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M/s Verizon Communication India P.Ltd. A Wing, 3rd floor, Radisson Commercial Plaza, N.H. 8 New Delhi vs. DCIT Circle 17(1) New Delhi
September, 19th 2012
              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
                                   ITA 5566/Del/2011                    Page 3 of 9
                              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
                            ITA 5566/Del/2011                     Page 4 of 9
                       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.
                             ITA 5566/Del/2011                          Page 5 of 9
                        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.
                             ITA 5566/Del/2011                       Page 6 of 9
                        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
                               ITA 5566/Del/2011                  Page 7 of 9
                          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
                                 ITA 5566/Del/2011                     Page 8 of 9
                            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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