2019 (7) TMI 358 - AT - Income Tax

Tribunal rules in favor of assessee, setting aside penalty under section 271(1)(c) based on TPO's findings.

M/s eBay India Private Limited Versus ITO-10 (3) (1), Mumbai

The Tribunal ruled in favor of the assessee, setting aside the penalty imposed under section 271(1)(c) of the Act based on the TPO's findings. The ... Penalty u/s 271 (1)(c) - addition based on the findings of the transfer pricing officer in its order u/s 92CA(3) - HELD THAT:- TPO assessed the Arithmetic Mean @ 16.85%. It is now well settled that the government companies are not good comparables to the private companies and In this regard we also find support of law settled in the case of CIT,3 v. ThyssenKrupp Industries India (P.) Ltd. [2016 (3) TMI 1354 - BOMBAY HIGH COURT] , Pr. CIT-4 v. International SOS Services India (P) Ltd [2017 (5) TMI 1588 - DELHI HIGH COURT] . In these ‘10’ comparables there are ‘4’ companies which has been compared by the TPO. Whose names are Apitco Ltd, Rites Ltd, Vapi Waste & Effluent Mgmt Co. Ltd, WAPCOS Ltd (Seg). If the ratio of these companies be not included for comparisons then the Arithmetic mean would be 8.32% and e-bay India Margin would be 9.82%, if the legal fee be adjusted by the TPO then the margin would be approximate 9% whereas the assessee has already given the Arithmetic Mean @ 8.69%. After concluding all the facts mentioned above when the Arithmetic mean is approximate to the working of the assessee we are of the view that it is not a case of concealment of income or furnishing of the inaccurate particulars. Moreover the assessee has acted in good faith and with due diligence so no penalty is leviable in view of the law settling in case tiled as Pr. CIT-04 v. Gap International Sourcing India Pvt. Ltd. [2017 (8) TMI 1556 - DELHI HIGH COURT] , Pr. CIT-6 v. Mitsui Prime Advanced Composites India (P.) Ltd. [2017 (4) TMI 186 - DELHI HIGH COURT] . Taking into account of all the facts and circumstances, we are of the view that the finding of the CIT(A) is not justifiable and is not liable to be sustainable in the eyes of law, therefore, we set aside the finding of the- CIT(A) in question and delete the penalty - Decided in favour of assessee. Issues:Confirmation of penalty under section 271(1)(c) of the Act based on TPO's findings.Analysis:The assessee appealed against the penalty levied by the Assessing Officer under section 271(1)(c) of the Act for the addition amounting to Rs. 2,06,24,199 based on the findings of the Transfer Pricing Officer (TPO). The grounds raised by the assessee included challenging the confirmation of penalty by the CIT(A) and disputing the accuracy of the TPO's adjustments. The assessee argued that the TPO wrongly selected comparables, including government companies, which affected the margin calculation. The assessee contended that after excluding these comparables, the margin would align with the one assessed by the assessee, indicating no concealment of income or inaccurate particulars.The TPO's selection of comparables was challenged by the assessee, highlighting discrepancies in the companies chosen and the impact on the margin calculation. The assessee cited legal precedents to support their argument that government companies are not suitable comparables for private entities. By excluding certain comparables, the margin calculated by the assessee closely matched the adjusted margin, indicating no deliberate concealment or furnishing of inaccurate particulars. The assessee emphasized acting in good faith and with due diligence in conducting the transfer pricing study, supported by legal precedents where penalties were not levied under similar circumstances.The Tribunal observed that the TPO's selection of comparables, including government companies, led to discrepancies in the margin calculation. After excluding these comparables, the margin aligned with the assessee's assessment, indicating no intentional concealment or furnishing of inaccurate particulars. Considering the assessee's good faith and due diligence, supported by legal precedents, the Tribunal concluded that no penalty was justifiable. Consequently, the Tribunal set aside the CIT(A)'s decision and deleted the penalty, allowing the assessee's appeal.In conclusion, the Tribunal found in favor of the assessee, setting aside the penalty imposed under section 271(1)(c) of the Act based on the TPO's findings. The decision was influenced by discrepancies in the TPO's selection of comparables, the alignment of margins after excluding certain companies, the assessee's good faith and due diligence, and legal precedents supporting the non-leviability of penalties in similar cases.