IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: "H" NEW DELHI
BEFORE SHRI AD JAIN, JM AND
SHRI J.SUDHAKAR REDDY, A.M.
ITA No: 5566/Del/2011
Assessment Year : - 2006-07
M/s Verizon Communication India P.Ltd. vs. DCIT
A Wing, 3rd floor, Radisson Commercial Circle 17(1)
Plaza, N.H. 8 New Delhi
New Delhi
PAN: : AACCM 2423 N
(Appellant) (Respondent)
Appellant by : Shri N.Venkatram, Sr.Adv.&
Ms.Shikha Gupta, Sri Rohit Tiwari, CAs
Respondent by : Shri B.R.R.Kumar, Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the assessee against the order of the
Ld.CIT(A)-XIX, New Delhi dt. 01.09.2011 for the Assessment Year 2006-
07.
2. The assessee is a company and is engaged in the business of
providing marketing support services. The assessee filed its return of
income for the Assessment Year 2006-07 on 29.11.2006 declaring a loss
of Rs.4,52,05,744/-. The return was selected for scrutiny and the
assessment order was passed under Section 143(3) read with S.92CA(3)
of the Income Tax Act, 1961 on 22.2.2010. A transfer pricing adjustment
ITA 5566/Del/2011 Page 2 of 9
M/s Verizon India (P) Ltd.
Assessment Year 2006-07
of Rs.2,25,67,539/- was made. The Assessing Officer before finalizing
the assessment proceedings initiated penalty proceedings under Section
271(1)(c ) of the Income Tax Act, 1961. Show cause notice dated
22.2.2010 was served on the assessee. On 28.5.2010the assessee filed
his reply. The Assessing Officer after considering the reply, vide order dt.
28.6.2010 levied penalty under Section 271(1)(c) by holding that the
assessee furnished inaccurate particulars. He held that the assessee has
failed to offer and prove any bonafide explanation for using multi year
data. He also held that the assessee has not disclosed all the facts
material in the computation of the total income. The assessee carried
the matter in appeal. He submitted that acceptance of the adjustment
made by the Transfer Pricing Officer (TPO), in view of the fact that the
assessee is a loss making unit, is no justification for the Assessing
Officer to levy the penalty. He relied on a number of case laws and
submitted that the issue in question is debatable and the assessee had
no malafide intention to evade taxes. It was submitted that the
explanation furnished by the assessee was bonafide. The First Appellate
authority confirmed the penalty by observing that the assessee has
concluded its comparability analysis of the transactions based on earlier
years data and not on the basis of current year data. The First Appellate
Authority gave detailed reasons from para 18 to 37 of his order.
Aggrieved the assessee is in appeal before us on the following grounds.
"1. Based on the facts and the circumstances of the case and in
law, the Hon'ble Commissioner of Income Tax (Appeals)-XIX
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M/s Verizon India (P) Ltd.
Assessment Year 2006-07
(Hon'ble Commissioner of Income Tax (Appeals) has erred in
upholding the penalty order passed by the ld.DCIT, Circle 17(1),
New Delhi (Ld.AO) levying penalty of Rs.80,00,000/- on the
appellant under Section 271(1)(c ) of the Income Tax Act, 1961.
2. Based on the facts and the circumstances of the case and in
law, the Hon'ble Commissioner of Income Tax (Appeals) has erred
in upholding the order of the ld.AO that the appellant has
furnished inaccurate documentation and failed to provide a
bonafide explanation in respect of the addition made to the
returned income."
2. Ld.Sr.Advocate Mr.S.Venkatraman submitted that no penalty can
be levied on T.P. adjustment, when certain comparables are included
and certain other comparables are excluded. As per the Ld.Counsel
addition of certain samples and deletion of certain samples, which
caused variation, is no ground for levy of penalty. He submitted that as
the assessee was having a loss, it did not file any appeal on the T.P.
adjustment. He filed the paper book. He relied on the decision of the
Delhi Bench of the Tribunal in the case of M/s Sony India P.Ltd. vs DCIT
118 TTJ 865. He also relied on the following case laws"-
i. Kanbay Software India P.Ltd. vs DCIT (2009)122 TTJ 721 (Pune)
ii. DCIT vs. M/s Vertex Customer Services (India) P.Ltd. 126 TTJ
184 (Delhi)
iii. ACIT Circle 4(2) vs M/s Firmenich Aromatics (India)P.Ltd. ITA
no.4654/Mumbai/2009 F Bench of the Tribunal order dt. 17th
May, 2010
iv. DCIT Circle 1(1), Baroda vs Advanced Sysstek P.Ltd. A Bench
ITAT Ahmedabad order dt. 11.5.2012
3. Ld.D.R. Mr.JH Ahalwal on the other hand submitted that the
arguments of the Sr.Counsel that no penalty can be levied under
Section 271(1)(c) on any adjustment made under transfer pricing
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M/s Verizon India (P) Ltd.
Assessment Year 2006-07
provisions is not sustainable in law. He submitted that when a
transfer pricing adjustment is made, it leads to a variation between
the returned income and the assessed income. He relied on the order
of the Ld.CIT(A) and submitted that not only comparables were added
but also the assessee had taken multiple year data, which is against
the express provisions of the Income Tax Act, 1961. He vehemently
contended that giving wrong comparables and wrong data, in
contravention of the provisions of the Income Tax Act, 1961
tantamounts to furnishing of inaccurate particulars. He highlighted
the fact that the selection of Besant Raj International Ltd. as a
comparable was deliberate, as this comparable was not thrown up by
any search process performed on Prowess or Capitaline. This
company was just added to the list of comparables without any
reason and only with the object of furnishing inaccurate particulars.
He similarly relied on other portions of the Commissioner of Income
Tax (Appeals)'s order and submitted that it cannot be laid down when
some comparables are included and other comparables are excluded
no penalty can be levied. He vehemently contended that the facts of
each case has to be looked into. He submitted that the assessee has
not proved its bonafide. He distinguished the case laws relied upon
by the assessee. In reply, the ld.counsel for the assessee reiterated its
contention that the entire exercise was bonafide.
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M/s Verizon India (P) Ltd.
Assessment Year 2006-07
4. Rival contentions heard. On a careful consideration of the
facts and circumstances of the case and on perusal of the papers on
record and orders of the authorities below, we hold as follows.
5. We do not agree with the proposition stated by the
Ld.Sr.Advocate Mr.N.Venkatraman that penalty under Section
271(1)(c) of the Income Tax Act, 1961 cannot be levied in cases where
adjustments have been made under transfer pricing provisions i.e.
Section 92A(4). What has to be seen, is whether the assessee has
undertaken a bonafide exercise for computing the arm's length price.
The question whether penalty is attracted under Section 271(1)(c) of
the Income Tax Act, 1961 or not is to be determined based on the
facts and circumstances of each case. No general proposition of law
can be laid down that in all cases of transfer pricing adjustements,
where some comparables, referred to as `samples' by the
Ld.Sr.Counsel, are rejected and certain other comparables are added,
penalty under Section 271(1)(c) of the Income Tax Act, 1961 cannot be
levied. The position of law is that, when there is a difference between
the assessed income and the returned income, there is a presumption
of concealment or furnishing of inaccurate particulars of income or
both, and the burden is on the assessee to explain the difference. The
A.O. would then consider as to whether this explanation is bonafide
and adopt various tests and propositions laid down by the Courts to
levy a penalty or to drop the proceedings.
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M/s Verizon India (P) Ltd.
Assessment Year 2006-07
6. There can not be any dispute on the broad propositions of
law canvassed by the assessee's counsel, as these are supported by
certain case laws. The propositions are,
a) Just because the assessee accepted the transfer pricing
adjustment, no penalty can be levied;
b) No penalty can be levied when the assessee's explanation is
bonafide;
c) Penalty cannot be levied when there are two possible views;
d) Penalty cannot be levied when the issue in question is debatable.
7. We have to consider whether on the facts and
circumstances of the case on hand, these propositions can be
applied. The assessee in this case has used multiple year data in
computing the arm's length price. The TPO, the Assessing Officer as
well as the Commissioner of Income Tax (Appeals) have held that,
such action by the assessee is contrary to the provisions of the
Income Tax Act, 1961 and thus it tantamounts to furnishing of
inaccurate particulars of income. Both the Assessing Officer as well
as the Commissioner of Income Tax (Appeals) relies on the decision of
the Special Bench of the Tribunal in the case of Aztek Software &
Technology Services Ltd. vs ACIT (2007) 294 ITR AT 32 Bangalore(SB)
as well as the case of Mentor Graphics P.Ltd. (2007) 109 ITD 10.
8. It can be seen that both these decisions were delivered after
July, 2007. Prior to that there was a legal debate as to whether
multiple year data can be used or the current year data has to be
used. The arguments of the parties on this issue can be found in
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M/s Verizon India (P) Ltd.
Assessment Year 2006-07
these decisions. The Assessment Year in question is 2006-07. In the
year 2006, when the assessee completed its Transfer Pricing study
and filed the return of income, this debate was very much alive. Thus
we are of the considered opinion that, this being a debatable issue at
the point of time when the assessee filed its return of income, the
assessee adopting multiple year data for arriving at arm's length price
is a bonafide exercise. Thus penalty levied on that account cannot be
sustained. The law on this issue was evolving.
9. Coming to the comparables being added and some being deleted
from the T.P. report, while adjudicating the appellant for Assessment
Year 2005-06, this Bench of the Tribunal has come to a conclusion
that the First Appellate Authority has rightly deleted the following
companies as comparables:-
a) TCE Consulting Engineers Ltd.
b) Engineers India Ltd.
c) Rights Ltd.
d) Water and Power Consultancy Services.
10. Thus deletion of these comparables cannot be aground for
imposition of penalty under Section 271(1)(c) of the Income Tax Act,
1961. As far as selection of Besant Raj International Ltd. is concerned as
a comparable, the TPO has accepted the same in the earlier AYs. Be as it
may, selection of comparables is a subjective exercise. The assessee has
seriously contested the conclusions drawn by the TPO on selection of
comparables for bench marking of international transactions. It is
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M/s Verizon India (P) Ltd.
Assessment Year 2006-07
another matter that the assessee chose not to carry the issue in appeal,
the reasons of which have been explained. That by itself does not
warrant levy of penalty under Section 271(1)(c) of the Income Tax Act,
1961.
11. In our considered opinion the assessee acted in the bonafide
manner in conducting its transfer pricing study and arriving at an arm's
length price. The explanation is bonafide and under those
circumstances the levy of penalty under Section 271(1)(c) of the Income
Tax Act, 1961 is not warranted.
12. In the result the appeal of the assessee is allowed.
Order pronounced in the Open Court on 17th September,2012.
Sd/- Sd/-
(A.D. JAIN) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 17th September, 2012
*manga
Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File
By Order
Dy. Registrar
ITA 5566/Del/2011 Page 9 of 9
M/s Verizon India (P) Ltd.
Assessment Year 2006-07
1. Date of Dictation:
2. Draft placed before the Author on:
3. Draft proposed and placed before Second Member on:
4. Draft discussed/approved by the Second Member on:
5. Approved draft came to Sr.P.S. on:
6. Date of Pronouncement :
7. File sent to Bench Clerk on :
8. Date on which file given to Head Clerk on:
9. Date of dispatching the Order on:
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