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2016 (4) TMI 514 - ITAT MUMBAI

2016 (4) TMI 514 - ITAT MUMBAI - TMI - Penalty under section 271(1)(c) - income arising from an international transaction, having regard to its armís length price, as mandated by Section 92(1) of the Act - Held that:- 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 armís length price were furnished by the as .....

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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 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 : S .....

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ty 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 International, LLC USA. The assessee company has a manufacturing facility at SEEPZ, Andheri (E), Mumbai, wherein it undertakes manufacturing of various magnetic components like Transformers, Inductors and Printed Circuit Boards Assemblies entirely for .....

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erations carried out by the assessee company. With the aforesaid business model, the assessee company filed the return of income for assessment year 2008- 09 on 29/09/2008 declaring a loss of ₹ 1,14,58,725/-, which was subject to a scrutiny assessment. In the course of the assessment proceedings, it was noticed that assessee had entered into an international transaction with the associated enterprise within the meaning of section 92B of the Act and accordingly, the matter relating to the d .....

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h an adjustment has been scaled down to ₹ 1,78,64,680/- by the order of the CIT(Appeals), which has become final, as stated by the learned Representative before us. The Assessing Officer vide an order dated 30/03/2014(supra) held the assessee guilty of default under section 271(1)(c) of the Act r.w. Explanation-7 thereof, whereby he treated the assessee of having furnished inaccurate particulars of income qua the addition on account of transfer pricing adjustment of ₹ 1,78,64,860/-. .....

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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 t .....

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ustify the penalty is misplaced. Apart from the aforesaid, the Ld. Representative for the assessee pointed out that since the assessment year 2005-06, the determination of the arm s length price of the impugned transactions have been finalized by the income tax authorities in the same manner as was done in the year under consideration, and that in the earlier assessment year of 2005-06 and 2007-08, no penalty under section 271(1)(c) of the Act has been levied. Therefore, according to him under i .....

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eason for the assessee to justify non-incorporation of such adjustment in the return of income itself. 6. We have carefully considered the rival submissions. Section 271(1)(c) of the Act prescribes for levy of penalty in a case where it is found that assessee has concealed the particulars of his income or that assessee has furnished inaccurate particulars of such income. Coming to the specific case on hand, penalty under section 271(1)(c) has been imposed in the context of computing income arisi .....

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isallowed shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the satisfaction 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 presc .....

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ming 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 inaccurate particulars of income are deemed to be satisfied where .....

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s shall be on the assessee to demonstrate that the price charged or paid in such an international transaction was computed in the manner prescribed in Section 92C in good faith and with due diligence. Quite clearly, the facts and circumstances of each case would establish as to whether or not the assessee has been able to discharge the burden of proving that price charged or paid in an international transaction has been computed in terms of section 92C in good faith and with due diligence. 6.2 I .....

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g company abroad i.e. the associated enterprise in question. The assessee was being compensated on the basis of a mark-up of 6% of standard cost incurred for the operations carried out by it. The assessee had declared a loss for the year under consideration. In its T.P study, the assessee company had considered the Transaction Net Margin Method(TNMM) as most appropriate method, which has not been disputed by the Transfer Pricing Officer. The only area of difference between the assessee and the T .....

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ith 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 interna .....

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s made by the income tax authorities but neither in assessment year 2005-06 and nor in assessment year 2007-08 penalty under section 271(1)(c) of the Act was imposed. While in assessment year 2005-06, penalty proceedings under section 271(1)(c) were not initiated at all, whereas in assessment year 2007-08 though the proceedings were initiated but were eventually dropped by the Assessing Officer himself. The aforesaid factual matrix is not in dispute and, in our view, the aforesaid itself renders .....

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tion 271(1)(c) of the Act. It is further argued that so far as the instant assessment year is concerned, the assessee was aware about wrong determination of the arm's length price in relation to the international transaction with associated enterprise and, therefore, the Assessing Officer was justified in imposing penalty under section 271(1)(c)of the Act in this year. The aforesaid arguments of the Ld. Departmental Representative have been countered by the assessee by pointing out that at t .....

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e was unfounded. In our considered opinion, the return of income filed by the assessee qua the determination of arm's length price of its international transaction with associated enterprise cannot be faulted for not being in good faith under the aforesaid factual matrix. Ostensibly, the methodology adopted by the Department in assessment year 2005-06 came to be accepted by the assessee only after the filing of return of income for the current assessment year, therefore, the return of income .....

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