2013 (5) TMI 638 - AT - Income Tax

Arm s length price computation - transaction in relation to call money lending based on the average yield for related and unrelated lending transactions after including transactions which were abnormal in nature - Held that - Examining the contents of the additional evidence the evidence produced in the TP report was the data compiled by an independent auditing company but the data as produced as additional evidence is complied by a statutory and accredited body. Since even the earlier data was not used by the revenue authorities, in the interest of justice, it would be fair to both the parties if the case is restored to the AO to do de novo assessment, including assessing the HO expenses for the purposes of section 9(i)(vii). In favour of assessee for statistical purposes. Penalty u/s 271(1)(c) - CIT(A) deleted the additions - Held that - Since the basis of levy of penalty was directly related to the addition made, which have restored to the file of the AO, consequently, the penalty proceedings also be restored to the file of the AO, who shall re determine the basis and reasons for the levy of penalty, if at all. In favour of assessee for statistical purposes.

Issues:
1. Appeal against the order of CIT(A) regarding arm's length price for call money lending transaction.
2. Appeal against the adjustment suggested by TPO for Arm's Length Interest.
3. Appeal against deletion of penalty under section 271(1)(c) by CIT(A).

Issue 1:
The appellant challenged the order of CIT(A) regarding the arm's length price for the call money lending transaction. The appellant contended that the CIT(A) erred in confirming the arm's length price determined by the Assessing Officer, which included abnormal transactions. The appellant argued that the 5 percent variation permitted under section 92C(2) was not considered in computing the arm's length price. Furthermore, the appellant raised concerns about the assessment of head office expenses, which were considered nil by the CIT(A). The appellant also questioned the mandatory acceptance of arm's length price determined by the Transfer Pricing Officer under section 92CA(4) without providing any reasoning. The appellant emphasized that the TPO and AO ignored the TP study submitted, which included market range analysis based on RBI guidelines and concurrent audit data. The appellant requested a fresh assessment considering all relevant details.

Issue 2:
The appellant contested the adjustment suggested by the Transfer Pricing Officer for Arm's Length Interest. The TPO recommended an adjustment of Rs. 8,08,071 based on the determination of Arm's Length Interest with associated enterprises. The CIT(A) upheld this adjustment, leading to the appellant appealing before the ITAT. The appellant argued that the TPO and AO overlooked the TP study submitted, which included detailed analysis and market range data from concurrent audit reports. The AR highlighted that the AO relied solely on the TPO's order without conducting an independent analysis. The ITAT, after considering the additional evidence submitted by the appellant, admitted the evidence and directed a de novo assessment by the AO, emphasizing the importance of a fair assessment process and adequate opportunity for the appellant.

Issue 3:
The department appealed against the deletion of penalty under section 271(1)(c) by the CIT(A). The department contested the CIT(A)'s decision to delete the penalty of Rs. 24,83,058, arguing that the appellant did not conceal or furnish inaccurate particulars of income. Since the penalty proceedings were directly related to the addition made, the ITAT decided to restore the penalty proceedings to the AO for re-determination based on the restored assessment. The ITAT allowed the department's appeal for statistical purposes, ensuring a proper reconsideration of the penalty basis and reasons by the AO.

In conclusion, the ITAT allowed the appellant's appeal for statistical purposes, directing a fresh assessment considering all relevant details, including the market range analysis and concurrent audit data. The ITAT also allowed the department's appeal for statistical purposes, restoring the penalty proceedings to the AO for re-determination. The judgment emphasized the importance of a fair assessment process and adequate opportunity for both parties, ensuring a just resolution of the legal issues involved.

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