ITAT upholds penalty for TP adjustment in export-oriented pharmaceutical company case

The ITAT affirmed the penalty under section 271(1)(c) for transfer pricing (TP) adjustment in a case concerning inaccurate particulars furnished by an export-oriented pharmaceutical company for A.Y. 2002-03. Despite the assessee's reliance on a similar ITAT decision and arguments of good faith, the ITAT upheld the penalty due to non-compliance with section 92C provisions in international transactions, invoking Explanation 7 to section 271(1)(c). The appeal challenging the penalty was dismissed, emphasizing the failure to demonstrate diligent adherence to TP regulations.

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Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2002-03 based on disallowances of interest and TP adjustment.

Analysis:
The assessee, engaged in the export of pharmaceutical products, filed its return for A.Y. 2002-03 with a NIL income after claiming deductions under section 80HHC. The assessment determined the income at &8377; 57,42,830, making disallowances including proportionate interest and TP adjustment. Penalty proceedings were initiated for furnishing inaccurate particulars. The Assessing Officer (AO) disallowed proportionate interest of &8377; 2,57,859 and TP adjustment of &8377; 3,86,810, leading to a penalty of &8377; 2,30,146 under section 271(1)(c). The CIT(A) deleted the penalty for interest disallowance but upheld it for the TP adjustment, citing inaccurate particulars furnished by the assessee.

In the appeal, the assessee challenged the penalty under section 271(1)(c) for the TP adjustment. The AR relied on a decision by the ITAT - Delhi in a similar case. The Revenue, however, supported the CIT(A)'s decision, arguing that the assessee did not comply with section 92C provisions in good faith. The ITAT noted that the assessee used the CUP method for international transactions, where a discrepancy of &8377; 3,86,810 was found. The Explanation 7 to section 271(1)(c) was invoked, deeming the inaccurate particulars as concealment of income. The ITAT agreed with the CIT(A) that the price charged in international transactions was not computed in accordance with section 92C, upholding the penalty under section 271(1)(c) for the TP adjustment.

Therefore, the ITAT dismissed the appeal, affirming the penalty under section 271(1)(c) for the TP adjustment, as the assessee failed to prove compliance with section 92C provisions in good faith and with due diligence.

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