2012 (7) TMI 791 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition u/s 92CA(3) in relation to international transactions - Held that - Addition made by AO had been disputed by the assessee before CIT(A)by filling detailed submission giving full details of cost for providing professional services and I.T. implementation services as well as the related working of the international transactions. The very fact that CIT(A) remanded the issue to the AO - a perusal of the remand report shows that the CIT(A) himself was not clear as to whether the amount was representative of ALP of the services was examined by TPO on merit. Remand report was not received even till the date of order of CIT(A). Withdrawal the ground relating to management fee and I.T. implementation fees for expeditious disposal consequent to Hon ble High Court direction to the CIT(A) to dispose off the appeals for assessment years 2004-05 and 2005-06 within a period of 4 months can not be considered as acceptance of addition by the assessee - Though the appeal has been decided without remand report the contentions raised in the submissions leading to remand of the issue is required to be examined objectively to make proper assessment of case of penalty - no reasons have been given as to how the assessee had not proved to satisfaction that international transactions had been computed in accordance with the provisions of section 92C - it is a settled legal position that penalty proceedings are different from assessment proceedings - allowed in favour of assessee for statistical purposes.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2004-05 based on transfer pricing adjustment u/s. 92CA(3) in relation to professional fees and I.T. implementation fees.

Analysis:
The appeal concerns the imposition of a penalty of Rs. 23,37,271 under section 271(1)(c) of the Income Tax Act for the assessment year 2004-05. The Assessing Officer (AO) had made substantial additions, including Rs. 65,15,040 on account of transfer pricing adjustment u/s. 92CA(3) related to professional fees and I.T. implementation fees. The AO initiated penalty proceedings under section 271(1)(c) based on the addition. The AO concluded that the assessee failed to prove that the international transaction was computed in accordance with section 92C, leading to the levy of a penalty at the minimum rate of 100% of the tax sought to be evaded. The assessee disputed this decision, arguing that all necessary disclosures were made, and the withdrawal of the ground before the Commissioner of Income Tax (Appeals) (CIT(A)) should not be seen as acceptance of the addition.

The CIT(A) upheld the penalty, citing Explanation-7 to section 271(1)(c) and the failure of the assessee to prove that the price charged or paid in the international transaction complied with section 92C. The assessee contended that the withdrawal of the appeal ground was due to pending demands, delays in appeal disposal, and the need to expedite proceedings. The Tribunal noted that the CIT(A) did not adequately consider the detailed submissions and workings provided by the assessee, which led to a lack of objective examination. The Tribunal emphasized that penalty proceedings require a separate assessment from regular assessments, and the CIT(A) needed to objectively evaluate the case based on all relevant facts and circumstances.

The Tribunal found that the CIT(A) did not provide sufficient reasoning for rejecting the assessee's claims regarding arm's length pricing and failed to consider the detailed submissions and remand proceedings. As a result, the Tribunal set aside the CIT(A)'s order and remanded the matter for a fresh assessment, emphasizing the need for a fair and comprehensive examination of the penalty issue. The Tribunal allowed the appeal for statistical purposes, highlighting the importance of a thorough and objective evaluation in penalty proceedings.