Mitsui Prime Advanced Composites India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 550/DEL/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8179 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 21-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Wrong claim; Difference of opinion; Revised return; Capital expenditure
• Section: 92C; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.550/DEL/2016 ASSESSMENT YEAR : 2010-11 MITSUI PRIME ADVANCED COMPOSITES INDIA PVT. LTD., FF-08, FIRST FLOOR, JMD REGENT PLAZA, NEAR GURU DRONACHARYA METRO STATION, MG ROAD, GURGAON. PAN : AAFCM1458C VS. DCIT, CIRCLE-6(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KANCHAN KAUSHAL, CA & SHRI RAVI SHARMA, ADVOCATE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 19.04.2016 DATE OF PRONOUNCEMENT : 28.04.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 16.10.2005 CONFIRMING THE PENALTY OF RS.1 ,20,00,000/- IMPOSED ITA NO.550/DEL/2016 2 BY THE ASSESSING OFFICER (AO) U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010- 11. 2. THE FACTS LEADING TO THE IMPOSITION AND CONFIRMA TION OF THIS PENALTY ARE THAT THE ASSESSEE IS A SUBSIDIARY OF MITSUI CHE MICALS INC., A COMPANY INCORPORATED IN JAPAN. THE ASSESSEE CAME TO BE INCO RPORATED TO CARRY ON THE BUSINESS OF MANUFACTURE AND SALE OF ALL TYPES OF PO LY PROPYLENE AND POLY PROPYLENE COMPOUNDS. IT FILED ITS RETURN DECLARING LOSS OF RS.40,65,21,868. SIX INTERNATIONAL TRANSACTIONS WERE REPORTED IN FOR M NO. 3CEB. THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (T NMM) WITH PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT/OPERATING REVENUE (OP/OR) TO DEMONSTRATE THAT ITS INTERNATIONAL TRANSACTIONS WER E AT ARMS LENGTH PRICE (ALP). ON A REFERENCE MADE BY THE AO TO THE TRANSF ER PRICING OFFICER (TPO) FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS, THE LATTER ACCEPTED ALL THE INTERNATIONAL TRANSACTIONS AT ALP SAVE AND EXCEPT AVAILING OF SPECIFIED BUSINESS AND CONSULTANCY SER VICES WITH TRANSACTED VALUE OF RS.3,14,94,387/-; AVAILING OF ENGINEERING SUPPORT SERVICES ITA NO.550/DEL/2016 3 WORTH RS.13,03,786/-; AND AVAILING OF MANAGEMENT S UPPORT SERVICES WITH VALUE OF RS.3,91,181/-. THE TPO OBSERVED THAT THE ASSESSEE IS A ROUTINE MANUFACTURER AND MARKETER OF SPECIALTY CHEMICALS AN D COMPOUNDS USED FOR MANUFACTURING AUTOMOTIVE PARTS. HE PROCEEDED TO AN ALYSE THE SERVICES AVAILED BY THE ASSESSEE THROUGH THESE INTERNATIONA L TRANSACTIONS. 3. QUA THE FIRST INTERNATIONAL TRANSACTION OF AVAILING O F SPECIFIED BUSINESS AND CONSULTANCY SERVICES, THE TPO OBSERVE D THAT THE ASSESSEE ENTERED INTO A CONTRACT OF ACCESSION WITH ITS AE WH EREIN THE AE, NAMELY, GRAND SIAM COMPOSITES CO. LTD. (GSC) AGREED TO PROV IDE THE ASSESSEE THE CONSULTANCY SERVICES IN RELATION TO THE PROJECT OF SUPPLY OF POLYPROPYLENE COMPOUNDS TO MARUTI SUZUKI LTD. THE ASSESSEE JUSTI FIED THE ALP OF THIS TRANSACTION BY SUBMITTING, AS HAS BEEN EXTRACTED ON PAGE 3 OF THE TPOS ORDER, THAT PAYMENTS MADE TO GSC WAS FOR BUSINESS ( I.E. SALE OF POLYPROPYLENE COMPOUND BUSINESS WITH MARUTI SUZUKI LTD.) AND CONSULTANCY SERVICES. IT WAS EXPLAINED THAT THE A SSESSEE, BEING A NEW PLAYER IN THE INDUSTRY, DID NOT HAVE ITS OWN CUSTOM ER BASE IN INDIA AND THAT IS WHY IT ENTERED INTO AN AGREEMENT WITH GSC FOR TR ANSFER OF ITS BUSINESS ITA NO.550/DEL/2016 4 WITH MARUTI SUZUKI LTD. TO IT ALONG WITH CONSULTANC Y SERVICES, AGAINST PAYMENT OF BAHT 22396805 (CONVERTED INTO INDIAN RUP EE AT RS.3.14 CRORE). 4. AS REGARDS THE INTERNATIONAL TRANSACTION OF AVA ILING OF ENGINEERING SUPPORT SERVICES WITH TRANSACTED VALUE OF RS.13,03 ,786/-, THE TPO REQUIRED THE ASSESSEE TO FURNISH INFORMATION WITH R EGARD TO NATURE OF SUCH SERVICES AVAILED BY IT. SUCH INFORMATION WAS GIVEN STATING, INTER ALIA , THAT IT ENTERED INTO AN AGREEMENT WITH ITS AES (MITSUI C HEMICALS INC., PRIME POLYMER COMPANY LTD. AND MITSUI CHEMICALS ASIA PACI FIC LTD.) WHEREBY THE AES AGREED TO PROVIDE TECHNICAL AND ENGINEERING SERVICES TO THE ASSESSEE BY SECONDING THEIR EMPLOYEES. THE AES PRO VIDED THE SERVICES AS HAVE BEEN ENUMERATED ON PAGE 4 OF THE TPOS ORDER. NEED FOR SERVICES WAS ALSO GIVEN STATING THAT IT WAS SETTING UP A MAN UFACTURING FACILITY IN ALWAR, RAJASTHAN, FOR MANUFACTURE OF POLY PROPYLENE COMPOUNDS FOR WHICH TECHNICAL SERVICES FOR CONSTRUCTION OF FACILITY, SU CH AS, ASSISTANCE IN PLANT DESIGN, PROCUREMENT OF MATERIAL AND OTHER RELEVANT CONSULTANCY WERE ITA NO.550/DEL/2016 5 PROVIDED BY THE AES BY SENDING EXPERTS/PERSONNEL WI TH REQUIRED SKILLS AND EXPERIENCE AVAILABLE WITH THEM. 5. FOR THE THIRD INTERNATIONAL TRANSACTION OF AVAI LING OF MANAGEMENT SUPPORT SERVICES WITH VALUE OF RS.3,91,181/-, THE ASSESSEE SUBMITTED THAT IT ENTERED INTO AGREEMENT WITH ITS AE, NAMELY, MITSUI CHEMICALS INC., FOR AVAILING MANAGEMENT SUPPORT SERVICES FOR THE PURPOS ES OF ESTABLISHING AND DEVELOPING OPERATING SYSTEMS OF LOGISTICS IN INDIA. NEED FOR SUCH SERVICES WAS ALSO TENDERED, WHICH HAS REPRODUCED ON PAGE 5 O F THE TPOS ORDER. 6. THE TPO NOTICED THAT THE ASSESSEE DID NOT IDE NTIFY AND PROVIDE DETAILS OF THE SERVICES AND CORRESPONDING PAYMENT MADE FOR EACH AND EVERY SERVICE. THE ASSESSEE WAS REQUIRED TO FURNISH THE COST BENEFIT ANALYSIS. AFTER RELYING ON CERTAIN DECISIONS, THE TPO CAME TO HOLD THAT CONSIDERATION PAID FOR AVAILING THE ABOVE REFERRED THREE SERVICES TO DIFFERENT AES WAS TO BE CONSIDERED AS SEPARATE CLASS OF TRANSACTIONS REQ UIRING SEPARATE BENCHMARKING UNDER THE TRANSFER PRICING PROVISIONS. HE WENT ON TO ANALYSE THE ASSESSEES SUBMISSIONS GIVEN ON THE NEED FOR AV AILING THESE SERVICES AND HELD THAT THE ASSESSEE FAILED TO GIVE ANY EVIDE NCE AS TO THE BENEFIT ITA NO.550/DEL/2016 6 ACCRUING TO IT BY THE SUPPOSED RECEIPT OF THESE SER VICES AND EVEN OTHERWISE THERE WAS HIGH POSSIBILITY OF DUPLICATION OF SUCH S ERVICES. IN THIS BACKGROUND OF THE FACTUAL MATRIX, THE TPO HELD THAT NO ENTERPRISE WOULD ENTER INTO A BLANKET AGREEMENT WITH IDENTIFIED PERF ORMANCE DELIVERY PROMISE BY THE SERVICE PROVIDER UNDER UNCONTROLLED SITUATION. IN THE ULTIMATE ANALYSIS, HE SEPARATED THESE THREE INTERNA TIONAL TRANSACTIONS OF INTRA-GROUP SERVICES FROM THE OTHER INTERNATIONAL T RANSACTIONS AND DETERMINED THEIR ALP UNDER THE COMPARABLE UNCONTROL LED PRICE (CUP) METHOD AT NIL, WHICH LED TO THE RECOMMENDATION OF A TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.3,31,89,364/-. THE AO P ASSED THE ASSESSMENT ORDER MAKING SUCH ADDITION, THEREBY REDUCING THE DE CLARED LOSS TO RS.37.33 CRORE. THE ASSESSEE DID NOT CHALLENGE THE ADDITION IN APPEAL. THEREAFTER, PENALTY PROCEEDINGS WERE INITIATED BY THE AO. DURI NG THE COURSE OF SUCH PENALTY PROCEEDINGS, THE ASSESSEE URGED FOR NOT IMP OSING ANY PENALTY ON THE GROUND THAT IT WAS NOT A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS AS THE ADDITION WAS NOT CHAL LENGED IN QUANTUM PROCEEDINGS BECAUSE THE RETURNED LOSS WAS MARGINALL Y REDUCED FROM RS.40.65 CRORE TO RS.37.33 CRORE. THE ASSESSEE ALS O REITERATED THE REASONS ITA NO.550/DEL/2016 7 ADVANCED DURING THE COURSE OF PROCEEDINGS BEFORE TH E TPO THAT THE SERVICES WERE, IN FACT, AVAILED FOR WHICH THESE PAY MENTS TOTALING TO RS.3.31 CRORE WERE MADE. NOT CONVINCED, THE AO IMPOSED PEN ALTY AT RS.1.20 CRORE, WHICH CAME TO BE UPHELD IN THE FIRST APPEAL. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF THIS PENALTY. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. REJECTING THE APPLICATION OF T NMM ON ENTITY LEVEL, THE TPO PROPOSED TRANSFER PRICING ADJUSTMENT AMOUNT ING TO RS.3.31 CRORE BY DETERMINING NIL ALP OF THE THREE INTERNATIONAL T RANSACTIONS UNDER THE CUP METHOD BY BASING HIS CONCLUSION ON THE FACT THA T THE ASSESSEE DID NOT AVAIL ANY SERVICES INASMUCH AS NO BENEFIT WAS DERIV ED BY IT AND, IN ANY CASE, IT AMOUNTED TO DUPLICATION OF SERVICES. UNDE R SUCH CIRCUMSTANCES, A QUESTION ARISES AS TO WHETHER PENALTY U/S 271(1)(C) CAN BE IMPOSED. IN THIS REGARD, WE FIND THAT THE RELEVANT PROVISION IS EXPL ANATION 7 TO SECTION 271(1), WHICH READS AS UNDER:- EXPLANATION 7. WHERE IN THE CASE OF AN ASSESSEE WHO HAS ENTERED I NTO AN INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION DEFINED IN SECTION 92B, ANY AMOUNT IS ADDED OR DISALLOWED IN C OMPUTING THE TOTAL INCOME UNDER SUB-SECTION (4) OF SECTION 92C, THEN, THE AMOUNT SO ADDED OR ITA NO.550/DEL/2016 8 DISALLOWED SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNI SHED, UNLESS THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSIN G OFFICER OR THE COMMISSIONER (APPEALS) OR THE PRINCIPAL COMMISSIONE R OR COMMISSIONER THAT THE PRICE CHARGED OR PAID IN SUCH TRANSACTION WAS COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 92C AND IN THE MANNER PRESCRIBED UNDER THAT SECTION, IN GOOD FAITH AND WITH DUE DILIGENCE. 8. A PERUSAL OF THIS EXPLANATION TRANSPIRES THAT AN Y ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT SHALL BE DEEMED TO R EPRESENT INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED IN TERMS OF SECTION 271(1)(C), THEREBY INVITING PENALTY UNDER THIS PROVISION. HOWEVER, THE EXCEPTION ENSHR INED IN THIS PROVISION ITSELF STATES THAT NO PENALTY WILL BE IMPOSED PURSU ANT TO THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT, IF THE ASSE SSEE PROVES TO THE SATISFACTION OF THE AUTHORITY THAT THE PRICE CHARGE D OR PAID IN SUCH A TRANSACTION WAS IN ACCORDANCE WITH THE PROVISIONS O F SECTION 92C AND SUCH PRICE WAS COMPUTED AS PER THE MANNER PRESCRIBED UND ER THAT SECTION IN GOOD FAITH AND DUE DILIGENCE. THIS DIVULGES THAT PE NALTY U/S 271(1)(C) IN RESPECT OF ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS NOT IMPOSABLE ONLY WHEN THE ASSESSEE PROVES TO THE AUTH ORITY THAT THE PRICE ITA NO.550/DEL/2016 9 PAID BY IT WAS COMPUTED IN TERMS OF SECTION 92C AND IN A MANNER PRESCRIBED UNDER THE SECTION AND THIS EXERCISE WAS DONE IN GOOD FAITH AND DUE DILIGENCE. 9. SECTION 92C OF THE ACT DEALS WITH THE COMPUTATI ON OF ARMS LENGTH PRICE. SUB-SECTION (1) PROVIDES THAT THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY AN Y OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION ETC., NAMELY : (A) COMPARABLE UNCONTROLLED PRICE METHOD; (B) RESALE PRICE METHOD; (C) COST PLUS METHOD; (D) PROFIT SPLIT METHOD; (E) TRANSACTIONAL NET MA RGIN METHOD; (F) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. SU B-SECTION (2) PROVIDES THAT THE MOST APPROPRIATE METHOD REFERRED TO IN SUB -SECTION (1) SHALL BE APPLIED FOR DETERMINING ALP IN THE MANNER AS MAY BE PRESCRIBED. THUS, IT CAN BE NOTICED THAT THERE ARE FIVE METHODS SPECIFIC ALLY MENTIONED IN ADDITION TO CLAUSE (F) OF SECTION 92C(1) WHICH REFE RS TO SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. THE OTHER METH OD HAS BEEN PRESCRIBED BY THE BOARD IN TERMS OF RULE 10AB WITH RETROSPECTIVE EFFECT ITA NO.550/DEL/2016 10 FROM 1.4.2012 APPLICABLE TO ASSESSMENT YEAR 2012-13 AND SUBSEQUENT YEARS. WE ARE DEALING WITH ASSESSMENT YEAR 2010-11 . AS SUCH, THE ALP FOR THE YEAR UNDER CONSIDERATION COULD HAVE BEEN DE TERMINED ONLY BY APPLYING ANY OF THE FIVE SPECIFIED METHODS. THE AS SESSEE APPLIED TNMM AS PER CLAUSE (E) OF SECTION 92C(1), WHICH WAS REJE CTED BY THE TPO, WHO APPLIED CUP AS THE MOST APPROPRIATE METHOD AS PER C LAUSE (A) OF SECTION 92C(1). THUS, IT IS CLEAR THAT THE ASSESSEES APPL ICATION OF TNMM IN RESPECT OF THE THREE INTERNATIONAL TRANSACTIONS UND ER CONSIDERATION IS IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 92C. FURTHER, SUCH DETERMINATION IS `IN THE MANNER PRESCRIBED UNDER T HAT SECTION BECAUSE THE TPO HAS NOWHERE HELD THAT THE ASSESSEE CALCULATED A LP OF THESE TRANSACTIONS IN A MANNER DIFFERENT FROM THE ONE PRE SCRIBED UNDER RULE 10B(1)(E), WHICH CONTAINS MECHANISM FOR CALCULATING THE ALP UNDER THE TNMM. 10. THE NEXT INGREDIENT WHICH IS CRUCIAL FOR EVADIN G PENALTY U/S 271(1)(C) IS THAT THE APPLICATION BY THE ASSESSEE OF MOST APP ROPRIATE METHOD FOR DETERMINING ALP SHOULD BE IN GOOD FAITH AND WITH D UE DILIGENCE. NOW, ITA NO.550/DEL/2016 11 THE MOOT QUESTION IS WHETHER THE ASSESSEES APPLICA TION OF THE TNMM ON ENTITY LEVEL CAN BE CONSIDERED AS DONE IN GOOD FAIT H AND WITH DUE DILIGENCE AND WHETHER THE TPO WAS LAWFULLY JUSTIFIED IN DEPA RTING FROM THE ASSESSEES METHOD AND IN MAKING THE EXTANT ADDITION . 11. TO FIND AN ANSWER TO THIS QUESTION, WE NEED TO BRIEFLY REVISIT THE VITAL FACTS. THE TPO HAS DETERMINED NIL ALP OF THE THREE INTERNATIONAL TRANSACTIONS BY HOLDING THAT THE ASSESSEE DID NOT A VAIL ANY SERVICES FOR WHICH THE PAYMENT WAS MADE TO ITS AES AS NO BENEFIT WAS SHOWN TO HAVE BEEN RECEIVED, AND, IN ANY CASE, IT WAS A CASE OF D UPLICATION OF SERVICES. 12. WE DO NOT FIND ANY FORCE IN THE VIEW POINT O F THE TPO THAT IT WAS A CASE OF DUPLICATION OF SERVICES. IT IS FOR THE REAS ON THAT THE ASSESSEE WAS INCORPORATED IN THE FINANCIAL YEAR 2007-08 AND ITS ANNUAL ACCOUNTS FOR THE YEAR UNDER CONSIDERATION SHOW THAT THE MANUFACTURIN G ACTIVITY WAS UNDERTAKEN FOR THE FIRST TIME DURING THIS YEAR, AS AGAINST THE ONLY TRADING ACTIVITY IN THE PRECEDING YEAR. MANUFACTURING ACT IVITY WAS UNDERTAKEN AS A CONSEQUENCE OF THE ASSESSEE ENTERING INTO PROJECT CONSULTANCY AND BUSINESS TRANSFER AGREEMENT DATED 1.8.2009 WITH GS C WHICH IS ENGAGED ITA NO.550/DEL/2016 12 IN THE BUSINESS, INTER ALIA , OF MANUFACTURE AND SUPPLY OF POLY PROPYLENE COMPOUNDS AND WAS HITHERTO AN ESTABLISHED SUPPLIER OF POLY PROPYLENE COMPOUNDS TO MARUTI SUZUKI INDIA LTD. UNDER THIS A GREEMENT, THE ASSESSEE ACQUIRED `SPECIFIED BUSINESS AND CONSULTA NCY SERVICES FROM GSC FOR A CONSIDERATION OF RS.3.14 CRORE. THE `SPECIFI ED BUSINESS OF GSC WITH MARUTI SUZUKI LTD. WAS TRANSFERRED TO THE ASSE SSEE WITH ALL BUSINESS ACTIVITIES, TRANSACTIONS, CONTRACTS, ORDERS, INQUIR IES AND THE CONSULTANCY SERVICES IN RELATION TO THE TRANSITION OF SUCH BUS INESS. IN ADDITION TO THAT, GSC ALSO AGREED TO PROVIDE ALL TECHNICAL INFORMATIO N, KNOW-HOW, DATA, FORMULAE AND KNOWLEDGE RELATING TO THE PRODUCTS MAN UFACTURED AND SOLD TO MARUTI SUZUKI, WHICH STOOD TRANSFERRED TO THE ASSES SEE BY MEANS OF THIS AGREEMENT. IT APPEARS THAT THE TPO MISDIRECTED HIMS ELF IN EVALUATING THE INTERNATIONAL TRANSACTION OF PAYMENT OF RS.3.15 CRO RE TO GSC AS A MERE RENDERING OF SERVICES ALONE IN DISREGARD TO THE FAC T THAT THIS PAYMENT WAS MAINLY FOR ACQUIRING BUSINESS OF MARUTI SUZUKI LTD. AND RECEIPT OF TECHNICAL KNOW-HOW, ETC. FOR THE MANUFACTURE OF DES IRED PRODUCTS TO BE SOLD TO MARUTI SUZUKI LTD. A CRUCIAL FACTOR WHICH OUGHT TO HAVE BEEN CONSIDERED BY THE AO WAS IF SUCH PAYMENT FALLS IN C APITAL OR REVENUE FIELD. ITA NO.550/DEL/2016 13 SINCE THE AO HAS IMPOSED PENALTY BY CONSIDERING THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO ON THE PREMISE OF `NON-A VAILING OF SERVICES, WHICH POSITION IS CONTRARY TO THE ACTUAL FACTUAL MA TRIX OF HAVING ALSO RECEIVED THE ENTIRE BUSINESS WITH MARUTI SUZUKI LTD . FOR THE STATED CONSIDERATION, WE CANNOT IMPROVE THE ASSESSMENT ORD ER OR THE CONSEQUENTIAL PENALTY ORDER TO ROPE IN ANOTHER NEW REASON FOR CONFIRMING THE PENALTY. FATE OF THE PENALTY COULD HAVE BEEN D IFFERENT IF A PROPER ANALYSIS OF THE BUSINESS TRANSFER AGREEMENT HAD BEE N MADE BY THE AUTHORITIES TO ASCERTAIN IF SUCH PAYMENT OF RS.3.14 CRORE (OUT OF TOTAL ADDITION OF RS.3.31 CRORE) WAS A CAPITAL OR A REVEN UE EXPENDITURE. BACK TO OUR CONTEXT, IT IS FOUND THAT THE ASSESSEE DID RECE IVE BUSINESS FROM GSC AND TECHNICAL KNOW-HOW AS A QUID PRO QUO FOR THE PAYMENT OF RS.3.14 CRORE. 13. THE SECOND TRANSACTION OF AVAILING ENGINEERI NG SUPPORT SERVICES WAS ENTERED INTO PURSUANT TO AGREEMENT DATED 1.10.2007 WITH ITS AE, A COPY OF WHICH IS AVAILABLE AT PAGE 551 TO 568 OF THE PAPER BOOK. THIS AGREEMENT DIVULGES THAT THE ASSESSEE WAS PLANNING TO BUILD A NEW PLANT AND DESIRED TO ITA NO.550/DEL/2016 14 RECEIVE CERTAIN ENGINEERING SERVICES THROUGH THE EM PLOYEES OF ITS AE. THIS DEMONSTRATES THAT WHEREAS CONSIDERATION OF RS.3.14 CRORE WAS MAINLY FOR ACQUIRING `BUSINESS OF SUPPLY OF GOODS TO MARUTI S UZUKI, FOR WHICH IT WAS TO SET UP ITS OWN PLANT AND THE SECOND AMOUNT OF RS 13.03 LAC WAS PAID FOR AVAILING THE ENGINEERING SERVICES IN INSTALLING SU CH PLANT AND MACHINERY. THE THIRD INTERNATIONAL TRANSACTION IS PAYMENT OF A SMALL AMOUNT OF RS.3.91 LAC PAID TO AE FOR AVAILING MANAGEMENT SUPPORT SERV ICES. THESE SERVICES WERE RECEIVED PURSUANT TO AN AGREEMENT WITH PRIME P OLYMER CO. LTD., JAPAN, A COPY OF WHICH IS AVAILABLE AT PAGE 569 OF THE PAPER BOOK. THE SERVICES PROVIDED UNDER SUCH AGREEMENT HAVE BEEN SE T OUT IN CLAUSE 1.2, WHICH STATES THAT THE AE SHALL ASSIST IN BUSINESS O PERATIONS OF THE ASSESSEE AND IN MARKET DEVELOPMENT IN INDIA APART FROM RENDE RING ENGINEERING AND TECHNICAL SUPPORT SERVICES IN INDIA. A BRIEF DESCR IPTION OF THE ABOVE AGREEMENTS AMPLY SHOWS THAT THE ASSESSEE PAID UNDER THESE INTERNATIONAL TRANSACTIONS FOR ACQUIRING THE `BUSINESS OF SUPPLY TO MARUTI SUZUKI LTD. AND AVAILING ENGINEERING SERVICES FOR SETTING UP O F PLANT REQUIRED FOR MANUFACTURING OF THE PRODUCTS TO BE SUPPLIED TO MA RUTI SUZUKI. SINCE NO MANUFACTURING ACTIVITY WAS DONE BY THE ASSESSEE IN PAST AS IT WAS SIMPLY A ITA NO.550/DEL/2016 15 TRADER, ACQUIRING OF `BUSINESS AND AVAILING OF THE SERVICES UNDER THESE THREE AGREEMENTS CANNOT BE CHARACTERIZED AS DUPLICA TION OF SERVICES. 14. THE SECOND POINT OF VIEW OF THE TPO FOR DETERMI NING NIL ALP THAT THE ASSESSEE DID NOT AVAIL ANY SERVICES AT ALL, IS CLEARLY NOT CORRECT. WE HAVE NOTED THE FACTUM OF THE ASSESSEE ACTUALLY ACQU IRING `BUSINESS FROM GSC FOR SUPPLY OF PRODUCTS TO MARUTI SUZUKI LTD. AN D THEN AVAILING ENGINEERING SERVICES FOR SETTING UP OF PLANT FOR MA NUFACTURING THE DESIGNATED PRODUCTS. IT IS PURSUANT TO SUCH SETTIN G UP OF NEW MANUFACTURING FACILITY THAT THE ASSESSEE MADE SALES OF MANUFACTURED GOODS DURING THE YEAR AMOUNTING TO RS.30.43 CRORE. THIS INDICATES THAT THE BENEFIT DERIVED BY THE ASSESSEE FROM PAYMENTS UNDER THESE THREE INTERNATIONAL TRANSACTIONS CANNOT BE CONSIDERED AS NIL AS HAS BEEN DONE BY THE AUTHORITIES BELOW. THE PATENT REASON IS THAT T HE ASSESSEE NOT ONLY ACQUIRED A NEW BUSINESS FROM GSC BUT ALSO AVAILED S ERVICES FOR SETTING UP ITS PLANT ETC. DETAIL OF THE NATURE OF SERVICES AV AILED BY THE ASSESSEE FROM ITS AES IS CONTAINED IN THE LETTER DATED 18.12.201 3 ADDRESSED TO THE TPO, A COPY OF WHICH IS AVAILABLE AT PAGE 132 OF THE PAPER BOOK. THIS LETTER RUNS ITA NO.550/DEL/2016 16 INTO 48 PAGES THROUGH WHICH THE ASSESSEE EXPLAINED TO THE TPO ABOUT THE NATURE AND THE NEED FOR SERVICES. WE FIND THAT THER E IS A SUFFICIENT ELABORATION OF THE NATURE OF SERVICES AVAILED BY TH E ASSESSEE UNDER THESE THREE INTERNATIONAL TRANSACTIONS, WHICH HAVE NOT BE EN PROPERLY CONSIDERED BY THE TPO IN DETERMINING NIL ALP. HE HAS SIMPLY B RUSHED ASIDE THE ASSESSEES CONTENTIONS AND DETERMINED NIL ALP OF TH ESE THREE INTERNATIONAL TRANSACTIONS BASICALLY ON THE PREMISE THAT EITHER N O SERVICES WERE RECEIVED OR IN THE ALTERNATE, THE SERVICES, IF ANY, RECEIVED BY THE ASSESSEE AMOUNTED TO DUPLICATION OF SERVICES. 15. BE THAT AS IT MAY, WE FIND THAT ON THE `BENE FIT TEST AS APPLIED BY THE TPO FOR DETERMINING THE ALP AT NIL, THE HONBLE PUN JAB & HARYANA HIGH COURT IN KNORR-BREMSE INDIA P. LTD. VS. ACIT (2016)380 ITR 3 07 (P&H) HAS HELD THAT THE QUESTION WHETHER A TRANSACTION IS AT AN ARMS LENGTH PRICE OR NOT IS NOT DEPENDENT ON WHETHER THE TRANSACTION RESULTS IN AN INCREASE IN THE ASSESSEES PROFIT. A VIEW TO THE CONTRARY WOULD THEN RAISE A QUESTION AS TO THE EXTENT OF PROFITABILITY NECESSARY FOR AN ASS ESSEE TO ESTABLISH THAT THE TRANSACTION WAS AT AN ARMS LENGTH PRICE. A FURTHER QUESTION THAT MAY ARISE ITA NO.550/DEL/2016 17 IS WHETHER THE ARMS LENGTH PRICE IS TO BE DETERMIN ED IN PROPORTION TO THE EXTENT OF PROFIT. THUS, WHILE PROFIT MAY REFLECT UP ON THE GENUINENESS OF AN ASSESSEES CLAIM, IT IS NOT DETERMINATIVE OF THE SA ME. IT WENT ON TO HOLD THAT BUSINESS DECISIONS ARE AT TIMES GOOD AND PROFI TABLE AND AT TIMES BAD AND UNPROFITABLE. BUSINESS DECISIONS MAY AND, IN FA CT, OFTEN DO RESULT IN A LOSS. THE QUESTION WHETHER THE DECISION WAS COMMERC IALLY SOUND OR NOT IS NOT RELEVANT. THE ONLY QUESTION IS WHETHER THE TRAN SACTION WAS ENTERED INTO BONA FIDE OR NOT OR WHETHER IT WAS SHAM AND ONLY FOR THE PURP OSE OF DIVERTING THE PROFITS. REVERTING TO THE FACTS OF T HE EXTANT CASE, WE HAVE FOUND OUT ABOVE THAT THE THREE INTERNATIONAL TRANSA CTIONS ENTERED IN TO BY THE ASSESSEE WITH ITS AES WERE NOT ONLY GENUINE AND BONA FIDE BUT WERE ALSO GIVEN EFFECT TO. 16. IT IS MANIFEST THAT THE TPO APPLIED CUP METHOD FOR DETERMINING THE ALP OF THESE THREE INTERNATIONAL TRANSACTIONS. WHIL E APPLYING THE CUP METHOD, IT WAS OBLIGATORY UPON HIM TO BRING ON RECO RD SOME COMPARABLE UNCONTROLLED INSTANCES AVAILING SIMILAR SERVICES AS PER THE MANDATE OF RULE 10B(1)(A)(I). NOT EVEN A SINGLE COMPARABLE INSTANC E HAS BEEN BROUGHT ON ITA NO.550/DEL/2016 18 RECORD TO FACILITATE A COMPARISON BETWEEN THE PRICE FOR THE SERVICES AVAILED BY THE ASSESSEE VIS--VIS THAT PAID BY OTHER COMPARABLES IN SIMILAR CIRCUMSTANCES. 17. EVEN OTHERWISE, WE NOTICE THAT THE ACTION OF TH E TPO IN DETERMINING NIL ALP OF THESE THREE INTERNATIONAL TRANSACTIONS O N THE GROUND THAT NO SUCH SERVICES WERE REQUIRED TO BE AVAILED OR IT WAS A DUPLICATION OF SERVICES AND THEN THE AO MAKING ADDITION SIMPLY ON THE BASIS OF RECOMMENDATION OF THE TPO, IS NOT IN ACCORDANCE WITH THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730 (DEL ), IN WHICH IT HAS BEEN HELD THAT THE AUTHORITY OF THE TPO IS LIMITED TO CONDUCTING TRANS FER PRICING ANALYSIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO DECIDE IF SUCH SERVICES EXIST OR BENEFITS DID ACCRUE TO THE A SSESSEE. SUCH LATER ASPECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAI N OF THE AO. IN THAT CASE, IT WAS OBSERVED THAT THE E-MAILS CONSIDERED B Y TRIBUNAL FROM MR. BRAGANZA AND MR. CHOUDHARY DEALT WITH SPECIFIC INTE RACTION AND RELATED TO BENEFITS OBTAINED BY ASSESSEE, PROVIDING A SUFFICIE NT BASIS TO HOLD THAT ITA NO.550/DEL/2016 19 BENEFIT ACCRUED TO ASSESSEE. AS THE DETAILS OF SPE CIFIC ACTIVITIES FOR WHICH COST WAS INCURRED BY BOTH AES (FOR ACTIVITIES OF MR . BRAGANZA AND MR. CHOUDHARY), AND ATTENDANT BENEFITS TO ASSESSEE WERE NOT CONSIDERED, THE HON'BLE HIGH COURT REMANDED THE MATTER TO FILE OF C ONCERNED AO FOR AN ALP ASSESSMENT BY TPO, FOLLOWED BY AO'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW CONSIDERING THE DEDUCTIBILITY O R OTHERWISE AS PER SECTION 37(1) OF THE ACT. 18. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE , IT TURNS OUT THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT EQUAL TO THE STATED VALUE OF THREE INTERNATIONAL TRANSACTIONS AT RS.3.31 CRORE A ND ODD BY HOLDING THAT NO BENEFIT WAS RECEIVED BY THE ASSESSEE AS A RESULT OF AVAILING THE SERVICES OR THESE AMOUNTED TO DUPLICATION OF SERVICES AND HENCE NO PAYMENT ON THESE SCORES WAS WARRANTED. THE AO IN HIS DRAFT ORDER HAS TAKEN ALP OF THESE INTERNATIONAL TRANSACTION AT NIL ON THE BASIS OF RE COMMENDATION OF THE TPO WITHOUT CARRYING OUT ANY INDEPENDENT INVESTIGATION IN TERMS OF THE DEDUCTIBILITY OR OTHERWISE OF SUCH PAYMENT IN TERMS OF SECTION 37(1) OF THE ACT. THIS ADDITION HAS BEEN MADE BY THE AO IN HIS F INAL ASSESSMENT ORDER ITA NO.550/DEL/2016 20 GIVING EFFECT TO THE DIRECTION GIVEN BY THE DRP AND NOT BY INVOKING SECTION 37(1) OF THE ACT. AS PER THE RATIO DECIDENDI OF CUSHMAN & WAKEFIELD INDIA (P.) LTD. (SUPRA) , THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THESE THREE INTERNATIONAL TRANSACTIONS, UNCO NCERNED WITH THE FACT, IF ANY BENEFIT ACCRUED TO THE ASSESSEE AND THEREAFTER, IT WAS FOR THE AO TO DECIDE THE DEDUCTIBILITY OF THIS AMOUNT U/S 37(1) O F THE ACT. AS THE TPO IN THE INSTANT CASE INITIALLY DETERMINED NIL ALP BY HO LDING THAT NO BENEFIT ACCRUED TO THE ASSESSEE ETC. AND THE AO MADE THE AD DITION WITHOUT EXAMINING THE APPLICABILITY OF SECTION 37(1) OF THE ACT, WE FIND THE ACTIONS OF THE AO/TPO RUNNING IN CONTRADICTION TO THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA) . FOLLOWING THIS DECISION, THE MATTER IN QUANTUM, I F APPEALED AGAINST, WOULD HAVE REQUIRED A REMIT TO TH E FILE OF AO/TPO FOR DECIDING IT IN CONFORMITY WITH THE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THIS CASE. 19. COMING BACK TO THE EXPLANATION 7 TO SECTION 271 (1), WE FIND THAT NO DOUBT THE ADDITION OF RS.3.31 CRORE HAS BEEN MADE O N ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF THESE THREE INTERN ATIONAL TRANSACTIONS, BUT, ITA NO.550/DEL/2016 21 THE SAME CANNOT BE DEEMED TO REPRESENT THE INCOME I N RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTI CULARS HAVE BEEN FURNISHED BECAUSE THE ASSESSEE HAS PROVED THAT THE PRICE PAID BY IT UNDER SUCH TRANSACTIONS WAS COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 92C AND IN THE MANNER PRESCRIBED UNDER THE TNMM IN GOOD FAITH AND WITH DUE DILIGENCE. FURTHER THE ACTION OF THE T PO IN CHANGING THE MOST APPROPRIATE METHOD FROM TNMM TO CUP WITHOUT BRINGIN G ON RECORD ANY COMPARABLE INSTANCE, IS ITSELF FAULTY. IN ANY CASE, IT WAS THE AO WHO WAS TO DETERMINE WHETHER OR NOT SUCH EXPENSES WERE DEDUCTI BLE IN TERMS OF SECTION 37(1) AND NOT THE TPO, AS HAS BEEN DONE. WE HAVE NOTICED ABOVE THAT THE EXERCISE DONE BY THE TPO IN DETERMINING NI L ALP ON THE PREMISE THAT EITHER NO SERVICES WERE AVAILED BY THE ASSESSE E OR IN ANY CASE IT WAS A CASE OF DUPLICATION OF SERVICES, IS NOT ONLY UNSUBS TANTIATED BUT CONTRARY TO THE MATERIAL ON RECORD. THE MERE FACT THAT THE TPO DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTIONS CANNOT BE A REASON TO IMPOSE PENALTY U/S 271(1)(C) OF THE ACT. ITA NO.550/DEL/2016 22 20. THE LD. DR VEHEMENTLY ARGUED THAT PENALTY U/S 2 71(1)(C) SHOULD BE CONFIRMED BECAUSE THE ASSESSEE ACCEPTED THE ADDITIO N ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WITHOUT ASSAILING IT IN QUANTUM PROCEEDINGS. IT IS NOT IN DISPUTE THAT THE ASSESSEE ACCEPTED THE AD DITION WITHOUT CHALLENGING IT BEFORE THE APPELLATE FORUMS. BUT IN OUR CONSIDE RED OPINION, THE MERE FACT THAT AN ADDITION HAS BEEN MADE OR CONFIRMED DOES NO T PER SE LEADS TO IMPOSITION OF PENALTY U/S 271(1)(C). IT IS SIMPLE AND PLAIN THAT BOTH THE ASSESSMENT AND PENALTY PROCEEDINGS ARE DISTINCT FRO M EACH OTHER. IF THE CONTENTION OF THE LD. DR THAT THE ACCEPTANCE OF ADD ITION OR CONFIRMATION OF ADDITION IN QUANTUM PROCEEDINGS WOULD AUTOMATICALLY JUSTIFY IMPOSITION OF PENALTY IS TAKEN TO A LOGICAL CONCLUSION, THEN, THE RE WAS NO NEED TO HAVE SEPARATE PENALTY PROCEEDINGS. THE VERY FACT THAT T HE LEGISLATURE HAS NOT MADE PENALTY AUTOMATIC OF THE ADDITION OR ITS CONFI RMATION IN THE APPELLATE PROCEEDINGS AND HAS CREATED SEPARATE PENALTY PROCEE DINGS DURING WHICH THE ASSESSEE IS GIVEN DUE OPPORTUNITY TO PUT FORTH HIS POINT OF VIEW FOR NON- IMPOSITION OF PENALTY NOTWITHSTANDING THE SUSTENANC E OF ADDITION, AMPLY GOES TO SHOW THAT PENALTY IS NOT AUTOMATIC OF ADDIT ION. THE HONBLE CALCUTTA HIGH COURT IN CIT VS. BIMAL KUMAR DAMANI (2003) 261 ITR 87 ITA NO.550/DEL/2016 23 (CAL), HAS LAID DOWN THAT PENALTY IS NOT AUTOMATIC AS IT IS AN INDEPENDENT PROCEEDINGS WHICH IS REQUIRED TO BE INITIATED SEPAR ATELY AND SUCH PENALTY CAN BE IMPOSED ONLY AFTER GIVING OPPORTUNITY TO THE ASSESSEE. SIMILAR VIEW HAS BEEN TAKEN IN A CATENA OF DECISIONS WHICH WE AR E NOT REFERRING TO HEREIN FOR THE SAKE OF BREVITY. IN OUR CONSIDERED OPINION , THE NECESSARY CRITERIA FOR IMPOSITION OR NON-IMPOSITION OF PENALTY IS NOT THE SURRENDER OR NON- SURRENDER OF INCOME; ACCEPTANCE OR NON-ACCEPTANCE O F ADDITION; AND CONFIRMATION OR DELETION OF ADDITION IN QUANTUM PRO CEEDINGS. IN FACT, IT IS THE EVALUATION OF THE CIRCUMSTANCES LEADING TO THE SURRENDER/ADDITION OR CONFIRMATION OF ADDITION, WHICH DECIDE THE FATE OF PENALTY. WHERE A SURRENDER OR AN ADDITION IS MADE DUE TO ABSENCE OF BONA FIDE IN THE CONDUCT OF THE ASSESSEE, IT MAY BE A GOOD CASE FOR IMPOSITI ON OF PENALTY. ON THE OTHER HAND, IF A SURRENDER OR AN ADDITION IS MADE DUE TO FAILURE OF THE ASSESSEE TO ESTABLISH HIS CASE TO THE SATISFACTION OF THE AO DESPITE THE GENUINENESS OF THE EXPLANATION, IT WILL NOT CALL FO R IMPOSITION OF PENALTY, NOTWITHSTANDING SUCH AN ADDITION HAVING BEEN CONFIR MED IN APPEALS. FURTHER, AN HONEST DIFFERENCE OF OPINION BETWEEN TH E ASSESSEE AND THE REVENUE CAN NEVER BE A CAUSE FOR IMPOSITION OF PENA LTY. UNDER SUCH ITA NO.550/DEL/2016 24 CIRCUMSTANCES, THE CONTENTION OF THE LD. DR THAT THE FACTUM OF THE ASSESSEE NOT ASSAILING THE ADDITION IN QUANTUM PROC EEDINGS SHOULD BE CONSIDERED AS FATAL, IN OUR CONSIDERED OPINION, IS DEVOID OF MERITS. 21. THE LD. DR ALSO PLACED RELIANCE ON THE JUDGM ENTS OF THE HONBLE SUPREME COURT IN THE CASE OF MAK DATA P. LTD. VS. CIT (2013) 358 ITR 593 (SC); UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS AN D ORS. (2008) 306 ITR 277 (SC) AND CIT VS. ATUL MOHAN BINDAL (2009) 317 ITR 1 (SC) TO SUPPORT THE SUSTENANCE OF THE INSTANT PENALTY. IN OUR CONSIDERED OPINION, SUCH A RELIANCE IS IMPROPER IN SO FAR AS THE FACTS UNDER CONSIDERATION ARE CONCERNED. IN MAK DATA P. LTD. (SUPRA), THERE WAS A SURVEY CONDUCTED IN CASE OF THAT ASSESSEES SISTER CONCERN WHICH DIVULG ED THE ASSESSEES INVOLVEMENT. THE ASSESSEE SURRENDERED A PARTICULAR AMOUNT WHICH WAS BROUGHT TO TAX. WHEN THE QUESTION CAME ABOUT IMPOS ITION OF PENALTY, THE ASSESSEE CONTENDED THAT THE SURRENDER WAS MADE TO A VOID LITIGATION AND TO BUY PEACE. THIS CONTENTION FAILED TO CONVINCE THE H ONBLE SUPREME COURT BECAUSE THE VOLUNTARY SURRENDER WAS MADE IN VIEW OF DETECTION BY THE AO. SIMILAR IS THE POSITION REGARDING ANOTHER JUDGMENT OF THE HONBLE HIGH ITA NO.550/DEL/2016 25 COURT IN CIT VS. USHA INTERNATIONAL LTD. (2012) 254 CTR 509 (DEL), RELIED BY THE LD. DR, IN WHICH THE ACT OF THE ASSESSEE FIL ING A REVISED RETURN, WITHDRAWING WRONG CLAIM OF DEDUCTION, WAS NOT ACCEP TED AS A GENUINE REASON FOR EVADING PENALTY WHEN THE CONCEALMENT ALR EADY STOOD DETECTED BY THE AO. WE FIND THAT THESE TWO JUDGMENTS, NAMEL Y, MAK DATA P. LTD. (SUPRA) AND USHA INTERNATIONAL LTD. (SUPRA) ARE NOT RELEVANT IN THE BACKGROUND OF THE FACTS AS ARE INSTANTLY PREVAILING . IT IS NOT A CASE WHERE THE ASSESSEE EITHER SURRENDERED ANY INCOME OR FILED A REVISED RETURN OFFERING THE INCOME. NOR DID THE ASSESSEE COME FORW ARD TO SURRENDER THE AMOUNT OF RS.3.31 CRORE AND ODD. ON THE CONTRARY, I T IS A CASE IN WHICH THE ADDITION WAS MADE BY THE AO, WHICH WAS NOT FURTHER APPEALED AGAINST. THE REASON FOR NON-ASSAILING OF THIS ADDITION OF RS.3.3 1 CRORE IN QUANTUM PROCEEDINGS IS UNDERSTANDABLE INASMUCH AS THE ASSES SEE FURNISHED ITS RETURN DECLARING LOSS OF RS.40.65 CRORE AND AFTER MAKING T HIS ADDITION, STILL THERE WAS A LOSS OF RS.37.33 CRORE. THE LD. DR VEHEMENTL Y CONTENDED THAT PENALTY CANNOT BE DELETED EVEN IF THE INCOME RETURN ED AND ASSESSED IS A LOSS. WE ARE IN FULL AGREEMENT WITH THIS PROPOSITIO N. HOWEVER, IT IS NOT THE CASE OF THE ASSESSEE THAT NO PENALTY BE LEVIED DUE TO RETURNED AND ASSESSED ITA NO.550/DEL/2016 26 LOSS. ON THE CONTRARY, THE ASSESSEE IS TRYING TO PROVE ITS BONA FIDE IN NOT ASSAILING THE ADDITION IN QUANTUM PROCEEDINGS ON TH E GROUND THAT THE ADDITION WAS NOT CHALLENGED DUE TO EXISTENCE OF LOS S EVEN AFTER ADDITION AND THE ASSESSEE OPTING NOT TO CONTEST ADDITION TO AVOID PROTRACTED LITIGATION. 22. IN DHARMENDRA TEXTILE PROCESSORS AND ORS. (SUPRA) , THE HONBLE SUPREME COURT LAID DOWN THAT MENS REA IS NOT AN ESSENTIAL INGREDIENT OF SECTION 271(1)(C) AND THERE IS NO DISCRETION WITH T HE AUTHORITY COMPETENT TO IMPOSE PENALTY TO LEVY PENALTY BELOW THE PRESCRIBED LIMIT. IT IS PERTINENT TO MENTION THAT THE HONBLE SUPREME COURT IN ITS LATER DECISION IN UNION OF INDIA VS. RAJASTHAN SPINNING AND WEAVING MILLS (200 9) 224 CTR 1 (SC) HAS EXPLAINED ITS EARLIER DECISION IN DHARMENDRA TEXTILE PROCESSORS AND ORS (SUPRA) BY LAYING DOWN THAT THE EARLIER DECISION CANNOT BE SAID TO HOLD THAT PENALTY U/S 11AC OF CENTRAL EXCISE ACT WOULD A PPLY TO EVERY CASE. IT HAS BEEN MENTIONED THAT THE DECISION IN DHARMENDRA TEXTILE PROCESSORS (SUPRA) MUST BE UNDERSTOOD TO MEAN THAT THOUGH THE APPLICAT ION OF SECTION 11AC WOULD DEPEND UPON THE EXISTENCE OR OTHERWISE O F THE CONDITION ITA NO.550/DEL/2016 27 EXPRESSLY STATED IN THE SECTION, BUT, ONCE THE SECT ION IS APPLICABLE IN A CASE, THEN, CONCERNED AUTHORITY WOULD HAVE NO DISCRETION IN QUANTIFYING THE AMOUNT OF PENALTY. IN SO FAR AS THE RELIANCE OF TH E LD. DR ON DECISION IN THE CASE OF ATUL MOHAN BINDAL (SUPRA) IS CONCERNED, WE FIND THAT IN THIS CASE THE HONBLE SUPREME COURT HAS SIMPLY RESTORED THE M ATTER TO THE HONBLE HIGH COURT FOR TAKING A FRESH DECISION IN THE LIGHT OF THE JUDGMENTS IN THE CASE OF DHARMENDRA TEXTILE (SUPRA) AND RAJASTHAN SPINNING AND WEAVING MILLS (SUPRA) . IT IS FURTHER NOTICED THAT THE HONBLE SUPREME C OURT IN A LATER JUDGMENT IN CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. (2010) 322 ITR 158 (SC) HAS HELD THAT A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF WILL NOT ATTRACT PENALTY U/S 271(1)( C) WHEN THE ASSESSEE FURNISHES ALL THE RELEVANT PARTICULARS IN THE RETUR N WHICH ARE NOT FOUND TO BE INACCURATE. THIS SHOWS THAT EACH AND EVERY ADDITION DOES NOT LEAD TO IMPOSITION OF PENALTY AS HAS BEEN CANVASSED ON BEHA LF OF THE REVENUE. 23. THE RELIANCE OF THE LD. DR ON THE JUDGMENTS IN CIT VS. MUSSADI LAL RAM BHAROSE 165 ITR 14 (SC) AND CALCUTTA DISCOUNT COMPANY LTD. VS. ITO 41 ITR 191 (SC) IS AGAIN IMPROPER BECAUSE UNLIKE THOSE DECISIONS, W E ITA NO.550/DEL/2016 28 ARE NOT FACED WITH A SITUATION IN WHICH THE EXPLANA TION OF THE ASSESSEE FOR DETERMINING THE ALP IN THE MANNER AS DONE BY IT, WA S NOT BONA FIDE. SIMILAR IS THE POSITION INSOFAR AS THE RELIANCE OF THE LD. DR ON CIT VS. ZOOM COMMUNICATION PVT. LTD. (2010) 327 ITR 0510 (DEL) IS CONCERNED. IN THAT CASE PENALTY WAS CONFIRMED IN RESPECT OF CLAIM ON A CCOUNT OF PAYMENT OF INCOME-TAX AND CAPITAL EXPENDITURE WRITTEN OFF IN T HE P&L A/C OF THE ASSESSEE. IN UPHOLDING THE PENALTY, THE HONBLE HIG H COURT FOUND THAT THE CLAIMS BESIDES BEING INCORRECT IN LAW, WERE MALA FIDE . WE HAVE NOTICED ABOVE THAT THE ASSESSEE ACTED IN A BONA FIDE MANNER IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. RATHER, IT IS THE ACTION OF THE TPO IN DETERMINING NIL ALP, WHICH BY NO STANDARD CAN BE U PHELD IN VIEW OF THE DISCUSSION MADE HEREINABOVE. 24. THE LD. DR RELIED ON AN ORDER PASSED BY THE MUM BAI BENCH OF THE TRIBUNAL IN GENOM BIOTECH (P) LTD. VS. ITO (2016) 67 TAXMANN.CO M 219 (MUM) (TRIB) IN WHICH PENALTY HAS BEEN CONFIRMED U/S 271(1)(C). THE FACTS OF THAT CASE ARE THAT THE ASSESSEE THEREIN BE NCHMARKED ITS INTERNATIONAL TRANSACTIONS BY ADOPTING THE COST PLUS METHOD (CPM) . DURING THE COURSE ITA NO.550/DEL/2016 29 OF PROCEEDINGS, IT WAS FOUND BY THE TPO THAT AES OF THE ASSESSEE WERE ENGAGED IN BUYING SIMILAR PRODUCTS FOR SALE FROM UN RELATED PARTIES AS WELL. HE, THEREFORE, APPLIED THE CUP METHOD BY TREATING S UCH TRANSACTION WITH THIRD PARTIES AS A BENCHMARK. THE ADDITION SO MADE BY THE TPO WAS ACCEPTED BY THAT ASSESSEE, WHICH LED TO THE IMPOSIT ION OF PENALTY U/S 271(1)(C). WHEN THE MATTER OF PENALTY FINALLY CAME UP BEFORE THE TRIBUNAL, IT WAS OBSERVED THAT THE ASSESSEE DID NOT ADOPT CUP METHOD KNOWING VERY WELL THAT INTERNALLY COMPARABLE UNCONTROLLED TRANSA CTIONS WERE AVAILABLE. THE ASSESSEES APPLYING CPM IN SUCH CIRCUMSTANCES W AS FOUND TO BE AN EVIDENCE OF ABSENCE OF DUE DILIGENCE AND GOOD FAITH . WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE, WE FIND THAT EVEN TH E TPO HAS NOT BROUGHT OUT ANY COMPARABLE TRANSACTION UNDER THE CUP METHOD. H IS ENTIRE CASE IS BASED ON DUPLICATION OF SERVICES AND/OR NON-AVAILME NT OF ANY SERVICES BY THE ASSESSEE FROM ITS AES, WHICH HAS BEEN FOUND BY US TO BE UNTENABLE. THUS, THIS DECISION OF MUMBAI BENCH IS DISTINGUISHA BLE AND DOES NOT SUPPORT THE REVENUES CASE. ON THE CONTRARY, WE F IND THAT THE ASSESSEES CASE IS COVERED BY ANOTHER DECISION OF THE MUMBAI B ENCH OF THE TRIBUNAL IN DCIT VS. RBS EQUITIES INDIA LTD. (2011) 13 TAXMANN. COM 30 (MUM) IN ITA NO.550/DEL/2016 30 WHICH PENALTY U/S 271(1)(C) HAS BEEN DELETED IN SOM EWHAT SIMILAR CIRCUMSTANCES. IF WE ACCEPT THE CONTENTION OF THE L D. DR THAT ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT INVARIABLY M EANS ABSENCE OF GOOD FAITH AND DUE DILIGENCE, THEN, EACH AND EVERY CASE INVOLVING TRANSFER PRICING ADJUSTMENT WOULD CALL FOR IMPOSITION OF PEN ALTY U/S 271(1)(C). THE PROPOSITION SO PROPOUNDED ON BEHALF OF THE REVENUE IS TOO WIDE AND CLEARLY UNACCEPTABLE INASMUCH AS THE INTENTION OF T HE LEGISLATURE IS TO IMPOSE PENALTY DUE TO ADDITION ON ACCOUNT OF TRANSF ER PRICING ADJUSTMENT ONLY WHEN GOOD FAITH AND DUE DILIGENCE ARE LACKING AND NOT BECAUSE OF A GENUINE AND VALID DIFFERENCE OF OPINION IN THE DETE RMINATION OF ALP OF AN INTERNATIONAL TRANSACTION. 25. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE SAT ISFIED THAT THE ASSESSEE HAS SATISFIED ALL THE REQUISITE CONDITIONS AS STIPU LATED IN THE EXCEPTION CRAFTED IN EXPLANATION 7 GRANTING IMMUNITY AND HENC E IT CANNOT BE VISITED WITH PENALTY U/S 271(1)(C) OF THE ACT. EX CONSEQUENTI , THE IMPUGNED ORDER IS SET ASIDE AND THE PENALTY IS DELETED. ITA NO.550/DEL/2016 31 26. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.04.201 6. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 28 TH APRIL, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.