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2016 (4) TMI 214 - ITAT MUMBAI

2016 (4) TMI 214 - ITAT MUMBAI - TMI - Penalty under section 271(1)(c) - adjustment to the arm's length price - Held that:- Assessee has furnished all relevant information in respect of international transaction with A.E. in the audit report as well as transfer pricing study. In fact, the Transfer Pricing Officer himself admits that the assessee furnished the updated margins of the comparables. The Transfer Pricing Officer has not found any of the information submitted by the assessee misleading .....

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e period prescribed under sub–section (2), Assessing Officer shall complete the assessment on the basis of draft order. However, in case, the assessee raises objection against the draft assessment order, as per sub–section (13) of section 144C, the Assessing Officer shall pass the final assessment order in conformity with the direction of the DRP without providing any further opportunity of being heard to the assessee. Thus, the final assessment order as contemplated under section 144C(13) is on .....

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put to a very precarious position, because in terms of section 144C(13), final assessment order has to be passed without affording any further opportunity of being heard to assessee. Therefore, on a harmonious construction of relevant statutory provisions, we are of the view, if the Assessing Officer did not initiate proceeding for imposition of penalty under section 271(1)(c) in respect of a particular addition in the draft assessment order, he cannot do so in the final assessment order. - ITA .....

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for the assessment year 2006-07. 2. Briefly stated the facts are, assessee an Indian Company is engaged in the business of providing marketing support service to its Associate Enterprise (A.E). For the relevant previous year, assessee entered into international transaction with its A.E. For bench marking, the price charged, assessee undertook a transfer pricing study through an external agency. Transaction Net Margin Method (TNMM) was adopted as most appropriate method with Operating Profit / Op .....

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In the course of proceedings before the Transfer Pricing Officer, he called upon the assessee to compute the margin of the comparables on the financials of the current year only. On the basis of query raised by the Transfer Pricing Officer, assessee updated the margin of the comparable companies as per which the arithmetic mean of the comparable companies was 29.50%. The Transfer Pricing Officer after excluding one of the companies out of 12 selected in the transfer pricing study called upon the .....

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rporating the transfer pricing adjustment recommended by the Transfer Pricing Officer. Further, Assessing Officer also disallowed the amount of Rs. 21,47,595 under section 40(a)(ia) of the Act. Against the draft assessment order, the assessee raised objections before the DRP. As it appears, assessee did not contest the disallowance under section 40(a)(ia). The DRP having confirmed transfer pricing adjustment, the Assessing Officer passed the final assessment order. Though, assessee preferred app .....

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passed an order imposing penalty of Rs. 31,91,220. Being aggrieved of the penalty order, assessee preferred appeal before the learned Commissioner (Appeals). 3. The learned Commissioner (Appeals), after considering the submissions of the assessee in the light of the facts and materials on record, noticed that as far as the transfer pricing adjustment is concerned, the assessee had bench marked the transaction with A.E. using TNMM as most appropriate method and had selected certain comparables f .....

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d the margin of the comparables only on the basis of current year data. He further found that the assessee itself has made a transfer pricing adjustment of Rs. 92,15,556. Referring to Explanation 7 to section 271(1)(c), he observed, only if the computation of arm's length price by assessee was not in good faith or without due diligence, penalty can be imposed. He was of the opinion that the difference in arm's length price as per assessee s computation and that of the Transfer Pricing Of .....

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assessee was as per the data available in the public domain on the due date of filing of return of income. Therefore, he ultimately held that as the Transfer Pricing Officer has accepted the method of bench marking the international transaction selected by the assessee and all other facts except the margin computed on the basis of multiple year data, it cannot be said that the assessee has not carried out the exercise of determining arm's length price in good faith or due diligence. Accordi .....

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order. 4. Learned Departmental Representative submitted, the very fact that the assessee itself made transfer pricing adjustment of Rs. 92 lakh to the arm's length price proves that the price charged was not at arm s length. Referring to Explanation-7 to section 271(1)(c), learned Departmental Representative submitted, burden is on the assessee to prove that the price charged or paid in respect of an international transaction was computed in good faith and due diligence in accordance with t .....

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ibed therein, it amounts to furnishing of inaccurate particulars, hence, the Assessing Officer was justified in imposing penalty under section 271(1)(c). As far as penalty imposed on the addition made under section 40(a)(ia), learned Departmental Representative submitted, there is no requirement under the law that the Assessing Officer while framing the draft assessment order should initiate proceeding under section 271(1)(c). He submitted at the time of the final assessment order also, the Asse .....

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g Officer. He submitted, when the transfer pricing study was prepared and even at the time of submissions of the return of income, current year data in respect of the comparables were not available in public domain. Therefore, in any case of the matter, assessee could not have computed the margin of the comparable companies by using single year data. Learned Authorised Representative submitted, contemporaneous data would effectively mean the data available in public domain on the due date of fil .....

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iate penalty proceeding under section 271(1)(c) in the draft assessment order, he cannot do so in the final assessment order as the final assessment order is to be passed in conformity with the directions of the DRP. He submitted, as the issue of imposition of penalty under section 271(1)(c) was not in the draft assessment order, the same cannot be considered to be a part of directions of DRP for initiating the proceeding in the final assessment order. Finally, the learned Authorised Representat .....

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ng decisions:- i. DCIT v/s M/s. Crisil Ltd. [ITA No 941/Mum/2008] (Mumbai ITAT) ii. M/s Nayan Builders and Developers P Ltd v/s ITO [ITA No. 2379/Murn./2009 iii. Sudhakar M Shetty v/s ACIT [ITA Nos.65 14 & 65 1 5/Mum/20 11] (Mumbai ITAT) iv. CIT v/s Nayan Builders and Developers (Bombay HC) v. DCIT v/s M/s Ankita Electronics Private Ltd. [ITA No. 297/2014] vi. Rupam Mercantiles Ltd. v/s DOT [91 lTD 2371 (Ahmedabad ITAT - Third Member) vii. M/s Jyotsna v/s ACIT (ITA No.2187-2189/Kol/2001 (Kol .....

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lied upon the following decision:- CIT v/s Prakash S. Vyas, ITA no.606 of 2010, dated 15.11.2011 7. We have considered the submissions of the parties and perused the material available on record. We have also applied our mind to the decisions relied upon. As stated earlier, assessee had bench marked the price charged for the international transaction by selecting TNMM as most appropriate method with OP/OC as PLI. Assessee has also selected 12 companies as comparable by using multiple year data. .....

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basis of current year. This alone is the sole reason for the adjustment made by the Transfer Pricing Officer. Uncontroverted facts emerging from record as well as finding of learned Commissioner (Appeals) indicate that on the due date of filing of return current year data in respect of many of the comparables were not available in the public domain, therefore, the assessee considering the data available in public domain, whether current year or multiple year, computed the margin of comparables. .....

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years data is permissible. 8. Moreover, it is a fact on record, assessee has furnished all relevant information in respect of international transaction with A.E. in the audit report as well as transfer pricing study. In fact, the Transfer Pricing Officer himself admits that the assessee furnished the updated margins of the comparables. The Transfer Pricing Officer has not found any of the information submitted by the assessee misleading or unreliable. Therefore, in our view, a case of furnishing .....

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n the facts and circumstances of the case, the Appellate Tribunal s confirmation of the determination of the arm's length price margin at 17.50 per cent for marketing support and consultancy services provided by the Appellants to its associated enterprises in the assessment year 2006-07 is correct and proper? It is observed, in case of Nayan Builders and Developers Pvt. Ltd. v/s ITO, ITA no.2379/Mum./2009, the Tribunal, Mumbai Bench, has held that when the High Court on a particular issue ad .....

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lf of the Appellant, we find that this Appeal cannot be entertained as it does not raise any substantial question of law. The imposition of penalty was found not to be justified and the Appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on Assessee's Appeal in Quantum proceedings and the substantial questions of law which have been framed therein. We have also perused that order dated 27th September 2010 admitting Income Tax A .....

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wherein a contrary view has been expressed, but, we are persuaded to follow the decision of the Hon'ble Jurisdictional High Court in Nayan Builders and Developers P. Ltd. (supra), which is binding on us. Therefore, looked at from any angle, imposition of penalty under section 271(1)(c) in the present case is not justified. The bonafide of the assessee is further proved from the fact that voluntarily it has made adjustment of Rs. 92 lakh to the price charged. In the circumstances, in our cons .....

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of the provisions contained under section 144C, it is to be noted that the as per sub-section 3, if the assessee intimates the Assessing Officer the acceptance of variation made in the draft assessment order or no objections are received within the period prescribed under sub-section (2), Assessing Officer shall complete the assessment on the basis of draft order. However, in case, the assessee raises objection against the draft assessment order, as per sub-section (13) of section 144C, the Asse .....

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