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2014 (5) TMI 746 - AT - Income TaxLevy of penalty u/s 271(1)(c) of the Act Inaccurate particulars furnished - Validity of revision Whether the revision by the assessee of its return/s is valid Held that - Reference to the TPO for the current year/s, which for both the years, being on 01.09.2005 and 23.01.2006 for the two years respectively, is much prior to the date of revision , is without doubt relevant in-as-much as an enquiry with regard to the ALP of the international transactions, including for marketing services, would follow - even the notices to the assessee by the TPO would have been issued prior to the revision - CIT(A) in fact stating of the proceedings before the TPO being in progress at the relevant time - The revision made in anticipation of the proposed adjustment is thus not voluntary but guided by the motive to eschew an adjustment and, resultantly, the debilitating impact of section 92C(4) - Voluntariness, and bona fides are essential ingredients of a valid revision u/s.139(5) - the assessee is well aware of having made a claim per its return, being in fact made year after year, for which it is unable to state, much less establish, any basis - In any case of the matter, the revision is outside the purview of section 139(5) for A.Y. 2005-06 in-as-much as the return is filed outside the time limit prescribed there for under law, which expires on 31.03.2007, while the second return was filed on 14.12.2007. Denail of claim of deduction u/s 10A of the Act Held that - The revised return is non-est in law and the only valid return by the assessee is its original return/s, whereby claim for marketing expenses has been made - notwithstanding a claim to revision, the enhancement of its income is only in consequence of its adjustment to the returned income u/s.92C(4) r/w.s. 92CA(4) - The rigor of section 92C(4) is thus attracted, and despite the assessee s income bearing the same quality or character, would stand disqualified to that extent for being allowed deduction u/s.10A in its respect. The disclosure for both the years as not voluntary - The assessee has in fact been claiming the expenditure, stated to be by way of reimbursement to its Associate Enterprise (AE), year after year since inception, failing to exhibit or substantiate its case for any of the years - It is this that led the Revenue to claim the disclosure (disallowance) as having been made on being cornered, with the view to preempt an adjustment and, further, avoid the rigor of section 92C(4), i.e., vide first proviso - the assessee claims to have made the payment from a commercial perspective, finds our independent endorsement - the assessee s claim to be bald and de hors the facts borne out by the material on record only voluntariness of the withdrawal of the expenditure could under the circumstances exclude penalty, while the withdrawal was not to be not so, but guided the by consideration of being unable to prove its claim, as indeed by all concerned in both in the quantum and the penal proceedings - The assessee can be said to have under the circumstances made a bogus claim per its original return/s - the adjustment to income in assessment arising on account of a TP adjustment, so that money to that extent has already either not been received in or, as the case may be, gone out of the country, corresponding deduction u/s.10A, to which it may otherwise be entitled to in law, shall per force law be not available to it - The assessee has no case at the threshold, which gets aborted by it disclaiming its transaction. Complete disclosure of facts as per audit report u/s 92E of the Act - The disclosure per the audit report u/s 92E forming part of its return/s is both false and misleading - the argument of complete disclosure, unless the same is true, is of little consequence in law and, in fact, itself false - Explanation 7, or Explanation 1 to section 271(1)(c) is abundantly clear - Relying upon CIT Versus MAK DATA LTD. 2013 (1) TMI 574 - DELHI HIGH COURT - there has been both concealment as well as furnishing inaccurate particulars of income - the onus to substantiate is on the assessee to save itself from penalty, which is completely absent the assessee fails whether the enhancement in its income is considered as on account of a TP adjustment or for denial of deduction u/s. 10A, i.e., from the standpoint of both Explanation 1 or 7 to s. 271(1)(c) thus, the levy of penalty is upheld Decided against Assessee.
Issues Involved:
1. Maintainability of penalty u/s. 271(1)(c) of the Income Tax Act for the assessment years 2004-05 and 2005-06. 2. Validity of the assessee's revised returns. 3. Denial of deduction u/s. 10A in light of the transfer pricing adjustment. 4. Furnishing of inaccurate particulars of income by the assessee. Detailed Analysis: 1. Maintainability of Penalty u/s. 271(1)(c): The core issue in the appeals is the maintainability of the levy of penalty u/s. 271(1)(c) of the Income Tax Act for the assessment years 2004-05 and 2005-06. The penalty was levied for furnishing inaccurate particulars of income, specifically related to the claim of marketing expenses reimbursed to Deloitte Consulting (DC). The Tribunal upheld the penalty, emphasizing that the assessee failed to furnish details supporting its contentions before the Transfer Pricing Officer (TPO). The assessee's role was limited to executing projects and rendering software development services, with no marketing function assigned per the Master Service Agreement (MSA). Consequently, the TPO determined the arm's length price (ALP) of marketing expenses as NIL. 2. Validity of the Assessee's Revised Returns: The assessee had revised its returns for the relevant years, disallowing the entire marketing expense initially claimed. However, the Tribunal found that the revision was not voluntary but motivated by the anticipation of an adverse adjustment by the TPO. The revised returns were filed after the reference to the TPO, which indicated that the revision was an attempt to avoid the applicability and rigor of section 92C(4). For AY 2005-06, the revised return was filed outside the time limit prescribed under section 139(5), rendering it non-est in law. Therefore, the only valid returns were the original ones, where the marketing expenses were claimed. 3. Denial of Deduction u/s. 10A: The assessee contended that the disallowance of marketing expenses should not affect the deduction u/s. 10A. However, the Tribunal pointed out that section 92C(4) explicitly prohibits deductions under section 10A for income enhanced due to transfer pricing adjustments. The Tribunal noted that the assessee's argument was flawed and failed in the facts and circumstances of the case and the specific provision of law governing the same. The Tribunal emphasized that the transfer pricing adjustment, which valued the marketing expenses at NIL, was upheld in quantum proceedings, and the assessee's claim for deduction u/s. 10A could not be sustained. 4. Furnishing of Inaccurate Particulars of Income: The Tribunal found that the assessee had furnished inaccurate particulars of income by claiming marketing expenses that were not substantiated. The TPO's detailed findings, which were not contested by the assessee, revealed that no marketing services were rendered or availed of by the assessee, and the expenses were not justified. The Tribunal noted that the assessee's explanation for incurring the marketing expenses from a commercial perspective was not supported by any material evidence. The assessee's claim was found to be bald and de hors the facts borne out by the material on record. The Tribunal concluded that the assessee's case was devoid of any credible explanation, and the penalty u/s. 271(1)(c) was rightly imposed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. Result: The assessee's appeals were dismissed, and the levy of penalty u/s. 271(1)(c) was upheld. The Tribunal's order was pronounced in the open court on May 13, 2014.
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