2019 (8) TMI 469 - HC - Income Tax

Penalty u/s 271 (1) (c) - multiple year data by the Assessee in determining ALP of the international transaction using TNMM whereas the Transfer Pricing Officer ( TPO ) had adopted a single year data - HELD THAT - The Court notes that after the words data relating to the financial year occurring in Rule 10 B (4) of the Rules , there is an insertion made in the Rules with effect from 19th October 2015, which reads hereafter in this Rule and in Rule 10 (C) (a) referred to as the current year . While it could be argued that this was a clarificatory amendment, the fact remains that the legislature thought it necessary to clarify that the data that was required to be used had to necessarily relate to the financial year in question and not to multiple year data. The view taken by the ITAT that during the AY in question, the issue was debatable cannot, in the circumstances, said to be an implausible view. The second ground on which penalty was levied related to the claim of standard deduction by the Assessee at 5%. The ITAT noted that even this was a debatable issue and a clarification was finally issued in Finance Bill, 2012, which clarification has been reproduced in paragraph 11 of the impugned order. The Court concurs with above view of the ITAT that this issue is also a debatable one. No substantial question of law arises for consideration.

Summary

Issues involved:
1. Delay in re-filing the appeal.
2. Appeal against penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
3. Transfer pricing adjustment and penalty issue.
4. Usage of multiple year data in determining ALP.
5. Interpretation of Rule 10-B(4) of the Income Tax Rules, 1962.
6. Clarificatory amendment in the Rules.
7. Debatable issues regarding penalty and standard deduction claim.

Delay in re-filing the appeal:
The delay in re-filing the appeal was condoned and allowed by the court based on the reasons explained in the application.

Appeal against penalty levied under Section 271(1)(c) of the Income Tax Act, 1961:
The Revenue appealed against the penalty imposed on the Assessee under Section 271(1)(c) of the Income Tax Act, 1961, for the Assessment Year 2005-06.

Transfer pricing adjustment and penalty issue:
The Assessee challenged the transfer pricing adjustment made to their income for the relevant assessment year. The penalty issue arose when the Assessee appealed before the Commissioner of Income Tax (Appeals) (CIT (A)), who found that the Assessee tried to undervalue an international transaction, leading to a substantial adjustment.

Usage of multiple year data in determining ALP:
The Assessee used 'multiple year data' to determine the arms length price (ALP) of an international transaction, while the Transfer Pricing Officer (TPO) used 'single year data'. The ITAT considered this a debatable issue and held the penalty levied as unsustainable.

Interpretation of Rule 10-B(4) of the Income Tax Rules, 1962:
The Senior Standing Counsel for the Revenue argued that Rule 10-B(4) of the Income Tax Rules mandated the use of 'current data' relevant to the financial year in question, not 'multiple year data'.

Clarificatory amendment in the Rules:
The court noted a clarificatory amendment in the Rules, effective from October 2015, emphasizing the use of 'current year' data related to the financial year in question.

Debatable issues regarding penalty and standard deduction claim:
The ITAT found the issues of using multiple year data and claiming a standard deduction to be debatable. The court concurred with the ITAT's view that no substantial question of law arose for consideration, leading to the dismissal of the appeal without costs.