TaxTMI 
TaxTMI 
2009 (9) TMI 82
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....ered into international transactions with its AEs. Since the amount of international transaction was in excess of Rs. 5 crores, a reference was made to the TPO to determine the ALP in terms of s. 92CA(3) of the IT Act, 1961. The TPO observed that the assessee company was in the business of running a call centre. From the financial services provided, it was noted that there was substantial loss to the assessee during the year amounting to Rs. 4.27 crores. It was explained to the TPO that this was due to certain costs related to excess capacity and the certain cost related to the year being first year of operations and also there was provision for doubtful debt amounting to Rs. 2,28,57,529. 3.1 Among the reasons so provided, the TPO did no....
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.... of Expln. 7 of s. 271(1)(c) and several case laws. The learned CIT(A) observed that the facts relating to provision of doubtful debts were disclosed to the Revenue authorities and there was enough reason for the assessee to treat the provision of doubtful debt as extraordinary item and for exclusion of the same from the operational cost. The learned CIT(A) observed that ingredients of Expln. 7, s. 271(1)(c) were not satisfied. Further. the CIT(A) noted that AO has not brought on record any evidence to show that the assessee had not computed the transaction price in good faith and with due diligence. Ultimately, the learned CIT(A) concluded that the assessee had disclosed the full facts of the case to the TPO as well as to the AO. It was on....
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....idered the submission. Before proceeding further we can gainfully refer to the Expln. 7 to provision of s. 271(1)(c) which reads as under: "Where in the case of an assessee who has entered into an international transaction defined in s. 92B, any amount is added or disallowed in computing the total income under sub-s. (4) of s. 92C, then, the amount so added or disallowed shall, for the purposes of cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the satisfaction of the AO or the CIT(A) or the CIT that the price charged or paid in such transaction was computed in accordance with the provisions cont....
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.... debts. 6.5 The first two adjustments were not questioned by the TPO, it was only with regard to the exclusion of bad debts, that it was claimed in the penalty order that r. 10B(e)(iii) does not envisage making of any adjustments in the profit margin of the assessee. The said rule provides that for the purpose of sub-s. (2) of s. 92C the ALP in relation to international transaction can also be determined by TNMM by which- (i) the net profit margin realized by the enterprise from an international transaction entered into with an AE is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realized by the e....
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....fter being in debt to the assessee 7C Ltd., UK had also incurred an amount of GBP 5,29,000 with respect to the formation of the assessee (which had to be cross-charged to the assessee). As part of the negotiations, the administrator decided to cancel both the debts. Accordingly, the receivable of Rs. 2,28,57,524 was shown as a provision for bad and doubtful debt. Now under these circumstances, this provision for doubtful debt was not considered as a part of operation and cost. The CIT(A) has observed that treatment of this extraordinary item as not forming part of operational cost is clearly justifiable. 7. Upon careful consideration, we are of the opinion that if the sums are owed by the parent company become bad the same cannot be conc....
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....called for. In this regard, we place reliance upon the decision of the Hon'ble apex Court rendered by a Larger Bench comprising of three of their Lordships in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC), wherein it was held that "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation i....