TaxTMI 
TaxTMI 
2016 (3) TMI 824
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....e of Transfer Pricing adjustments. AO levied penalty u/s 271(1)(c) read with Explanation 7 of the Act amounting to Rs. 71,812/-. Relevant facts in this regard are that the assessee is engaged in the business of 'manufacturing and trading of pharmaceutical products' and recorded international transactions with Associated Enterprises (AEs) at Cyprus, UK and Switzerland. These AEs eventually sold the goods to the buyers at Ukraine. Assessee benchmarked these transactions and considered Cost Plus Method (CPM) as most appropriate method. GP of the assesse is 58.4% for the year under consideration against the industries GP of 55%. After TP study, the assessee considered its GP at Arm's Length. During the TP studies by the TPO, the TPO came to kno....
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....alty could not be levied. As seen from page 2 of the penalty order, the following is the explanation given by the assessee before the AO. "The reasons for dealing with companies in Cyprus, UK & Switzerland and routing the export transactions through them instead of selling the goods directly to the Marketing Company in Ukraine is as you are aware that Ukraine is politically and economically very instable in the period after disintegration from U.S.S.R. The banking system is not reliable and the currency was devalued from time to time. Therefore, it was thought fit to deal through companies formed in other adjoining countries having good banking channels and other business conducive facilities. Moreover, Indian Bank are not recogniz....
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....Act when involving the additions made u/s 92C of the Act. CIT (A) discussed the assessee's failure in meeting the said condition that revolves around the expression "good faith and due diligence". Eventually, the CIT (A) came to the conclusions that the assessee did not act in good faith with due diligence in using the CPM and not using CUP as most appropriate method. He also analyzed the fact that the assessee agreed for additions thereby admitting the failure on part of the assessee in this regard. CIT (A) confirmed the penalty as per the discussion given in paras 2.6 and 2.7 of the impugned order dated 24.8.2010. 7. Before us, Ld Counsel for the assessee heavily relied on the submissions made by the assessee before the AO and the CIT ....
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....e (i) good faith and (ii) due diligence. Finally, Ld Counsel for the assessee argued stating that considering the smallness of the addition of Rs. 2,05,177/-, assessee agreed for the conditions and otherwise, the additions made by the AO could have been deleted therefore, the penalty is not levyable. 8. On the other hand, Shri N.K. Chand, Ld DR for the Revenue took objection to the arguments made by the Ld Counsel for the assessee. He argued stating that it is binding on the assessee to benchmark the international transactions with AEs on transactions to transaction basis using CUP method of accounting which is involving unrelated parties. Assessee failed to do so. Thus, the Ld Counsel's argument which is based on the due diligence and g....
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....s to the buyers in the Ukraine. Similarly, Ketolex-Inj and Perilium-Tab also supplied to Ukrine using the AEs at Cyprus, UK and Switzerland. Thus, there are direct CUP useful for TP studies of the impugned international transactions. Why the assessee did not use the same? Why the assessee preferred 'Cost Plus Method'? There is no discussion or justification in the orders. Therefore, assessee fairly concede on this point and agreed for adjustment of the two international transactions which gave rise to addition of Rs. 2,05,177/-. Now, the issue under consideration relates to 'concealment of income' or 'furnishing of inaccurate particulars of income'. We need to decide in the light of the provisions of Explanation 7 of the Income Tax Act, 196....