Every transfer pricing addition is deemed to represent concealed income, says ITAT

The Income Tax Appellate Tribunal (ITAT) Pune Bench has ruled that any amount added or disallowed due to transfer pricing adjustments is to be considered as concealed income. This decision stems from Explanation 7 to section 271(1)(c) of the Income-tax Act. Unless the assessee can demonstrate that the transaction price was calculated in good faith and with due diligence according to section 92C, such additions will be presumed to represent concealed income.

IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “C”, PUNE – VIRTUAL COURT

BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND
SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER

ITA No.845/PUN/2017
Assessment Year: 2005-06

ACIT, Circle-11,
Pune
PAN : AAACT3904F
Appellant 

Vs. 

Honeywell Automation India
Limited,Survey No.56 & 57,
Hadapsar Industrial Estate,
Hadapsar, Pune 411 013
Respondent

Assessee by Shri Siddhesh Chaugule
Revenue by Shri Mahadevan A.M. Krishnan

Date of hearing 17-06-2021
Date of pronouncement 18-06-2021

 ORDER

PER R.S.SYAL, VP :

This appeal by the Revenue is directed against the order passed by the ld. CIT(A) on 23-01-2017 deleting penalty of Rs.1,48,40,838/- imposed by the Assessing Officer (AO) by invoking Explanation 7 to section 271 (1)(c) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) in relation to the assessment year 2005-06.

2. Briefly, the facts of the case are that the assessee has been carrying the business in the automation and control industry.Certain international transactions were reported in Form No.3CEB. On a reference made by the AO, the Transfer Pricing Officer (TPO) determined the Arm’s Length Price (ALP) and accordingly proposed transfer pricing adjustment of Rs.36,47,76,500/-. The first appeal had the effect of reducing the transfer pricing adjustment to Rs.4,13,68,191/-. On the basis of the sustained amount of transfer pricing addition, the AO imposed penalty u/s.271(1)(c) of the Act amounting to Rs.1,48,40,838/-. The ld. CIT(A) deleted the same. The Revenue has come up in appeal against such deletion.

3. We have heard both the sides through Virtual Court and gone through the relevant material on record. The penalty has been imposed u/s 271(1)(c) with reference to Explanation 7, which reads as under :

Explanation 7.—Where in the case of an assessee who has entered into an international transaction or specified domestictransaction 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, bedeemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee proves to thesatisfaction of the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissionerthat 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. 

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