A division bench of the Delhi ITAT, last week held that penalty under section 271(1)(c ) of the Income Tax Act, 1961 cannot be levied if the Arm’s Length Price (ALP) was determined as per the scheme of section 92C in good faith and with due diligence.
Assessee company, in the instant case is engaged in providing planning, design and management services in the area of infrastructure consultancy. While completing the assessment proceedings, the Transfer Pricing Officer (TPO) found that a different method should have been adopted for determining the Arm’s Length Price than that adopted by the assessee. He, therefore, concluded that this was a case of concealment or furnishing inaccurate particulars of income.
Assessee challenged the order by contending that levy of penalty on the difference in determination of ALP is a debatable issue and, therefore, the penalty cannot be levied.
The bench found that the assessee had determined the ALP in accordance with the scheme of section 92C in good faith and with due diligence.
While allowing the appeal, the bench ruled that, “An act done with due diligence would mean the act done with as much as care as a prudent person would take in such circumstances. Thus, as long as no dishonesty is found in the conduct of the assessee, as long as he has done what a reasonable man would have done in his circumstances, to ensure that the ALP was determined in accordance with the scheme of section 92C, deeming fiction under Explanation 7 to section 271(1)(c) cannot be invoked.”
Read the full text of the Order below.
