TMI Blog2016 (4) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... in the impugned international transaction done as per Section 92C of the Act is lacking in good faith or due diligence, so as to render the assessee liable for penalty under section 271(1)(c) of the Act r.w. Explanation-7 thereof. - Decided in favour of assessee - ITA No. 45/MUM/2016 - - - Dated:- 16-3-2016 - SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER For The Appellant by : Shri Ramesh Iyer For The Respondent by : Shri N. Padmanabhan ORDER PER G.S. PANNU,AM: The captioned appeal by the Revenue is directed against the order of the CIT(A)-16, Mumbai dated 05/10/2015 pertaining to the Assessment Year 2008-09, which in turn has arisen from an order dated 30/03/2014 passed under section 271(1)(c) of the Income Tax Act, 1961 (in short the Act ) . 2. In this appeal, the solitary grievance of the assessee is against the action of the income tax authorities in imposing penalty under section 271(1)(c) of the Act amounting to ₹ 60,72,210/-. 3. Briefly put, the relevant facts are that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is a wholly owned subsidiary of Cherokee Interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be evaded on the addition of ₹ 1,78,64,680/- made to the returned income. This action of the Assessing Officer has since been affirmed by the CIT(Appeals) also and, therefore, the assessee is in further appeal before us. 4. Before us, the primary argument of the Ld. Representative for the assessee is that the lower authorities have erred in imposing a penalty under section 271(1)(c) of the Act because the transfer pricing adjustment was only as a result of a difference of opinion between assessee and the Revenue in the manner of calculation of arm s length price of the international transaction and there was no occasion where assessee s method of determining arm s length price was found to be unacceptable. At the time of hearing, Ld. Representative for the assessee emphasized that the transfer pricing study undertaken by the assessee has not been found to be erroneous or unacceptable and, therefore, it is not a case where there was any concealment or furnishing of inaccurate particulars of income. The Ld. Representative for the assessee also referred to the fact that efficacy of imposition of penalty in the present case can be examined in terms of Explanation - 7 to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the Assessing Officer or the Commissioner (Appeals) [or the [Principal Commissioner or] Commissioner] that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C and in the manner prescribed under that section, in good faith and with due diligence.] 6.1 As per the aforesaid, it is prescribed that where an amount is added or disallowed in computing the total income under section 92C(4) of the Act, then the amount so added or disallowed shall be deemed to represent an income in respect of which particulars have been concealed or that the inaccurate particulars of such income have been furnished for the purposes of clauses (c) of Section 271(1) of the Act. So, however, such a deeming import would not operate, if the assessee is able to prove that the price charged or paid in such an international transaction was computed in accordance with the provisions contained in section 92C of the Act and in the manner prescribed in such section in good faith and with due diligence. In other words, the circumstances prescribed in clause (c) of section 271(1) of the Act, namely, concealment of income or furnishing of inaccur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut application of the 6% mark-up on the standard cost was not proper. According to the Transfer Pricing Officer, the mark-up of 6% ought to have been calculated with reference to the total costs incurred by the assessee on its operations rather than the standard cost of operations. This is the area of difference between the assessee and the Revenue, which has resulted in an addition of ₹ 1,78,64,680/-. 6.3 Factually speaking, in the order of Transfer Pricing Officer or the Assessing Officer there is no adverse comment with regard to the application of the TNM method selected by the assessee for determination of arm's length price of its international transaction with its associated enterprise. In fact, in the course of hearing, Ld. Representative for the assessee explained that the aforesaid issue cropped up for the first time in the course of transfer pricing proceedings for assessment year 2005-06, wherein the Transfer Pricing Officer disagreed with the assessee on the adoption of cost base for applying the 6% mark-up rate, and an addition was made to the returned income. Further, in assessment year 2007-08 also, similar addition was made by the income tax authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome for the current assessment year, therefore, the return of income filed by the assessee cannot be considered as non-bonafide. 6.5 In fact, the orders of the authorities below in the quantum assessment proceedings reveal that all information and documents as required by Section 92C of the Act read with rule 10B of the Income Tax Rules, 1962 for the purpose of determination of arm s length price were furnished by the assessee. Moreover, the addition determined by the income-tax authorities is not on account of any inaccuracy, discrepancy or concealment found in the information and documents furnished by the assessee for determining the arm s length price of the international transaction with the associated enterprise. The addition is due to the difference in the pricing methodology adopted by the income-tax authorities for determining the expected profits from the associated enterprise. Therefore, in our view, the fact-situation in the present case does not suggest that the computation of price charged in the impugned international transaction done as per Section 92C of the Act is lacking in good faith or due diligence, so as to render the assessee liable for penalty under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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