Chandramohan Garg, Judicial Member - This appeal has been preferred by the assessee against the assessment order dated 28.10.2011 u/s 143(3) r/w 144C of the Income Tax Act, 1961 (for short the Act) following the directions of DRP-I, New Delhi dated 09.09.2011 for AY 2007-08. The grounds raised in this appeal read as under:-
"1. That the Assessing Officer erred on facts and in law in completing the assessment under section 143(3) read with section 144C of the Income-tax Act (the Act) at an income of Rs. 17,642,880 as against the returned loss of Rs. 25,461,192.
2. That the Assessing Officer erred on facts and in law in making adjustment of Rs. 43,047,427 to the income of the appellant on account of international transactions of import of parts and capital goods by disregarding the transfer pricing methodology adopted by the appellant for benchmarking its international transactions.
2.1 That the Assessing Officer/DRP erred on facts and in law in aggregating the transaction of import of parts and capital goods with other transactions and benchmarking the international transactions at entity level applying TNMM.
2.2 That the Assessing Officer/DRP erred on facts and in law in rejecting resale price method applied by the appellant for benchmarking the international transaction of export of parts as the most appropriate method and applying TNMM at entity level.
2.3 That the Assessing Officer/DRP erred on facts and in law in rejecting associated enterprise of the appellant as the tested party even when the associated enterprises were the least complex parties to the transactions and having fewer transactions.
2.4 That the Assessing Officer/DRP erred on facts and in law in applying additional filters of persistent losses and declining revenue without appreciating that the selection or rejection should be based on FAR analysis and not on financial results.
2.5 That the Assessing Officer/DRP erred on facts and in law in rejecting Orbit Industries Ltd. holding that the company is incurring losses ignoring the fact that the company has been selected after the functional, risk and assets analysis of the appellant.
2.6 That the Assessing Officer/DRP erred on facts and in law in appreciating that for the application of TNMM, the various differences on account of comparability are balanced out by selecting a larger set of comparables providing similar services at different ends of the industry spectrum.
2.7 That the Assessing Officer/DRP erred on facts and in law in not appreciating that the appellant has incurred losses because of sudden huge fluctuation in the exchange rate of INR against Thai Bhatt.
2.8 That the Assessing Officer/DRP erred on facts and in law in not appreciating that in the absence of such abnormal exchange rate fluctuation, the appellant would have earned 10.04% of profit over sales, and hence, no adjustment would have been warranted in the arms length price of the international transactions undertaken by the appellant.
2.9 That the Assessing Officer/DRP erred on facts and law in not appreciating that the associated enterprise had sold trading goods to the appellant at a very low margin of 1-1.5%, and any adjustment, if required to be made, should be restricted to the profits retained by the appellant.
3. That the Assessing Officer erred on facts and in law in restricting depreciation on computer peripherals @ 15% as against 60% claimed by the appellant.
4. That the Assessing Officer erred on facts and in law in not appreciating that a computer system could not work without UPS and such machines are a part of computer system and not plant and machinery.
5. That the Assessing Officer erred on facts and in law in levying interest under section 234B and section 234C of the Act.
6. That the Assessing Officer erred on facts and in law in initiating penalty proceedings under section 271(1)(c) of the Act."
2. Briefly stated, the facts giving rise to this appeal are that the assesses filed a return of income declaring a loss of Rs. 25,461,192 on 24.10.2007 and the same was processed u/s 143(3) of the Act. Further, the case was selected for scrutiny and a notice u/s 143(2) along with the questionnaire u/s 142(1) of the Act was served on the assessee. During the year under consideration, the assessee had undertaken international transactions with its associated enterprises and the value of the same was more than Rs. 15 crore, in accordance with the provisions of section 92CA of the Act and with prior approval of Commissioner of Income Tax, Delhi-IV. The Assessing Officer referred the international transactions entered into by the assessee to the Transfer Pricing Officer (TPO) for determining Arms Length Price (ALP).
3. The TPO passed his order u/s 92CA(3) dated 07.09.2010 wherein he made an adjustment of Rs.6,48,78,406 in the ALP of the assessee. The assessee was asked to show cause as to why adjustment of above amount to the income of the assessee should not be made, being a difference in the ALP as determined by the TPO vide his order u/s 92CA(3) dated 07.07.2010. The assessee's contentions were considered by the Assessing Officer and rejected on the following grounds:-
| (i) |
|
Enough opportunities were afforded by the TPO to the assessee in the proceedings before him. After hearing the assessee's arguments, the TPO has passed the order u/s 92CA(3). |
(ii) |
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The assessee has only repeated the submissions made before the TPO. |
(iii) |
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No comparables were given by the assessee company either before the TPO or before the undersigned during the course of assessment proceedings . |
(iv) |
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The assessee can not place any new arguments before the AO as it had ample opportunities to do so before the TPO . |
(v) |
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The order of TPO is detailed dealing with each aspect for the determination of correct arms length price for the international transactions undertaken by the assessee. |
4. That the observations made hereinabove were contested by the assessee and said addition was challenged by the assessee company before DRD-I. DRP-I vide its order dated 09.09.2011 directed the TPO to recompute the ALP as per law by including Spectra Industries as a comparable and accordingly, the ALP calculation was restricted to Rs.4,30,47,427 and the remaining part of the order remained the same.
5. Accordingly, an addition of Rs. 4,30,47,427 was made in the income of the assessee being the difference between the ALP. The Assessing Officer also made additions of Rs.39,000 on account of fees paid to ROC with a finding that the same was of capital expenditure nature and another addition of Rs. 17,640 on account of disallowance of depreciation on computer accessories. In this regard, the Assessing Officer held that it is found that the computer peripherals worth Rs. 46,378 were in tie nature of plant and machinery, thereby entitled for depreciation @15% only. Therefore, the Assessing Officer made an addition of excessively claimed depreciation of Rs. 17,640.
6. Now, the aggrieved assessee is before this Tribunal with the grounds as reproduced hereinabove.
Application of assessee for admission of additional evidence
7. The assessee appellant has filed an application to place on record additional evidence in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. Briefly stated, the submissions in this application are that the appellant has carried out a fresh database research to identify the comparable companies. The assessee further submitted that at the time of preparing the benchmarking and import of raw materials and capital goods by applying cost plus method, the appellant has considered comparables which were operating in Japan and engaged in similar kind of business as that of associated enterprises i.e. manufacturing and trading of automobile parts and spares. The assessee also submitted that the TPO rejected the comparable companies considered by the appellant by holding that there was no basis and search process for selection of such comparables proposed by the assessee. In this application of additional evidence, the assessee has vehemently contended that the appellant has reasonably obtained access to a foreign database viz. on source and in order to justify the international transactions at ALP and to meet the objections of the TPO, the appellant has undertaken an extensive search of comparable companies on the said foreign database providing data information of huge number of companies operating in Japan and Thailand in the similar business as that of associated enterprises of the appellant company. The assessee's learned counsel submitted that the additional evidence could not be submitted earlier because the database was very costly to obtain.
8. Replying to the above submissions, ld. DR submitted that at this stage, new comparables in the form of additional evidence cannot be entertained because this additional evidence was available in the public domain at the time of proceedings before TPO/DRP and Assessing Officer. The DR further submitted that as per relevant Rule 29, additional evidence cannot be entertained and admitted if during the earlier proceedings before the authorities below, the assessee has given appropriate aid reasonable opportunity to submit the same. The DR also submitted that there is justified or reasonable ground in the application which prevented the assessee to file related evidence before the authorities below, therefore, additional evidence cannot be admitted.
9. We have carefully considered the rival submissions of both the parties pertaining to the application of the assessee for admission of additional evidence in hand. Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 is reproduced as under:-
"29. Production of additional evidence before the Tribunal.-The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them, or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be. filed or may allow such evidence to be adduced."
10. After careful consideration of the facts and circumstances of the case, we observe that the only reason given by the assessee is that it was a foreign database which was costly to obtain and, therefore, the assessee could not furnish the same at the earlier stage. The counsel for the assessee has not disputed the fact that additional evidence submitted by the assessee was available in public domain at the time of proceedings conducted before the authorities below. In view of above, we are inclined to hold that the assessee was not prevented by sufficient cause from bringing additional evidence on record earlier before TPO, DRP and Assessing Officer. If at every stage of proceedings, the assessee conducts a fresh search and finds new comparables to leverage the ALP, then the process would be endless and we are of the opinion that the same cannot be admitted as additional evidence at this stage of Tribunal proceedings. For this assessee has to show that he was prevented to submit this additional evidence due to reasonable cause beyond his control but there is nothing to show that the assessee could not produce additional evidence due to circumstances beyond his control and reasonable cause. In this situation, we are inclined to hold that additional evidence submitted by the assessee cannot be admitted at this appellate stage and, therefore, the application of the assessee is rejected.
Ground no. 1
11. Ground no. 1 contains factual matrix related to the other issues which need no adjudication and we dismiss the same.
Ground no.2 (2.1 to 2.9)
12. Ground no.2 is related to the adjustment of Rs. 4,30,47,427 to the income of the appellant assessee on account of international transaction of import of parts and capital goods by disregarding the transfer pricing methodology adopted by the appellant for benchmarking its international transactions.
13. The counsel for the assessee submitted that the assessee company is a subsidiary company of Honda Trading Corporation, Japan engaged in the business of trading of a variety of products, such as steel products, dyes, components of automobiles, motorcycles, scooters and other automotive components, and equipments, etc. He further submitted that during the year under consideration for the purpose of business of trading of goods in India, the assessee company entered into international transactions with associated enterprises mainly pertaining to export of parts and dyes, receipt of commission on imports and export equipments, import of parts and other capital goods.
14. The counsel for the assessee submitted that the Assessing Officer/DRP erred on factual matrix and legal position in aggregating the transaction of import of parts and capital goods with other transactions and benchmarking of international transactions at entity level by applying Transactional Net Margin Method (TNMM) and in rejecting the Resale Price Method applied by the appellant for benchmarking international transaction of export of parts as the most appropriate method and by applying TNMM method at entity level. He further submitted that the Assessing Officer as well as DRP also erred in rejecting associated enterprise of the appellant as the tested party even when the associated enterprise were the least complex party to the transaction and having fewer transactions and in applying additional filters of persistent losses and declining revenue ignoring the important fact that the selection or rejection should be based on FAR analysis and not on financial results. The assessee's counsel vehemently submitted that the authorities below were not justified in rejecting Orbit Industries Ltd. by holding that the company is incurring losses ignoring the fact that the company has been selected after the functional, risk and assets analysis of the appellant.
15. Continuing with the submissions, the counsel for the assessee also submitted that the authorities below i.e. Assessing Officer and DRP were not justified in appreciating that for the application of TNMM, the various differences on account of comparability are balanced out by selecting a larger set of comparables providing similar services at different ends of the industry spectrum. The counsel submitted that the appellant has incurred losses because of sudden huge fluctuation in the exchange rate of INR against Thai Bhatt and adjustment for the same has to be given because of huge fluctuation in the exchange price. The prices of purchase and import made by the appellant company have increased and on the other hand, the sale prices have remained on the lower side. He also advanced the contention that the Assessing Officer/DRP were not justified in ignoring the fact that in the absence of such abnormal exchange rate fluctuation, the appellant would have earned 10.04% of profit over sales and, hence, no adjustment would have been warranted in the arms' length price of the international transactions undertaken by the appellant company but due to huge and abnormal fluctuation in currency exchange rates, the associated enterprise had sold trading goods to the appellant company at a very low margin of 1-1.5% and if any adjustment is required to be made, it should be restricted to the profits retained by the associated enterprises.
16. Replying to the above submissions, the DR submitted that the DRP and Assessing Officer considered all the submissions and contentions of the assessee company. He further submitted that despite enough opportunities afforded by the TPO to the assessee in the proceedings before him, TPO passed the order u/s 92CA(3) of the Act on justified grounds after careful consideration of the submissions made before him (TPO). The DR further submitted that the assessee company did not submit comparables either before the TPO or before the Assessing Officer during the course of assessment proceedings and the assessee could not place any new argument before the Assessing Officer as it had ample opportunities to do so before the TPO. The DR supported the orders of the authorities below and submitted that the order of the TPO is detailed, dealing with each aspect and submission of the assessee for determination of correct ALP for the international transactions undertaken by the assessee with associated enterprises.
17. After careful consideration and perusal of the entire record placed before us, at the outset, we observe that the assessee has placed his reliance on the decision of ITAT Mumbai Bench in the case of UCB India (P) Ltd. v. Asstt. CIT [2009] 30 SOT 95 wherein it is clarified that under the transfer pricing regulations, only margin of transaction is the basis of comparison. It has been held by the Tribunal that the benchmarking analysis is to be undertaken on transaction to transaction basis by comparing operating profit margin earned by the appellant from international transactions and from comparable uncontrolled transactions. From the judgment, we also observe that it has been held by ITAT Mumbai Tribunal that under transfer pricing regulations, comparison is to made of the profitability of the international transactions on a stand alone basis and entity level comparison is to be resorted to, only when such stand alone comparison is otherwise not feasible and justified.
18. As we have rejected the application of the assessee for admission of additional evidence filed under Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963 by which the assessee wanted to submit fresh search and new comparable to leverage the ALP, accordingly, we have to address this issue on the basis of comparable as proposed by the assessee and accepted by the authorities below. At the same time, we also observe that in the written synopsis submitted by the assessee, the assessee has raised issue of comparability adjustments and foreign exchange fluctuation adjustments with following submissions:-
"In the case of the appellant, while undertaking the benchmarking analysis applying TNMM, in order to make comparison of like to like, the following comparability adjustments are required to be made:
It is respectfully submitted in this regard, that for the purpose of sale of raw material components and parts in the domestic market, the appellant entered into contract with the various customers at a price determined/fixed for the future on the basis of average exchange rate of the currency involved in import of such products as prevailing in past six months. The price of sale so determined remains fixed and thereafter cannot be changed. The appellant after entering into contract for sale of the products enters into the contract for import of such products from overseas venders of suppliers, The invoices for such import are raised on the appellant by the overseas venders/suppliers in foreign currency, e.g., Thai Bhat or Japanese Yen. The invoices for import are, therefore, to be paid in the foreign currency purchased at the exchange rate available at the time of payment. Since the exchange rate of the currency involved, i.e., Thai Bhat and Japanese yen, incurs substantially during the relevant previous year, the import have become costlier while this transaction of sale was already entered into at a fixed price from the customers. This resulted in a loss to the appellant in the relevant previous year.
It would be appreciated that the average of exchange rate of Thai Bhat during the six months period, i.e., October 2005 to March 2006 was ,100 Thai Bhat = INR 110. Considering the said average exchange rate, the price of sale was agreed upon with the customer. However, at the time of purchases, the exchange rate of Thai Bhat increased, i.e., during April 2006 to September, 2006, the exchange rate of Thai Bhat increased to INR 119 - 100 Thai Bhat. Hence, because of the above, while the prices of purchases/import made by the appellant have increased, the sale prices have remained lower.
It is also reiterated that the appellant while determining its selling price, was m anticipation that the average exchange price of Thai Bhatt will reduce more and would yield more profits to him, as the political and economic condition of Thailand was worse at that time. However, subsequent to entering into the contract for sale of imported goods at a pre-fixed price, due to sudden reform in the political and economic condition of Thailand, the currency went up and because of which the appellant has incurred a huge loss.
Details of back to back invoices raised by Honda Trading Thailand Ltd. on export of goods to the appellant and the invoice raised by the appellant to the buyer of goods were submitted before the assessing officer/DRP, which clearly shown the raise in currency price of Thai Bhatt which has led to increase in import price.
It is because of exchange rate, the appellant has incurred losses in transaction of import and export of parts and dies. The contention of ld. TPO that the appellant have not been able to negotiate a correct purchase price from your AE's, keeping in mind the market realities is incorrect. The ld TPO also erred in concluding that the transactions entered into by the assessee with its AE's not to be at arm's length on this ground.
A detailed analysis of profits earned by the appellant from its trading activities vis-a-vis profits which it would have earned, had there be no sudden and steep rise in currency value of Thai Bhatt were submitted before the Assessing Officer/DRP. The analysis clearly shows that if there would be no change in exchange fluctuation, the import price would have been Rs. 512,381,455, and as against the sale value of Rs. 605,236,723, the appellant would have earned a gross profit of Rs. 92,855,268.
Keeping the above computation in view, a line by line computation of entity level profit margin of the appellant is as under:
|
Particulars |
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Amount in Rs. |
|
Sales (Trading segment) |
|
808,624,823 |
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Other operating income |
|
37,422,103 |
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Purchase price
Less: Adjustment on account of exchange fluctuation (621,364,728-512,381,355) |
814,114,911
108,983,273 |
705,131,638
|
|
Operating expense |
|
59,665,854 |
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Net Profit |
|
81,249,434 |
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OP/Sales |
|
10.04 |
Accordingly, since the operating profit to sales ratio (PLI) of the appellant at 10.04% is higher than the operating profit margin of the comparable company selected by the TPO/DRP at 1.78%, the international transactions undertaken by the appellant of import of goods should be considered at being arms length price."
19. From the order of the DRP, we observe that the DRP considered the objection of the assessee related to rejection of Orbit Industries as a comparable and held that the assessee has not given any cogent reason for change in the new search process which was essential to have current year data and the filters applied earlier need to be applied now to maintain consistency in approach. The DRP further held that abnormal losses indicate that it was not a normal loss because financial analysis was triggered for FAR and this comparable fails at the very first step. In view of cogent reasons recorded by the TPO and DRP, we are unable to see any infirmity and perversity in these findings in rejection of Orbit Industry as a comparable. On the issue of adjustment of exchange fluctuation, loss incurred by the assessee, we observe that it is a well accepted principle of Transfer Pricing regulations to compare like with like and eliminate the differences if any, by suitable adjustment. The said principle clearly provides for adjustments in margins of the enterprise entering into international transactions for any differences between such international transactions and the transaction of comparables or between the enterprise entering into internationals transactions and comparable companies. The foreign exchange element also needs consideration. Rule 10B(3) of Income Tax Rules, 1962 provides that an appropriate adjustment is required to be made on account of the differences between the controlled and the uncontrolled transactions. This rule clearly stipulates that an uncontrolled transaction shall be comparable to an international transaction, if none of the differences between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market. This rule clearly stipulates that reasonably accurate adjustments can be made to eliminate the material effects of such differences.
20. The counsel of the assessee has placed reliance on the judgment of ITAT Delhi Bench in the case of Transwitch India (P.) Ltd. v. Dy. CIT [2012] 53 SOT 151/21 taxmann.com 257 wherein it has been held that the claim of comparability adjustment on account of abnormal expenses incurred by the assessee on account of relocation expenses should be allowed in the profitability of the assessee. The assessee has also relied on the judgment of ITAT Pune Bench in the case of Demag Cranes & Components (India) (P.) Ltd. v. Dy. CIT [2012] 49 SOT 610/17 taxmann.com 190 wherein the Tribunal elaborately dealt with the issue of comparability adjustment.
21. From the above submissions and careful perusal of citations and all other relevant judgments we observe that Rule 10(B)(1)(e) of the Act on the one side and other sub-rules in the context of TNMM need to be analyzed for eliminating the difference, if any, in the comparable uncontrolled transaction which materially affect the profit margin of the assessee. Having noticed the difference, the revenue has to quantify the difference, if any, and then revenue authorities must decide if that difference constitutes 'materially affect' the price in open market. As per these provisions, if the answer of the above question is in the affirmative, then the identified difference has to be removed and the margin has to be adjusted for arriving at the credible comparable. It is a well-accepted accounting principle that net margins can be influenced by some of same factors which can influence price or gross margin:;. It is the expectations and requirements of the rules/provisions that any difference which is likely to materially affect the net profit margin (NPM) in the open market has to be eliminated. The revenue authorities and TPO are duty bound to know that the TNMM visualizes the undertaking of a thorough comparability analysis and elimination of the differences through the requisite adjustments.
22. In the case in hand, admittedly the average exchange rate of Thai Bhat during October, 2005 to March 2006 was 100 Thai Bhat equivalent to INR 110 and after consideration of said average exchange rate, price of sale of goods had to be agreed upon with the customers. The DR has not disputed the point that during April 2006 to September 2006 at the time of purchase, the exchange rate of Thai Bhat was substantially increased and the average exchange rate of Thai Bhatt was increased to 100 Thai Bhat = INR 119. Accordingly, we can not rule out and ignore this factual matrix emerged from the fluctuation of foreign exchange rates that while prices of purchases and import made by the appellant have increased, the sale price of exported goods remained on the lower side which is an important element to materially affect the price in the open market. In this situation, we are inclined to hold that the authorities below should have considered the said difference due to foreign exchange rate fluctuation in favour of Thai Bhat and against the INR and the said difference has to be removed and the margin thereon has to be adjusted for arriving at the credible comparable through the requisite adjustments.
23. During the course of arguments, the DR submitted that the issue of fluctuation in foreign exchange price was considered by the authorities below but from perusal of the impugned order, inter alia, order of the DRP, we observe that the authorities below have not considered the element of abnormal and huge fluctuation in the foreign exchange fluctuation in favour of Thai Bhat and against the INR and the said difference has to be removed and the margin thereon has to be adjusted for arriving at the credible comparable through the requisite adjustments.
24. During the course of arguments, the DR submitted that the issue of fluctuation in foreign exchange price was considered by the authorities below but from the perusal of the impugned order, inter alia, order of the DRP, we observe that the authorities below have not considered the element of abnormal and huge fluctuation in the foreign exchange favouring Thai Bhat and against the Indian currency. Accordingly, in view of the observations made hereinabove, ground nos. 2.7 and 2.8 are allowed with a direction to the Assessing Officer that necessary adjustments pertaining to the huge and abnormal fluctuation in the foreign exchange may be allowed to the assessee in determining the ALP of the international transaction undertaken by the appellant:
25. During the arguments, the counsel of the assessee submitted that if it is found appropriate and held in favour of the assessee that necessary adjustment pertaining to the huge and abnormal fluctuation in foreign currency is allowed then other grounds would reach to its justified conclusion. With this submission, the counsel did not submit detailed contentions on other ground nos. 2.1 to 2.6 and 2.9. In view of the directions to the Assessing Officer on ground nos. 2.7 and 2.8, inter alia the above submission of the assessee, we treat ground nos. 2.1 to 2.6 and 2.9 as not pressed and we dismiss the same because the adjustment allowed to the assessee hereinabove pertaining to the abnormal fluctuation in foreign currency would serve the ends of justice for entire grievances of the assessee. Hence, ground nos. 2.1 to 2.6 and 2.9 are dismissed.
Ground nos. 3 & 4
26. Apropos ground nos. 3 and 4, the counsel for the assessee submitted that the Assessing Officer was not justified in restricting tie depreciation on computer peripherals @ 15% as against 60% claimed by the appellant. Placing reliance on the judgment of Hon'ble Jurisdictional High Court of Delhi in the case of CIT v. BSES Rajdhani Power Ltd. In ITA No. 1266/D/2010, dated 31-8-2010 the counsel for the assessee submitted that computer system could not work without UPS and such machines are a necessary part of computer system which are certainty not plant or machinery. Ld. DR submitted that in the light of judgment of Hon'ble Delhi High Court, he has no serious objection in allowing the depreciation of computer peripherals at the rate as claimed by the appellant assessee.
27. The issue of depreciation of computer peripherals has been settled by Hon'ble Jurisdictional High Court of Delhi in the case of BSES Rajdhani Power Ltd. (supra) and respectfully following the same, ground nos. 3 and 4 are allowed in favour of the assessee with a direction to the Assessing Officer that depreciation on computer peripherals be allowed to the assessee at the rate of 60%. Accordingly, ground nos. 3 & 4 are allowed.
Ground No. 5
28. Ld. counsel for the assessee submitted that since the assessee was a non-resident company and entire tax was to be deducted at source on payment made by the payee to the assessee and there was no question of advance tax by the assessee, therefore, the Assessing Officer erred on facts and law in levying interest u/s 234B and 234C of the Act. Ld. DR supported the orders of the authorities below and submitted that the interest would be chargeable if no advance tax has been paid by the assessee.
29. At the outset, it is worthwhile to take note of judgment of Jurisdictional High Court of Delhi in the case of DIT v. Jacabs Civil Incorporated/Mitsubishi Corpn. [2010] 194 Taxman 495, wherein upholding the order of ITAT Delhi Bench in favour of the assessee and dismissing the revenue's appeal, it has been held that the scheme of the Act in respect of non-resident is clear. Section 195 of the Act puts an obligation on the payer i.e. any person responsible for paying to a non-resident, to deduct income tax at source at the rates in force from such payments excluding those incomes which are chargeable under the head 'Salaries'. The relevant paras 8 and 9 of the above judgment are being respectfully reproduced below:-
"8. This clause categorically uses the expression "deductable or collectable at source" arid it is this clause which is incorporated by the Uttaranchal High Court in the said judgment (supra) in the manner already pointed above. The scheme of the Act in respect of non-residents is clear. Section 195 of the Act puts an obligation on the payer, i.e. any person responsible for paying to a non-resident, to deduct income tax at source at the rates in force from such payments excluding those incomes which are chargeable under the head "Salaries". Therefore, the entire tax is to be deducted at source which is payable on such payments made by the payee to the non-resident. Section 201 of the Act lays down the consequences of failure to deduct or pay. These consequences include not only the liability to pay the amount which such a person was required to deduct at source from the payments made to a non-resident but also penalties etc. Once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy-less and therefore can take action against the payer under the provisions of section 201 of the Income Tax Act and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non-resident is not absolved from payment of taxes thereupon. However, in such a case, the non-resident is liable to pay tax and the question of payment of advance tax would not arise This would be clear from the reading of section 191 of the Act along with section 209(1)(d) of the Act. For this reason, it would not be permissible for the Revenue to charge any interest under section 234B of the Act.
9. We thus, answer the aforesaid question in favour of the assessee as we are of the opinion that the Tribunal has rightly held that the ITA No.491/2008 and connected matters assessee was not liable to pay any interest under section 234B of the Act following the judgments of the Uttaranchal and Bombay High Courts."
30. Respectfully following the above judgment of Hon'ble Delhi High Court, ground no. 5 of the assessee is allowed.
Ground no. 6
31. Apropos ground no. 6, we find that the observations of the Assessing Officer in the assessment order in initiating penalty proceedings u/s 271(l)(c) of the Act are not appealable. Therefore, ground no. 6 is premature which needs no adjudication and deserves to be dismissed and we dismiss the same.
32. In the result, the appeal of the assessee is partly allowed on ground nos. 2.7 and 2,8 as indicated above.