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2016 (3) TMI 824 - ITAT MUMBAI

2016 (3) TMI 824 - ITAT MUMBAI - TMI - Penalty u/s 271(1)(c) - assessee not adopting for CUP method and not benchmarking each of the transaction separately - Held that:- Failures of the assessee include (i) not adopting for CUP method and (ii) not benchmarking each of the transaction separately. AO actually benchmarked all transactions in aggregation while applying the CPM. Assessee is well aware about the availability of CUPs atleast for the two international transactions. In that sense, we fin .....

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he assessee before the AO and the CIT (A) and find, assessee is casual and his explanation is general in nature. Therefore we are of the opinion, this is the fit case for levy of penalty and therefore, we affirm the decision taken by the lower authorities. - Decided against assessee - I.T.A. No.7214/M/2010 - Dated:- 17-2-2016 - GARG, JUDICIAL MEMBER For The Appellant by : Shri Amit Khatiwala For The Respondent : Shri N.K. Chand, CIT-DR ORDER PER D. KARUNAKARA RAO, AM: This appeal filed by the as .....

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egard are that the assessee is engaged in the business of manufacturing and trading of pharmaceutical products and recorded international transactions with Associated Enterprises (AEs) at Cyprus, UK and Switzerland. These AEs eventually sold the goods to the buyers at Ukraine. Assessee benchmarked these transactions and considered Cost Plus Method (CPM) as most appropriate method. GP of the assesse is 58.4% for the year under consideration against the industries GP of 55%. After TP study, the as .....

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udying the parties analysis and using the above as a CUP for benchmarking the transactions, TPO concluded that the adjustment to the tune of ₹ 2,05,177/- was proposed. The ALP data for Kotolex and Perilium are as under:- S.No. Product Selling rate to AE Comparable rate Sales quantity Price variance Conversion Rate Amount (in Rs.) 1. Ketolex Inj.30 mg 0.43 0.56 30870 0.13 46.583 186930 2. Perilium Tab-0.17 0.17 0.18 9170 0.01 46.583 18247 Total 2,05,177 3. TPO / AO objected to the TP analys .....

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the penalty could not be levied. As seen from page 2 of the penalty order, the following is the explanation given by the assessee before the AO. The reasons for dealing with companies in Cyprus, UK & Switzerland and routing the export transactions through them instead of selling the goods directly to the Marketing Company in Ukraine is as you are aware that Ukraine is politically and economically very instable in the period after disintegration from U.S.S.R. The banking system is not reliabl .....

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doing business as it is an attractive international and business centres same as Switzerland and UK. 5. From the above, it is evident that most of the explanation revolves around requirement of the assessee to have AEs at Cyprus, UK and Switzerland and there is no word about assessee s failure in using CUP method involving transaction to transaction benchmarking in its TP studies. It is an undisputed fact that the same product was exported by unrelated parties to AEs and the same constitutes unc .....

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of submissions is again defective so far as the fulfilling of the conditions laid down in Explanation 7 to section 271(1)(c) of the Act. In the said Explanation 7, the conditions are expressly provided for non-levy of penalty u/s 271(1)(c) of the Act when involving the additions made u/s 92C of the Act. CIT (A) discussed the assessee s failure in meeting the said condition that revolves around the expression good faith and due diligence . Eventually, the CIT (A) came to the conclusions that the .....

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e however, agreed to the fact that the addition was agreed upon and to that extent, AO / TPO is justified in selecting CUP as a most appropriate method. Further, he also submitted that the assessee failed to benchmark the transaction to transaction basis instead the assessee benchmarked transaction on aggregate basis. The same is evident from the CPM selected by the assessee. From this point of view, Ld Counsel for the assessee submitted that the addition / adjustment made u/s 92C is justified. .....

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assessee has taken a reasonable decision in matters of selecting appropriate method for benchmarking the transactions. However, in response to the query from the Bench, as to reasons for not selecting the CUP method for benchmarking the transaction to transaction basis, Ld Counsel s explanation revolves around the written submissions made by the assessee during the proceedings before the lower authorities. Unfortunately, these explanations do not through any light on the twin conditions ie (i) .....

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the international transactions with AEs on transactions to transaction basis using CUP method of accounting which is involving unrelated parties. Assessee failed to do so. Thus, the Ld Counsel s argument which is based on the due diligence and good faith is failed. Even if assessee has not agreed to the adjustment / addition, considering today s law of the land, the addition of ₹ 2,05,177/- would have been sustainable. Regarding the Tribunal s decision in the case of RBS Equities India Ltd .....

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relied heavily on the decision of the ITAT Delhi Bench in the case of ACIT vs. UE Trade Corporation (India) (P) Ltd [2011] 45 SOT 197 (Delhi) in support of the above. Of course, it is on the legal proposition explained above (para 4.2 of the Tribunal s order is relevant in this regard) and the requirement of benchmarking the transaction to transaction basis. However, the said case if not on the penalties. 9. We have heard both the parties and perused the orders of the Revenue Authorities as wel .....

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not use the same? Why the assessee preferred Cost Plus Method ? There is no discussion or justification in the orders. Therefore, assessee fairly concede on this point and agreed for adjustment of the two international transactions which gave rise to addition of ₹ 2,05,177/-. Now, the issue under consideration relates to concealment of income or furnishing of inaccurate particulars of income . We need to decide in the light of the provisions of Explanation 7 of the Income Tax Act, 1961. T .....

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