2013 (10) TMI 871 - AT - Income Tax

Penalty u/s 271(1)(c) of the Income Tax Act Held that - As per decision in case of Reliance Petroproducts Pvt.Ltd. 2010 (3) TMI 80 - SUPREME COURT , it was stated by the Hon'ble Jurisdictional High Court that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee but if the claim, besides being incorrect in law is mala fide, Explanation 1 to Section 271(1)(c) would come into play However, in the present case, assessee has not made any claim for deduction which is found to be not allowable by the Assessing Officer. Assessee is manufacturing home decorative items, cutlery, tableware etc. which are being supplied to its associated enterprise viz., Michael Aram Inc., USA. Since the transaction of sale between the assessee and associated enterprise was international transaction, the matter was referred to TPO for determining the arm's length price. The TPO determined the arm's length price at more than the sale consideration shown by the assessee - Whatever sale consideration was received by the assessee from its associated enterprise was duly accounted for. It is also not in dispute that the assessee has furnished all the particulars with regard to sale made to associated enterprise. The details supplied by the assessee in its return of income are not found to be incorrect or erroneous or false. Merely because some adjustment is made by applying transfer pricing provisions, it cannot be said that there was any concealment of income or furnishing of inaccurate particulars Decided in favor of Assessee.

Summary

Issues Involved:
1. Validity of the CIT(A) order.
2. Rejection of comparables by CIT(A).
3. Use of current year data versus multi-year data for Transfer Pricing (TP) study.
4. Determination of Arm's Length Price (ALP).
5. Disallowance of employee contributions to Provident Fund.
6. Imposition of penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of the CIT(A) Order:
The assessee challenged the order of the CIT(A)-XX, New Delhi, dated 26th December 2008, for the AY 2004-05, asserting that it was "bad in law and on the facts of the case."

2. Rejection of Comparables by CIT(A):
The CIT(A) rejected certain comparables used by the assessee on grounds that:
- Data was not available in the public domain for the AY 2004-05.
- Functions performed by the comparables and the appellant were different.
- The comparable was a continuous loss-making entity for the last four years.
The assessee contested the rejection of Hitkari China Ltd. and Innovative Tech Pack Ltd., arguing that they were in the same line of business. The CIT(A) upheld the TPO's rejection, noting that Hitkari China Ltd.'s data for FY 2003-04 was unavailable and that Innovative Tech Pack Ltd. was in a different business (manufacturing plastic bottles) and had a negative net worth.

3. Use of Current Year Data versus Multi-Year Data for TP Study:
The CIT(A) and the TPO rejected the use of multi-year data by the assessee, insisting on using current year data (FY 2003-04) for the TP study. The assessee argued that Rule 10B(4) of the Income-tax Rules allows for multi-year data if it influences the determination of transfer prices. The ITAT upheld the CIT(A)'s decision, noting that the assessee failed to demonstrate how prior years' data influenced the determination of transfer prices for FY 2003-04.

4. Determination of Arm's Length Price (ALP):
The TPO initially determined the PLI at 5.99%, which was modified by the CIT(A) to 1.24%. The assessee's declared value was Rs. 5,47,15,000/-, while the ALP was determined at Rs. 6,32,98,266/-. The ITAT upheld the CIT(A)'s determination, rejecting the assessee's arguments for using multi-year data and including certain comparables.

5. Disallowance of Employee Contributions to Provident Fund:
The assessee contested the disallowance of Rs. 1,12,064/- for late deposit of employee contributions to the Provident Fund. The CIT(A) sustained the disallowance due to the absence of details on late payments. The ITAT remanded the matter back to the Assessing Officer for fresh examination in light of relevant judicial pronouncements, including decisions from the Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court.

6. Imposition of Penalty under Section 271(1)(c):
The Revenue appealed against the cancellation of a penalty of Rs. 31,19,450/- levied under Section 271(1)(c). The ITAT noted that the addition was due to TP adjustments and not due to concealment or furnishing of inaccurate particulars. Relying on the Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd., the ITAT upheld the CIT(A)'s cancellation of the penalty, stating that the mere making of an unsustainable claim does not amount to furnishing inaccurate particulars.

Conclusion:
The appeal of the assessee in ITA No.736/Del/2009 was partly allowed for statistical purposes, and the appeal of the Revenue in ITA No.1055/Del/2013 was dismissed. The decision was pronounced in the open court on 27th September 2013.