Advocate Akhilesh Kumar Sah
A issue being a debatable issue at the point of time when the assessee filed its return of income penalty levied under section 271(1)(c) on that count cannot be sustained, mere fact that the addition has been made or confirmed does not per se lead to imposition of penalty
Recently, in Giesecke and Devrient [I] Pvt. Ltd vs. DCIT [ITA No. 1458/DEL/2017 A.Y.: 2005-06, decided on 26.06.2018], the solitary grievance of the assessee was that the CIT(A) erred in upholding the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’ for short] amounting to Rs. 1.24 crores. The root cause for levy of penalty lie in the assessment order dated 15.12.2018 framed under section 143(3) of the Act.
Briefly stated, the facts of the case were that the assessee was a direct subsidiary of Giesecke & Devrient GmbH. During the year under consideration, the assessee was engaged in the business of wholesale trading of currency verification and processing systems and their maintenance and providing SIM Card systems to telecommunication operators. Return was filed on 31.10.2005 declaring a loss of 93.35 lacs. Return was selected for scrutiny assessment and a reference was made under section 92CA(1) of the Act. The Transfer Pricing Officer [TPO] did not appreciate the Arm’s Length Price of the assessee and made upward adjustments and penalty proceedings under section 271(1)(c) of the Act were separately initiated.
During the course of penalty proceedings, the assessee strongly agitated that neither it had furnished inaccurate particulars of income nor it had concealed any income, therefore, levy of penalty was not justified. The AO was not convinced with the contention of the assessee and was of the firm belief that after insertion of Explanation (1) to section 271(1)(c) of the Act, onus is on the assessee to show that there was no intention of concealment. The AO finally concluded by holding that the assessee has furnished inaccurate particulars of income, thereby concealing its income for the year under consideration and levied penalty of Rs. 1,24,81,676.
The assessee carried the matter before the CIT(A) but without any success. Before the first appellate authority, the assessee pointed out that the only point of dispute was the usage of multiple year data by the assessee and claim of standard deduction @ 5%. It was strongly contended that because of the difference of opinion, bench marking done by the assessee were not accepted by the TPO and the assessee did not pursue the matter before the higher appellate forum, but that does not mean that the assessee has furnished inaccurate particulars of income or has concealed its income. It was further brought to the notice of the CIT(A) that the correct Explanation is Explanation 7 to section 271(1)(c) of the Act and not Explanation 1 invoked by the AO. The CIT(A) was of the opinion that this was only a technical mistake which could be set right under section 292B of the Act. The CIT(A) was convinced that the assessee has not valued its international transaction by Rs. 3,41,12,260 and, therefore, penalty levied by the AO was justified.
Before ITAT, Delhi, the AR vehemently stated that there was no dispute between the assessee and the TPO as far as method of bench marking the international transaction was concerned and TNMM has been accepted as such. It was stated by the Counsel that the only point of dispute is the usage of multiple year data by the assessee whereas the TPO has adopted single year data. The AR further stated that the claim of standard deduction of 5% was as per provisions of the Act which was a highly debatable issue, and therefore, it cannot be said that the assessee has computed the international transaction not in good faith and not with due diligence.
Per contra, the DR strongly supported the findings of the CIT(A).
The learned Members of the ITAT, Delhi gave thoughtful consideration to the orders of the authorities below. They observed that the undisputed fact is that there is no dispute in so far as the method of bench marking international transaction is concerned. No doubt, the assessee in this case has used multiple year data in computing the ALP. The TPO/AO/CIT(A) have held that such action by the assessee is contrary to the provisions of the Act and tantamount to furnishing of inaccurate particulars of income. In our understanding of the law, prior to 2007, there was a legal debate as to whether multiple year data can be used or current year data has to be used. The A.Y under consideration is 2005-06 which means that when the assessee completed its transfer pricing study and filed return of income, this debate was very much alive. In our considered opinion, this being a debatable issue at the point of time when the assessee filed its return of income, adoption of multiple year data for arriving at ALP is a bonafide exercise. The learned Members of the ITAT, Delhi held that penalty levied on that count cannot be sustained as the law on this issue was evolving. The contention of the DR that the assessee did not file any appeal and therefore, has accepted the addition without challenging it before the appellate forums, in our considered opinion, the mere fact that the addition has been made or confirmed does not per se lead to imposition of penalty under section 271(1)(c) of the Act for the simple reason that both the assessment and penalty proceedings are distinct from each other.