SYBASE SOFTWARE (I) P.LTD,MUMBAI vs. ASST CIT RG 10(1), MUMBAI

The issue raised is that the Ld. CIT(A) erred in sustaining the levy of penalty u/s 271(1)(c) of the Act amounting Rs. 53,89,368/-. Brief facts of the case leading to the levy of penalty are as under:

- 2 - 2.1 During the year, assessee company was engaged in teh software and development services to Sybase Inc. It was also engaged in the distribution of Sybase Inc Production in India. Its transaction in its distribution activity had been accepted by the Transfer Pricing Officer. However adjustment had been made to the transfer pricing with respect to the software research and development services. The assessee had earned an operating profit on total cost of 12.46% for software research and development services. The TPO rejected 42 comparables out of 44 comparables used by the assessee in its TP study report to justify its international transaction of software development on ground that the comparable used by the assessee showed a low margin as compared to the margins of the 14 comparables created by the TPO for companies engaged in the similar line of business. Further assessee company had also carried out certain economic adjustments including a working capital and risk adjustments. Assessee’s adjustment on working capital was accepted by the TPO, however, risk adjustment was not accepted. Accordingly, an operating profit was computed at 19.56% of the total cost i.e Rs. 3,14,30,120/- as against 12.46% i.e, Rs.

Upon assessee’s appeal Ld. CIT(A) upheld the penalty. Against this order assessee is in appeal before us.

We have heard both the counsels and perused the material available on record. We note that as regards the levy of penalty for the Transfer Pricing adjustment, upon assessee’s appeal the ITAT had granted relief to the assessee by the order dated 20.12.2018. Hence, the ITAT has accepted the assessee’s request for exclusion of certain comparables and the transfer pricing officer has been directed to recomputed the margin accordingly. In this view of the matter the transfer pricing adjustment stands diluted by the ITAT order the penalty levied on this issue does not survive.

We have heard both the counsels and perused the record. We find that section 271(1(c) of the Act postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. In the present case, We find that the difference has arisen only because in the case of these parties where proper re-conciliation was not done. The addition is totally based upon the difference in assessee’s book and that recorded in other parties books. We find that this addition based on difference in reconciliation cannot be termed as furnishing of inaccurate particulars or concealment so as to warrant of levy of penalty u/s. 271(1)9c). Hence, in our considered opinion, the penalty in this regard is liable to be deleted.

In this regard, we place reliance from the Apex Court decision rendered by a larger Bench comprising of three of their Lordships in the case of Hindustan Steel vs. State of Orissa in 83 ITR 26 wherein it was held that “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and . Sybase Software (I) P. Ltd .Mumbai

We would also like to refer to the Hon’ble Apex Court decision in the case of CIT vs. Reliance Petro Products Ltd. in Civil Appeal No. 2463 of 2010. In this case vide order dated 17.3.2010 it has been held that the law laid down in the Dilip Sheroff case 291 ITR 519 (SC) as to the meaning of word ‘concealment’ and ‘inaccurate’ continues to be a good law because what was overruled in the Dharmender Textile

In the background of the aforesaid discussions and precedents, We set aside the orders of the authorities below and delete the levy of penalty.

In the result, the appeal filed by the assessee is allowed.