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2019 (6) TMI 932 - HC - Income TaxPenalty u/s 271(1)(c) - amounts determined pursuant to Convention for avoidance of Double Taxation between Union of India and other sovereign countries which is enforced in Indian territory by Section 90 - Price charged or paid in such international transaction was computed in accordance with the provisions contained in Section 92C - HELD THAT:- Penalty proceedings are distinct from assessment proceedings and independent there from. The proceedings for imposition of penalty though emanating from proceedings of assessment are independent and separate aspects of the proceedings. Merely alternative dispute resolution has been opted by the assessee, it would not invalidate the penalty proceedings unless it has been considered, analyzed and a decision is arrived at by the two sovereign States under the MAP. The order passed by the mechanism provided under Section 90 can be construed as an adjustment to the assessment order but not an annulment of the assessment order. If by such an adjustment, the assessment order is annulled in its entirety, setting aside the tax levied on income, then the arguments of the petitioners can hold good prohibiting the authorities to invoke the penal proceedings irrespective of any explicit finding regarding the penal consequences in the order of MAP. However, in the present set of facts, such a situation would not arise in view of the adjustment made to certain extent in the order passed under Rule 44H(5), implementing the order of MAP reducing the transfer pricing adjustment to ₹ 91,80,00,000/- as against ₹ 240,11,91,692/-. The onus lies on the assessee to establish that the said addition now finally decided by MAP is not due to concealment of income or furnishing of inaccurate particulars and moreover, the computation was made under Section 92C in the manner prescribed under that Section, in good faith and with due diligence. At the same time, Explanation 7 would not empower the concerned authorities to levy penalty automatically for such transactions. A decision has to be taken by the authorities after application of mind. These aspects involving questions of fact requires to be considered by the Authorities concerned and rightly the petitioner has preferred an appeal against the penalty proceedings ORDER i) Section 271(1)(C) of the Income Tax Act, 1961 is held intra vires the constitution in so far as imposing of penalty on amounts determined pursuant to Convention for avoidance of Double Taxation between Union of India and other sovereign countries which is enforced in Indian territory by Section 90 of the Income Tax Act, 1961 and the Rules made thereunder. ii) Appellate Authority shall consider the appeal preferred by the petitioner against the order of penalty on merits and shall take a decision in accordance with law in an expedite manner.
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