2018 (8) TMI 1137

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....(CUP) method. 3. Respondent-assessee was providing support and assistance to its holding company and associated enterprises in procuring and supplying metallurgical materials and related activities, for which the respondent-assessee was paid commission in related international transactions @ US$ 0.15 per DMT and US$ 0.33 per WMT. 4. During the year in question, the respondent-assessee had entered into a third party independent or unrelated international transaction in which commission @ US$ 0.50 per DMT was paid. 5. The respondent-assessee had received commission of Rs. 1,58,12,470/- and after setting off expenses and permissible deductions, the respondent-assessee had declared a total income of Rs. 42,30,567/- in its return. 6. Details with regard to unrelated third-party transaction were duly disclosed and informed to the Assessing Officer and Transfer Pricing Officer. 7. Respondent-assessee had justified exclusion of internal unrelated comparable in view of the small volume of transaction. It was an isolated transaction, substantially lower in value in comparison to the volume of the transactions with the associated enterprises, which were enduring and to continue....

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....of Income Tax (Appeals) vide order dated 6th October, 2015 upheld the penalty order observing that the respondent-assessee merely stated that the lower rate of commission was on account of higher volume. The transfer pricing report had not mentioned that the lower rate of commission was at arm's length when compared to internal comparable. Further, the respondent-assessee had not acted with due diligence. In view of Explanation 7 to Section 271 (1)(c) of the Act, penalty was rightly imposed on the deemed concealed income or income in respect of which inaccurate particulars were furnished. The Commissioner of Income Tax (Appeals), however, did observe that the respondent-assessee had filed fresh evidence in the penalty proceedings explaining and justifying lower rate for higher volume of transactions. This submission was rejected observing that fresh evidence was not part of the Transfer Pricing Report. It was stated that two opinions were not possible. 12. The Tribunal in the impugned order has held as under:- "3.  We have perused the submissions advanced by both the sides in the light of the records placed before us. 3.1. On perusal of assessment order, we observ....

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....n of the total income is made as per the provisions of section 92C. The amounts so added or disallowed shall for the purpose of Clause(c) of section 271(1) would be deemed to represent the income, in respect of which the particulars have been concealed or inaccurate particulars have been furnished unless, the assessee proves to the satisfaction of the taxing authority that the price or charges are paid in international transactions was computed in accordance with the provisions of section 92C and in the manner prescribed under that section in good faith and with the due diligence. For ready reference, we quote Explanation 7 as under: "Where in the case of an assessee who has entered into an international transaction [or specified domestic transaction] defined in section 92B, any amount is added or disallowed in computing the total income under sub-section(4) of section 92C, then, the amount so added or disallowed shall, for the purposes of clause(c) of this subsection, 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 Assessing Officer or....

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....onsidered view no penalty u/s 271(1)(c) of the Act could be imposed on a debatable issue. In this view of the order we hold that the case of the assessee is not a fit case for levy of penalty u/s 271(1)(c) of the Act and accordingly the grounds of the appeal by the assessee stand allowed." 13. Quantum appeal on the question of internal comparable has been admitted by the High Court. This is an admitted position. 14. The reasoning given by the Assessing Officer to impose penalty for concealment has been quoted in entirety. It shows complete nonapplication of mind by the said officer on the relevant considerations. The Commissioner of Income Tax (Appeals), however, did go deeper and had rejected the stand of the respondent-assessee on bona fides and due diligence. In spite of evidence placed by the respondent-assessee on the question of difference in quantum or volume of transactions, etc., it was observed that this evidence was not part of the Transfer Pricing Study. 15. Per contra, the Tribunal after referring to the material, had taken an opposite view after examining the factual matrix of the present case. 16. Explanation 7 to Section 271(1)(c) of the Act reads:- "....