TaxTMI 
TaxTMI 
2024 (6) TMI 420
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....8,170/-. The case was selected for scrutiny and during the assessment proceedings, the issue of transactions related to transfer pricing was forwarded to TPO and he made certain adjustments by increasing the amount of Rs. 1,49,29,635/- by applying the TNMM Method treating the most appropriate method. While enhancing the valuation, he made comparable analysis of operating profit/operating cost (OP/OC) as the profit level indicator of 10 companies by rejecting 05 comparable companies identified by appellant. He computed the average OP/OC at 13.87% by making adjustment of Rs. 1,49,29,635/- pertaining to business support services and Rs. 59,160/- on account of interest outstanding receivables. Against the order of TPO/AO, assessee did not prefer appeal and accepted the adjustments made by TPO/AO. Consequently, AO determined the arm's length OP/OC at 13.87% and made the net addition of Rs. 1,49,88,795/- which was computed being difference between figures as shown by assessee and as finally computed. 2.1 In due course, AO initiated the penalty proceedings u/s 271(l)(c) of the Act for the addition of Rs. 1,49,29,635/- and provided opportunity to assessee by issuing the notice under t....
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....d due diligence. 5.1 In view of the above legal position, now the case of the appellant has to be examined. It can be seen that while applying the TNMM method, the appellant has taken into consideration the OP/OC of those selected companies which suited it most and the average remained such that no true results .could be achieved. However, the TPO took a larger base for arriving at the average of OP/OC and reached reasonable better average for computation of transactions. The appellant has accepted the method and conclusion drawn by AO/TPO and did not contest the issue in the appeal. Thus, it is clear that the appellant had wrongly computed the OP/OC margin of comparable companies in both ways. These facts clearly show that the appellant had neither acted in good faith nor with due diligence. Since the conduct of appellant was neither in good faith nor with due diligence, the addition/disallowance made by AO has to be termed as concealment of income of income or income for which inaccurate particulars have been furnished, in view of the deeming provisions of Explanation-7, as above. In view of this, it is held that appellant has concealed the income by furnishing inaccurate parti....
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....olding the levy of penalty on an adjustment which has been computed on based on guess work and conjectures without substantiating reason for rate of interest considered by the AO. 7. That on the facts and circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the Commissioner of Income Tax (Appeals) for AY 2012-13 and AY 2014-15, had deleted the penalty imposed by the Ld. AO under section 271 (1 )(c) of the Act where the facts on which the penalty was imposed are identical to AY 2013-14. That the above grounds are independent and without prejudice to each other. The appellant craves leave to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal as they may be advised." 4. Heard and perused the record. 5. On behalf of the appellant, the ld. counsel has primarily re-asserted the contentions made before the tax authorities below and has further relied the order of the Mumbai Bench of the Tribunal in Cherokee India (P) Ltd. (2016) 68 taxmann.com 132 (Mumbai-Trib.) and the coordinate bench of Delhi order in Verizon Communication India (P) Ltd. vs. DCIT, (2012) 27 taxmann.com 328 (Delhi). Relian....
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..... The Mumbai Bench in the case of Cherokee India (P) Ltd. (supra), while dealing with such issue has laid down that certainly, 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. However, if the addition is due to difference in pricing methodology adopted by the income-tax authorities for determining the expected profits from the associated enterprises and the addition determined by the income-tax authorities is not on account of inaccuracy or discrepancy or concealment found in the information and documents furnished by the assessee for determining the arm's length price of the international transaction with the AEs, the assessee's claim of good faith and due diligence by virtue of Explanation-7 to section 271(1)(c) is considerable. The Hon'ble Delhi High Court in PCIT vs. Verizon India Pvt. Ltd. (supra) has dealt with the matter with a broader perspective and held as follows:- "The present appeal against the order dated 08.08.2016 of Income Tax Appellate Tribunal is barred because the revenue has refiled it with a delay of 550 d....
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....of section 271 of the Act has been invoked as the assessee was called upon to show cause for: "have concealed the particulars of your income or have furnished inaccurate particulars of such income." The law in this regard stands settled that such an ambiguous notice is not sustainable in law. Reliance can be placed on Hon'ble Supreme Court judgement in the case of CIT vs. Reliance Petro Products Pvt. Ltd. 322 ITR 158 (SC) and CIT vs. SSA's Emerald Meadows (2016) 73 com 248. There should be categorical communication as to under which limb the assessee is show caused. The AO had concluded that there was: "the furnishing of inaccurate information, thus, relates to furnishing of factually incorrect details and information about income." In para 8, the AO, while levying the penalty has observed that: "I am satisfied that the assessee has furnished inaccurate particulars of its income leading to concealment of income and as discussed supra and, thus, mens-rea of the assessee is proved and charge against the assessee in respect of concealment of his income is established and, accordingly, it is absolutely a fit case for imposition of penalty u/s 271(1)(c) of the IT Act." 11. The CIT(A), ....