2014 (4) TMI 471 - AT - Income Tax

Deletion of penalty u/s 271(1)(c) - Penalty u/s 271(1)(c ) imposed on basis of addition made on account of difference between ALP determined by TPO CIT(A) deleted penalty imposed u/s 271(1)(c) of Act Held that - difference in ALP arose only on account of difference of opinion between assessee and TPO with regard to use of multiple year data and selection of certain companies as comparables - CIT (A) is correct in holding that difference in value of ALP was due to difference of opinion with regard to certain issues in context of interpretation of statutory provisions and not due to lack of good faith and due diligence - Issues on basis of which ALP shown by the assessee has been rejected are debatable - Hence cannot be said to be leading to concealment of income or furnishing inaccurate particulars of income when the assessee has obtained the TP report from an external expert - CIT (A) was justified in deleting penalty u/s 271(1)(c) of Act - Ratio laid down by Appellate Tribunal, Mumbai Bench in case of DCIT vs. RBS Equities India Ltd. 2011 (8) TMI 459 - ITAT MUMBAI squarely applies to facts of present case No infirmity in order of CIT (A) in deleting penalty imposed u/s 271(1)(c ) of Act Decided against Revenue.

Summary

Issues Involved:
1. Deletion of penalty imposed under section 271(1)(c) of the Income Tax Act.
2. Determination of Arm's Length Price (ALP) for international transactions.
3. Use of multiple year data versus current year data in Transfer Pricing (TP) study.
4. Rejection of comparables in TP study.
5. Interpretation of statutory provisions regarding concealment of income and furnishing inaccurate particulars.

Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act:
The primary issue in the appeal is the deletion of a penalty amounting to Rs. 89,89,172/- imposed under section 271(1)(c) of the Act. The department's grievance is that the CIT (A) deleted the penalty, which was imposed for alleged concealment of income and furnishing inaccurate particulars by the assessee. The CIT (A) held that there was no concealment of income or furnishing of inaccurate particulars, as the difference in ALP was due to a difference in opinion regarding the interpretation of statutory provisions.

2. Determination of Arm's Length Price (ALP) for International Transactions:
The assessee, a private limited company, filed its return declaring nil income after claiming deduction under section 10A. During scrutiny, it was found that the assessee had entered into international transactions with its Associated Enterprises (AE). The Transfer Pricing Officer (TPO) determined the ALP at Rs. 41,54,91,785/- against Rs. 39,04,34,858/- disclosed by the assessee, leading to an addition of Rs. 2,50,56,927/- as a transfer pricing adjustment.

3. Use of Multiple Year Data Versus Current Year Data in Transfer Pricing (TP) Study:
The TPO rejected the TP study report of the assessee on the grounds that the assessee used multiple year data instead of current year data. The CIT (A) upheld the TPO's finding regarding the use of current year data but allowed a marginal relief by permitting a +/-5% deduction under section 92CA(2) of the Act.

4. Rejection of Comparables in TP Study:
Out of 14 companies selected as comparables by the assessee in its TP study report, the TPO accepted only four and rejected the remaining ten. The Tribunal upheld the TPO's decision and confirmed the addition made by the Assessing Officer. The assessee contended that the rejection of the TP report was due to a difference of opinion and not a deliberate attempt to mislead or furnish inaccurate particulars.

5. Interpretation of Statutory Provisions Regarding Concealment of Income and Furnishing Inaccurate Particulars:
The CIT (A) observed that the methodology adopted by the assessee for determining the ALP was accepted by the TPO, and the rejection of certain variables was due to different filters applied by the TPO. The CIT (A) concluded that the difference in ALP was due to estimation and difference of opinion, not concealment of income. The CIT (A) relied on the Supreme Court's decision in Reliance Petroproducts Ltd. (322 ITR 158), which held that making a claim not sustainable in law does not amount to furnishing inaccurate particulars.

Conclusion:
The Tribunal upheld the CIT (A)'s order, agreeing that the difference in ALP was due to a difference of opinion and not due to any lack of good faith or due diligence by the assessee. The Tribunal found no evidence of concealment of income or furnishing inaccurate particulars, as the TP report was obtained from an external expert, and the methodology was not disputed by the TPO. The appeal by the department was dismissed, and the penalty under section 271(1)(c) was deleted.

Order Pronounced:
The appeal filed by the department stands dismissed, and the order was pronounced in the court on 25-10-2013.