M/S. GAP INTERNATIONAL SOURCING (INDIA) PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

PER DIVA SINGH, JUDICIAL MEMBER The present appeal has been filed by the assessee assailing the correctness of the

order dated 12.11.2013 of CIT(A)-XX, New Delhi pertaining to 2007–08 assessment year

on the following grounds:-

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referred to in Ground No.1 above, did not arise due to any absence of good faith and due diligence on the part of the Appellant in computing the price of its international transactions with the foreign associated enterprises (AEs) in accordance with the provisions of section 92C of the Act.” 2. It was a common stand of the parties before the Bench that the arguments

advanced in identical appeal in ITA No.6742/Del/2013 for 2006-07 AY would address the

issues in the present appeal also as facts, circumstances, arguments and position of law for

the respective parties would continue to remain the same.

The record shows that the assessee selected TNMM as the most appropriate method

wherein describing itself as a low-risk provider in its FAR analysis carried out in the TP

study claimed that for the services rendered to its foreign AE the assessee was

remunerated on total operating costs with a mark-up of 15%. The orders for the specific

requirements of the foreign AE as per record were directly placed with the third party

vendors from whom the goods were sourced and the assessee operated as a procurement

support service company for its foreign associated enterprise (‘AE’) i.e. GAP US. GAP US

sourced the goods directly from third party vendors in India and these were not routed

through the financial accounts of the assessee into its Profit & Loss account. GIS India was

remunerated at total operating costs plus a 15% mark-up thereon. The selection of TNMM

as a most appropriate method was accepted by the TPO. However, the TPO re-

characterized the assessee as a “significant risk bearing” entity having intangibles instead

of being a low risk operator. Accordingly, the remuneration model was also changed to

commission on value of total goods procured by the foreign AE at 5.22% commission

instead of mark-up of 15% on total costs. The TPO applied 5.22% on the value of goods

sourced directly from third party vendor by the foreign AE and proposed an adjustment of Page 2 of 15

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Rs.255.97 crore. The issue when carried to the ITAT in the quantum proceedings resulted

in partial success to the assessee to the extent that the remuneration model of the

assessee was accepted. However, the mark-up of 15% documented in the TP study was

not accepted and instead substituted for the estimated mark up of 32%. The addition of

Rs.255.97 crore was restricted to Rs.6.92 crore by way of this concession.

claimed lead to the passing of the penalty order by the AO invoking Explanation 7 to

Section 271(1)(c). The said order was confirmed in appeal by the CIT(A). Aggrieved by

which the assessee is in appeal before the ITAT.

271(1). “If the [Assessing] Officer or the [Commissioner (Appeals) [or the [Principal Commissioner or] Commissioner] in the course of any proceedings under this Act, is satisfied that any person- (a) ************** (b) ************** (c) Has concealed the particulars of his income or furnished inaccurate particulars of [such income, or] (d) ************* 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 proved 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].”

case the acceptance of enhanced mark-up as decided by the ITAT leading to the addition

can it be claimed in view of the deeming provision of Explanation 7 of section 271(1)(c), Page 3 of 15

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that the computation of price charged or paid by the assessee in the international

transaction as defined in section 92B was computed in accordance with the provisions

contained in section 92C in good faith and with due diligence. In the earlier year, we have

considered the said provision and duly noted that the Legislature has introduced a deeming

provision. A departure has been made to basic principle in Tax jurisprudence where

primary burden of proof is upon the AO to establish concealment of amount or furnishing

of inaccurate particulars through primary evidence. Explanation 7 to section 271(1)(c)

carves out an exception in case of international transaction whereby any amount added or

disallowed u/s 92C it is deemed to represent the income of the assessee in respect of

which particulars have been concealed or inaccurate particulars have been furnished.

Explanation 7 to section 271(1)(c) shifts the burden upon the assessee to prove that the

price charged or paid in such transaction was computed in accordance with the provisions

of section 92C in the prescribed manner in good faith with due diligence. Thus, it has been

concluded that in order to consider whether the said requirements of Explanation 7 have

been met or not, it is necessary to consider the facts and circumstances leading to the

addition. We have noted that the facts related to the issue have been thrashed out in the

quantum proceedings and are a matter of record. We have held that the explanation

offered in the penalty proceedings is required to be considered afresh in the light of the

requirements of the relevant provision. It has been duly noted that the onus upon the

taxpayer is only to show whether the arm’s length price has been computed in accordance

with the provisions of section 92C of the Act in good faith and due diligence and nothing

more. We have held that merely because the addition has been sustained in a contested

issue or accepted without a contest cannot be the criteria to mechanically levy or uphold

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the penalty levied as it is the evaluation of the facts and circumstances as borne out from

record which would show whether the addition was accepted on account of mala fide

arising out of a failure of the assessee or was it a bonafide decision based on facts

presented in good faith and with due diligence in terms of the provisions of Section 92C. It

has been held that penalty can only be imposed if the explanation offered is shown to be

lacking in good faith and the transaction can be shown to be computed without due

diligence with a willful attempt to defraud the Revenue and not because addition is

sustained or accepted. Hence reverting to the basic issue which devolves for

consideration, we are of the view that we are first required to examine whether there is

any primary evidence to show that by any deliberate act of suppressio veri or suggestio

falsi the assessee has tried to conceal any income or furnish inaccurate particulars.

Examining the facts of the present case, we find that the TPO has accepted TNMM as the

most appropriate method selected and has also not interfered with, the comparables

selected. The re-characterization of the assessee as significant risk service provider by the

TPO we find has not found favour by the Co-ordinate Bench in the Quantum proceedings

in its order dated 18.09.2013 in ITA No.5147/Del/2011 and ITA No.225/Del/2012. The

relevant extracts from the order in the quantum proceedings is extracted hereunder:-

9.2. “Characterization of Assessee and its Associated Enterprises through Function, Assets and Risk (FAR) analysis of international transactions.

The FAR analysis gives the basis of broad characterization for e.g. Manufacturer, Service Provider, Distributor, etc with a further sub-characterization including low-risk service provider, high risk service provider; Full-Fledged manufacturer, contract manufacturer, etc. These characterizations are vitally important to determine the arm’s length price of international transactions. i. Authorities below have proceeded on premise that assessee is a risk bearing AE and its functions are not in the nature of a service provider only. The FAR attributable to assessee are far greater than what are claimed. Assessee has developed substantial intangibles in the form of Page 5 of 15

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human resources and supply chain. Besides location advantages available to assessee have not been factored in the ALP.

ii. On these observations, and by putting reliance on the case of Li & Fung India, it has been held that assessee performs the functions of a risk bearing agent and therefore, cost plus PLI adopted by the assessee for ALP determination is not the most appropriate. Thereby the cost plus PLI has been substituted by 5% on FOB value of goods outsourced by the entities of foreign enterprises which has been considered to be the TP value.

iii. In our considered view, no supporting material has been brought on record that assessee; GIS India has borne any business risks arising from its activities with GAP USA. There are no adverse facts, material or evidence on the basis whereof Ld. TPO has made arrived at such a conclusion. The Ld. TPO has not given any examples or comparables whatsoever to demonstrate which major business risks much less any risk are borne by GIS India and how. In a sweeping manner it has been held that as functions follow risks, and since, in his wisdom GIS India undertakes key functions, therefore it must also be bearing the consequent risks. The observation is flawed as from the handbook and guidelines it clearly emerges that assessee had no wisdom or discretion in these terms.”

iv. ………………………….. v. ………………………….. vi. …………………………..

viii. In view of all these facts we are unable to agree with the propositions of TPO that assessee works as a risk bearing agent of the AE and it possesses human resources intangibles along with supply chain resources. The facts and circumstances lead us to a conclusion that assessee is a low risk procurement support service provider only.” (emphasis provided)

6.1. We find that the conduct of the assessee vis-a-vis its claim of “good faith” and “due

diligence” is further brought out from the aforesaid following extracts from the order of the

Co-ordinate Bench passed in the quantum proceedings:-

9.4. Li & Fung Case and TPO / DRP Stand i. ……………………….. ii. ……………………….

iii. The department has heavily relied on the Li & Fung India’s case (supra). In this case, the Delhi Tribunal held that on the facts of the said case, the procurement company in India was entitled to a revenue linked Page 6 of 15

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remuneration. The decision in the case of Li & Fung proceeded on the specific findings of the TPO that the assessee was not able to establish that the foreign principal in Hong Kong had any substance, which the assessee was also not able to substantiate before the Tribunal. In these peculiar facts Tribunal accepted the factual position that the Indian assessee had actually carried out all the significant functions relating to procurement in India; and that very little or virtually nil functions were carried out at the level of Hong Kong.

iv. However, the facts in the appellant’s case are different in as much as all the significant directions relating to procurement of goods from third party vendors in India, namely – (a) designs & trends of apparel; (b) quality parameters of materials: (c) terms & conditions for dealing with vendors, etc, are all provided by GAP US to the appellant through the voluminous vendor handbook & other correspondences which are placed on record and have not been controverted by the department. It emerges that assessee follows and executes them as a service provider. For such preordained support services, the assessee cannot be held to be entitled to remuneration in terms of Li & Fung case on FOB value of goods procured by GAP US from third party vendors in India. In the case of Li & Fung India, assessee actually carried out significantly value added functions in India, which is not the case before us.

v. Even if we overlook the factual dissimilarities between the Li & Fung India and assessee’s case, the transactional profitability earned by Li & Fung India supports the case of assessee. The department has heavily relied on the fact that Li & Fung Hong’ remuneration of 5% of value of goods procured should be used as benchmark rate by the assessee. The department overlooked the other extremely important fact of the profitability earned by Li & Fung through 5% procurement service model. The total remuneration earned by Li & Fung Hong Kong was Rs. 60.15 crores against cost incurred by Indian company of Rs. 45.42 crores and some minor costs incurred in Hong Kong. The ITAT bench held that considering the facts of the case, 80% of commission (Rs. 48.12 crores) earned by Li & Fung Hong Kong should be attributed to Indian company. This attribution resulted in profitability of Rs. 2.72 crores (Rs. 48.12 crores – Rs. 45.42 crores) for the Indian Company resulting in the net profit / total cost of 6%. Department overlooked these important facts which must be taken into consideration using this example as benchmark for determining arm’s length price of international transactions for taxpayers.” (emphasis provided)

6.2. Thus, we find that despite not accepting the mark-up of 15% the Co-ordinate Bench

did not comment negatively on the conduct of the assessee and infact were critical of the

“flawed” approach and “sweeping” manner of decision making carried out by the TPO.

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6.3. It may be appropriate to extract from the order of the ITAT passed in the quantum

proceedings the facts leading to how the mark-up of 32% came up for consideration:-

“7.10 Ld. Counsel at the end of his arguments summarized the arguments as under: • Given the functional, asset and risk profile of the appellant, it is entitled to a remuneration model of a mark up or profit on only its operating expenses or VAR; and not on the value of goods sourced by GAP US from third party vendors in India. • Incidentally, on identical facts, the Dutch Supreme Court had also approved a cost plus remuneration model for a similar procurement company; and not a commission linked to volume of goods procured, as the latter option would have resulted in exorbitant profit margin accruing to the procurements company, namely in excess of 600%. • The appellant’s mark up of 15% on operating costs have not been controverted by the TPO, who in fact, committed a grave error in taking the same comparables, as chosen by the appellant, but merely changing the PLI, without even appreciating that the intensity of functions of such comparables were more than 25 times than that of the appellant for, a applying a turnover linked remuneration model. • In the extreme situation, even without admitting a factual similarity to the Li & Fung ruling, the mark-up on operating costs cannot exceed about 32%, after duly adjusting the intensity of functions of the appellant, vis-a- vis Li 8s Fung. • In response to a separate show-cause notice issued by the TPO for AY 2006- 07 itself, the appellant had carried out a search for service providers, which yield an operating margin or OP/ VAE of 19%, which remains uncontroverted by the TPO and DRP. • While conducting the TP assessment in the case of the appellant for AY 2008-09, the TPO had himself proposed in his show cause notice, an alternative search for selecting commission agents, which the appellant, with the objective to avoid protracted litigation, had formally offered to accept. The said set of comparables will result in a profit on operating costs of 26% for AY 2006-07. • Thus, there are several data points available by now for comparable margins around the PLI of OP/ VAE, namely- (a) 3 comparables in the appellant’s initial search for distributors, yielding 15.13% (b) 6 comparables in the appellant’s subsequent search for service providers, yielding 19%; (c) 7 comparables chosen by the TPO in its search for commission agents during the TP assessment for AY 2008-09, as updated with the results relating to AY 2006-07, yielding 26.01%. and (d) Li & Fung’s results of32.43% • The arithmetic mean of all the above results yield an OP/ VAE of [(3x 15.13) +{6x 19) +(7x26.01)+32.43]/[3+6+7+l]=21.99% or 22% • Thus, the maximum margin on operating costs would still hover around 32% in the case of the appellant, with 22% as the centre of all the data points, without prejudice to the primary contention that Page 8 of 15

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the appellant’s original margin of 15% on operating costs remains uncontroverted by the TPO & DRP. 6.4. The following extract from the aforesaid order in the quantum proceedings further

brings out the facts and the background how the enhanced mark-up of 32% was finally

selected:-

9.5. Determination of Cost Plus remuneration in assesse’s case. i) Ld counsel Shri Mitra has placed on the record a working suggesting that even if one were to assign the entire commission of Li & Fung Group to Li & Fung India, then the OP/ total cost of Li & Fung India worked out to 32.43%, as opposed to 15% adopted by the appellant, which again, is within acceptable limits. Thus at the end of the cost+ mark up in assessee case cannot be stretched beyond 32% looking from Li Fung case or any other angle. (ii) It is trite that Income tax assessments and appellate proceedings are non adversarial in nature, held to be an exercise of fair determination of tax liability payable by the assesse. Looking at the sweeping observations of the TPO and DRP which are neither based on any cogent reasoning nor factual reliability, the assessments as framed give an impression of being work of adversarial approach in tax liability determination. Hon’ble Finance Minister generally and recently in particular gave a clarion call that the income tax proceedings should be fair and non adversarial in nature. This is rightly so as it is a sine qua none of a tax administration which usher into a rule a rule of law which is predictable and based on sound reasoning and is not fraught with the perils of uncertainties and adversities for the taxpayers.

(iii) In view of the foregoing we have no hesitation to accept a candid proposal given by the assessee and hold that assessee TP adjustments be made by adopting the 32% cost plus mark up of the assessee for AY 2006-07 and 2007-08. The mark-up proposal of assessee is higher than mark-up over total cost earned by all comparables placed on record. The assessments should be framed accordingly. We may hasten to add that this mark we will be subjected to variation is subsequent years if the facts and circumstances of the case so warrant.” (emphasis provided) 6.5. Accordingly, in the light of these peculiar facts and circumstances and considering

the order dated 10.08.2016 in ITA No.6742/Del/2013, we find that there is nothing on

record to show that the arm’s length computation of the transaction has been computed

disregarding the requirements of section 92C of the Income Tax Act. It is a matter of

record that TNMM as the most appropriate method has been accepted by the TPO, the Page 9 of 15

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OP/TC, PLI has not been tinkered with nor have the comparables selected been

commented upon. The TPO’s action of re-characterizing the assessee as a significant risk

bearing service provider operating on commission on the value of goods procured by the

foreign AE has not been accepted by the Co-ordinate Bench of the ITAT in the quantum

proceedings and the assessee’s claim that it is a limited risk bearing support service

provider as claimed in its TP study has found acceptance by the ITAT. Thus, admittedly

considering the explanation of the assessee within the requirements of the Explanation 7 to

section 271(1)(c) we find that the claim that the TP study having been carried out in good

faith and with due diligence adhering to the requirements of section 92C stands

established. The enhanced mark-up, we find was a situation where in the face of the

prevalent view held by the Co-ordinate Bench in Li & Fung’s case the assessee despite

pleading that 15% mark-up based on Agreements considered in the TP study should be

accepted finally conceded in the face of the prevalent view and agreed to accept the

estimated enhanced mark-up. The assessee as per record agreed that even applying the

standard laid down in the case of Li & Fung i.e. of 32% the resultant relief far outweighed

the cost of sustaining the addition of 2% of the original amount. We have extracted and

found, on considering the order of the Co-ordinate Bench that the Co-ordinate Bench

categorically held that the facts in the case of Li & Fung were entirely distinguishable from

the facts of the present case, leading them to accept the remuneration model of the

assessee. These peculiar facts brings out the unavoidable conclusion that the choice of

accepting the enhanced mark-up was visited upon the assessee in view of the precedent

followed by the ITAT. Thus beyond arguing that the standard laid down therein cannot be

applied to it, the assessee had the choice either to accept the enhanced mark-up or

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litigate further. With handsight, it is evident that had the assessee exercised the choice to

litigate then in view of the decision of the Hon’ble High Court in the case of Li & Fung case

there can be no doubt that the assessee had an arguable case in its favour in the quantum

proceedings. However the fact remains that the assessee chose to concede but this

decision to concede and accept a partial addition by no stretch of imagination can be said

to be guided or motivated by any mala fide intent in order to cover its duplicity and to

defraud the Revenue. The decisions to concede and/or withdraw or litigate further apart

from being guided by factors like the quantum involved for the assessee and various other

consideration is also dictated by circumstances which determine the appetite to litigate of

the tax apyer. There may be very many reasons where the litigant may lack the appetite

to litigate based on issues like costs involved, uncertainty, desire to settle peacefully

devoting time and energy to business or profession and thus avoid harassments of

litigation etc. Thus every decision to withdraw cannot be a case of malafide intent. In the

facts of the present case it may not be out of place to refer to the decision of the ITAT in

2009-10 and 2010-11 AYs in assessee’s own case wherein following the decision of the

Jurisdictional High Court in the case of Li & Fung mark-up of 15% on costs has been

accepted by the ITAT. We also find that the order of the ITAT in the quantum proceedings

in the year under consideration was challenged by the Revenue and dismissed by the

Hon’ble High Court vide order dated 29.01.2016 on the grounds of extraordinary delay of

815 days. Accordingly considering the peculiar facts and circumstances of the present case

and considering the specific provision invoked, we find that in the absence of any

argument on facts demonstrating that the computation in the TP study placed on record is

in violation of the requirements of Section 92C of the Act and the said exercise was neither

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done in good faith nor with due diligence, the departmental action fails. We find that the

following conclusion as arrived at in ITA No.6742/Del/2013 fully applies to the facts of the

present case:-

4.9. “In the facts of the present case it is seen that the requirements of section 92C have been met as the selection of TNMM is one of the methods provided and addressing the ingredients of section 271(1)(c) the selection of method by the TPO has not been upset.

4.10. Considering the overall factual matrix wherein the facts have been re- visited by us in great detail, we find ourselves unable to agree with the view taken by the tax authorities. No doubt the onus is placed by the Statute upon the assessee to demonstrate that its computation of price paid or charged was within the four corners of the manner prescribed u/s 92C and notwithstanding the addition made the exercise was undertaken in good faith and with due diligence. Having so demonstrated by the consistent explanation on record in the facts of the present case the onus shifts to the Revenue to demonstrate that by a specific act, fact or conduct the affairs of the assessee in regard to computation of price charged or paid was lacking in good faith and was done without due diligence. No such argument has been raised nor any fact has been brought to our notice to suggest otherwise. The view taken appears to be that simply because the addition is accepted the penalty is to be levied.

4.11. We find considering the judicial precedent and the peculiar facts of the present case the said argument does not lend any help to the Revenue. Though the terms ‘good faith’ and ‘due diligence’ have not been defined under the Act accordingly the definition of the term ‘in good faith’ as defined under the General Clauses Act may be taken into consideration. The term “in good faith” has been defined in The Black’s Law Dictionary; Sixth Edition which defines the term as Good faith is an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage, and an individual’s personal good faith is concept of his own mind and inner spirit and, therefore, may not conclusively be determined by his protestations alone. (Doyle vs. Gordon, 158 N.Y. S.2d 248, 259, 260]. In common usage this term is ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one’s duty or obligation. [Efrone vs. Kahnanovitz, 249 Cal. App. 187s 57 Cal. Rptr. 248, 251]. It may not be out of place to quote from the order dated 01.03.2016 of the ITAT in ITA No.1062 & 1063/Del/2013 in the case of ACIT vs Boston Scientific India Pvt. Ltd. Wherein it has been observed:-

13.8.2. “Good faith presupposes honesty and fairness at its core. However, good faith does not cover the sins of omission or Page 12 of 15

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negligence. Due diligence on the other hand does not tolerate negligence and may be defined as prudent, responsible care and attention required to be exercised by a reasonable and prudent person in a given situation. Thus, as observed in acts of “good faith” it may not be possible to question negligence where due diligence standards are required to be met negligence cannot be tolerated. Similarly due diligence standards may not necessarily be embedded with good faith.

13.8.3. Thus the law requires that the standards to be met by a taxpayer pleading that penalty is not leviable in situations where Explanation 7 is attracted has been kept very high. The twin requirements of the Act may be capable of being summed up in the term “best efforts” which not only presuppose “due diligence” but also “good faith” as best efforts may incorporate not only “a diligent standard” but can also subsume “a good faith standard”.”

4.12. The Allahabad High Court in the case of Kedar Nath v. State [AIR 1965 ALL 233] (at p. 236) while opining on the meaning of the said term, held “Good faith imports the exercise of due care and attention. A person can be excused for having committed an error of judgment only if he exercised due care and attention and his conduct makes it clear that there was no negligence according to reasonable standards. The standard of care required is that of a reasonably prudent man who acts with the care and caution required of a person in his position dealing with a matter of similar importance.”

4.13. At the cost of re-iteration in order to decide and adjudicate upon the said issue, it is necessary to consider the conduct of the assessee and ascertain whether it can be said to have been be governed and guided by good faith and due diligence or not. In the facts of the present case as per the TP study report made available by the assessee to the tax authorities the assessee operates as a procurement support service company for its foreign AE. The foreign AE directly sources the goods from third-party vendors in India and in respect of these the assessee renders sourcing support services. For the said exercise the assessee is remunerated at total operating costs +15% markup. It is a fact that the TPO did not accept the remuneration model of the assessee and changed the characterization from limited risk bearing source single support service provider to a commission agent. The said issue in the quantum proceedings reached the ITAT and it is a fact that the ITAT upheld the remuneration model of the assessee that is a markup on total operating costs. It is a fact that the markup of 15% as claimed by the assessee was not accepted by the ITAT and as per the arguments of the assessee, a markup of 32% was accepted in order to achieve a closure on the issue where the energy and costs devoted towards litigation were considered to be not sufficient to agitate for the further relief of about 2% of the relief which was withheld by virtue of this concession made by the assessee that the markup of 32% is acceptable. We have no reason to disbelieve that the facts in support of the arguments that the decision not to agitate the issue beyond the ITAT was guided by prudence in order to buy Page 13 of 15

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peace and avoid protracted litigation where the amount at stake for the assessee was not sufficient to consider the option of further litigation. It is a fact that as a result of the additions made by the TPO wherein addition of Rs.236.22 crores was proposed and pursuant to the order of the DRP had been made by the Assessing Officer, the same stood reduced to Rs.4.92 crore and resultant relief of deletion of addition of Rs.231,31 crore. The consequent addition sustained of Rs.4.92 crores was considered to be not so big an amounts that in the face of the prevalent view of the ITAT in Li & Fung and the assessee understood that the ITAT was not willing to accept the argument that 15% was correct and true. This decision made in the peculiar facts and circumstances does not make out a case that the decision not to litigate and accept was malafide. 4.14. Thus the decision to accept a partial addition in the facts of the present case no where reflects negatively on either the claim of good faith nor the claim of due diligence and instead only addressed the sheer helplessness of the assessee. It is necessary to consider the claims realistically and an assessee after relying upon the correctness of its TP study in the face of then prevalent view as per judicial precedent either has a choice to accept a modicum of addition by way of an estimate or go the full circle of litigation right upto the top. The exercise of choice to close an issue by accepting a paltrey addition wherein admittedly relief to the extent of 98% of the addition was granted and only 2% of the addition stood sustained is a personal choice depending on a persons appetite to litigate. The choice to maintain peace of mind and avoid protracted litigation does not in any way lead to the conclusion that inaccurate particulars were filed or there was concealment. Infact the prudent decision resulted in substantial relief being granted to the assessee. Infact subsequent judicial precedent would show that had the assessee not conceded the issue the assessee may have had a good arguable case before the next forum as the decision of the Hon’ble High Court in Li and Fung’s case has shown. It is further seen that the decision in the quantum proceedings has not been upset by the Hon’ble high Court and infact the Revenue’s appeal in 2007-08 AY has been dismissed by the Hon’ble High Court vide order dated 29.01.2016 as per copy placed at Paper Book page 118 to 119 on account of extraordinary delay of 815 days.

4.15. Accordingly considering the facts, arguments, legal precedent, relevant provision and the material available on record, we hold that the penalty order deserves to be quashed as no case has been made out by the Revenue to show that the assessee conducted its affairs without good faith and due diligence as at every step the assessee has been able to demonstrate that the notwithstanding the addition accepted by way of an estimate the claim that the arms length price has been computed in accordance with the provisions of section 92C of the Act stands unrebutted on record. The mere fact that addition has been partially sustained by itself in the facts and circumstances of the present case does not warrant the penal action.”

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6.6. On considering the facts and circumstances of the case, we find nothing has been

placed on record by the Revenue to show that the choice so exercised by the tax payer to

accept the enhanced mark-up in the peculiar facts and circumstances of the case can

constitute acts of suppressio veri or suppressio falsi lacking good faith and in violation of

due diligence requirement. We find that all primary facts required to be disclosed have

been found to be correctly made available in regard to the international transaction and the

international transaction disclosed has been computed as per the provisions of section 92C

in good faith and with due diligence.

(PRASHANT MAHARISHI) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER *Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR, ITAT NEW DELHI

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