TaxTMI 
TaxTMI 
2026 (9) TMI 34
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...., and notices under sections 143(2) and 142(1) of the Act were issued. In response, the assessee furnished the requisite details and information during the course of the assessment proceedings. The case was thereafter referred to the Transfer Pricing Officer ("Ld. TPO") for determination of the Arm's Length Price ("ALP") in respect of the international transactions entered into by the assessee with its Associated Enterprise ("AE"). After considering the submissions and documents furnished by the assessee, the Ld. TPO passed an order dated 26.10.2023 proposing a transfer pricing adjustment of Rs. 91,47,99,952/- in respect of the international transaction relating to the rendering of cloud computing support services to its AE. Based on the transfer pricing order, the Ld. AO passed a draft assessment order dated 20.12.2023 assessing the total income of the assessee at Rs. 136,13,58,662. Aggrieved by the draft assessment order, the assessee filed objections before the Hon'ble Dispute Resolution Panel ("DRP"), Mumbai, on 17.01.2024. Pursuant to the directions of the Hon'ble DRP dated 19.09.2024, the assessee filed an application before the Ld. TPO for passing an Order Giving....
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....'s margins under this segment may be recomputed and adjustments be made, if any." 3.1.4. Further, the Ld.AO has also, himself, observed the failure on the part of assessee to disclose material facts pertaining to the transaction. For convenience, the relevant para of the penalty order is produced below (Pg. 13 of the penalty order): - "It is evident from the above that the adjustment has been made by the TPO on account of failure of part of the assessee to disclose all material facts pertaining to the transaction." 3.1.5. From the above made submissions it becomes abundantly clear that the ratio of the Ld.CIT-A, that the Ld.AO did not state any failure on part of the Assessee to disclose material facts of the transaction, is misconceived. 1.2. LD. CIT-A ERRED IN HOLDING THAT THERE IS ABSENCE OF A SPECIFIC MENTION OF THE LIMB OF SEC 270A: 1.2.1. The particular limb of section 270A(9) while initiating and levying penalty under section 270A. The finding recorded by the learned CIT(A) is contrary to the material available on record and is self-contradictory. It is respectfully submitted that, at page 29 of the impugned appellate order, the l....
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.... was, at all material stages, fully aware of the basis on which the penalty proceedings have been initiated, namely, the Transfer Pricing adjustment made in the assessment proceedings. The show cause notice, the assessment order and the penalty order clearly conveyed the nature of the charge. The assessee, being fully conscious of the allegations, filed elaborate replies in response to the SCNs. Also, it is to be noted that assessee managed to reply to the SCNs on the same day of issuance of such notices. If assessee was unaware of the penalty provisions, he should not had been in a position to respond to these notices. The assessee never pleaded before the Assessing Officer that he was unable to under stand the charge or that he had been deprived of an effective opportunity to defend himself. 1.3.3. In these circumstances, no prejudice or failure of natural justice has been demonstrated by the assessee. The learned CIT(A), without recording any finding as to how the alleged omission caused prejudice to the assessee or vitiated the proceedings, was not justified in deleting the penalty merely on account of an alleged technical defect. It is a settled principle that procedu....
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....hat the assessee has under-reported the income in consequence of misreporting, the AO specifically mentioned the limb of penalty as to what kind of penalty is being levied on the assessee, the assessee was well aware of the proceedings and informed about the limb of penalty that is being levied. Also, without prejudice to the other arguments, it can be concluded that there was no prejudice caused to the assessee. Therefore, in light of all of the above, it is abundantly clear that the order of Ld. CIT-A u/s. 250 is erroneous and bad in law. 2. PRAYER 2.1.1. Considering the above mentioned submissions, it is humbly prayed to Your Honours to:- 2.1.2. Set aside the impugned order passed u/s. 250 of Ld.CIT-A; and 2.1.3. Uphold the penalty order passed by the Ld.AO for the concerned Assessment; and/or 2.1.4. Pass any other order that Your Honours deem fit in the interest of justice and equity." 4. The Ld. AR argued and filed a paper book comprising pages 1 to 258, which has been placed on record. The Ld. AR contended that, in the assessee's case, the TPO had made the transfer pricing adjustments on account of differences in approach in....
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.... appellant. Meanwhile, the AO also imposed penalty u/s. 270A of the Act of Rs. 60,49,90,108/- vide the impugned penalty order on account of underreporting of income in consequence of misreporting on such TP adjustments, which was imposed at 200% of the underreported income. 6.1.2 The details filed by the appellant have been quoted above. On perusal of the impugned penalty order, it is noted that the AO at page 13 of the impugned penalty order has stated that adjustment has been made by the TPO on account of failure on the part of appellant to disclose all material facts pertaining to the transaction. Further, it is noted that the penalty order quotes the assessment order in which as per para 11, it has been stated that "As the assessee failed to report international transactions correctly, the penalty proceedings under the provisions of section 270A of the Act is initiated for underreporting of income in consequence of misreporting for the year under consideration." The penalty order also quotes the relevant portion of TPO order in which it has been stated that the appellant has not objected to rejection of its benchmarking and accepted GP margin computat....
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....PO rejected the benchmarking in the case of the appellant and changed MAM to RPM. The TPO also modified the GP margin computation by modifying certain allocation of expenses between different segments. Thereafter, the TPO selected certain comparables and after issuing show cause to the appellant and considering its submissions, finally made an adjustment of Rs. 91,47,99,952/- on account of rendering of cloud computing support services by the appellant. Thus, in the instant case, the TPO did not accept the TNMM method selected by the appellant as MAM and thereafter chose RPM and made the relevant adjustments. The directions of the DRP also supported the findings of the AO/TPO made in the draft assessment order and thereafter, the final assessment order was passed in the case of the appellant. The appellant has pointed out that the adjustments made in this case by the AO/ΤΡΟ are being disputed before the Hon'ble ITAT, and it is not a case where the said adjustments/findings of the TPO have been accepted by it. The appellant has claimed that this is a TP adjustment on which no penalty is to be imposed as per section 270A(6) (d) of the Act which is as under: ....
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....be initiated and imposed. In this regard, the appellant had submitted copy of penalty notice issued u/s. 274 r.w.s 270A of the Act dated 28.10.2024, assessment order dated 28.10.2024 based on which penalty proceedings emanated, and copy of penalty order u/s. 270A of the Act dated 28.04.2025. The appellant has claimed that while initiation and levy of penalty, the AO failed to mention specific clause of Sec. 270A(9) of the Act and the specific clause is also not stated in the impugned penalty order and hence claimed that based on judicial principles established in similar cases, the penalty levied by the AO in the instant case deserves to be deleted. (II) In this regard, the appellant had placed reliance on the decision rendered by Hon'ble jurisdictional ITAT, Mumbai in the case of Saltwater Studio LLP V NFAC Delhi [2023] wherein the bench deleted the penalty levied u/s. 270A of the Act as the AO failed to spell out as to how assessee case falls within ken of instances given in clause (a) to (f) of subsection 270A. The relevant extract is reproduced below for (ii) reference: "13. The AO has levied the higher penalty of 200% of tax payable of misreporting income....
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....he judgments of the Higher Courts and the Tribunal and deleted the identical penalty as involved in this case, hence respectfully following the decision of the Tribunal, we are inclined to delete the penalty under consideration. Thus, the penalty is deleted and appeal filed by the Assessee is allowed (iv) Also, the appellant also relied on the decision rendered by jurisdictional Hon'ble ITAT, Mumbai in the case of Cococart Ventures Pvt Ltd vs ITO 14(1)(1). Mumbai in ITA no 3139/Mum/2025 dated 30.06.2025 for AY 2022-23 wherein the relevant extract of the pronouncement is reproduced below: 6.4 The moot question in the above facts is, whether the action of Ld.AO to levy penalty u/s. 270A for underreporting in consequence of misreporting, is sustainable in the present facts of the case. In order to examine, it is necessary to consider the relevant provisions of Section 270(8) &(9) of the Act that reads as under: - "Penalty for under-reporting and misreporting of income. 270A (1)... (7) Notwithstanding anything contained in sub-section (6) or sub-section (8), where under-reported income is in consequence of any misreporting thereof by any person, ....
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.... (e) failure to record any receipt in books of account having a bearing on total income, and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply It is noted that for a case to fall under the ambit of Sec. 270A(9) of the Act, specific scenarios vide sub sections (a) to (f) such as misrepresentation or suppression of facts, failure to record investments in the books of accounts or claim of expenditure not substantiated by any evidence, recording of any false entry in the books of accounts, failure to report record any receipts in the books of accounts having a bearing on the total income or failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply have been explicitly mentioned under the Act. For initiation or imposition of penalty under Section 270A(9), the only limb that prima facie becomes relevant is clause (f) which is failure to report any international transaction or any transaction....
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....ntion of the appellant that the AO erred in imposition of penalty for under reporting of income in consequence of misreporting without indicating the relevant clause of section 270A(9) of the Act in the show cause notice issued and the penalty order dated 28.04.2025 is found to be correct. Also, AO had not demonstrated/substantiated as to how the case of the appellant satisfies any of the conditions prescribed under Sec. 270A(9) of the Act. Therefore, respectfully relying on the judgments quoted above which mandates the AO to spell out the relevant applicable clause of section 270A(9) of the Act and clarify as to how the case falls within the ken of instances given in clause (a) to (f) of sub section (9) of sec 270A of the Act, the claim of the appellant that AO erred in levying penalty at 200% of tax for under reporting in consequence of misreporting is found to be correct. 6.1.6 Thus, as discussed above, it is noted that the penalty u/s. 270A of the Act has been initiated for under-reporting of income in consequence of misreporting of income and also imposed for under-reporting of income in consequence of misreporting of income. Also, as discussed above, there is no spec....
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....Ld. TPO in determining the ALP of the international transaction entered into by the assessee with its AE. The record further reveals that the assessee had disclosed the international transactions in Form No. 3CEB, maintained the prescribed documentation under section 92D of the Act, and the adjustment primarily arose on account of the rejection of the benchmarking methodology adopted by the assessee and the application of a different Most Appropriate Method by the Ld. TPO. Thus, the dispute essentially relates to the determination of the ALP and the selection of comparables and methodology. We further note that the Ld. CIT(A), after examining the assessment order, the penalty order, and the order of the Ld. TPO, has recorded a categorical finding that neither the assessment order nor the penalty order specifies the particular clause of section 270A(9) of the Act under which the alleged case of misreporting falls. The allegation regarding failure to disclose material facts has also not been substantiated by any specific finding in the order of the Ld. TPO. Further, there is no allegation that the assessee failed to report any international transaction or any specified domestic trans....