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2017 (12) TMI 1042 - AT - Income TaxAdjustment on international transactions on account of difference in arm s length price - Held that - CIT(A) has not given detailed findings as to how no adjustment is warranted on international transactions on account of difference in arm s length price. The order of CIT(A) in our opinion is not elaborate and is very cryptic. The issue of Transfer Pricing Adjustment whether at Arm s Length price or not, has to be thoroughly verified which in the instant case has not been done. Remand back this issue to the file of the TPO/A.O. While computing the adjustment the TPO and the CIT(A) did not allow the benefit of /-5% in terms of proviso to section 92C(2) of the Act. Since the price charged/paid by the assessee fall within the /-5% range of the arm s length price, no adjustment is warranted in terms of the proviso to section 92C(2). Since, there is a calculation error and thereby impacting the Transfer Pricing Adjustment, it will be appropriate to remand back this issue to the file of the TPO/A.O. Needless to say, all the contentions be kept open and the assessee be given proper opportunity of hearing as per due process of law. Sham transactions of lease rentals disallowed - Held that - As in the assessee s own case for Assessment Year 2002-03 2017 (2) TMI 1290 - ITAT DELHI A.O did not take into account the accounting of the sale proceeds in the year ended 31/3/2000 and also the interest factor for the the existence of assets itself is in doubt or when an asset subject matter of transfer actually from a physical part of another larger asset or such sham transaction takes place that the revenue can rightly object to the arrangements, in the present case, there was no doubt about existence of the assets, the sale proceeds and consequent short term capital gains were duly assessed in Assessment Year, 2000-01, and the transaction entitled the assessee to the use of the sale proceeds at a cost lower than borrowing through debentures. The CIT(A) has rightly deleted the same. This ground is dismissed. Penalty on addition u/s 43(A) and on disallowance on previous year expenses - Held that - It is well settled principle that ignorance of law is not excused and cannot be a ground to avoid tax liability. The Assessee in the instant case is renowned Limited Company and accounts of the company are duly audited by the qualified auditors. Before filing the returns of income, the same are verified by the Directors of the Company. Therefore, it cannot be considered as mere clerical error on part of the Assessee Company. In fact, the CIT(A) rightly observed that had the assessee s case not been selected for scrutiny, the assessee would have got away with the excess claim of depreciation. As relates to expenses pertaining to earlier years, the assessee has not filed any documentary evidence and was unable to given the proper explanation. Here also if the assessee s case was not selected for scrutiny, the assessee would have been allowed to claim the excess expenditure to the extent of ₹ 16,40,786/-. In view of the above and the findings given by the CIT(A), we do not find any infirmity in the same. Accordingly, the penalty in this respect is upheld and grounds raised by the Assessee in Cross objection on this issue is dismissed.
Issues Involved:
1. Transfer Pricing Adjustment 2. Lease Rentals Disallowance 3. Penalty Proceedings under Section 271(1)(c) 4. Penalty on Addition under Section 43A and Previous Year Expenses Detailed Analysis: 1. Transfer Pricing Adjustment The primary issue pertains to the adjustment of ?36,28,14,000 in respect of international transactions under Section 92C. The Transfer Pricing Officer (TPO) applied the Transactional Net Margin Method (TNMM) instead of the Resale Price Method (RPM) used by the assessee. The TPO computed the arm's length operating margin based on the average margin of 7.58% from five comparable companies, against the assessee's 4.40%. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed adjustments for excise duty and working capital, computing the arm's length margin at 14.95% against the assessee's adjusted margin of 13.47%, thus restricting the adjustment to ?16.99 crore. The assessee argued that the price charged/paid falls within the +/-5% range of the arm's length price, invoking the proviso to Section 92C(2). The CIT(A) excluded certain comparables and included others, leading to a detailed debate on the appropriateness of the comparables and the exclusion of excise duty in the computation of operating profit. The Tribunal found that the CIT(A)'s order lacked detailed findings and remanded the issue back to the TPO/AO for thorough verification, emphasizing the need to consider the +/-5% range. 2. Lease Rentals Disallowance The Revenue challenged the deletion of disallowance of ?1,12,17,081/- out of lease rentals, arguing the lease-back arrangement was a finance lease and a colorable device to inflate expenses. The assessee countered that the issue was covered by a previous ITAT order in its favor for the Assessment Year 2002-03. The Tribunal upheld the CIT(A)'s decision, referencing the earlier ITAT order which accepted the genuineness of the transaction and the necessity of the lease arrangement for financial management. 3. Penalty Proceedings under Section 271(1)(c) The Assessing Officer (AO) had initiated penalty proceedings under Section 271(1)(c) for three additions: ?22,22,812 under Section 43A, ?3,26,81,022 as previous year expenses, and ?36,28,14,000 in respect of international transactions under Section 92C. The CIT(A) deleted the penalty related to the international transactions. The Tribunal, noting the remand of the transfer pricing issue, deferred the penalty adjudication, allowing the AO to initiate fresh penalty proceedings post the transfer pricing decision. 4. Penalty on Addition under Section 43A and Previous Year Expenses The CIT(A) confirmed the penalty on the addition under Section 43A and disallowance of previous year expenses. The assessee admitted to an inadvertent error in claiming depreciation at an enhanced cost, which the Tribunal noted could not be excused as ignorance of law. The Tribunal upheld the CIT(A)'s findings, emphasizing the due diligence expected from a public limited company and the absence of documentary evidence for the expenses claimed. Conclusion: The Tribunal provided a detailed analysis and remanded the transfer pricing adjustment issue for further verification, upheld the deletion of lease rental disallowance, deferred penalty proceedings related to the transfer pricing adjustment, and confirmed penalties on other disallowances. The decision underscores the importance of thorough documentation and accurate legal compliance in financial reporting and tax filings.
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