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2016 (6) TMI 588 - AT - Income TaxPenalty u/s 271(1)(c) - ALP determination - Rejecting the application of TNMM on entity level, the TPO proposed transfer pricing adjustment by determining Nil ALP of the three international transactions under the CUP method by basing his conclusion on the fact that the assessee did not avail any services inasmuch as no benefit was derived by it and, in any case, it amounted to duplication of services - Held that:- The necessary criteria for imposition or non-imposition of penalty is not the surrender or nonsurrender of income; acceptance or non-acceptance of addition; and confirmation or deletion of addition in quantum proceedings. In fact, it is the evaluation of the circumstances leading to the surrender/addition or confirmation of addition, which decide the fate of penalty. Where a surrender or an addition is made due to absence of bona fide in the conduct of the assessee, it may be a good case for imposition of penalty. On the other hand, if a surrender or an addition is made due to failure of the assessee to establish his case to the satisfaction of the AO despite the genuineness of the explanation, it will not call for imposition of penalty, notwithstanding such an addition having been confirmed in appeals. Further, an honest difference of opinion between the assessee and the Revenue can never be a cause for imposition of penalty. Under such circumstances, the contention of the ld. DR that the factum of the assessee not assailing the addition in quantum proceedings should be considered as fatal, in our considered opinion, is devoid of merits. The assessee’s case is covered by another decision of the Mumbai Bench of the Tribunal in DCIT vs. RBS Equities India Ltd. (2011 (8) TMI 459 - ITAT MUMBAI ) in which penalty u/s 271(1)(c) has been deleted in somewhat similar circumstances. If we accept the contention of the ld. DR that addition on account of transfer pricing adjustment invariably means absence of good faith and due diligence, then, each and every case involving transfer pricing adjustment would call for imposition of penalty u/s 271(1)(c). The proposition so propounded on behalf of the Revenue is too wide and clearly unacceptable inasmuch as the intention of the legislature is to impose penalty due to addition on account of transfer pricing adjustment only when good faith and due diligence are lacking and not because of a genuine and valid difference of opinion in the determination of ALP of an international transaction. The exercise done by the TPO in determining Nil ALP on the premise that either no services were availed by the assessee or in any case it was a case of duplication of services, is not only unsubstantiated but contrary to the material on record. The mere fact that the TPO determined Nil ALP of the international transactions cannot be a reason to impose penalty u/s 271(1)(c) of the Act. In view of the foregoing discussion, we are satisfied that the assessee has satisfied all the requisite conditions as stipulated in the exception crafted in Explanation 7 granting immunity and hence it cannot be visited with penalty u/s 271(1)(c) of the Act. Ex consequenti, the impugned order is set aside and the penalty is deleted. - Decided in favour of assessee
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