2022 (7) TMI 947

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....n holding that at no stage in the proceedings before the TPO or the assessment or CIT(A), was the methodology used by the assessee and the appropriateness of the comparable companies selected for benchmarking, were questioned. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that not only various defects / anomalies in the TP study report of the assessee were pointed out by the TPO but also a categorical finding was given by the Transfer Pricing Officer that the assessee's claim of profitability for the year being not impacted by its transactions with its AES but was attributable to certain extraneous factors beyond the control of the assessee remained unsubstantiated. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that even considering the additional evidences filed during the course of the appellate proceedings, the transactions entered into by the assessee with its AEs were still found to be not at arm's length which by itself tantamounts to furnishing of inaccurate particulars of income by the assessee thereby leading to concealment further confirmed by ....

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.... that the assessee's profitability for the year ended 31/03/2005 was adversely impacted due to significant reduction in revenue from one of its key customers, who contributed to almost 77% of the total revenue of the assessee during financial year 2003-04, which fell down to 7% during the relevant financial year. The assessee further submitted that during the year under consideration it experienced an abnormally high employee turnover. The assessee submitted that in case of comparable companies, the average percentage of personnel expenses to total revenue works out to approximately 27%, whereas the same works out at 56% for the assessee. The TPO vide order dated 31/10/2008, passed under section 92CA(3) of the Act did not agree with the submissions of the assessee and further selected certain comparables having average margin of 27.80%. By applying the arm's length margin, the TPO, proposed an upward adjustment of Rs. 8,54,35,703 in respect of international transaction of 'Provision of Contact Centre Services'. 5. Pursuant to the order passed by the TPO, Assessing Officer vide order dated 24/12/2008 passed under section 143(3) of the Act, inter-alia, computed the total income of t....

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....t least five of the comparables used by the TPO were such that their financials were not even available in the public domain at the point of time when the assessee had carried out its transfer pricing study. It is true that data available at the time of assessment is to be used in determining the ALP but the assessee on such facts cannot be visited with penal consequences for not using data that was not available in the public domain at the time of its statutorily mandated transfer pricing study. 12. Even before the CIT(A), the change of the tested party from the assessee company to its AEs was made on the basis of additional submissions made by the assessee itself before the CIT(A). It is true that the assessee did not file any further appeal against the transfer pricing adjustment retained by the order of the CIT(A) but while deciding not to file any further appeal the assessee submitted in writing before the AO that it did not wish to pursue the matter in further appellate proceedings considering the quantum of the addition retained, even though it did not agree with the decision rendered by the CIT(A). 13. On the above facts, the assessee having carried out its transfer pri....

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....which will result in imposition of penalty under the said section. The Explanation further provides an exception, where no penalty will be imposed pursuant to aforesaid addition, if assessee proves to the satisfaction of the authority that the price charged or paid in such a transaction was computed in accordance with provisions contained in section 92C and such price was computed as per the manner prescribed under that section in good faith and with due diligence. 10. The term 'good faith' and 'due diligence' in Explanation 7 to section 271(1)(c) of the Act were analysed by the Co-ordinate Bench of Tribunal in DCIT v/s RBS Equities India Ltd., [2011] 133 ITD 77 (Mum.), wherein the Co-ordinate Bench observed as under: "9. ........ As to the scope of connotations of expression in good faith appearing in Explanation 7, we find guidance from section 3(22) of General Clauses Act which states that "a thing shall be deemed to be done in 'good faith' where it is in fact done honesty, whether it is done negligently or not. A thing done in good faith is a thing done honestly, and, therefore, it is not even necessary whether in doing that thing the assessee has been negligent or n....