IN THE ITAT AHMEDABAD BENCH ‘A’
Mastek Ltd.
Versus
Deputy Commissioner of Income-tax
IT APPEAL NO. 2050 (AHD.) OF 2008
[ASSESSMENT YEAR 2002-03]
OCTOBER 19, 2012
ORDER
Anil Chaturvedi, Accountant Member
This appeal is filed by the assessee against the order of Ld. CIT (A)-VIII, Ahmedabad dated 23-3-2007 for the assessment year 2002-03 confirming the penalty levied u/s.271(1)(c ) of the Act of Rs.49,31,547/-.
2. Assessee is a limited company engaged in the business of software development. It filed its return of income on 31-10-2002 disclosing total income at Rs. Nil. The assessment was finalized vide order passed u/s. 143(3) on 28-12-2004 determining the total income at Rs. 6,72,81,044/-. While finalizing the assessment, dis allowance of Rs. 3,72,63,859/- was made on account of adjustments in respect of international transactions. Against the order of A.O., the assessee preferred appeal before CIT (A). CIT (A) vide his order dated 24-5-2006 confirmed the dis allowance to the extent of Rs.1,38,13,859/-. A.O. initiated penalty proceedings on the additions made and vide order dated 23-3-2007 levied penalty u/s. 271(1) (c) on the aforesaid addition sustained by CIT (A) for the reason that according to the A.O. the assessee had concealed income to the extent of Rs.1,38,13,859/- by claiming excess amount not related to the business of the assessee. He held that the furnishing of inaccurate particular of income was willful and deliberate with the intention to avoid taxes. He accordingly levied penalty of Rs.49,31,547/-.Aggrieved with the order of A.O., the assessee carried the matter before CIT (A). CIT (A) vide order dated 19-3-2008 confirmed the penalty by holding as under:-
“5. The appellant was asked to furnish a copy of the Accountant’s report in form 3CEB filed along with the return of income. It is found that in column 12 of the Annexure to the said report, the Chartered Accountant is supposed to give the details of international transactions entered into by the appellant with the Associated Enterprises by way of arrangement for allocation or apportionment of or any contribution to any cost or expense incurred or to be incurred in connection with a benefit, service, or facility provided or to be provided to any one or more of such enterprises. As per Annexure- E to the said clause 12 filed by the Accountant, it is seen that the Accountant has not reported anything about the cost of traveling expenses and legal fees incurred on behalf of the Associated Enterprises. Thus, it is a clear case of non disclosure made by the appellant, and whatever disclosure has been made by the Accountant in regard to other international transactions does not serve the real purpose as the disclosure has been made in such a manner and it is camouflaged in such a manner that it needed deep scrutiny by the A.O. to find out other international transactions to arrive at the correct determination of income of the appellant as it has been found in this case by the A.O. that the appellant has incurred other international transactions like traveling expenses and legal fees on behalf of the Associated Enterprises. Thus, the disclosure made by the Accountant and the appellant is not true and correct, and not full disclosure and the information regarding all international transactions have not been reported, so it amounts to furnishing of inaccurate particulars of its income. The appellant is advised by a team of legal and professional experts and for non reporting of the said transactions, it can definitely be said that it is a deliberate and conscious act of concealment. The appellant may have reasons not to make separate recovery from the Associated Enterprises for the said expenses but basic issue here is that the full facts regarding all international transactions were not disclosed in the Accountant’s report and in the return of income as held by the TPO, and the A.O. and the CIT (A). As held by CIT (A) and A.O., the appellant should have definitely charged or recovered the cost of traveling expenses and legal fees from its Associated Enterprises/subsidiary but has decided not to recover the same. The TPO has not allowed the same as business expenditure and has directed for adjustment to be made on account of those expenses to the income of the appellant. The A.R. has submitted that the concept of Transfer Pricing was a new concept and the law was evolving in the year under consideration. But this could not have prevented the appellant from disclosing the other international transactions, and the appellant could have given an explanation or a note saying that the international transactions in respect of traveling expenses and legal fees incurred by the appellant did not call for pricing adjustment.
6. I also find that the Explanation-7 to section 271(1)(c) of the Act is quite clear and it specifies that in the case of an assessee who has entered into an international transaction defined in section 92B if any amount is disallowed or added in computing the total income, the amount added or disallowed shall be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars of income have been furnished. Provisions of Explanation 7 to section 271(1)(c) are akin to the provisions of Explanation 1 to section 271(1)(c). In both the Explanations, it is for the assessee to prove that the explanation was bona fide and a particular action or omission was in good faith and with due diligence. The burden cast on the appellant is heavy. As per Explanation-7 to section 271(1)(c), the appellant has to prove that the price charged or paid in such transactions was in accordance with the provisions of section 92 C in good faith and with due diligence. As the appellant has not been able to discharge this burden, this addition has been made by the TPO and the A.O. and the same has been confirmed by CIT (A). As it is a provision of services to an Associated Enterprise who is a non resident, it is definitely an international transaction within the meaning of section 92B. It is absolutely clear that all the facts relating to the international transactions which are material to computation of income were not disclosed by the appellant. Accordingly, as the appellant has furnished inaccurate particulars of income and it is a deliberate act on the part of the appellant in not disclosing the said particulars of international transactions, in my view the A.O. has rightly levied penalty u/s. 271(1)(c ) of the Act is held to be justified and same is confirmed.”
3. Aggrieved by the order of CIT (A), the assessee is now in appeal before us.
4. Before us, the Ld. A.R. submitted that the assessee had international transactions as defined in Sec. 92B of the Act with its associated enterprises. The said international transactions were duly reported in the Accountant’s report in form No.3CEB. In order to determine the Arm’s length Price for the international transactions a reference was made u/s.92CA (1) by A.O. to TPO & TPO passed an order dated 31-8-2004 and sent it to the A.O. for his consideration suggesting the following transfer pricing adjustments.
