By K. B. Bhujle, Advocate
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Section 271(1)(c) Explanation 7 – AO charged penalty for – Concealment in computation of Arm’s Length Price (ALP). The assessee – RBS equities India Ltd. had computed ALP as per Transactional Net Margin Method (TNMM) which resulted in reduced tax liability of Rs.2,13,25,474 and AO was of the view that the same should have been calculated as per Comparable Uncontrolled Price Method(CUP).
Facts
AO exercised option u/s. 92CA(1) to calculate ALP with reference to the transaction between the assessee and ABN Amro Asia (Mauritius) Ltd (Associated Enterprise). The assessee had provided stock broking services in respect of clearing house trade to Associated Enterprise (AE) and had earned brokerage at the rate of 0.24%. The assessee had provided the same service to FIIs @ 0.408% & to FIs @ 0.22%. The AO contended that AE being FII should have charged @ 0.408%. The AO levied penalty u/s. 271(1)(c) under Explanation 7 to section 271(1)(c). The AO rejected TNMM on the ground that CUP method could be applied to facts of case and accordingly rejected the method without any specific reasons for inapplicability of said method and on the ground that direct method was preferable.
Held:
ALP (Arms Length Price) was computed by assessee in accordance with section 92C in good faith and due diligence as per rule 10C. AO’s view is that ALP could be computed correctly by CUP method only and hence, it cannot be the proper ground to invoke provisions of section 271(1)(c). As the assessee was of the view that TNMM was the appropriate method to determine ALP and the same was derived by assessee in accordance with the provisions of section 92C and as per Rule 10C, deeming fiction under 271(1)(c) cannot be invoked.
