TaxTMI 
TaxTMI 
2016 (4) TMI 209
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....d in law, the Ld.CIT(A) has erred in holding that it is not a fit case for imposition of penalty u/s 271(1)(c) thereby deleting the penalty of Rs. 51,47,940/- levied for assessment year 2007-08. 2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." 2. The relevant facts of the case relatable to the issue are that the assessee i.e. Boston Scientific India Pvt. Ltd. (previously known as Guidant India Private Limited) is a company incorporated under the Indian Companies Act, 1956 in July 2003. It is stated to be primarily engaged in promotion, marketing, sales and distribution in India of a wide range of cardio-vascular products and related medical instruments and equipments manufactured by the Boston group. The assessee is also stated to be providing post sales related support services. The AO in both the assessment years referred the matter to the Transfer Pricing Officer (hereinafter referred to as "TPO") for determination of arm's length price of the international transactions. 3. The record shows that in the AY 2006-07, the assessee had only one business segment, namely, distribution of medical equipmen....
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....ejected the multiple year data and using single year data for the 6 comparables retained proposed an addition of Rs. 1,52,93,937/- by way of adjustment in the international transaction of the assessee. 3.3. In both the years, the assessee did not go in appeal against the additions made by the AO pursuant to the TPO's order. 4. As a result of the additions to the income of the assessee in the respective years the AO initiated penalty proceedings u/s 271(1)(c) and required the assessee to explain why penalty u/s 271(1)(c) should not be imposed for the years in consideration. 4.1. The assessee in the course of the penalty proceedings for the A.Y.2006-07 vide letter dated 10.06.2010 (copy at page 47 of the paper book) submitted that the addition was accepted as the company wanted to do away with unnecessary litigation. 4.1.1. It was also pleaded that due taxes on the additions were promptly paid proved it's bona fide. 5. Similar submissions were offered in the penalty proceedings in A.Y.2007-08 through letter dated 19.07.2011 before the AO (copy at page no.114 of the paper book). 6. Not convinced with the explanation offered, the AO held that the assessee's explanatio....
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....acted hereunder:- 5.1. Selection of Method: 5.1.1. "Assessee had selected RPM as the most appropriate method in its TP report. The transfer pricing report and the financial of the assessee were examined. As per details furnished in transfer pricing report, the assessee i.e. Guidant India has been classified as a distributor which carries out marketing, promotion, sales and distribution of Guidant products in India. The assessee is a 100% subsidiary distributor of its AE. The financials of the assessee including P&L account were examined. It was found that the assessee in the current year had incurred a loss of Rs. 79.05 lacs on a turnover of Rs. 37.61 Crs. As compared to this, the assessee had shown a profit of Rs. 3.72 Crs on a turnover of Rs. 28.27 Crs in the previous year i.e FY 2004-05. 5.1.2. Show cause notice to the assessee: Vide order sheet entry dated 03.08.2009, the assessee was asked to state the reasons for incurring of losses at the net level. The assessee was also asked to state as to whether there were international transaction below the Gross Profit Margin and how they were impacting the profitability of the assessee. The....
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....voked section 68 in place of sections 69, 69A, 69B or 69C etc. the order does not become bad merely because a wrong section has been quoted and the issue can still be considered and the action upheld applying the correct provision. Accordingly, placing heavy reliance upon the said explanation, it was his submission that when considered in the light of Explanation 7 of section 271(1)(c), the impugned order deserves to be set aside and the penalty order should be upheld. In the facts of the present case it was re-iterated that the additions made have been accepted by the assessee. Accordingly relying upon the decision of G.C.Agarwal (1994)186 ITR 571 (SC) and ACIT vs Jeevan Lal Shah (1994) 205 ITR 244 (SC), it was his submission that penalty imposed deserved to be upheld in both the years. 11. The Ld. AR heavily relying upon the impugned order invited specific attention to the facts recorded by the CIT(A) in paras 4.1 to 4.4 of his order. Since it is a consolidated order for both the years under consideration, heavy reliance was placed thereon. It was his submission that in both the years the assessee vide letters dated 10.06.2010 and 19.07.2011 in the two years under consideratio....
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....arms length. 11.6. Referring to the record it was claimed that whatever method is applied in 2006-07 AY, considering the six comparables offered no adjustment would be warranted. This fact it was submitted is evident from the table 2 in para 5.1.5 of the impugned order. 11.7. Similarly in 2007-08 AY it was submitted if Table 3 in the same para of the CIT(A)'s order is considered it would show that whatever method is considered the margin would be within +/- 5%. 11.8. It was also his submission that the arguments of the Ld.CIT DR that the assessee had marketing intangibles is of no relevance. Inviting attention to TPO's order internal page 3 of Paper Book page 9 in the context of page 41 internal page 3 of the Transfer Pricing Study Report, it was submitted that the assessee had shown the following international transactions in 2006-07 AY:- Nature of International Transaction Most Appropriate Method Profit Level Indicator Guidant India's Price/Gross Profit Margin Comparables Price/Gross Profit Margin (Arithmetic Mean) Purchase of finished products/equipments Purchase of promotional units Recharges from/to Group Cos. Resale Price Method ('RPM'....
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....is argument that even otherwise the Hon'ble Delhi High Court in the case of Sony Ericson which is a case of distributor and in the case of Maruti Suzuki which is a case of a manufacturer it has been categorically held that "the AMP issue per se cannot be forming part of chapter X of the Income Tax Act, 1961" and in the facts of the present case this was not even the case of the AO. 13. We have heard the rival submissions and perused the material available on record. In the facts of the present case admittedly the AO wrongly invoked Explanation 1 of section 271(1)(c) instead of Explanation 7 of section 271(1)(c). Thus noting that the request was not opposed on behalf of the assessee, we allow the prayer of the Ld.CIT DR in the peculiar facts and circumstances of the case that the issues be considered in the light of Explanation 7 to section 271(1)(c) instead of Explanation 1 of section 271(1)(c). 13.1. The relevant provisions of section 271(1)(c) are set out hereunder for ready-reference:- 271(1). "If the [Assessing] Officer or the [Commissioner (Appeals) [or the [Principal Commissioner or] Commissioner] in the course of any proceedings under this Act, is satisfied th....
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.....Guidant corporation was incorporated in 1994 and is headquartered in Indianapolis, USA. It is the ultimate parent of all Guidant group companies across the world. It is primarily engaged in the development, manufacturing and marketing of a broad array of products and service for cardiac and vascular patients. Its Indian operations are carried out on by Guidant India, a wholly owned indirect subsidiary. 2.2. Group companies own significant valuable intellectual property rights and other commercial or marketing intangibles and are involved in complex product development, manufacturing and brand development of the products. Group Companies also bear significant business and entrepreneurial risks of products acceptability and performance in the market. 2.3.Guidant India is primarily engaged in the promotion, sales, marketing and distribution of the cardiovascular medical products and equipments of the Guidant Group and related post sale support services. While carrying out such business operations, Guidant India undertakes comparatively lower risks than GroupCos and utilize routine tangible assets." 13.5. On consideration of facts which have been addressed in the ....
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....M. The same is demonstrated by the appellant in the following table:- Table-2 For AY 2006-07 RPM TNMM S.No. Name of the Comparable GP/Sales OP/Sales 1. Advanced Micronic Devices limited 47.62% 5.85% 2. Ashco Industries Limited 45.46% 11.38% 3. BA & Brothers (Eastern) Limited 9.67% 1.41% 4. Bijoy Hans Limited 6.25% -28.13% 5. Duchem Laboratories Limited -9.57% -23.01% 6. Fulford (India) Limited 45.37% 16.25% Average 24.13% -2.71% Company Margins 38.86% -1.47% In the same way for the AY 2007-08 it is contended that the margin of the appellant will fall within +/- 5% by using the same set of 9 comparables used in the TP study with current year data in both the methods:- For AY 2007-08 TNMM RPM S. No. Name of the Comparable OP/Sales (%) GP/Sales (%) 1. Abott India Ltd. 13.50 32.81 2. Advanced Micronic Devices Ltd. 10.15 47.62 3. BA & Brothers (Eastern) Limited 2.64 9.67 4. Bijoy Hans Limited -68.89 6.25 5. Hemant Surgical Inds Ltd. 3,73....
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....alty proceedings warrants a separate re-consideration in the parameters of the requirements of the penal provision is well-settled. In the facts of the present case it is seen that in justification for selection of RPM as a method by the assessee the argument has been made that in the year under consideration there was only one segment i.e. "distribution segment" as opposed to another segment i.e. of "marketing service segment" which was the position in 2005-06 AY wherein TNMM had been selected in a matter of record. The argument on facts is found to be correct. Whether the said fact can be said to be so persuasive as to lead only to the inference that the exercise was in good faith following the due diligence standards set out by the statute and thus warrants on conclusion in favour of the assessee or not is a matter for consideration. 13.8.2. Good faith presupposes honesty and fairness at its core. However, good faith does not cover the sins of omission or negligence. Due diligence on the other hand does not tolerate negligence and may be defined as prudent, responsible care and attention required to be exercised by a reasonable and prudent person in a given situation. Thus, a....
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....uch argument has been raised before us. Thus in the context of these cumulative facts and legal position, we find that the explanation offered qua the change of method, when read alongwith the requirements to be met as set out in Explanation 7 to section 271(1)(c), we find that the conclusion drawn on facts, that the requirements are fully satisfied, as transaction is computed in accordance with the provisions contained in section 92C and is bonafide and with due diligence. Accordingly, we find that on the said issue the Revenue has failed to lead any argument on fact or law to the contrary. 13.9. The assessee's conduct which further needs to be considered is whether in offering the comparables the "best efforts" practices were followed by it, as the due diligence standards and good faith standards requirement qua the said issue also needs to be met. It is a matter of record that in both the years under consideration the additions are based on the comparables offered by the assessee. Not even one comparable has been introduced by the TPO. The fact that all the comparables offered were not accepted by the TPO in both the years or alternatively the TPO has partially accepted the c....
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....both these decisions were delivered after July 2007 held that prior to these decisions there was a legal debate as to whether multiple year data could be used or only the current year's data. The decision of the Co-ordinate Bench considering that the case of the assessee pertained to 2006-07 AY concluded that in 2006 when the assessee completed its Transfer Pricing Study and filed its return the debate was very much alive. Accordingly it was held that penalty levied on that count cannot be sustained. On considering the facts in the present case, we find that one of the years under consideration is 2006-07 AY and the other is 2007-08 AY. The Transfer Pricing Study for these two years has been finalised in 2006 and 2007. Thus it can be safely concluded that the issue was then debatable. Once it is seen that on the issue of single year data or multiple year data there was a debate till 2007, the transfer pricing study having been prepared using multiple year data in 2006-07 and 2006-07 AYs cannot be held to be a malafide exercise computed in gross carelessness in order to defraud the Revenue. As single year data at the behest of the TPO was provided and due taxes on the adjustments ma....
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.... "A glance at the provisions of section 271(1)(c) of the Income Tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneo....
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....phenated phrase which looses its essential meaning of the individual words when considered separately as abstract phrases. Good faith alongwith due diligence presupposes true and fair presentation which is not misleading, ambiguous or obscure. Given the clear indications of law that the price charged or paid in such international transaction (or specified domestic transactions with which we are not concerned in the present proceedings) is to be computed in accordance with the provisions contained in section 92C and in the manner prescribed under that section in such economic and financial reporting the twin requirements of good faith alongwith due diligence is ultimately a matter of bonafide conjecture based upon the standards of the financial and economic disclosure of the assessee. In the present case it is found that given the clear indication of compliances required by law, there is in fact a clear evidence that disclosures made by the assessee were in good faith and with due diligence and there is absence of wilful or malafide effort to conceal and defraud the Revenue. Due diligence presupposes making all possible efforts/endeavours which a prudent man would have done in the g....