2016 (11) TMI 200 - AT - Income Tax

Penalty u/s. 271(1)(c) - T.P. adjustment - Held that - It is not a case of a disallowance of any claim of expenditure under section 37(1) albeit the value of the transaction has been taken at Nil . We find great substance in the arguments placed by the Ld. Counsel, because as reiterated above, here the issue related to transfer pricing adjustment which has been made by departmental authorities by taking the value of the international transaction at Nil . While arriving at such a conclusion, neither the TPO nor the DRP has given any analysis as to why such an adjustment is required to be made when TNMM has been applied and when overall profit margin and the method has not been disturbed. The TPO for making an adjustment in the ALP has to benchmark the transaction and the ALP with the comparables under the prescribed Indian Transfer Pricing Regulations. He cannot value the ALP of the transaction at Nil without adhering to the proper procedure of law laid down under the Act and relevant rules. It is further noticed that, no penalty was levied in the case of the assessee for non-furnishing of the information and documents as required under section 92D(3), for which separate penal provision under section 271G have been prescribed. Thus on these facts and circumstances, prima facie we are of the opinion that no case can be made for the levy of penalty u/s 271(1)(c). Accordingly, we hold that penalty levied by the AO under section 271(1) (c) cannot be legally and factually sustained and therefore, the deletion of penalty by the Ld. CIT(A) is affirmed. - Decided in favour of assessee

Summary

Issues:
1. Deletion of penalty under section 271(1)(c) for assessment year 2006-07.
2. Transfer Pricing adjustment on distribution of plates and technical services.
3. Disallowance of depreciation on intangible asset.

Issue 1: Deletion of Penalty under section 271(1)(c)
The appeal was filed by the revenue against the deletion of penalty of ?79,21,852 under section 271(1)(c) for the assessment year 2006-07. The grounds of appeal raised various issues related to inaccurate particulars of income, application of RPM method, deletion of TP adjustment for technical services, and disallowance of depreciation on intangible assets. The Tribunal set aside the penalty on TP adjustment of ?1,72,53,390 for the import of plates from AE, as this issue was remanded back for fresh adjudication. The penalty on TP adjustment of ?47,61,900 for technical services was also deleted as there was no documentary evidence of services rendered, leading to an ALP adjustment to "Nil". The Tribunal found no basis for the penalty under section 271(1)(c) and upheld the deletion by the CIT(A).

Issue 2: Transfer Pricing Adjustment
Regarding the TP adjustment of ?1,72,53,390 for the import of plates, the Tribunal remanded the issue back to the TPO for fresh adjudication. The penalty on this adjustment was deleted as the matter was set aside for reconsideration. The TP adjustment of ?47,61,900 for technical services was also contested, with the TPO taking the ALP at "Nil" due to lack of evidence of services rendered. The Tribunal upheld the ALP adjustment, leading to the deletion of the penalty by the CIT(A) based on the absence of conclusive evidence supporting the adjustment.

Issue 3: Disallowance of Depreciation on Intangible Asset
The penalty levied on the disallowance of depreciation on an intangible asset, valued at NIL by the AO, was deleted by the CIT(A). The Tribunal found that the penalty could not be legally or factually sustained based on the circumstances surrounding the valuation of the asset. The Tribunal affirmed the deletion of the penalty, concluding that the benchmarking of the international transaction following TNMM had not been disputed, and the penalty imposed on this adjustment lacked a legal basis. Consequently, the appeal of the revenue was dismissed, and the penalty deletion was upheld.

In conclusion, the judgment addressed the issues of penalty deletion under section 271(1)(c), transfer pricing adjustments, and disallowance of depreciation on an intangible asset, providing detailed analysis and reasons for the decisions made by the Tribunal and the CIT(A).