Delhi bench of Income Tax Appellate Tribunal (ITAT) recently held that if determination of arm’s length price has not lead to any transfer pricing adjustment and with no effect on income of the assessee, no penalty under Section 271(1)(c) of the Income Tax Act can be imposed.
Assessee Company filed its return of income for the relevant assessment year declared total income as nil and also claiming set off of brought forward losses of Rs. 29, 12, 48,464.
During the assessment proceedings the Assessing Officer (AO) made addition of Rs. 1,131,13,182 on account of Arm’s Length Price as the assessee company reduced the amount on account of export incentive, rebate, and discount from sales price for arriving at Arm’s Length Price. Accordingly he initiated penalty proceedings under section 271(1)(c) of the Income Tax Act 1961 on a view of furnishing of inaccurate particulars of its income and also for concealing its income for the year under consideration by claiming export incentive as deduction from cost of goods sold for arriving at Arm’s Length price.
The assessee contended that the penalty is levied only if there is some income regarding which particulars mentioned are either inaccurate or concealed. Further stated that since, the determination of arm’s length price has not lead to any transfer pricing adjustment, with no effect on income of the assessee, hence, penalty provisions are not applicable.
While considering the submissions of both the parties the Delhi tribunal bench comprising of Judicial Member HS.Sidhu and Accountant Member L.P.Sahu observed that, while perusing the material facts and records it has not found any adjustment made to the value of international transactions entered into by the assessee company and the bench also objected the penalty initiated by the AO.
The division bench further said that, the AO while passing the penalty order held that issue of reducing export incentive was not allowed for calculation of arm’s length price and hence, penalty was imposed. As per the relevant provisions, the penalty is levied only if there is some income regarding which particulars mentioned are either inaccurate or concealed. And it is clear that the determination of arm’s length price has not lead to any transfer pricing adjustment, with no effect on income of the assessee, accordingly penalty provisions are not applicable in this case.
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