TaxTMI 
TaxTMI 
2025 (6) TMI 1863
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....which is not valid as per law. 2. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating the penalty proceedings despite the fact that the penalty proceedings attained finality vide penalty order dated 22.04.2019. Non-existing entity: 3. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in levying penalty u/s 271(1)(c) of the Income Tax Act, 1961 ("the Act") despite the fact that the order was passed by the learned AO in the name of non-existing entity. 4. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in passing the invalid order. Without prejudice to the above: Time-barred proceedings: 5. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in levying the penalty u/s 271(1)(c) without appreciating the specific provisions of section 275(1A) of the Act. 6. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in passing the order beyond the period of limitation as prescribed u/s 275(1A) of the Act. 7. The learned CI....
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.... engaged in manufacturing and trading in needle roller bearings and engine components. During the course of assessment proceedings, two main disallowances were made in the assessment order: a Transfer Pricing adjustment amounting to Rs. 17,15,40,000/- and a disallowance of additional depreciation on second-hand machinery valued at Rs. 64,75,146/-. As a result, penalty proceedings under section 271(1)(c) were initiated on the assessee. In appeal before CIT(A), since the assessee did not contest the disallowance of additional depreciation on second-hand machinery, penalty of Rs. 22,00,950/- under section 271(1)(c) was levied vide order dated 25.03.2015. In relation to the Transfer Pricing adjustment, the assessee had entered into international transactions with associated enterprises amounting to Rs. 1,61,33,11,882/-. In the Transfer Pricing proceedings, the Transfer Pricing Officer (TPO), made an upward adjustment of Rs. 17,15,40,000/-. This included Rs. 12,45,49,000/- relating to manufacturing business and Rs. 4,69,91,000/- to the distribution segment. Based on the TPO's order, the same amount was added to the assessee's returned income, and penalty proceedings under section 27....
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.... and rejecting certain filters, particularly the ones relating to manufacturing revenue percentage and turnover multiples. The TPO also rejected the use of PBDIT as the PLI and instead used Profit Before Interest and Tax (PBIT) to Sales, thus computing a lower PLI of -6.58% for the assessee and 4.11% for the comparable set, which led to an upward adjustment of Rs. 12.46 crore. The Assessee submitted before CIT(Appeals) that such rejection of its methodology and adjustments was not based on any identified defects in the documentation or reasoning but reflected merely a difference in opinion. It was further pointed out that the assessee had made certain adjustments-such as excluding foreign exchange loss, bad debts, and provisions for obsolete inventory-on the grounds that these were already disallowed in the return of income and had been accepted in prior years. However, the TPO disallowed these adjustments in the relevant assessment year without justifying the inconsistency with past practice. The assessee argued that under Explanation 7 to section 271(1)(c), penalty for transfer pricing adjustments can be levied only if it is proven that the price charged was not determined in acc....
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....re, the assessee submitted that the penalty imposed by the AO was unwarranted and deserved to be deleted. 5. However, CIT(Appeals) did not agree with the contentions of the assessee and dismissed the appeal of the assessee with the following observations: "1. Section 271(1)(c) states: 271. (1) If the Assessing Officer or the33-34 [Joint Commissioner (Appeals) or the] Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person- (a) [***] (b) has failed to comply with a notice under sub-section (2) of section 115WD or under sub-section (2) of section 115WE or under sub-section (1) of section 142 or subsection (2) of section 143 or fails to comply with a direction issued under subsection (2A) of section 142, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or Sections clearly states that If the Assessing Officer or the33-34 [Joint Commissioner (Appeals) or the] Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied ....
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....n operating items-issues which in our view are debatable. We note that several judicial precedents, including CIT vs. Reliance Petroproducts (P) Ltd (2010) 189 Taxman 322 (SC), Mastek Ltd vs. DCIT (2012) 28 taxmann.com 292 (ITAT Ahd), and PCIT vs. Global Vantedge (P) Ltd (2018) 95 taxmann.com 377 (Delhi HC) have held that mere differences in opinion or debatable issues should not attract penalty. In the instant case penalty was levied for furnishing inaccurate particulars of income, despite there being no specific finding by the Tax Authorities that the ALP was not computed in good faith or without due diligence. Moreover, Explanation 7 to section 271(1)(c), which specifically governs penalty in transfer pricing cases, was neither invoked during the initiation nor discussed while levying the penalty. In the case of Chegg India (P) Ltd vs. ACIT (2021) 126 taxmann.com 272 (ITAT Delhi) and ITO vs. Carraro Technologies India (P) Ltd (2019) 102 taxmann.com 541 (ITAT Pune), it has been held that non-invocation of Explanation 7 makes the penalty unsustainable in transfer pricing matters. In the case of Principal Commissioner of Income Tax-2 vs. Sinosteel India (P.) Ltd. [2019] 102 taxmann....
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....length price of the international transactions with the associated enterprises. Revenue has not disputed that the CUP method was the preferred or appropriate method to be applied. Revenue no doubt states that there was lack of reliable data for application of the CUP method, but the method adopted and applied by the respondent-assessee was not rejected. 18. As noticed above, the respondent-assessee had justified and explained why the independent transaction was disregarded as an internal comparable, for two reasons. Firstly, the transaction was of low value in comparison with transactions with associated entities. Secondly, it was a single transaction, whereas transactions with associated enterprises were continuous and based upon long-term business relationship. This factual position and distinction is undisputed. In view of the factual matrix, the explanation of the respondent/assessee was accepted as bona fide and that the assessee had exercised due diligence in selection of the method and comparables. It is in this context, we find that the Tribunal has taken a reasonable and considered view of the matter. The said findings on the question of explanation, bona fides an....