechanical approval vitiated the entire proceeding. Shri Agarwal placed reliance on the decision of Hon'ble Supreme Court in the case of CIT v. D.P. Sandu Bros. Chembur P. Ltd. Shri Agarwal further pleaded that Assessing Officer who made assessment order had no jurisdiction to initiate or levy penalty. No default admittedly was committed in the proceedings taken by him. The default, if any, was committed before TPO, therefore only TPO had jurisdiction to initiate penalty proceedings as he was also defined as Assessing Officer in the statutory regulations. There is nothing in Section 271G to show that Assessing Officer could punish even for the default committed in proceedings not before him. 15.1 Shri Agarwal stated that notice issued by the Assessing Officer was invalid in law and otherwise vague. Shri Agarwal drew our attention to the show caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Singh 132 ITR 365 (Del), wherein it has been held as under: There is also another aspect to Section 275. It also contains implicitly a limitation that the penalty proceedings should be commenced before the completion of the assessment... He also relied upon decision of Ahmedabad High Bench of Income-tax Appellate Tribunal in the case of H. Ajitbhai and Co. v. ACIT 45 ITD 262. 15.5 In support of contention that before initiation, no satisfaction was recorded that default in terms of Section 271G was committed in the assessment proceedings or in the assessment order, Shri Agarwal drew our attention to the assessment order and also the finding of learned CIT (Appeals) in para V, page 7 of his order. As Assessing Officer has failed to record his satisfaction regarding initiation of penalty proceedings Under Section 271G in his assessment order, therefore, subsequent initiation of penalty proceedings are void ab initio and totally vitiated in law. For above proposition, Shri Agarwal relied upon the following decisions: (i) D.M. Manasvi v. CIT 86 ITR 557 (SC), (li) CIT v. S.V. Angidi Chettiar 44 ITR 739 (SC), (iii) CIT v. Mayar India Ltd. 142 Taxman 230 (Del) (2005), (iv) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Delhi High Court in the case of CIT v. Ajay Hari Dalmia 157 ITR 145 (Del) 15.8 Shri Agarwal also argued that the Assessing Officer contradicted himself by issuing notice Under Section 271AA and 271G of the Income-tax Act. If no accounts or documents were maintained as alleged, then there was no question of producing them. The learned counsel's submission was as under: (iii) It would be apparent from the said two notices that the ACIT without specifying, in respect whereof Appellant had failed to furnish information or documents and in respect whereof the Assessee had failed to keep and maintain information and documents, has directed the Assessee to show cause, why penalty be not imposed under two independent different statutory provisions namely 271G and 271AA of the Act and as such notices were vague and contradictory. Further it is submitted that the order of assessment made by the assessing Officer (copy placed at page 1-9 of paper book-1) nowhere shows that there was any such failure as was alleged by him in his show cause notices. 15.9. Shri Agarwal relied upon the case of Smt. Ramilaben Ratilal Shah v. ACIT 100 Taxman (Mag) 338, a decision of Ahmedabad Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not furnished proper documentation as required statutorily in Section 92D read with Rule 10D of the IT rules. In support of the contention that levy of penalty on a different footing than one on which it is initiated would lead to inference that reasonable opportunity was not afforded to the taxpayer and, therefore, penalty could not be sustained. Shri Agarwal also relied upon decision of Supreme Court in the case of CCE v. Brindavan Beverages (P) Ltd. and Ors, which has already been quoted. 16.2 Shri Agarwal then drew our attention to Sub-section (2) of Section 274 of Income-tax Act providing that no order imposing penalty shall be made unless assessee has been heard or has been given reasonable opportunity of being heard. Further the penalty order must have prior approval of the Joint Commissioner where penalty exceeds Rs. 20,000/-. In the present case the Additional Commissioner, Range-Ill granted approval in a mechanical manner without affording any opportunity of being heard to the assessee. Therefore, order was bad in law. In support of his contention, Shri Agarwal relied upon decision of Hon'ble Supreme Court in the case of R.B. Shreeram Durga Prasad and Fatechand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant and the same were made available to the TPO as and when called for to enable him to compute the arm's length price in respect of the international transaction entered into by the appellant. 16.5 Shri Agarwal further argued that provisions of Section 271G can be invoked only in a case where prescribed information and documents are not furnished within the prescribed time. He drew our attention to provision of Section 92D(3) and 271G and argued that Under Section 92D(3), the Assessing Officer or the CIT (Appeals) has discretion to call for information, documents as prescribed under Section 92D(1) read with Rule 1OD in the course of any proceedings under the Act. If the taxpayer fails to furnish prescribed documents within the prescribed period of 30 days or 60 days as envisaged in the statutory provision, the penalty can be imposed. Shri Agarwal argued that question of invoking above provision cannot arise as there was no default by the taxpayer as T.P.O. never exercised his power Under Section 92D(3). Shri Agarwal referred to TPO's first notice and detail of the documents summoned from him. The above notice, according to Shri Agarwal, was not in spirit of the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these regulations. It is submitted that documents were filed as per the understanding of the new law by the taxpayer and as per the advice received by the taxpayer from time to time relating to transfer pricing regulations. There was no malafide intention on the part of the assessee to commit any default. The default, if any, of few days could not be said to be without a reasonable cause. 16.8 Shri Agarwal further submitted that plea of a reasonable cause before the Assessing Officer was raised in letter dated May 18, 2006 as under: Despite significant movement of its key finance/accounting personnel responsible for coordinating, collating and compiling the information/documents maintained by the various business departments, the assessee extended complete cooperation in the assessment proceedings. To place on record, the Country Finance Controller left the organization on October 25, 2005 and a new Controller was hired who joined the organization on November 7, 2005, and was thus uninitiated in respect of the subject assessment proceedings. The new Controller is based out of the assessee's office in Pune. Further, the position of Manager (Corporate Accounts) fell vacant, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Apex Court in Collector v. P. Mangamma while interpreting the word "reasonable" has observed as follows (headnote): It would be hard to give an exact definition of the word 'reasonable'. Reason varies in its conclusions according to the idiosyncrasy of the individual and the times and circumstances in which he thinks. The reasoning which built up the old scholastic logic stands now like the jingling of a child's toy. But mankind must be satisfied with the reasonableness within reach; and in cases not covered by authority, the decision of the judge usually determines what is 'reasonable' in each particular case; but frequently reasonableness, 'belongs to the knowledge of the law, and therefore, to be decided by the courts'. An attempt to give a specific meaning to the word 'reasonable' is trying to count what is not a number and measure what is not space. It means prima facie in law reasonable in regard to those circumstances of which the actor, called upon to act reasonably, knows or out to know. It is impossible a priori to state what is reasonable as such in all cases. You must have the particular facts of each case establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uous. Explanation to Section 92CA clarifies that TPO would be an Assessing Officer for purposes of Section 92C and Section 92D of the Act. The TPO is to compute ALP by application of most appropriate method. He further argued that Section 92C and 92CA make it clear that when ALP is determined by Assessing Officer Under Section 92C(3), the Assessing Officer may recomputed the total income of the taxpayer having regard to ALP so determined. Shri Pandey emphasized that, it is aptly clear that the provisions of Section 92C are expressly available to the A.O. and once a reference is made these provisions up to the determination of ALP is relayed to the TPO. 18.1 Shri Pandey further argued that T.P.O. has been given power Under Section 92CA to determine the ALP only on a reference made by the A.O. The TPO can use powers Under Section 92C and Section 92D which are relayed to him for determining ALP. He has to record whether the documents prescribed were 'filed' or 'not filed' within the prescribed statutory period. The penalty Under Section 271G is to be initiated by the authority who is empowered to levy the penalty which is -the Assessing Officer. 18.2 Shri Pandey furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory time limit is not complied with. The burden to establish transactions were carried at arm's length is on the taxpayer. It is for the taxpayer to establish and furnish requisite details on the application of appropriate method for determination of ALP and justify the same by producing relevant information and documents. The whole scheme relating to determination of tax liability, under the transfer pricing are sequential steps of the legislative process and, therefore, default in furnishing of documents have a direct bearing. This has been emphasized by the Special Bench of IT AT in the case of Aztec Software & Technology Services Ltd. v. Asstt. CIT 107 ITD 141 (Bangalore) (SB). Shri Pandey, therefore, argued that intentions of the Legislature in this issue are quite clear. The limitation or time, within which documents are to be filed, could not be altered. 18.6 Shri Pandey also argued that non mention of any specific clause of Rule 10D in the show cause notice did not affect the validity of the notice. The taxpayer was allowed opportunities and further hearings and all details were made known to the taxpayer as is evident from the penalty order. 18.7 Shri Pandey also ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no respite or privilege granted to the taxpayer to take shelter and claim relief. 19.2 Shri Pandey also gave para-wise reply to the taxpayer's synopsis in the written submissions contained in Volume-II of the paper book. He argued that contention of the assessee that only insufficient documents were given till the time allowed and supporting documents were given later on and that penalty was levied without valid initiation, were all incorrect submissions. The order of the TPO had amalgamated in the order Under Section 143(3) by clear remarks of the Assessing Officer inasmuch as it became a part of he said order. Thus there was satisfaction of the Assessing Officer relating to breach of time in submitting documents. 19.3 Shri Pandey further argued that Section 275 of the Act lays down the time limit for passing penalty order and there is no time for initiation of penalty proceedings. He further relied upon decision in the case of CIT v. Madan Roller Flour Mills [1999] 71 ITD 274 (Asr.) wherein it was held that penalty proceedings were independent of assessment proceedings and, there was no need to initiate them before the completion of the assessment. Shri Pandey also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices on which no observation on deficiency was made by the TPO. All these were international transactions and ought to have been benchmarked on a particular method for determination of the ALP. Even in respect of these transactions, taxpayer failed to furnish information and documents within the prescribed time. As late as on 20 December, 2005 it supplied working of TNMM in respect of support agency services which were required to be given in the original documentation filed in November, 2005. Documents relating to transactions on which CUP method was applied were furnished as late as on 23.12.2005. Therefore, TPO rightly commented on totality of the transactions and contention of the taxpayer that only in respect of part of the international transactions, default was committed, was without substance. From record, it is clear that taxpayer failed to furnish documents, it was required to furnish Under Section 92D(3) of the Income-tax Act and, therefore, committed a default Under Section 271G. The learned Departmental Representative also distinguished the cases cited by the taxpayer. 21. We have given careful thought to the rival submissions of the parties. We have also examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the legislation and application of similar enactment world over, it must further be held that adjustments made on account of ALP by tax authorities can be deleted in appeal only if the appellate authorities are satisfied and records a finding that ALP submitted by the assessee is fair and reasonable. Merely by finding faults with the transfer price determined by the revenue authorities (A.O./TPO), addition on account of "adjustments" cannot be deleted. This is because the mandate of Section 92(1) is that in every case of international transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record has to determine ALP itself Subject to statutory provisions, Appellate authorities can direct lower revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case. 134. x x x 135. On consideration of the relevant provisions, it is evident that in the process of determining Arm's Length Price, the first importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an international transaction shall keep and maintain the following information and documents, namely :-- Time/form when information is to be furnished as per clause. No. 1 No. 2 (a) a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises ; (a) In the audit report on Form 3CEB. (b) a profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of 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 ; (b)--same-- (c) a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted ; (c)--same-- (d) the nature and terms (including prices) of international transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction ; (d) In Form 3C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -same-- (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also mentioned Clauses (e), (f) and (g). 22.3 Sub-rule (4) enjoins that information and documents specified in Sub-rules (1) & (2), should, as far as possible, be contemporaneous and should exist by specified date referred to in Clause (iv) of Section 92F. 22.4 Sub-rule (5) prescribe the period for which information and documents specified in Sub-rules (1) & (2) are to be maintained. The period specified is 8 years from the end of the relevant assessment year. 22.5 It is clear from the consideration of Rule 10D and its various sub-rules, that documents and information prescribed under the above rule is voluminous and it would only be in rarest cases that all the clauses of sub-rules would be attracted. It is not possible to casually ask for information under all the clauses. It is likely that in some cases the taxpayer need not carry any analysis of functions performed, risk assumed and assets employed; there may be an exactly similar uncontrolled transaction with independent unconnected party to establish that transaction was an Arm's length transaction. In such a case, Clause (e) of Rule 10D(1) would have no application and no information under this clause need be maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered from the taxpayer in the prescribed audit report in Form 3CEB. This report is required to be submitted along with the return of income as per Section 92E of the Act which is as under: Report from an accountant to be furnished by persons entering into international transaction. 92E. Every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed 23. Further information gathered through the prescribed Tax Audit Report under the above section is as under: 3CEB Report From An Accountant To Be Furnished Under Section 92e Relating To International Transaction(S) FROM No. 3CEB [See Rule 10E] Report from an accountant to be furnished under Section 92E relating to international transaction(s) 1. *I/We have examined the accounts and records of...(name and address of the assessee with PAN) relating to the international transactions entered into by the assessee during the previous year ending on 31st March.... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per books of account, (ii) as computed by the assessee having regard to the arm's length price. (d) Method used for determining the arm's length price [see Section 92C(1)] B. Has the assessee entered into any international Yes/No transaction(s) in respect of purchase/sale of traded/finished goods ? If 'yes' provide the following details in respect of each associated enterprise and each transaction or class of transaction : (a) Name and address of the associated enterprise with whom the international transaction has been entered into. (b) Description of transaction and quantity purchased/sold. (c) Total amount paid/received or payable/receivable in the transaction - (i) as per books of account. (ii) as computed by the assessee having regard to the arm's length price. (d) Method used for determining the arm's length price [see Section 92C(1)] C. Has the assessee entered into any international Yes/No transaction(s) in respect of purchase/sale of any other tangible moveable/immovable property or lease of such property ? If 'yes' provide the following details in respect of each associated enterprise and each transaction or clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowing money : Has the assessee entered into any international transaction(s) Yes/No in respect of granting/receiving loans/advances to or from associated enterprise ? If 'yes' provide the following details in respect of each associated enterprise and each loan/advance: (a) Name and address of the associated enterprise with whom the international transaction has been entered into. (b) Nature of financing agreement. (c) Currency in which loan/advance granted/received. (d) Interest rate charged/paid in respect of each loan/advance. (e) Amount paid/received or payable/receivable in the transaction- (i) as per books of account. (ii) as computed by the assessee having regard to the arm's length price. (f) Method used for determining the arm's length price [see Section 92C(1)] 12. Particulars in respect of mutual agreement or arrangement : Has the assessee entered into any international transaction with Yes/No an associated enterprise or enterprises by way of a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r determination of ALP is to be referred to the Transfer Pricing Officer (TPO) or not. If the total value exceeds the prescribed limit, the Assessing Officer has to refer the matter to the TPO. 24.2 It is, therefore, reasonable to presume that in every transfer pricing case relevant information, along with Form 3CEB is available on record and A.O./T.P.O is supposed to proceed with the basic and initial information of international transactions carried by the taxpayer in the relevant period as disclosed in form 3CEB. He is supposed to have specialized training and, therefore, understand what job he is to perform for achieving the purpose of the regulations. 24.3 It is clear from above discussion that information prescribed under Rule 10D in different column is voluminous, alternative and it would have to be seen as to what information, from which clause, is required on the facts of the given case. Secondly, information from certain clauses of Rule 10D is obtained in audit report on Form 3CEB required to be filed along with the return. Thirdly, the TPO before proceeding to determine ALP has above basic and initial information of international transactions carried by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the international transaction referred to in Sub-section (1). (3) On the date specified in the notice under Sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in Sub-section (3) of Section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm's length price in relation to the international transaction in accordance with Sub-section (3) of Section 92C and send a copy of his order to the Assessing Officer and to the assessee. 84b [(4) On receipt of the order under Sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under Sub-section (4) of Section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer.] (The portion is highlighted to emphasize the scheme of the regulations) Maintenance and keeping of information and document by persons entering into an international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 272AA] or 30 [Section 272B or] 31 [Sub-section (1) 32 [or Sub-section (1A)] of Section 272BB or] 33 [Sub-section (1) of Section 272BBB or] Clause (b) of Sub-section (1) or Clause (b) or Clause (c) of Sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause 34 for the said failure] 24.6 In the present case as we are concerned with levy of penalty Under Section 271G for failure to furnish information/documents required by Sub-section (3) of Section 92D, we may have a good look at the said provision. On consideration of provisions of Section 92D(3), we find that above 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) may be required. (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. Thus the Assessing Officer or Commissioner (Appeals), ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to produce evidence in support of ALP. 25. Under Sub-section (2) of Section 92CA, evidence in support of ALP would ordinarily include information and documents referred to in Sub-section (3) of Section 92D which are prescribed in various clauses of Rule 10D(1) as discussed above. Documents and information prescribed are required to be maintained to help to determine ALP and are to be filed to support ALP by the taxpayer in response to notice Under Section 92CA(2) of the act. If on consideration of evidence produced by the taxpayer the TPO is satisfied that ALP has been properly and correctly determined by the taxpayer, it is the end of the matter. There is no question of issuing further notice under any provision to the taxpayer. However, if complete information is not furnished, or otherwise, TPO is of the view that more information on specified points is required from the taxpayer, the TPO can issue notice under Sub-section (3) of Section 92D. TPO can also issue notice Under Section 92CA(3) of the Act, depending upon the facts of the case and the information needed. Only in case of failure of the taxpayer to support its ALP by filing necessary evidence, question of requiring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertinent observations on sub-Section 19(2): 16. The language of Section 19(2) of the act points to the conclusion while an order under it may be made with respect to 'any information; book or other document', it is essential that such information, book or other document should be specified in the order. This is apparent from the concluding part of the said Sub-section wherein there is reference to 'such information, book or other document'. The word 'such' points to the necessity of specifying the information, book or other documents in the order. It is, no doubt, true that the order can relate to a large number of books, documents or informations, it is all the same imperative that the same should be particularized in the order. According to Sub-section (IA) of Section 23 of the act, if any person contravenes any of the provisions of this Act or of any rule, direction or order made thereunder, for the contravention of which no penalty is expressly provided, he shall, upon conviction by a Court, be punishable with imprisonment for a term which may extend to two years, or with fine, or with both. The fact that penal consequences follow from non-compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the taxpayer either in the audit report or in response to notice Under Section 92CA(2) would be of no use and, there is no point in requiring the same information again or require un-prescribed information Under Section 92D(3) and cast additional burden on the taxpayer. In all such cases, it would no more remain valid notice Under Section 92D(3) / 271G of the Act. Application of mind to find and consideration of material on record and to see what further information on specific point is required, is essential before issuing notice Under Section 92D(3) of the Act to the taxpayer. The notice is a serious notice as non-compliance within the specified time would lead to imposition of penalty, which may amount to several crores. It is not a routine notice, which can be casually issued calling for any information or all prescribed information. Where the taxpayer has "option" to select relevant information, it is not a notice Under Section 92D(3) as "option" and word "require" do not go together. Having regard to the scheme noted above, the said notice is issued to get information on specified point needed on the facts and circumstances of the case for pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us notice without any regard of unwarranted heavy burden it was likely to place on the taxpayer not authorized Under Section 92D(3). It was an unintelligible notice where all the information and documents maintained under Rule 10D of Income-tax Rules were required in addition to the information referred to above. 31. The second notice issued on similar lines on 13th October, 2005 asking for submission of documents by 7 November, 2005 did not improve the situation. A third notice dated 8th November, 2005 was again issued quoting provision of Section 92D and calling upon the assessee to file information and documents latest by 21.11.2005. The said notice also had all infirmities noted in the first notice. 32. In the light of what we have discussed above relating to requirement of valid notice Under Section 92D(3) of the Act, above mentioned notices cannot be treated as valid and legal to justify application of provision Under Section 271G of the act and levy of penalty of more than Rs 40 crores. These are omnibus notices issued without application of mind and without considering documents already placed by the taxpayer on record and without consideration as to which of the specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uite similar. 34. In the light of above discussion, we hold that three notices referred to above issued by the TPO could not be treated as valid notices issued in terms of Section 92D(3) of the Act and, therefore, did not attract penalty provisions of Section 271G of the Income-tax Act. 35. TPO's letter dated 12 December, 2005, after considering documents filed by the assessee pointed out certain defects in the comparative uncontrolled price method employed by the tax payer without any benchmark. Likewise TNMM method used was stated to be without providing documents used as comparable nor the functional details of comparables was provided. Such like defects were pointed out. The aforesaid notice relating to specific defects and calling for their rectification could be treated as a notice Under Section 92D(3) of the Income-tax Act although not so labeled by the A.O. However, admittedly before the end of December, 2005, all documents and information were furnished by the taxpayer. So there was no default in not submitting documents and information within the prescribed time to attract provisions of Section 271G of the Income-tax Act. Therefore, on facts we find no justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail of default, no adequate reply could be furnished. The contention of learned Departmental Representative that specific clauses of Rule 10D(1) under which information was not furnished within time and default was committed were mentioned in the penalty order is of no avail. The mention of above detail in the order is of no use. The details were required to be mentioned in the show cause notice so as to afford reasonable and adequate opportunity to the assessee to meet out the case and serve the purpose of the notice. For above defect also, the penalty proceedings are held to be vitiated and liable to be cancelled. 38. The third submission of Shri Agarwal that assessee had explained that small delay in the furnishing of information within the prescribed time took place on account of a reasonable cause as its Financial Controller had gone out of town and was not available to furnish information which was voluminous and highly technical in nature. Besides the assessee was not clear as to what was required to be furnished in support of determined ALP and other supporting information mentioned in Sub-rule (3) of Rule 10D. In the above and other circumstances duly given in reply to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of assessment proceedings. We are not inclined to accept this contention, as in our view, provisions of Section 271G are quite different from provisions of Section 271(1) of the Act. Therefore, CIT (Appeals) was quite justified in holding that no satisfaction need be recorded before initiating proceedings Under Section 271G of the Income-tax Act. Apart from above, in the present case, the TPO has specifically recorded details of the alleged default committed by the assessee in not furnishing information/documents which the TPO thought he was competent to require Under Section 92D of the Act Therefore, there is no merit in the contention that satisfaction was not recorded in this case, although we are cancelling penalty on some other ground and this finding does not materially affect the ultimate result of the appeal. There are several other grounds/arguments raised by the parties, but in the light of our decision recorded above, no useful purpose would be served in dealing with each of those grounds. Therefore, on facts of the case, we hold that the penalty imposed is not exigible and the same is hereby cancelled. In the result, assessee's appeal is allowed.< ..... X X X X Extracts X X X X X X X X Extracts X X X X
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