2024 (5) TMI 218 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on account of transfer pricing adjustment - HELD THAT - As in the case of Chegg India (P) Ltd. 2020 (11) TMI 776 - ITAT DELHI wherein the Tribunal has held that if AO did not apply his mind to satisfy as to which limb of section 271(1)(c) of the Act, penalty was being initiated then penalty levied by AO and confirmed by CIT(A) is not sustainable in eye of law and should be deleted. Undisputedly, addition made by AO in the account of transfer pricing adjustment. The assessee has filed the appeal against the order and in appeal CIT(A) has confirmed the addition on account of Arm s Length price and has deleted disallowances on account of foreign exchange fluctuation loss. Revenue has filed the appeal before ITAT against the order of CIT(A) and learned ITAT allowed the appeal against which assessee has filed an appeal before the Hon ble Delhi High Court 2024 (1) TMI 1274 - DELHI HIGH COURT in which substantial question of law has been framed. In the present case, substantial question of law has been framed by the Hon ble Court in the appeal filed by the assessee challenging the addition confirmed by the Tribunal. The issue become debatable, no penalty in such consideration can be levied against the assessee. Assessee appeal allowed.

Summary

Issues:
The judgment involves the issue of penalty u/s 271(1)(c) of the Income Tax Act, 1961 based on inaccurate particulars of income and concealment of income.

Issue 1:

The Revenue appealed against the deletion of penalty u/s 271(1)(c) by the CIT(A) despite confirming the addition on transfer pricing adjustment.

The Gemalto Digital Security Private Limited (formerly known as Schlumberger Measurement and Systems India Limited and Axalto Cards & Terminals India Ltd.) was involved in importing and reselling smart cards in India through its Associated Enterprises. The Assessing Officer (AO) made transfer pricing adjustments to determine the Arm's length price, resulting in a significant addition to the income. The CIT(A) confirmed part of the addition but deleted the foreign exchange fluctuation loss. Subsequently, a penalty u/s 271(1)(c) was imposed by the AO, which was later deleted by the CIT(A) in the appeal.

Issue 2:

The CIT(A) relied on legal provisions and precedents to support the deletion of the penalty u/s 271(1)(c).

The CIT(A) referred to Explanation 7 of section 271(1)(c) which deals with international transactions and specified domestic transactions. Additionally, the CIT(A) cited the decision of the Hon'ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd., emphasizing that a mere claim not accepted by the revenue does not automatically attract penalty u/s 271(1)(c). The CIT(A) highlighted the importance of accurate particulars and good faith in pricing transactions as per the provisions of the Income Tax Act.

Issue 3:

The Counsel for the assessee presented legal arguments and relied on relevant case laws to support the CIT(A)'s decision.

The Counsel argued that the CIT(A)'s order was in accordance with the law, emphasizing that the assessee provided accurate details based on records. The Counsel also pointed out that the issue was debatable, as evidenced by the appeal filed before the Hon'ble Delhi High Court. The Counsel cited various Tribunal orders and the decision of the Hon'ble Delhi High Court in similar cases to support the contention that in cases of debatable issues, penalties should not be imposed.

Conclusion:

The appeal was dismissed based on the discussions that the issue was debatable, and no penalty should be levied against the assessee considering the substantial question of law framed by the Hon'ble Court. The judgment reaffirmed the importance of accurate particulars and good faith in tax matters, emphasizing the need for thorough consideration of legal provisions and precedents in penalty assessments.