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TMI Blog2024 (7) TMI 1474X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the appellant lack good faith and due diligence. AO has not been able to demonstrate any specific act, fact or conduct of the affairs of the appellant which proves that it was lacking in good faith and was done without due diligence. No such argument has been raised nor suggested otherwise. Therefore, lack of due diligence in determining the ALP is neither indicated nor can be inferred. In such a situation, it cannot be said that the appellant had not determined the ALP in accordance with the scheme of section 92C of the Act in good faith and with due diligence and accordingly, the conditions precedent for invoking Explanation 7 to section 271(1)(c) did not exist on the facts of the instant case. Appeal of the Revenue is dismissed. - Sh. Kul Bharat, Judicial Member And Dr. B. R. R. Kumar, Accountant Member For the Assessee : None For the Revenue : Sh. Vivek Kr. Upadhyay, Sr. DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeal has been filed by the Revenue against the order of ld. CIT(A)-44, New Delhi dated 27.07.2020. 2. Following grounds have been raised by the Revenue: 1. Whether the ld. CIT(A) was correct in law on facts and circumstances of the case in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I-234-ITATDEL-TP], after considering the facts of the case, the Coordinate Bench of Tribunal deleted the penalty holding as under: 7. We have heard the rival submissions and perused the relevant material on record. Rejecting the application of TNMM on entity level, the TPO proposed transfer pricing adjustment amounting to Rs. 3.31 crore by determining Nil ALP of the three international transactions under the CUP method by basing his conclusion on the fact that the assessee did not avail any services inasmuch as no benefit was derived by it and, in any case, it amounted to duplication of services. Under such circumstances, a question arises as to whether penalty u/s 271(1)(c) can be imposed. In this regard, we find that the relevant provision is Explanation 7 to section 271(1), which reads as under:- Explanation 7. Where in the case of an assessee who has entered into an international transaction or specified domestic transaction defined in section 92B, any amount is added or disallowed in computing the total 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )which refers to 'such other method as may be prescribed by the Board.' The 'other method' has been prescribed by the Board in terms of Rule 10AB with retrospective effect from 01.4.2012 applicable to assessment year 2012-13 and subsequent years. We are dealing with assessment year 2010-11. As such, the ALP for the year under consideration could have been determined only by applying any of the five specified methods. The assessee applied TNMM as per clause (e) of section 92C(1), which was rejected by the TPO, who applied CUP as the most appropriate method as per clause (a) of section 92C(1). Thus, it is clear that the assessee's application of TNMM in respect of the three international transactions under consideration is 'in accordance with the provisions contained in section 92C. Further, such determination is 'in the manner prescribed under that section because the TPO has nowhere held that the assessee calculated ALP of these transactions in a manner different from the one prescribed under rule 10B(1)(e), which contains mechanism for calculating the ALP under the TNMM. 10. The next ingredient which is crucial for evading penalty u/s 271(1)(c) is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court in the case of Sinosteel India Pvt. Ltd. [2018-TII- 191-HC-DEL-TP] concurred with the Tribunal that- 3.4 The cases of addition/disallowance in computing the total income as per the provisions of section 92C does not fall under the general rule of bonafide 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 there 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 manner prescribed under section 92C, in good faith and with due diligence then the addition made under section 94C(4) would not attract the penalty. Once the exclusion from attracting the provisions 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/s 271(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 internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt act, which indicates conscious and material suppression, invocation of Explanation 7 in a blanket manner could not only be injurious to the assessee but ultimately would be contrary to the purpose for which it was engrafted in the statute. The Hon ble Delhi High Court in the case of PCIT vs. Giesecke and Devrient India Pvt. Ltd. [2019-TII-86-HC-DEL-TP] held that adoption of multiple year data for arriving at ALP was a bonafide exercise, and therefore, differences in ALP arising on account of differences of opinion between the TPO Assessee with regard to use of multiple year data could not form basis for levy of penalty u/s 271 (1)(c) of the Act. 8. On going through the above judgments, the ld. CIT(A), Sh. G. K. Dhall rightly deleted the addition holding that the Assessing Officer, while imposing the penalty, simply relied on the addition/adjustment made by the TPO and did not examine in detail as to whether penalty was imposable on such adjustments or not. The scheme of Explanation 7 to section 271(1)(c) of the Act makes it clear that the onus on the assessee is only to show that the ALP was computed by the assessee in accordance with the scheme of section 92C of the Act in good ..... X X X X Extracts X X X X X X X X Extracts X X X X
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