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TMI Blog2014 (1) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... ta for applying CUP were not available in the public domain – thus, the penalty in respect of the adjustment made under section 92C(4) is not justified and liable to be deleted - Decided in favour of Assesse and against Revenue. - IT Appeal Nos. 7215 (Mum.) of 2007 & 7387 (Mum.) of 2010 - - - Dated:- 17-7-2013 - B. RAMAKOTAIAH AND VIJAY PAL RAO, JJ. For the Appellant : Mukesh Butani and Pranith. For the Respondent : A.K. Jain. ORDER:- PER : Vijay Pal Rao These two appeal one by the assessee and other by the revenue are directed against the respective orders of the CIT(A), arising from the penalty orders passed u/s 271(1)(c) of the Income Tax Act for the assessment years 2002-03 2004-05. 2. Since the issue involved in both the appeals is identical; therefore, we take the assessment year 2002-03 as base year for deciding the controversy. The brief leading to the levy of penalty are as under; The assessee was engaged in manufacturing and marketing of Finished Dosage Forms ("FDFs"). The product manufacture by the assessee is based on Active Pharmaceutical Ingredients ("APIs"), which is imported from assessee's associated enterprises at France and Egypt. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of law on the applicability of the CUP method on the basis which the addition has been made, it becomes apparent that the addition in question is a debatable issue and in such circumstances penalty cannot be levied u/s 271(1)(c). In support of his contention, he has relied upon the decision of this Tribunal in case of Nayan Builders Developers (P.) Ltd. v. ITO in Appeal ITA No.2379/2009. He has also relied upon the decision dated 05.10.2010 of Hon'ble Delhi High Court in the case of Liquid Investment Trading Co. in IT Appeal No.240/2009 and submitted that the Hon'ble High Court has observed that against the quantum the assessee has preferred an appeal before the High Court which has been admitted and substantial question of law has been framed. This itself shows that the issue is debatable. 4. The second leg of argument of ld. AR is that the assessment year 2002-03, is the first year of transfer pricing provisions coming into operation in India. Hence, in the absence of any kind of precedence to rely on for choice of the most appropriate method the decision of the assessee to benchmarking its transactions by adopting TNMM as most appropriate method cannot be held as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also relied the decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts (P) Ltd. 322 ITR 158, wherein the Hon'ble Court held that "mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. He has further submitted that when there is a difference between the revenue and assessee in selecting and applying the most appropriate method for determining the arm's length price then, such difference constitute a bona fide difference of opinion and does not tantamount to furnishing of inaccurate particulars of income as held by this Tribunal in case of Dy. CIT v. Firmenich Aromatics (I) (P.) Ltd. 53 SOT 269 (URO)/. 5. The next contention of the ld. AR is that the TNMM was identified as most appropriate method for computing ALP because no comparable data was available to apply CUP method. Therefore, in the absence of availability of internal CUP data as well as external CUP the assessee determine the arm's length price, in accordance with the provisions of section 92C in good faith and with due diligence. The provisions of u/s 271(1)(c) would not attract, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e most appropriate method for the raw material imported by the assessee from its associates enterprises. The decision of the TPO in rejecting TNMM and adopting CUP as the most appropriate method in relation to the international transactions of raw material imported by the assessee has been confirmed by this CIT(A), as well as, by this Tribunal. The assessee has forcefully contended before us, that the addition due to adopting different method for determination of arm's length price is a debatable issue and, therefore, the claim of the assessee, though not accepted that by itself would not attract the penalty u/s 271(1)(c) as held by the Hon'ble Supreme Court, in the case of Reliance Petroproducts (P) Ltd. (Supra) . To substantiate this contention that the issue of addition is a debatable in nature the ld. AR has referred and relied upon the substantial question of law framed by the Hon'ble High Court in the appeal preferred by the assessee against the order of this Tribunal in quantum. The decision of Hon'ble Delhi High Court dated 05.10.2010 in the case of Liquid Investment Trading Co.(supra) has been relied upon on this point. 8. There is no quarrel on the point that if, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debatable issue and, therefore, the claim of the assessee is a bona fide claim, though not acceptable. An identical issue has been considered by the Hon'ble Delhi High Court in the case of CIT v. Splender Construction wherein the Tribunal had deleted the penalty on the ground that the issue was debatable, as the appeal filed by the assessee against the quantum order was admitted by the High Court. The Hon'ble High Court has held in para 9 and 10 as under: "9. In the facts and circumstances of the present case, we cannot agree with the approach adopted by the Tribunal. We are of the opinion that the Tribunal has side tracked the main issue. It was a case where the land in question was purchased in the financial year 1998-99. Thereafter, it was shown in the balance sheet as 'stock in trade'. However, during the financial year in question when the land was sold, the same have been converted by the assessee from 'stock in trade' to "investment". Obviously, this change in the books of accounts, just before the sale of the property, was made to avoid payment of full taxes by changing the complexion of the earnings made on the sale of the property. The Assessing Officer, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income under sub-section(4) of section 92C, then, the amount so added or disallowed shall, for the purposes of clause(c) of this sub-section, be deemed to represent the income in respect of which particulars have been conceals or inaccurate particulars have been furnished, unless the assessee proves to the satisfaction of the Assessing Officer or the Commissioner (Appeals)[or the Commissioner] that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C and in the manner prescribed under that section, in good, faith and with due diligence." 11. The cases of addition/disallowance in computing the total income as the provisions of section 92C does not fall under the general rule of bona fide explanation as per Explanation 1 to section 271(1)(c). The Explanation 7, itself has prescribed exceptions in the case whether the price has been computed in accordance with the provisions of section 92C and in the manner prescribed their under in good faith and with due diligence. Therefore, if the assessee proves to the satisfaction of the taxing authority that the price charged or paid has been computed as per the provision and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions; (f) the nature, extent and liability of assumptions required to be made in application of a method." 13. A bare reading of rule 10C of the Income-tax Rules 1962 manifest that most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transactions. Sub-rule(2) stipulates various factors to be taken in the account for selecting the most appropriate method. The first factor is the nature and class of international transactions. The other factors as per sub-rule(2) inter alia includes availability, coverage, reliability of data necessary for application of method. No doubt that in the case of international transactions regardings purchase of raw material the most appropriate method for determining the ALP would be Comparable Uncontrolled Transactions (CUP). However, the selection of the method is further subjected to the various factors and one of the factors is the availability, coverage and reliability of data necessary for application of the method. In the case, in hand the assessee has demonstrated from the transfer pricing study, that CUP method could not be applied because no comparable data w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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