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2016 (4) TMI 209 - ITAT DELHIPenalty u/s 271(1)(c) - TPA adjustment - disallowance in the case of an assessee who has entered into an “international transaction” defined in Section 92B - Held that:- In the present case it is found that given the clear indication of compliances required by law, there is in fact a clear evidence that disclosures made by the assessee were in good faith and with due diligence and there is absence of wilful or malafide effort to conceal and defraud the Revenue. Due diligence presupposes making all possible efforts/endeavours which a prudent man would have done in the given circumstances or a process whereby one gathers facts to make an informed choice on a matter. Good faith on the other hand is an abstract and comprehensive term. It requires that the action should be honest and encompasses a sincere belief or motive without any malice or the desire to defraud others. It is drawn from the Latin term bonafide and Courts use the term interchangeably. However, in the present case the twin requirements of conjoint compliances presuppose that the two terms due diligence and good faith cannot be used interchangeably or independent of one another. Thus the acceptable standards laid down by the statute are that due and diligence efforts made by a prudent man in a given situation have also to be in good faith as all due diligent efforts per se may not be in good faith. Conversely an act done in good faith with honesty and sincerity per se is not sufficient as acts done in good faith protects acts of negligence. However, the act of computing a transaction is to be done with due diligence i.e. strictly in accordance with the provisions contained in section 92C and in the rules framed there under and thus necessarily in the manner prescribed therein while so computing no negligence even in good faith is legally acceptable. Hence the statute has mandated that not only the assessee is required to act in due diligence but it must also act in good faith. The requirements are very stringent and required to be met scrupulously. In the facts of the present case, we find that the bonafide of the assessee cannot be doubted. To sum up it is seen that at the relevant point of the time when the TP Study was filed there was a debate on the issue of single year data and multiple year data. Considering the change of method from RPM to TNMM, we find that the assessee’s explanation that the method was changed from TNMM from 2005-06 AY to RMP in 2006-07 & 2007-08 AY on the ground that there was only one segment in the year and accordingly the most appropriate method selected was the RPM. Notwithstanding the fact that the said approach was not approved by the TPO, it does not detract from the plausible claim that in view of only one segment i.e. the distribution segment the method selected in good faith and due diligence was RPM. Even otherwise we find that the assessee at the time of filing its TP study could not anticipate that despite there being only one segment, the TPO would still insist on holding that TNMM would be the most appropriate method relying on the past position where change in facts is an admitted position. The due diligence standards assiduously required to be adhered to in the present case are standards of reasonable and ordinary diligence. But extraordinary and extreme measures of care, caution and prudence insomuch as to anticipate a vigilance to the extent that despite a plausible explanation on facts the most appropriate method selected by the assessee would still be disturbed by the TPO, is beyond all the possible shades of due diligence expected from an assessee at the time of computing its transaction. - Decided in favour of assessee.
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