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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 ..... ide from its AEs, therefore, the assessee entered into International Transactions which required to be benchmarking as per the provisions of Transfer Pricing regulations. The assessee benchmarking its International Transactions of import of raw material by using Transactional Net Margin Method ("TNMM") as the most appropriate method for determining the arm's length price (ALP). The Transfer Pricing Officer ("TPO") rejected TNMM as most appropriate method and instead applied Comparable Uncontrolled Price ("CUP") as the most appropriate method for benchmarking the International Transactions pertaining to import of the APIs. Consequently, the TPO made an upward adjustment of Rs.1,95,33,408/-towards arm's length price of the International Transactions. The assessee challenge the action of the TPO/AO before the CIT(A), but could not succeed. On further appeal this Tribunal has also confirm the adjustment made by the TPO for both the assessment years vide order dated 31.12.2010. In the mean time the AO initiated the penalty proceedings u/s 271(1)(c) of the Income-tax Act and passed the respective orders u/s271(1)(c) of the Income-tax Act imposing the penalty being 100% of the tax sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to CBDT notification dated 21st August 2001, whereby rules 10A to 10E were inserted in the Income Tax Rules, which prescribe the manner in which an Arm's Length Price in relation to an international transactions is to be determined by the most appropriate method. One of the various factors to be considered in selecting most appropriate method as per these rules is "taxpayers are free to select the most appropriate method as long as their selection is made taking into account the factors prescribed." The transfer pricing provisions involved complex issues and, therefore, with a view to avoid hardship to the taxpayers at the initial stages of implementation the Central Board of Direct Taxes ("CBDT") vide its Circular No.14 of 2001 dated 22nd November, 2001, issue guidelines towards, the transfer pricing requirements. Therefore, this being first year of transfer pricing provisions coming into operation both the assessee and revenue were new to the transfer pricing regime. Thus, ld. AR of the assessee has submitted that the selection of the most appropriate method for determination of Arm's Length Price by the assessee is based on bona fide belief and even, if the method selected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he absence of any data to follow any other method and particularly CUP. He has referred to transfer pricing study analysis at page no.634 of the paper book and submitted that the assessee has clearly made out the reasons for not selecting the CUP as the most appropriate method because no comparable was available and particularly data were not available in the public domain. In support of his contention, he has referred the order of transfer pricing officer and submitted that the TPO collected the data for applying CUP by issuing the notice under section 133(6) which shows that the data were not available in the public domain. The ld. AR has further contended that in the quantum appeal, the Tribunal while confirming the addition on account of transfer pricing adjustment has not considered various key evidence/documents. Which has been brought to the notice of the AO and CIT(A) in the penalty proceedings to justify the claim of the assessee. 6. On the other hand, ld. DR has submitted that the assessee has not specifically rejected CUP as most appropriate method in the transfer pricing study and selected TNMM without justification as to why the CUP was not selected. He has further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accepted or acceptable under the provisions of law it would not ipso facto lead to the conclusion that the assessee has concealed particulars of income or furnished inaccurate particulars of income, unless, the claim of the assessee is bogus or absolutely wrong. The question whether the claim of the assessee is a debatable issue requires examination of the fact and it can be ascertained only from the facts and circumstances under which the claim has been made. Merely, because a substantial question of law, has been admitted by the Hon'ble High Court in the appeal preferred by the assessee does not ipso facto establish that the claim of the assessee involved a debatable question of law and consequently, the penalty provisions u/s 271(1)(c) would not be attracted. The Hon'ble Delhi High Court in case of Liquid Investment & Trading Co. (supra) has observed as under: "Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under section 14A of the Act was a debatable issue. We may also note that against the quantum assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the period of holding the asset was reckoned from the date when it was converted as 'investment' from 'stock in trade' and not from the date when the land was purchased. Therefore, the gain was to be treated as short term capital gain. The assessee, under the garb "long term capital gain" wanted to pay lesser tax. It had thus clearly furnished inaccurate particulars of income. 10. The issue was not debatable as held by the Tribunal in the impugned order. No doubt, appeal was admitted. However, the Tribunal has glossed over a very important and fundamental fact. In quantum proceedings, appeal filed by the assessee i.e ITA 662/2009 came up for admission on 16th September, 2009. On the same date, appeal was admitted, arguments heard and orders were dictated in the court dismissing the appeal there and then. In this factual backdrop, when order of the Assessing Officer in quantum proceedings was sustained by all successive authorities and this Court also dismissed the appeal at the admission stage, albeit after admitting the same, it cannot be said that the issue was debatable." 10. Merely, because the appeal of the assessee against the quantum orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 92C, in good faith and with due diligence then the addition made section 94C(4) would not attract the penalty. The decision relied upon by the ld. AR of the assessee are either on the issue of disallowance/addition other then the transfer pricing provisions or where the Explanation-7 to u/s271(1)(c) has not been considered. Once the exclusion from attracting the provisions of u/s 271(1)(c) has been provided in the Explanation-7 itself then the first requirement for escaping from the levy of penalty u/s271(1)(c), against the addition made as per the provisions of section 92C is that the decision of the assessee in computation of the price in respect of international transactions is as per the provisions and manner prescribed under section 92C and further the said decision is taken in good faith and with due diligence. 12. In the case, in hand the assessee has applied TNMM as the most appropriate method in respect of international transactions of import of raw material, Rule 10C of Income Tax Rules prescribes the factors for selecting the most appropriate method as under: "(1) for the purpose of sub-section(1) of section 92C, the most appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in hand the assessee has demonstrated from the transfer pricing study, that CUP method could not be applied because no comparable data were available in the public domain. This explanation of the assessee is corroborated by the fact that the T.P.O has collected the data for applying the CUP by requisition made under section 133(6) of the Income Tax Act. Which clearly shows that the data were not available in the public domain and the transfer pricing officer has exercised its power under section 133(6) read with section 92CA(7). Once the assessee has brought out the fact on record that CUP was not selected because of non-availability of data, then, the assessee's case falls under the exception provided under Explanation 7 of u/s 271(1)(c) of the Act, being acted in good faith and with due diligence. 14. Accordingly, in view of the above facts and circumstances of the case, as well as, above discussion we are of the considered opinion that the assessee has clearly made out a case that the price in relation to international transactions has been determined by adopting TNMM in good faith and with due diligence, because the data for applying CUP were not available in the public domain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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