2019 (2) TMI 516 - AT - Income Tax

Penalty levied u/s 271(1)(c) on transfer pricing adjustment - Held that - In quantum proceedings for both years under consideration, this Tribunal set aside addition made on account of transfer pricing adjustment back to Ld.TPO for readjudication, in light of submissions/details filed by assessee.We are therefore inclined to set aside penalty proceedings back to Ld.AO by keeping all contentions open for assessee. The Ld.CIT DR do not object penalty proceedings being set aside back to Ld. AO for reconsideration.

Issues Involved:
1. Penalty appeal against order by CIT(A) for Assessment Years 2006-07 and 2007-08.
2. Transfer pricing adjustment on export of stainless steel coil.
3. Disallowance of donation expense.
4. Proper satisfaction in assessment order for penalty proceedings.
5. Bonafide explanation by the appellant.
6. Due diligence and good faith in explanation.
7. Concealment of income.
8. International transaction reporting in Transfer Pricing study.
9. Arbitrarily levied penalty.
10. Quantum proceedings by Tribunal.

Issue 1 - Penalty Appeal:
The appellant filed penalty appeals against the orders passed by the CIT(A) for Assessment Years 2006-07 and 2007-08. Various grounds were raised challenging the jurisdiction, legality, and validity of the penalties imposed under section 271(1)(c) of the Income-tax Act. The appellant argued against the levy of penalties related to transfer pricing adjustments and disallowance of donation expenses, citing lack of proper satisfaction in the assessment order for penalty proceedings.

Issue 2 - Transfer Pricing Adjustment:
The penalties were primarily related to transfer pricing adjustments on the export of stainless steel coils. The appellant contended that the adjustments were not indicative of concealment or furnishing inaccurate particulars of income. The appellant emphasized that the penalty proceedings should be independent of the assessment proceedings and that the explanations provided were bonafide and supported by due diligence and good faith.

Issue 3 - Disallowance of Donation Expense:
Regarding the disallowance of donation expenses, the appellant's grounds for penalty appeal included arguments about the correctness of the explanations provided. The appellant highlighted that the quantum proceedings by the Tribunal had set aside the transfer pricing adjustments for reassessment, indicating a lack of concealment of income warranting penalties.

Issue 4 - Proper Satisfaction in Assessment Order:
The appellant raised concerns about the initiation of penalty proceedings without proper satisfaction being recorded in the assessment order under section 143(3) of the Act. The appellant argued that the penalties were unlawful and should be dropped due to this procedural irregularity.

Issue 5 - Bonafide Explanation and Due Diligence:
The appellant emphasized the bonafide nature of their explanations and the presence of due diligence and good faith in their submissions. The appellant sought to establish that there was no concealment of income and that the penalties imposed were unwarranted based on the facts and circumstances of the case.

Issue 6 - International Transaction Reporting:
The appellant highlighted that the international transactions, including the export of stainless steel coils, were duly reported in the Transfer Pricing study and 3CEB certificate. The appellant argued that the adjustments made did not signify inaccurate particulars of income, thereby contesting the basis for levying penalties under section 271(1)(c) of the Act.

Issue 7 - Arbitrarily Levied Penalty:
The appellant contested the arbitrary nature of the penalties, particularly in relation to the percentage of income sought to be evaded. The appellant argued that the penalties were not mandated under the provisions of the Act and should be dropped due to their arbitrary imposition.

Issue 8 - Quantum Proceedings by Tribunal:
The Tribunal reviewed the quantum proceedings related to the transfer pricing adjustments and set aside the additions made by the Assessing Officer. Consequently, the penalty proceedings were remanded back to the Assessing Officer for reconsideration, allowing the appellant's grounds related to the transfer pricing adjustments for both years under consideration.

In conclusion, the ITAT Delhi partially allowed the appeal for Assessment Year 2006-07 and fully allowed the appeal for Assessment Year 2007-08, remanding the penalty proceedings back to the Assessing Officer for reassessment in light of the Tribunal's decision on the transfer pricing adjustments.

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