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The Tax Publishers Mitsui Prime Advanced Composites India (P) Ltd. v. DCIT [ITA No. 550/Del/2016, dt. 28-4-2016] : 2016 TaxPub(DT) 2208 (Del-Trib) Concealment penalty in TP addition under section 271(1)(c) explanation 7. *Facts:* Assessee was in the business of manufacturing of poly propylene and related compounds and was a subsidiary of Mistui Chemicals Inc. Japan. AE transactions were benchmarked using TNMM method. TPO picked 3 transactions of the AE viz. Specified consultancy and business services, engineering support services and management support services and read that there was no benefit test proven and the appropriate method is CUP which needs to be applied instead of TNMM thus added back 3.31 crores. Penalty under section 271(1)(c) explanation 7 was consequentially levied. It was factual that the AEs were doing business with Maruti Suzuki and to serve them better certain businesses and consultancy, engineering and management support was transferred to the assessee for which the said payments had happened to the AEs. The said penalty was upheld by the Commissioner (Appeals). Aggrieved assessee went in appeal: Held in favour of the assessee that penalty is not required to be levied mechanically applying the said explanation 7 of section 271(1)(c). Points for levy of concealment penalty under TP provisions :-- Assessee must not have followed one of the 5 methods as per section 92C. The method must have not been an appropriate method application on facts, but not on good faith as in this case. There is no logic of services being duplicated in this case. There was no appeal from the assessee on the addition is not a reason for levy of penalty. Benefit test is not required in all circumstances as pointed out by the Knorr-Bremse India P. Ltd. v. ACIT (2016)380 ITR 307 (P&H) decision. TPO has not brought any evidence to apply CUP method but merely said that CUP is the correct method. Assessing Officer simply applying TPOs order without forming any view on deductibility under section 37(1) was also contrary to CIT v. Cushman & Wakefield (India) (P.) Ltd. (2014) 367 ITR 730 (Del), Penalty proceedings are separate thus simply because additions are made does not mean the explanation needs to be applied mechanically. Genom Biotech (P) Ltd. vs. ITO (2016) 67 Taxmann.com 219 (Mum) (Trib) distinguished. DCIT v. RBS Equities India Ltd. (2011) 13 Taxmann.com 30 (Mum) in ITA No.550/Del/2016 applied. The said explanation reads as under: "Explanation 7.--Where in the case of an assessee who has entered into an international transaction or specified domestic transaction defined in section 92B, any amount is added or disallowed in computing the total income under sub-section (4) of section 92C, then, the amount so added or 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 furnished, unless the assessee proves to the satisfaction of the assessing officer or the Commissioner (Appeals) or the Principal Commissioner 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." Similar explanation exists in the new section 270A as well.

The Tax Publishers

Mitsui Prime Advanced Composites India (P) Ltd. v. DCIT [ITA No. 550/Del/2016, dt. 28-4-2016] : 2016 TaxPub(DT) 2208 (Del-Trib)

Concealment penalty in TP addition under section 271(1)(c) explanation 7.

Facts:

Assessee was in the business of manufacturing of poly propylene and related compounds and was a subsidiary of Mistui Chemicals Inc. Japan. AE transactions were benchmarked using TNMM method. TPO picked 3 transactions of the AE viz. Specified consultancy and business services, engineering support services and management support services and read that there was no benefit test proven and the appropriate method is CUP which needs to be applied instead of TNMM thus added back 3.31 crores. Penalty under section 271(1)(c) explanation 7 was consequentially levied. It was factual that the AEs were doing business with Maruti Suzuki and to serve them better certain businesses and consultancy, engineering and management support was transferred to the assessee for which the said payments had happened to the AEs. The said penalty was upheld by the Commissioner (Appeals). Aggrieved assessee went in appeal:

Held in favour of the assessee that penalty is not required to be levied mechanically applying the said explanation 7 of section 271(1)(c).

Points for levy of concealment penalty under TP provisions :--

Assessee must not have followed one of the 5 methods as per section 92C.

The method must have not been an appropriate method application on facts, but not on good faith as in this case.

There is no logic of services being duplicated in this case.

There was no appeal from the assessee on the addition is not a reason for levy of penalty.

Benefit test is not required in all circumstances as pointed out by the Knorr-Bremse India P. Ltd. v. ACIT (2016)380 ITR 307 (P&H) decision.

TPO has not brought any evidence to apply CUP method but merely said that CUP is the correct method.

Assessing Officer simply applying TPOs order without forming any view on deductibility under section 37(1) was also contrary to CIT v. Cushman & Wakefield (India) (P.) Ltd. (2014) 367 ITR 730 (Del),

Penalty proceedings are separate thus simply because additions are made does not mean the explanation needs to be applied mechanically.

Genom Biotech (P) Ltd. vs. ITO (2016) 67 Taxmann.com 219 (Mum) (Trib) distinguished.

DCIT v. RBS Equities India Ltd. (2011) 13 Taxmann.com 30 (Mum) in ITA No.550/Del/2016 applied.

The said explanation reads as under:

"Explanation 7.--Where in the case of an assessee who has entered into an international transaction or specified domestic transaction defined in section 92B, any amount is added or disallowed in computing the total income under sub-section (4) of section 92C, then, the amount so added or 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 furnished, unless the assessee proves to the satisfaction of the assessing officer or the Commissioner (Appeals) or the Principal Commissioner 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."

Similar explanation exists in the new section 270A as well.