2012 (11) TMI 17 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of adjustments in respect of international transactions - Held that - It is an undisputed fact that the international transactions were reported by assessee in Form 3CEB. Transfer Pricing adjustments have been made only in relation to certain activities stated by Transfer Pricing Officer to be of international transactions. As per Explanation 7 to Sec. 271(1)(c) no penalty is leviable if the assessee proves that the price charged or paid in such transaction was computed in accordance with the provisions contained in Sec. 92C and in the manner prescribed under section in good faith and with due diligence - As in the present case the assessee has furnished all the required details called for from time to time. Assessee had also disclosed material facts before the A.O. The A.O. has not given any finding indicating that the assessee had failed to offer any information or the information provided was false. The assessee has not concealed any material fact and the information given by the assessee has not been found to be incorrect - in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) for alleged concealment of income related to international transactions.

Analysis:
The appellant, a limited company engaged in software development, filed its return of income for the assessment year 2002-03, disclosing total income at Rs. Nil. The assessment finalized by the Assessing Officer (A.O.) resulted in disallowance of Rs. 3,72,63,859 on account of adjustments in international transactions. The Commissioner of Income Tax (Appeals) [CIT (A)] confirmed a portion of the disallowance, leading to penalty proceedings under section 271(1)(c) by the A.O. The penalty was imposed on the grounds of concealing income by claiming excess amounts not related to the business, amounting to Rs. 49,31,547. The A.O. held that the inaccurate particulars of income were willful and deliberate, intending to avoid taxes. The CIT (A) upheld the penalty, emphasizing the non-disclosure of certain international transactions, particularly traveling expenses and legal fees, which were not reported accurately, leading to the furnishing of inaccurate particulars of income.

The appellant contended that all international transactions were duly reported in the Accountant's report in form No. 3CEB, and the transfer pricing adjustments were made only in relation to specific activities alleged to be international transactions. The appellant argued that there was no concealment or furnishing of inaccurate particulars, as all necessary details were provided, including the transfer pricing study report. The appellant maintained that the expenses in question were genuine business expenditures made on commercial considerations, without any intention to gain tax advantages. The appellant also highlighted the evolving nature of transfer pricing legislation in India, suggesting room for different interpretations.

Upon review, the Tribunal noted that the penalty under section 271(1)(c) is leviable if the person conceals income or furnishes inaccurate particulars. The Tribunal emphasized that assessment and penalty proceedings are distinct, and findings in assessment proceedings do not conclusively apply to penalty proceedings. The Tribunal analyzed the requirements for attracting Explanation 1 to section 271(1)(c), emphasizing the need for the assessee to offer a bona fide explanation supported by disclosed facts. In this case, the Tribunal found that the appellant had furnished all required details, disclosed material facts, and the information provided was not found to be false. As a result, the Tribunal concluded that no penalty could be levied, directing the deletion of the penalty imposed.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning the penalty imposed under section 271(1)(c) for alleged concealment of income related to international transactions.