No Penalty If determination of ALP not leads to any TP Adjustment, with no effect on income of assessee

M/s Good Year India Limited Vs. DCIT (ITAT Delhi)

In this case the TPO has passed an order u/s 92CA(3) on 26.10.2009 wherein he has determined that an adjustment of Rs. 1,13,13,182/- should be made to the value of international transactions entered into by the assessee company. AO further initiated penalty proceeding under Section 271(1)(c). Before the Tribunal in merits proceedings, assessee took ground that AO/TPO erred on facts in law in making adjustment of Rs. 1,13,13,182 on account of the alleged differences in the arm’s length price of international transaction entered into by the assessee with associate enterprises. Assessee argued that TPO erred by not reducing export incentive amounting to Rs. 78,72,603 and rebate received amounting to Rs. 33,21,586 from the cost of goods sold for computing gross profit margin for determining the arm’s length price. However, on the first issue, in the quantum proceeding, the ITAT vide its order dated 14.1.2012 passed in ITA No. 4360/Del/2010 in assessee’s own case for the AY 2006-07 vide para no. 11.10 has held that export incentive amounting to Rs. 78,72,603/- cannot be deducted from cost of goods sold and on the second issue of deducting 33,21,586, the ITAT in para 12.2 held that rebate amount was netted off and net amount of purchase cost shown in the profit and loss account. Hence, the issue regarding verification of netting off rebate from the cost of purchase was remitted to the file of Assessing Officer. While giving effect to ITAT order, after considering verification of net off the entire transfer pricing adjustment of Rs. 1,13,13,182 was deleted. We further find that AO while passing the penalty order held that issue of reducing export incentive of Rs. 78,72,603 was not allowed for calculation of arm’s length price and hence, penalty was imposed. As per the relevant provisions, the penalty is levied only if there is some income regarding which particulars mentioned are either inaccurate or concealed. Since, the determination of arm’s length price in the appeal effect order has not lead to any transfer pricing adjustment, with no effect on income of the assessee, hence, penalty provisions are not applicable in this case, therefore, we cancel the orders of the authorities below thereby deleting the penalty in dispute.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

Assessee has filed the appeal against the Order dated 31.10.2014 passed by the Ld. Commissioner of Income Tax (Appeals)-XX, New Delhi pertaining to assessment year 2006-07 on the following grounds:-

I. That on the facts and circumstances of the case, the order passed by the Ld. CIT(A) is bad in law and void-ab-initio.

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