TaxTMI 
TaxTMI 
2008 (2) TMI 453
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....omestic trading in edible oils, fertilizers, grains, oil seeds and other food products including processed food. The taxpayer was also engaged in the business of processing crude oil. The taxpayer had carried various transactions with its foreign associate enterprises ('AEs' in short) of value of Rs. 20,23,20,68,761 and filed audit report in Form 3CEB along with the return. The summary of the transactions carried and the method applied by the taxpayer to show that transactions with AE were carried at arm's length is reproduced from para 2.1 of TPO's order dated 22-3-2006 and is as under: "2.1 During the year, the assessee has undertaken the following international transactions: S. No. Description of transaction Method Value (in Rs.) 1. Purchase of oil CUP 27,99,48,918 2. Contract cancellation penalty/charges CUP 5,27,796 3. Purchase of fertilizers CUP 1,38,26,80,957 4. Purchase of corn TNMM 72,05,26,464 5. Purchase of soyabean meals TNMM 73,92,33,814 6. Purchase of soyabeans TNMM 5,63,26,75,209 7. Sale of ferrous CUP 9,67,29,903 8. Sale of rice CUP 18....
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....ever, 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 be treated as violation of section 92D(3) read with rule 10D of Income-tax Rules. On the other hand, the Assessing Officer observed that the relevant document prescribed under rule 10D from which arm's length price could have been determined were not filed within due date. Hence, the assessee failed to furnish the prescribed documents/information within due date. Considering both sides of point of view, I have to examine the documents which could be filed before 16-11-2005 and/ or after 21-11-2005 or not filed at all. On going through the penalty order, I find that the appellant has applied CUP method for some of the transactions while for certain transactions, it has applied Cost Plus Method (CPM) and Transactional Net Margin Method (TNMM). In this regard, I have to quote following observation of the Assessing Officer given in the penalty order with reference to CUP, CPM & TNMM. (A) ....
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....ofile 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 justification of the assessee having maintained arm's length standards in the transactions it has proposed to cover under TNMM." (D) The Assessing Officer's conclusion at Page 13, Para 29: "As seen from the above paragraphs, the assessee-company had not furnished proper documentation as required statutorily in section 92CD read with rule 10D. Hence, the penalty under section 271G of the Income-tax Act is attracted. The reply furnished by the assessee is highly unsatisfactory. I am, therefore, satisfied that it is a fit case for imposition of penalty under section 271AA of the Act. The quantum of penalty leviable under section 271G of the Income-tax Act is 2 per cent of the value of the international transaction for each such failure." The Assessing Officer further observed that the assessee-company had not furnished the documentation as required stat....
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....ication 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 of 2 per cent against such transactions only. Thus, the Assessing Officer has levied the penalty on the value of international transaction of Rs. 2,023.20/- crore, as argued by ld. AR. Hence, there is neither any difference in transaction nor any scope to interfere with that. In substance, I find that the appellant has committed default by not furnishing the prescribed document/information within due date. Hence, there was violation of provision of section 92D(3) read with rule 10D of the Income-tax Rules. With these observations, I hold that the Assessing Officer was justified to levy penalty under section 271G amounting to Rs. 40,46,41,376/- and, thus, the action of the Assessing Officer is upheld. In effect, the appeal is dismissed." 4.1 It is clear from above that penalty of Rs. 40,46,41,376/- has been imposed on the taxpa....
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....(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 imposed took place. We are also to see the circumstances under which the default, if any, was committed. We would, therefore, examine various notices issued by the TPO and information furnished by the taxpayer in reply from time to time. Although audit report is not an information or document mentioned in rule 10D of Income-tax Rules, but report's connection with the rule 10D is important and is to be seen under section 92F. The report dated 27-11-2003 from RSM & Co., Chartered Accountant was duly furnished on the prescribed Form 3CEB is not in dispute. The report contained name and address of the taxpayer, list of the associated enterprises with whom the taxpayer had entered into international transactions, their names, relationship etc., particulars in respect of transactions of intangible properties given, name with detai....
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....tions 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 account for financial year 2002-03 along with copy of Audit Report and Tax Audit Report filed with the Return. (b) Statement of Computation of income filed with Return for assessment year 2003-04. (c) Information and documents maintained as prescribed under section 92D of the Income-tax Act, 1961 read with rule 10D of the Income-tax Rules. If the above requirements are not complied with the arm's length price for 'international transactions' during the financial year 2002-03 shall be determined under section 92CA(3) of the Income-tax Act on merits and on the basis of material on record." 8. The taxpayer, vide application dated 10-10-2005 sought an adjournment on the ground that its representative was travelling and was not available. 9. The TPO issued second notice....
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....eof, 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 thirty days. You are, therefore, again advised that statutory documentation, as prescribed, under Section 92D of the I.T. Act read with Rule WD of the IT. Rules may be filed immediately and latest by 21.11.2005. If possible documentation may be filed earliest possible even before 21.11.2005. 11. It is claimed by Shri C.S. Agarwal, Sr. Advocate, the learned counsel for the taxpayer that TPO has himself extended time upto November 21,2005 as per his fresh notice. This was done under proviso to Section 92D(3) of Income Tax Act and, therefore, there could not be any default upto the aforesaid date. This inference of no default can be drawn by what has been observed by the TPO in his notice dated November ....
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.... 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 under: Annexure 3 Information/documents as prescribed under Section 92D of the Act read with Rule WD of the Rules: Nature of Information/Documents prescribed under Rule 10D(1) Nature of InternationalTransaction (a) Description of the ownership structure of the assessee enterprise with details of shares or other owner ship interest held therein by other enterprises. Refer Annexure 3.1 (b) 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 gro....
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....fer 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 TPO's office on November 16, 2005 and further stated as under: We trust the same (information) are in order. Should your goodself require any further clarification/information, we shall be glad to furnish the same. 12.2 During the course of hearing, the learned TPO instructed the taxpayer to furnish further information documents as per letter dated 12th December, 2005. which reads as under: In your 10D documentation there is nothing in suggestion and justification of Comparative Uncontrolled Price wherever it is use....
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.... 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 has failed to file statutory documentation by the due date as per provisions of Section 92D of Income Tax Act read with Rule 10D of Income-tax Rules. Apart from the above the following documents which are critical in determination of arm's length price of international transaction were not submitted as part of documentation submitted on 16.11.2005. I. a record of uncontrolled transactions taken into account fo....
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....er 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, the requirements of the provision were satisfied. He rejected this objection also. 13.2 The Assessing Officer also considered the claim of the taxpayer on merit that it had maintained information and documents under Rule 10D of Income Rules read with Section 92D of Income-tax Act and furnished them within the prescribed time when called by the TPO. The Assessing Officer has recorded that report on th....
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....ocumentation 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 of comparables. In the conclusion at page 46 of document-l, the assessee has merely intimated that profit level indicator used for benchmarking international transaction is OPM which means operating margin over sales/turnover. It is concluded in this paragraph that OPM of assessee is 0.09 percent which is better than 20 final set of comparables having OPM at -6.95%. The names of comparables, ....
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....0. 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 are summarized hereunder: (i) The Id. CIT (A) has recorded that it is not necessary to initiate penalty proceedings during the course of assessment proceedings. These can be initiated at any time. The Assessing Officer can adjudicate and pass an independent order Under Section 271G (ii) That penalty imposed was not time barred as limitation was to commence from the ....
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....ted 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 cause notice issued to the taxpayer which is as under: It is noticed that you have failed to furnish the information or documents as required under Sub-section (3) of Section 92D.... It was argued that in fact no show cause notice for purported default allegedly committed under Clauses (g), (h), (I), (j) of Rule 10D was ever issued. The show cause no....
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....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) CIT v. Ram Commercial Enterprises Ltd. 246 ITR 568 (Del), (v) Diwan Enterprises v. CIT 246 ITR 571 (Del), (vi) CIT v. B.R. Sharma 275 ITR 303 (Del), (vii) CIT v. Vikas Promoters (P) Ltd. 277 ITR 377 (Del), (viii) Saroop Lal Adlakha v. DCIT 97 ITD 6 (Del ITAT), ....
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....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 of the Income-tax Appellate Tribunal wherein it was held as under: if the Assessing Officer is not precise about the charge while issuing the show cause notice for initiating the penalty proceedings, the penalty levied is liable....
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....ead 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 Nursing Das v. Settlement Commissioner (IT and WT) and Anr. 176 ITR 169 where it has been observed as under: the act in violation of principle of natural justice or a quasi-judicial act is void or of no value. The Hon&....
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....ri 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 provision. On the information called, Shri Agarwal submitted that by Sl. No. 3 the TPO has called for "all" the information which has been maintained by the appellant in relation to the international transa....
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.... 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, and was filled on September 1, 2005. It was again reiterated in reply dated August 29, 2006 that alleged delay had occurred on account of a reasonable cause and in the absence of country finan....
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....tion 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 established before you can ascertain what is reasonable under the circumstances. 17. Shri Agarwal further submitted that keeping the above principles in mind, it is evident in the i....
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....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 further contended that it was not right on the part of the taxpayer to contend that taxpayer did not commit any default before the Assessing Officer and, therefore, his....
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....blish 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 argued that Assessing Officer considered all pleas advanced by the taxpayer and its reply was found unsatisfactory. The CIT (Appeals) also dealt in para 3(i....
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....payer'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 referred to decision of Guwahati High Court in the case of Assam State Warehousing Corporation v. CIT. Shri Pandey also cited cases where pena....
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....hmarked 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 relevant statutory provisions and the case law cited before us. In the case of Aztec Software & Technology Services Ltd. 107 ITD 141 (....
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....justments 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 important factor to consider is the specific characteristics of services rendered both in the internati....
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....mely :- 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 3CEB in the audit report or under section 92D(3) or under section 92CA(2) (e) a d....
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....ly 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 trans....
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....iness affairs of the AEs. Similar types of information are 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 ....
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....st information relating to international transactions is gathered 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....
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....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)] 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....
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....ated enterprise and each category of service: (a) Name and address of the associated enterprise with whom the international transaction has been entered into. (b) Description of services provided/availed of/from the associated enterprise. (c) Amount paid/received or payable/receivable for the services provided/taken- (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)] 11. Particulars in respect of lending or 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 loa....
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.... 1949); or (ii) any person who, in relation to any State, is, by virtue of the provisions in subsection (2) of Section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State. 24. It is clear from above that name and addresses of taxpayer, its associated concerns, nature of relationship with such concerns, brief description of business and details of international transactions carried on with the associated enterprises, besides the method used for determining ALP in respect of each international transaction required to be given in the report. 24.1 The Assessing Officer must have the above report (3CEB) with him to determine the question whether total value of the transactions is more or less than Rs 5 crore (now enhanced to Rs 15 crore) to consider the question whether 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 o....
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....on or document available with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm's length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer. 24.5 Where, on a reference, the TPO is to determine ALP of an international transaction, Sub-sections (2), (3) and (4) of Section 92CA are relevant and are reproduced below: [Reference to Transfer Pricing Officer. 92CA. (1) x x x (2) Where a reference is made under Sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm's length price in relation 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, inc....
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....e of each international transaction entered into by such person] Penalty for failure to furnish information or document under Section 92D. 271G. If any person who has entered into an international transaction fails to furnish any such information or document as required by Sub-section (3) of Section 92D, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of the international transaction for each such failure] Penalty not to be imposed in certain cases. 273B. Notwithstanding anything contained in the provisions of 20 [Clause (b) of Sub-section (1) of] 21 [Section 271, Section 271A, 22 [Section 271AA,] Section 271B, 23 [Section 271BA], 24 [Section 271BB,] Section 271C, 25 [Section 271CA,] Section 271D, Section 271E, 26 [Section 271F, 27 [Section 271FA,] 28 [Section 271FB,] 29 [Section 271G,]] Clause (c) or Clause (d) of Sub-section (1) or Sub-section (2) of Section 272A, Sub-section (1) of 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 ....
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....t. The statutory scheme envisages that the TPO shall serve a notice requiring the taxpayer to produce evidence in support of his computation of ALP. Therefore an opportunity to prove that its ALP is correct has to be allowed to the taxpayer. It is mandatory requirement of the regulations. Thereafter notices Under Section 92D(3) may be issued requiring the taxpayer to furnish information on "specified points", depending upon the facts of the case. We are not suggesting that issuance of notice Under Section 92D(3) along with notice Under Section 92CA(2) is illegal but where heavy penalty is attracted for non-compliance, it has to be shown that the notice Under Section 92D(3) is complied, both in letter and in the spirit of the Statute. This conclusion is based on the scheme and the clear language used in the regulations. Steps as per regulations are to be followed in sequence. Report in Form No. 3CEB in the first instance, is obtained from the taxpayer. Next step is to issue notice Under Section 92CA(2) to the taxpayer 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 refe....
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.... the possession of any person, the Central Government or as the case may be, the Reserve Bank may by order in writing, require such person to furnish to the Central Government or the Reserve Bank or any person specified in the order such information, book or other document. (b) In case, however, the information, book or document is not in the possession of the person to whom the order is addressed, but it is possible in the opinion of the Central Government or the Reserve Bank, for such person to obtain and furnish that information, book or other document, the Central Government or the Reserve Bank may, by order in writing, require such person to obtain and furnish to the Central Government or the Reserve Bank or any person specified in the order such information, book or other document. Their Lordship after considering meaning of words, "consider it necessary or expedient" and after holding that application of mind with regard to necessity to obtain and examine documents to be furnished made the following 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 r....
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.... is no restriction of furnishing prescribed information in response to notice Under Section 92CA(2) of the Act to support the computation of ALP by the taxpayer. However, we do not see any authority Under Section 92D(3) with the T.P.O. to require the taxpayer to furnish non specified information or such information or document already filed by the taxpayer or use of the provision without asking the taxpayer to support first its ALP of International transactions. The case of any person other than the taxpayer for notice Under Section 92D(3) stands on a different footing than of the taxpayer to whom notice Under Section 92CA(2) has been issued. 28. Further Under Section 92D(3), it will not be possible to call for, all the information prescribed under Rule 10D including supporting information and documents mentioned in Sub-rule (3) in a routine or a casual manner without application of mind as to what specific information is required to achieve the purpose of the regulations. Information which has already been furnished 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 informatio....
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...., "information and documents maintained as prescribed Under Section 92D of Income-tax Act, 1961 read with Rule 10D of Income-tax Rules" without specifying any particular information clause of Rule 10D. The aforesaid notice was a notice Under Section 92CA(2) but the TPO by asking further information made it a notice Under Section 92CA(3). Only under above Sub-section TPO can call for information like balance sheet, P&L account, and audit report, which already stood filed and which are un-prescribed. Such unspecific information could not be required Under Section 92D(3). Why and how information already furnished and could be obtained from A.O. was required or needed is not clear from the notice or other material available on record. The notice was issued in a casual manner. The TPO had not examined records of the tax payer nor nature or details of International transactions. There was total lack of application of mind as to what information was required in this case. It was a omnibus 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 m....
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....f penalty did not arise. 33. Apart from the decisions cited by Shri Agarwal, the learned counsel for taxpayer, our above view is supported by decision of Calcutta High Court in the case of New Central Jute Mills Co. Ltd. v. Dwijendralal Brahmachari and Ors. 90 ITR 467 where a notice was issued by the I.T.O. asking for production of all the books of accounts and documents of company lying in the custody of the Registrar of the Company. The Court found that books of accounts and documents summoned were not seized and not seen by the ITO and, therefore, the ITO had no knowledge and could not have any knowledge about the contents of books and documents nor could determine the relevancy or otherwise of said books and documents. The Court held that notice clearly suggested that ITO had not applied his mind before issuing the notice. It was also held to be vague and illegal. The notice was, therefore, held to be beyond statutory powers, illegal and quashed accordingly. The facts here are quite 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....
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....otice as to the exact nature of contravention for which the assessee was liable under the provisions of the 173Q. This not having been done the Tribunal's finding cannot be faulted. The appeal is, accordingly, dismissed with no order as to costs. 37.In above case the Apex Court held that if allegations in the show cause notice are not specific and are vague, lack details and/or unintelligible, that is sufficient to hold that noticee was not given proper opportunity. Such notice was struck. The cited decisions are applicable to the facts of the case and arguments of Shri Agarwal are well taken. As penalty of 2% Under Section 271G is imposable in respect of international transaction, it was necessary to specify in the show cause notice Under Section 271G, the international transactions or the documents/information with reference to which the taxpayer committed the default by failing to furnish the requisite information in time. This would enable him to file a proper reply in defence. Without detail 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 furnishe....