TaxTMI 
TaxTMI 
2017 (11) TMI 209
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....ith respect of arm's length price of business support services. The disallowances were also made in respect of balances written off, advances written off and miscellaneous expenses. Subsequently, penalty proceedings u/s 271(1)(c) of the Act were also initiated and penalty was imposed for furnishing inaccurate particulars leading to concealment of income. On the assessee approaching the Ld. CIT (A), no relief was allowed to the assessee and the assessee's appeal was dismissed. Now, the assessee has approached the ITAT challenging the confirmation of imposition of penalty and has raised the following grounds of appeal:- "1. That The notice issued u/s 271 (1) (c) and order imposing penalty under said section are illegal, bad in law, and without jurisdiction. 2. That the AO has failed to appreciate that no satisfaction was recorded before initiation of penalty proceedings u/s 271 (1) (c) and as such the notice issued u/s 271 (1) (c) and the penalty order passed under said section are without jurisdiction and are liable to be quashed. 3. That the information filed and the material available on record are not properly considered and as such the order imposing penalty u/s 271 (1) ....
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....arge of concealment or furnishing of inaccurate particulars of income. It was also submitted that the notice issued u/s 274 did not specifically mention the charge for which the penalty was being initiated and, therefore, since the notice itself was defective, no penalty could be imposed. It was also submitted that Explanation 1 to section 271(1)(c) had been wrongly invoked as the case of the assessee was not covered by the Explanation 1 to section 271(1)(c). It was further submitted that both the lower authorities had erred in not considering the conditions mentioned in Explanation 7 to section 271(1)(c) before invoking the same as the Assessing Officer had not been able to establish that 'good faith' and 'due diligence' was not exercised by the assessee. It was further submitted that the Assessing Officer had failed to discharge the onus cast upon him and both the lower authorities had also ignored the binding judicial precedents following which the penalty could not have been imposed. It was also submitted that merely because the TPO was of the view that a different method should have been adopted for determining the Arm's Length Price (ALP) than that adopted by the assessee, it....
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....of the department that the penalty had been correctly imposed. 5. We have heard the rival submissions and perused the material available on record. As far as the penalty levied on transfer pricing adjustment is concerned, it is seen that during the year under consideration, the assessee had entered into following international transactions:- 1. Provisions of technical services (receivables from Associated Enterprises) 2. Availing of technical services (payable to Associated Enterprises) The assessee selected Cost Plus Method for both these transactions. Further, there was also apportionment of expenses towards business support services payable to the Associated Enterprises (AE), foreign currency component of salary of expatriate employees payable to the foreign AE and reimbursement of various expenses receivable from the AE. All these three were at cost. It was the assessee's view that no benchmarking was required in respect if these three transactions. However, during the transfer pricing proceedings, the TPO was of the view that while computing Profit Level Indicator (PLI) using Cost Plus Method, the assessee had claimed idle capacity adjustment of Rs. 2,46,46,065/- which w....
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.... be deemed to be done in 'good faith' where it is in fact done honestly. Therefore, it is not even necessary whether in doing that thing the assessee has been negligent or not. Thus, there is no way that the assessee can prove his honesty, because honesty, in practical terms, only implies lack of dishonesty, and proving not being dishonest is essentially proving a negative, which as the Hon'ble Supreme Court has observed in the case of K.P. Verghese vs ITO reported in 131 ITR 597 is almost impossible. However, as the expression 'good faith' is used along with 'due diligence' which refers to 'proper care'. It is also essential that not only the action of the assessee should be in good faith but also with proper care. An act done with due diligence would mean the act done with as much as care as a prudent person would take in such circumstances. Thus, as long as no dishonesty is found in the conduct of the assessee, as long as he has done what a reasonable man would have done in his circumstances, to ensure that the ALP was determined in accordance with the scheme of section 92C, deeming fiction under Explanation 7 to section 271(1)(c) cannot be invoked. 5.3 It is seen that the grou....
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....(c) of the Act on this issue and accordingly, the impugned order is set aside and penalty is deleted. 5.4 As far as the second which on which the penalty has been imposed, it is seen that penalty has been imposed on disallowance of advances/balances written off and disallowance out of miscellaneous expenses. The Ld. CIT (A) has confirmed the penalty on these additions on the ground that the assessee had accepted these additions and that the assessee did not furnish any evidence in support of the write off of advances. The penalty on miscellaneous expenses has been confirmed on the ground that some personal element in the expenditure could not be ruled out. However, it is clear that in the instant case it cannot be said that the assessee had withheld any relevant information regarding miscellaneous expenses or advances/balances written off. The assessee has duly disclosed these amounts in its profit/loss account and has also submitted details thereof during the assessment proceedings. The only reason the penalty was imposed was that the lower authorities did not accept the explanation of the assessee and imposed penalty for concealment of income. Thus, the bona fides of the assesss....