TaxTMI 
TaxTMI 
2016 (4) TMI 514
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....g facility at SEEPZ, Andheri (E), Mumbai, wherein it undertakes manufacturing of various magnetic components like Transformers, Inductors and Printed Circuit Boards Assemblies entirely for its parent company in USA, i.e. associated enterprise. Notably, assessee receives 95% of the raw material from its holding company on free of cost basis and after undertaking manufacturing activity, it exports back the entire production to its parent company in USA. In terms of arrangement with its associated enterprise in USA, assessee is remunerated on the basis of mark-up on cost of 6%. Pertinently, such mark-up cost on 6% is calculated with reference to the standard cost incurred for the operations carried out by the assessee company. With the aforesaid business model, the assessee company filed the return of income for assessment year 2008- 09 on 29/09/2008 declaring a loss of Rs. 1,14,58,725/-, which was subject to a scrutiny assessment. In the course of the assessment proceedings, it was noticed that assessee had entered into an international transaction with the associated enterprise within the meaning of section 92B of the Act and accordingly, the matter relating to the determination of ....
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....e provisions of Explanation -1 to section 271(1)(c) of the Act to justify the penalty is misplaced. Apart from the aforesaid, the Ld. Representative for the assessee pointed out that since the assessment year 2005-06, the determination of the arm's length price of the impugned transactions have been finalized by the income tax authorities in the same manner as was done in the year under consideration, and that in the earlier assessment year of 2005-06 and 2007-08, no penalty under section 271(1)(c) of the Act has been levied. Therefore, according to him under identical circumstances, in this year the Assessing Officer erred in levying the penalty. 5. On the other hand, Ld. Departmental Representative has defended the orders of the lower authorities in levying penalty under section 271(1)(c) of the Act. In particular, the Ld. Departmental Representative pointed out that the transfer pricing adjustment made in this year is very much based on the method adopted in the earlier years, which the assessee has eventually accepted and, therefore, there is no reason for the assessee to justify non-incorporation of such adjustment in the return of income itself. 6. We have carefully con....
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....n the course of determining the arm's length price of an international transaction while computing total income under section 92C(4) of the Act . So, however, the rigors of such a deeming fiction are mitigated, if, the assessee is able to prove that the price charged or price paid in such an international transaction was computed in accordance with and in the manner prescribed in section 92C of the Act in good faith and with due diligence. It is abundantly clear that the onus shall be on the assessee to demonstrate that the price charged or paid in such an international transaction was computed in the manner prescribed in Section 92C in good faith and with due diligence. Quite clearly, the facts and circumstances of each case would establish as to whether or not the assessee has been able to discharge the burden of proving that price charged or paid in an international transaction has been computed in terms of section 92C in good faith and with due diligence. 6.2 In this background, we may now briefly touch upon the manner in which the income tax authorities have arrived at an adjustment of Rs. 1,78,64,680/- in order to arrive at the arm's length price of assessee's internationa....
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....r section 271(1)(c) of the Act was imposed. While in assessment year 2005-06, penalty proceedings under section 271(1)(c) were not initiated at all, whereas in assessment year 2007-08 though the proceedings were initiated but were eventually dropped by the Assessing Officer himself. The aforesaid factual matrix is not in dispute and, in our view, the aforesaid itself renders the impugned action of the Assessing Officer suspect, because it is not open for the Assessing Officer to hold an assessee guilty under section271(1)(c) of the Act in one year and not in other preceding two years under identical circumstances. 6.4 On this aspect, the Ld. Departmental Representative echoed the stand of the CIT(Appeals) which is to the effect that for assessment years 2005-06 and 2007-08, the Assessing Officer gave benefit of doubt to the assessee in not levying penalty under section 271(1)(c) of the Act. It is further argued that so far as the instant assessment year is concerned, the assessee was aware about wrong determination of the arm's length price in relation to the international transaction with associated enterprise and, therefore, the Assessing Officer was justified in imposing ....