M/s. Royal & Sun Alliance IT Solutions (India) Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 5611/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7026 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2002-2003
• Appeal Filed On: 16-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 27

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT ME MBER ITA NO.:- 5611/DEL/2014 ASSESSMENT YEAR: 2002-03 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED AGAINS T IMPUGNED ORDER DATED 28.7.2014, PASSED BY LD. CIT (APPEALS) XVIII, NEW DELHI IN RELATION TO THE PENALTY PROCEEDINGS U/S 271(1)(C) FOR ASSESSMENT YEAR 2002-03. IN VARIOUS GROUNDS OF APPEAL, ASSESSEE HAS CHALLENGED THE LEVY OF PENALTY OF RS. 94,58,080/- MADE ON ACCOUNT O F TRANSFER PRICING ADJUSTMENT OF RS. 2,64,93,239/-. ROYAL & SUN ALLIANCE IT SOLUTIONS (INDIA) PVT. LTD. GROUND FLOOR, RIDER HOUSE, PLOT NO. 136, SECTOR 44 GURGAON PAN AABCR5242H VS. DCIT CIRCLE 15(1) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SANJAY KUMAR, CA DEPARTMENT BY : SHRI S.L. ANURAGI, SR. DR DATE OF HEARING 24/04/2018 DATE OF PRONOUNCEMENT 10/07/2018 2 2. THE FACTS IN BRIEF QUA THE ISSUE OF TRANSFER PRICING ADJUSTMENT ARE THAT, THE ASSESSEE COMPANY WAS SET UP IN MAY 1999 AS A WHOLLY OWNED SUBSIDIARY OF ROYAL & SUN ALLIANCE IT SOLUTIO NS PVT. LTD. UK WHICH IS ONE OF THE WORLDS LARGEST MULTI-NATIONAL INSU RANCE GROUP WITH OPERATIONS IN OVER 50 COUNTRIES. THE ASSESSEE WAS MAI NLY ENGAGED IN PROVIDING INFORMATION TECHNOLOGY SERVICES QUA THE RSA GROUP AND WAS ALSO PROVIDING SOFTWARE DEVELOPMENT/IT SOLUTIONS TO R SA GROUP OF COMPANIES. THE ASSESSEES ENTIRE OPERATION WAS WOUNDE D UP IN THE FINANCIAL YEAR 2004-05. THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS AE DURING THE YEAR WERE AS UNDER: - 3. THE ASSESSEE DURING THE YEAR HAD INCURRED OPERATING LOSS OF (-) 13.23% ON COSTS. IN THE TP STUDY REPORT, THE ASSESSEE ADOPTED THE TNMM TO JUSTIFY THE REMUNERATION RECEIVED BY ITS AE F OR THE SOFTWARE DEVELOPMENT ACTIVITY AND OTHER INTERNATIONAL TRANSACTIONS WERE SL. NO. INTERNATIONAL TRANSACTIONS METHOD VALUE (IN RS.) 1. SOFTWARE DEVELOPMENT AND MAINTENANCE SERVICES TNMM 115,334,358 2. PAYMENT FOR ADMINISTRATIVE SERVICES TNMM 4,996,086 3. SHARING OF WORLDWIDE NETWORK CHARGES 4,08 6, 439 4. RECOVERY OF EXPENSES 7,185,363 3 AGGREGATED WITH THIS TRANSACTION. THE COMPARABLE COMPA NIES CHOSEN FROM THE PUBLIC DATA BROUGHT OUT THE ARITHMETIC MEAN OF THE PROFIT MARGIN OF THE COMPARABLE AT 13.41%. THE AUDITORS WHO P REPARED THE TP STUDY REPORT RECOMMENDED THAT ASSESSEE SHOULD TARGE T AN OPERATING PROFIT MARGIN OF 13.41% FROM ITS OPERATION. HOWEVER, AS NOTED BY THE TPO IT IS NOT CLEAR AS TO HOW THE ASSESSEE H AS DETERMINED THE TRANSFER PRICE DURING THE YEAR. THE TPO FURTHER OB SERVED THAT ASSESSEE WAS SET UP AS 100% CAPTIVE SOFTWARE SERVICE PROVIDER TO ITS GROUP COMPANIES (AES) AND THERE WAS NO JUSTIFICATION BY THE ASSESSEE TO HAVE INCURRED LOSSES, MORE SO WHEN THE AUDITORS IN THE TP STUDY REPORT HAVE RECOMMENDED A TARGET MARGIN OF 13.41%. BEF ORE MAKING THE TRANSFER PRICING ADJUSTMENT, THE TPO OBSERVED THAT; FIRSTLY , ASSESSEE WAS FREE TO CARRY OUT SOFTWARE SERVICES FOR INDEPENDENT THIRD PARTY, THOUGH IT WAS SET UP AS CAPTIVE SOFTWARE SERVIC E PROVIDER; SECONDLY , AES HAVE NOT ENTERED INTO EXCLUSIVITY CONTRACT WITH THE ASSESSEE AS IT HAD TO COMPETE WITH OTHER THIRD PARTY S ERVICE PROVIDER TO GET THE WORK FROM ITS AES AND THE ASSESSEE COMPANY HAD TO ENTER INTO PRICE NEGOTIATIONS WITH ITS AES TO PROVIDE SERVICES AT MARKET COMPETITIVE RATES; THIRDLY , THE ASSESSEE WAS A FULL RISK BEARING SOFTWARE DEVELOPMENT COMPANY AND ASSESSEE DID NOT BIL L ITS AES ON COST PLUS BASIS BUT ON HOURLY RATE BASIS; AND LASTLY , THE LOSSES ARE ATTRIBUTABLE TO THE FACTORS NOT RELATED TO INTERNATIONAL TRANS ACTIONS. HE ALSO NOTICED THAT ASSESSEE HAD NOT PERFORMED EVEN A SINGLE PROJECT 4 TO ANY THIRD PARTY OTHER THAN THE RSA GROUP EVEN THOUGH IT HAD THE CAPACITY TO COMPETE AND OBTAIN INDEPENDENT CONTRACTS. A FTER DETAILED DISCUSSION, HE CONCLUDED IN THE FOLLOWING MANNER FO R DETERMINING THE ARMS LENGTH ADJUSTMENT:- '7. CONCLUSION: IN THE LIGHT OF THE ABOVE-STATED FACTS AND DISCUSSI ONS, IT IS FAIR TO CONCLUDE THAT THE ASSESSEE WAS SET UP AS 100% CAPTI VE SOFTWARE SERVICE PROVIDER FOR THE RSA GROUP TO MEET ITS IT N EEDS. THE ASSESSEE DID NOT HAVE AN OPTION TO OPTIMIZE ITS RET URN ON CAPITAL AND COSTS BY OBTAINING THIRD PARTY CONTRACTS. ITS C APITAL AND RESOURCES WERE LOCKED IN TO PROVIDE SERVICE ONLY TO RSA COMPANIES. THE UNDER UTILIZATION OF CAPACITY WAS NO T DUE TO THE INABILITY OF THE ASSESSEE TO GET CONTRACT FROM OPEN MARKET BUT DUE TO LACK OF ASSIGNMENT OF ADEQUATE WORK TO THE ASSES SEE BY RSA GROUP COMPANIES. 7.1 THE ASSESSEE HAS SUBMITTED REVENUE PROJECTIONS SHOWING THAT IF THE CAPACITY OF THE ASSESSEE HAD BEEN UTILIZED A S PER INDUSTRY NORMS IT WOULD HAVE EARNED 24% MARGIN ON COSTS. THE CRUCIAL QUESTION IS NOT WHETHER THE CAPACITY WAS UTILIZED B UT WHETHER THE UNDER UTILIZATION WAS DUE TO THE MARKET CONDITIONS OR DUE TO THE CONTROL EXERCISED BY THE ASSOCIATED ENTERPRISES. AT A THEORETICAL LEVEL, IT CAN BE ARGUED THAT EVEN IF LUCRATIVE CONT RACTS WOULD HAVE COME THE ASSESSEE'S WAY, IT COULD NOT HAVE TAKEN TH EM UP DUE TO ITS STATUS OF BEING A SUBSIDIARY OF RSA GROUP. THIS IS CONTRARY TO RISK REWARD MATRIX OF AN INDEPENDENT COMPANY OPERAT ING IN A FREE MARKET SCENARIO. THEREFORE, THE ASSESSEE OUGHT TO B E REMUNERATED NOT ONLY FOR THE PROJECTS CARRIED OUT BUT ALSO FOR THE COSTS INCURRED ON KEEPING ITSELF READY TO PERFORM SERVICES TO ONLY TO ITS AES. 8. DETERMINATION OF ARM'S LENGTH PRICE THE CONDITION DESCRIBED ABOVE SATISFY THE CONDITION S DESCRIBED IN SECTION 92(2) WHICH STATES, 'WHERE IN AN INTERNATIONAL TRANSACTION TWO OR MORE ASSOCIATED ENTERPRISE ENTER INTO A MUTUAL AGREEMENT OR ARRANGE MENT CONTRIBUTION TO ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN 5 CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROV IDED OR TO BE PROVIDED THE COST OR EXPENSE SHALL BE DETERMINED HA VING REGARD TO THE ARM'S LENGTH PRICE OF ANY SUCH BENEFIT, SERV ICE OR FACILITY AS THE CASE MAY BE'. 8.1 THE ARM'S LENGTH MARGIN FOR THE SERVICE PROVIDE D BY THE ASSESSEE HAS BEEN APPROPRIATELY DETERMINED BY THE A SSESSEE ITSELF IN THE TP REPORT. AS STATED EARLIER, THE TP REPORT HAD RECOMMENDED TO THE ASSESSEE THAT IT SHOULD TARGET A N OPERATING PROFIT MARGIN OF 13.41 % ON COSTS. AS THE REASONS G IVEN TO JUSTIFY THE DEPARTURE FROM THIS ARM'S LENGTH PRICE ARE NOT PERSUASIVE, THE REMUNERATION RECEIVED BY THE ASSESSEE FROM ITS AES IS TO BE ADJUSTED UPWARDS TO BRING IT AT ARM'S LENGTH. TOTAL COSTS INCURRED IN PROVIDING SERVICES TO AES - RS. 5,12,89,936 ARM'S LENGTH REMUNERATION (COSTS PLUS 13.41 %) - RS. 5,81,67,916 REMUNERATION RECEIVED FOR PROVIDING SERVICES TO AES -RS.3,16,74,677 AMOUNT OF ADJUSTMENT TO BE MADE - RS 2,64,93,239 8.2 THE ASSESSING OFFICER, THEREFORE, SHAL L MAKE AN ADDITION OF RS. 2,64,93,239 TO THE TOTAL INCOME OF THE A SSESSEE. 4. IN THE ASSESSMENT ORDER THE AO HAS COMPUTED THE I NCOME IN THE FOLLOWING MANNER:- INCOME AS PER COMPUTATION OF INCOME FILED WITH THE RETURN OF INCOME STP UNIT NON STP BUSINESS TOTAL INCOME (-)1,41,28, 369 (-) 7,35,849 (-) 1,48,64,21 8 ADD PROFIT AS DISCUSSED IN THE ORDER U/S 92CA(3) OF TPO-II RS. 2,64,93,239 (AS PER SEPARATE DETAILS FILED. THE AMOUNT OF EACH UNIT IS MENTIONED AGAINST THEM) (-)2,20,98,604 (+)43,94,638 (+) 2,64,93,239 79,70, 235/- 36,58,789/- 1,16,29,021 /- 6 INCOME OF STP UNIT RS. 79,70,235 IS EXEMPT U/S 10A FOR NIL THE 2 ND YEAR TAXABLE INCOME INCOME FROM NON STP BUSINESS AS COMPUTED ABOVE RS. 36,58,789/- ADD (OUT OF ADMN. EXPENSES RS.12,19,124/- AS DISCUSSED ABOVE RS. 48,77, 913 ADD: INTEREST INCOME BEING INCOME FROM OTHER SOURCES AS ADDED BY THE ASSESSEE IN THE COMPUTATION OF INCOME FILED WITH THE RETURN RS. 9,08, 317 TOTAL INCOME RS.57,8 6,283 ADJUST B/S LOSS AND DEPRECIATION OF NON-STP BUSINES S FOR A.Y. 2000-01 AND 2001-02 AS PER RECORD AND AS PER LAW A.Y. 2000-01 A.Y. 2001-02 BUSINESS LOSS RS. 8,63,817 RS. 8, 02,615 UNABSORBED DEPN. RS. 66,703 RS. 10,12,130 RS. 27,45,265 NET TAXABLE INCOME RS. 30,41,0 18 5. IN THE FIRST APPEAL THE APPEAL OF THE ASSESSEE ON TP ADJUSTMENT STOOD CONFIRMED AND THEREAFTER THE MATTER WAS NOT AGITATED BEFORE THE TRIBUNAL. 6. NOW THE PENALTY U/S 271(1)(C) HAS BEEN LEVIE D BY THE AO SIMPLY ON THE GROUND THAT THE TRANSFER PRICING ADJUSTMENT OF RS. 2,64,93,239/- HAS BEEN CONFIRMED BY THE LD. CIT(A). IN THE IMPUGNED PENALTY ORDER THE LD. CIT (A) THOUGH HAS INCORPORATED ENTIRE SUBMISSIONS/ EXPLANATION OF THE ASSESSEE WHICH IS RUN NING INTO MORE THAN 34 PAGES, BUT HAS CONFIRMED THE PENALTY BY MERELY STATING THAT 7 SUBMISSIONS OF THE ASSESSEE HAS BEEN CONSIDERED AND THE CASE LAW RELIED UPON BY THE COUNSEL ARE DISTINGUISHABLE ON FA CTS AND THEREFORE, ASSESSEES APPEAL DESERVES TO BE DISMISSED. NEITHER TH ERE IS ANY FINDING ON MERITS NOR ANY REBUTTAL ON THE VARIOUS CONTE NTIONS AND EXPLANATIONS FILED BY THE ASSESSEE. 7. BEFORE US LD. COUNSEL FOR THE ASSESSEE, SH RI SANJAY KUMAR AFTER NARRATING THE ENTIRE FACTS, SUBMITTED THAT THE ENTIRE TRANS FER PRICING ADJUSTMENT MADE BY THE AO IS BASED ON PURE HYPOTHESI S WHICH IS BASED ON THE REASONING THAT ASSESSEE DID NOT HAD ANY O PTION TO OPTIMISE ITS RETURN ON CAPITAL AND COSTS BY OBTAINING THIRD PARTY CONTRACTS, BECAUSE ALL ITS RESOURCES WERE LOCKED IN T O PROVIDE SERVICE ONLY TO RSA COMPANIES AND THE UNDERUTILISATION OF CAPA CITY WAS DUE TO LACK OF ASSIGNMENT OF ADEQUATE WORK TO THE ASSESSE E BY THE RSA GROUP COMPANIES; AND HENCE ASSESSEE OUGHT TO HAVE BE EN REMUNERATED NOT ONLY FOR THE PROJECT CARRIED OUT BUT A LSO FOR THE COSTS INCURRED ON KEEPING ITSELF READY TO PERFORM SERVICES TO ITS AE. THUS, TPO HAS PROCEEDED TO DETERMINE THE ARMS LENGTH PRICE ON THE PREMISE THAT EVEN THOUGH ASSESSEE HAS NOT PERFORMED ANY SERVICE S THEN ALSO AE SHOULD HAVE REMUNERATED IT BECAUSE THE ENTIRE CAPITA L RESOURCES OF THE ASSESSEE WERE NOT UTILISED. MR SANJAY KUMAR FURTHE R SUBMITTED THAT THE DETERMINATION OF ARMS LENGTH PRICE HAS TO BE ON THE BASIS OF A FAR ANALYSIS WITH UNCONTROLLED TRANSACTION. IF ASSESS EES MARGIN 8 WHICH WAS ACTUALLY A HUGE LOSS WAS NOT FOUND TO BE ACC EPTABLE, THEN TPO SHOULD HAVE DETERMINED HIS ARMS LENGTH PRICE UN DER THE MANNER PROVIDED UNDER THE ACT AND THE PRESCRIBED METHODS AS G IVEN UNDER THE RULES. ON THE REFERENCE OF TP STUDY REPORT, HE POINTED OUT THAT IT WAS A MERELY RECOMMENDATION/ TARGET WHICH WAS SUGGESTED FO R WHICH ASSESSEE SHOULD AIM AND ACHIEVE IN FUTURE. IT WAS NO T THAT SOMETHING WAS PROPOSED TO BE MADE IN THIS YEAR. THUS, THE ENTIRE TRANSFER PRICING ADJUSTMENT IS WITHOUT SANS ANY BASIS AND WITHOUT FOLLOWI NG THE PROPER PROCEDURE LAID DOWN UNDER THE ACT/ RULES; AND THEREFOR E, NO PENALTY EITHER FOR FURNISHING OF INACCURATE PARTICULARS OR FOR CONCEALMENT OF INCOME CAN BE LEVIED FOR SUCH KIND OF TP ADJUSTMENT. 8. ANOTHER IMPORTANT CONTENTION RAISED BY THE LD. CO UNSEL WAS THAT, AFTER MAKING THE ADDITION ON ACCOUNT OF ALP, THE LD. AO HAS ULTIMATELY GIVEN BENEFIT OF DEDUCTION U/S 10A WHILE CO MPUTING THE INCOME OF THE STP UNIT WHICH IS EVIDENT FROM THE COMPUTA TION OF INCOME APPEARING IN THE ASSESSMENT ORDER. THUS, OUT OF ADJUSTMENT OF RS. 2,64,93,239/-, ADDITION OF RS. 2,20,96,604/- HA S BEEN ADJUSTED IN THE STP UNIT AND INCOME HAS BEEN DETERMINED AT NIL AFTE R GIVING EXEMPTION U/S 10A. IN THIS MANNER PRACTICALLY NO ADDITI ON HAS BEEN MADE ON ACCOUNT OF TP ADJUSTMENT TO THE TUNE OF RS. 2.21 CRORES AND THEREFORE, NO PENALTY CAN BE CALCULATED FOR TAX SOUGH T TO BE EVADED. 9 THUS, HE SUBMITTED THAT ORDER OF THE AO AND CIT (A) LE VYING PENALTY U/S 271(1)(C) DESERVES TO BE VACATED. 9. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON T HE ORDER OF THE AO AND CIT (A) AND SUBMITTED THAT THE ONUS WAS ON THE A SSESSEE TO ARRIVE AT PROPER ARMS LENGTH PRICE FOR THE INTERNATION AL TRANSACTIONS WHICH HAS NOT BEEN DONE AND EVEN THE RECOMMENDATION O F THE AUDITORS IN TP STUDY REPORT HAS NOT BEEN FOLLOWED. UND ER THESE FACTS THE TPO HAS RIGHTLY MADE THE TP ADJUSTMENT AND IS ALSO JUSTIFIED IN LEVYING THE PENALTY. REGARDING THE OTHER LIMB OF THE L D. COUNSELS CONTENTION THAT ULTIMATELY THE MAJORITY OF THE TP ADJUST MENT HAS BEEN TREATED AS EXEMPT U/S 10A, HE DID NOT SUPPORTED THE ORDE R OF THE AO AND SUBMITTED THAT THIS ACTION OF THE AO WAS NOT CORRECT, BUT ULTIMATELY THE ISSUE OF PENALTY HAS TO BE SEEN ON THE QUANTUM OF ADDITION PROPOSED BY THE TPO. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. IT IS NOT IN DISPUTE THAT ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF ITS FOREIGN AE WAS SET UP AS A 100% CAPTIVE SERVICE PROVIDER TO CATER INFORMATION TECHN OLOGY SERVICES AND SOFTWARE DEVELOPMENT /IT SOLUTIONS TO RSA GROUP O F COMPANIES. THERE WAS AN OPERATING LOSS OF 13.23% ON THE COST. TH OUGH TP DOCUMENTATION SUGGESTED THE ARMS LENGTH PRICE TARGET OF 13.41%, HOWEVER IT IS NOT CLEAR FROM THE RECORDS AS TO WHETHER ANY KIND OF 10 ADJUSTMENT WAS PROPOSED IN SUCH TP DOCUMENTATION. LD. T PO, HOWEVER HAS PROCEEDED TO MAKE THE TP ADJUSTMENT IN A CO MPLETELY ERRONEOUS MANNER. HIS MAIN PLANK FOR MAKING THE UPW ARD ADJUSTMENT WAS THAT THERE WAS UNDERUTILISATION OF CAPACITY BY THE A SSESSEE BECAUSE OF LESS ORDERS GIVEN BY THE AE TO ASSESSEE; A ND THEREFORE, ASSESSEE SHOULD HAVE BEEN REMUNERATED FOR IDLE CAPA CITY UTILISATION BY THE AE; AND ASSESSEE SHOULD HAVE BEEN ALLOWED TO OPER ATE IN AN INDEPENDENT MANNER AND IT DID NOT HAD ANY OPTION TO OP TIMISE ITS RETURN ON CAPITAL AND COST BY OBTAINING THIRD PARTY CON TRACTS. SUCH A REASONING FOR MAKING THE TP ADJUSTMENT WITHOUT CARRYING OUT INDEPENDENT ANALYSIS WITH COMPARABLE UNCONTROLLED TRA NSACTIONS CANNOT BE SUSTAINED. LD. TPO INSTEAD OF BENCHMARKING THE TRANSACTION UNDER THE PRESCRIBED METHOD AND FAR ANALYSI S WITH UNCONTROLLED TRANSACTIONS HAS PROCEEDED WITH THE HYPOTHES IS THAT IF THE FULL CAPACITY OF THE ASSESSEE HAD BEEN UTILISED I T WOULD HAVE EARNED 24% MARGIN ON THE COST AND THEREFORE, IT IS PRE SUMED THAT SUCH AN UNDER CAPACITY UTILISATION WAS DUE TO THE CO NTROL EXERCISED BY THE AE. SUCH AN INTERPRETATION FOR DETERMINING OF ARM S LENGTH PRICE IS UNKNOWN UNDER THE TRANSFER PRICING REGULATIONS EITHER UNDER THE INCOME TAX ACT OR UNDER THE RULES. IN CASE UNDER UTILI ZATION OF CAPACITY WAS THE FACTOR TRIGGERING ALP DETERMINATION, THEN THE LD. TPO SHOULD HAVE IDENTIFIED THE COMPARABLE IN SIMILAR LINE , THEN WOULD HAVE ANALYSED THE CAPACITY UTILISATION AND MADE SUITABLE AD JUSTMENT. 11 WITHOUT SUCH ANALYSIS THE ENTIRE BASIS ADOPTED BY THE TPO TO MAKE THE TP ADJUSTMENT IS WHOLLY VITIATED NOT ONLY ON FACTS BU T ALSO UNDER THE LAW. 11. ANOTHER BIZARRE APPROACH OF THE AO WHILE CO MPUTING THE INCOME OF THE ASSESSEE IS THAT, HE HAS GIVEN DEDUCTION U/S 10 A ON SUCH TRANSFER PRICING ADJUSTMENT WHICH IS AGAINST THE PROVIS ION OF LAW AS PROVISO BELOW SECTION 92C(4) CATEGORICALLY PROVIDES THAT NO S UCH DEDUCTION U/S 10A IS ALLOWABLE FOR TRANSFER PRICING A DJUSTMENTS MADE U/S 92C. BE THAT AS IT MAY BE, IF THE COMPUTATION OF THE AO IS TAKEN INTO CONSIDERATION, THEN ADDITION FOR ALP TO THE EXTENT OF RS. 2.21 CRORES HAS BEEN GIVEN EXEMPTION AND INCOME HAS BEEN COMPUTED AT NIL IN SO FAR AS STPL UNIT IS CONCERNED; AND ONLY RS. 43.94 LACS ADDITION HAS BEEN MADE ON ACCOUNT OF TP ADJUSTMENT IN THE ASSESSMENT ORDER. UNDER THESE FACTS OSTENSIBLY THE PENA LTY OF RS. 2.21 CRORES NEITHER COULD HAVE BEEN LEVIED NOR COULD HAVE BEEN COMPUTED BY THE AO, BECAUSE THERE IS NO TAX SOUGHT TO BE EVADED TO THE EXTENT OF THIS AMOUNT OF ADJUSTMENT. IN ANY CASE THE MANNER IN WHI CH ARMS LENGTH PRICE HAS BEEN DETERMINED AND TP ADJUSTMENT HAS BEEN MADE BY THE TPO, SAME IS UNSUSTAINABLE IN LAW AND CONSEQUE NTLY THERE CANNOT BE ANY QUESTION OF FURNISHING OF INACCURATE PA RTICULARS OF INCOME OR ANY CONCEALMENT OF INCOME. FURTHER THERE IS NO FINDING OR OBSERVATION BY THE AO THAT THE LOSS MARGIN OF 13.23% HAS BEEN FOUND 12 TO BE INCORRECT. SIMPLY BECAUSE ADJUSTMENT HAS BEEN MAD E ON CERTAIN HYPOTHESIS THAT AE SHOULD HAVE REMUNERATED IDLE CAPA CITY UTILISATION AND ASSESSEE WAS NOT ALLOWED TO CARRY OUT ANY CONTRACT WITH THE THIRD PARTY IN THE OPEN MARKET AND THEREFORE, IT SHOULD HAVE EARNED MORE MARGIN CANNOT BE THE BASIS FOR LEVY OF PENALTY U/S 27 1(1)(C). HENCE UNDER THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT THE PE NALTY OF RS. 94,58,080/- IS UNSUSTAINABLE AND IS DIRECTED TO BE DE LETED. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2018. SD/- SD/- (PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI