2016 (10) TMI 848 - AT - Income Tax

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

M/s. Clestra Life Sciences P. Ltd. (Formerly as Brahma Drugs P. Ltd.) Versus ITO, Ward 10 (3) (1), Mumbai

The ITAT affirmed the penalty under section 271(1)(c) for transfer pricing (TP) adjustment in a case concerning inaccurate particulars furnished by an ... Penalty u/s 271(1)(c) - price charged by the assessee in international transactions have not been computed in accordance with the provisions contained in section 92C - Held that:- A reading of the provisions of Explanation-7 to section 271(1)(c) of the Act (supra), provide that where in the case of an assessee who has entered into an international transaction, defined in section 92B, any amount added or disallowed in computing the total income under section 92C(4), then for the purposes of section 271(1)(c) of the Act, such addition or disallowance is deemed to represent income in respect of which particulars have been concealed or inaccurate particulars have been furnished. In our view the facts of the case on hand would clearly attract the application of Explanation-7 for levy of penalty under section 271(1)(c) of the Act for furnishing of inaccurate particulars by the assessee leading to concealment of income. Explanatoin-7 to section 271(1)(c) further provides that the penalty thereunder is to be levied, unless the assessee proves to the satisfaction of the authorities below that the price charged in such transactions was computed in the manner prescribed, in good faith and with due diligence. In the case on hand, we concur with the finding rendered by the learned CIT(A) in the impugned order, that the price charged by the assessee in international transactions referred to in this order have not been computed in accordance with the provisions contained in section 92C of the Act, nor in the manner provided thereunder or in good faith and with due diligence. Thus we uphold the levy of penalty under section 271(1)(c) of the Act by the learned CIT(A). - Decided against assessee 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.