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2017 (5) TMI 1617 - AT - Income TaxPenalty proceedings u/s 271(1)(c) - TP adjustment addition - addition not been made in the quantum proceedings - Held that:- Once the addition has been made/confirmed in the quantum proceedings, then subject matter of penalty proceedings u/s 271(1)(c) is strictly circumscribed to such addition only. The penalty cannot be levied on an addition which has not been made in the assessment or in quantum proceedings by any appellate authority and hence if no such addition has been made in assessment, then same cannot be roped in penalty proceedings either by the Assessing Officer or by Ld. CIT (Appeals) in terms of power enshrined under section 251. CIT (Appeals) is absolutely unjustified in law and on facts to levy or enhance a penalty on an addition which is not arising out of assessment order or any appellate order in the quantum proceedings or from the penalty order passed by the Assessing Officer. As not been brought on record that Assessing Officer has rectified his mistake and has revised his assessment and demand by taking into account the aforesaid adjustment. In absence of such rectification or revision of the assessment order, we are of the opinion that the penalty levied u/s 271(1)(c) on addition of ₹ 60,23,024/- as done by the Ld. CIT (Appeals), is beyond his jurisdiction and the same is directed to be quashed. Levy of penalty of transfer pricing adjustment - Held that:- TPO cannot made foreign A.E. as a ‘tested party’ and compare it with the Indian comparables who are operating under different geographical, economical and market environment. Such an exercise by the TPO vitiates the entire exercise of determining the ALP of the transaction and transfer pricing adjustment made by him. Other incomes like 'dividend income’ cannot be reckoned as part of operating sales or operating profits. In this manner the tinkering of the PLI by including dividend income as part of operative income and operating profit by the TPO is again unjustified in law and facts. PLI of 14.73% as determined by the TPO cannot be sustained on the facts of the present case. If the A.E. is operating profit is 8.62%, then in that case even if we take arithmetic profit margin of 5.92 % of the comparables which has been taken by the by the TPO, then such a margin will fall within the plus/minus range of 5%. On this count also, the transfer pricing assessment made by the TPO is unjustified - no penalty can be levied on such TP adjustment made on account of purchase/import of capital goods. Fee paid to ROC to increase the authorized capital which has been claimed as revenue - Held that:- The treatment of such an expense whether it is for capital or revenue largely depends on the facts of the case and there is often very thin line demarcation between the expense which can be reckoned as capital or revenue. if the assessee had claimed to be a revenue expenditure stating that it the authorized capital was for the purpose of its running of business, then, it cannot be held that the assessee has filed any inaccurate particulars of income, if such an expense is treated as capital expenditure for the purpose of levy of penalty u/s 271(1)(c). In any case whether the expenditure is revenue or capital is quite debatable issue and on such a claim, penalty u/s 271(1)(c) for furnishing of inaccurate particulars cannot be levied - Appeal decided in favour of assessee
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