Re: Transfer Pricing adjustment

In case of my client, Transfer Pricing adjustment has been made because of which my returned loss is converted into a taxable income. However, the client is having brought forward business losses which if adjusted will lead to a NIL income. The AO has also initiated penalty under section 271(1)(c), 271AA and 271G.
The AO has passed the assessment order without offsetting the previous year losses. Rectification application is filed however the order is awaited. The following are our queries.
1. Can we offset the losses at the time of filing VSV.
2. If we opt for VSV whether penalty under section 271(1)(c), 271AA and 271G would be waived off?

Addressing query No. 1, As per FAQ No. 53 of Circular No. 9 of dated April 22, 2020; in a case where the dispute in relation to an assessment year relates to reduction of reduction of loss, the appellant shall have an option either to: 

(i) include the of tax related to loss in the amount of disputed tax and carry forward the loss amount 

(ii) to carry forward the loss. 

 

Addressing Query No. 2, as per FAQ No. 8 of CBDT Circular 9 of 2020 dated April 22, 2020, If both quantum appeal covering disputed tax and appeal against penalty levied on such disputed tax for an assessment year are pending, the declarant is required to file a declaration form covering both disputed tax appeal and penalty appeal. However, he would be required to pay a relevant percentage of disputed tax only. Therefore, penalty under section 271(1)(c) of the Act will be waived.

 

As per FAQ No. 80 of CBDT Circular No. 21 of 2020 dated December 4, 2020. The assesssee is not eligible for waiver of penalty under section 271B, 271BA, 271DA etc. They have to be settled separately. It can be understood that penalty imposed on account of non-compliance are not waived along with quantum appeal and have to be settled separately. Therefore, penalty under section 271AA & 271G of the Act have to be settled separately at 25 per cent of the amount.

 

 

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