Facts of the Case

The Respondent, a wholly owned subsidiary of Giesecke & Devrient GmbH, was engaged in the business of wholesale trading of currency verification and processing systems (CVPS), SIM card systems, and software development services.

For Assessment Year 2007-08, the Respondent filed its return of income. Pursuant to Transfer Pricing adjustments recommended by the TPO and DRP, the Assessing Officer made additions amounting to approximately ₹25.31 crores under multiple heads including software development services, purchase of raw materials, consultancy fees, and purchase of finished goods.

Subsequently, penalty proceedings under Section 271(1)(c) read with Section 274 of the Income Tax Act, 1961 were initiated, and penalty of ₹1.54 crores was imposed. The CIT(A) upheld the penalty, but the ITAT deleted the same.

Issues Involved

  1. Whether the Respondent was liable for penalty under Section 271(1)(c) for alleged concealment or furnishing inaccurate particulars of income.
  2. Whether use of multiple-year data instead of single-year data in Transfer Pricing analysis indicates lack of bona fide.
  3. Whether defects in Transfer Pricing documentation justify imposition of penalty.

Petitioner’s Arguments (Revenue)

  • The Respondent failed to comply with Rule 10B(4) of the Income Tax Rules, 1962 by using inappropriate data, demonstrating lack of bona fide.
  • The Transfer Pricing documentation was faulty, misleading, and prepared without due diligence.
  • Such conduct amounted to furnishing inaccurate particulars of income, attracting penalty under Section 271(1)(c).

Respondent’s Arguments (Assessee)

  • The issues involved were debatable in nature, particularly regarding the use of multiple-year data versus single-year data.
  • Adjustments made in Transfer Pricing do not automatically lead to penalty.
  • The claims were made in good faith and with due diligence, without any intention to conceal income.

Court’s Findings / Order

The Delhi High Court upheld the ITAT’s decision and dismissed the Revenue’s appeal, holding that:

  • Prior to statutory clarification, the issue of use of multiple-year data was debatable, and therefore, no mala fide intent could be attributed.
  • Disallowance of claims or Transfer Pricing adjustments does not automatically attract penalty.
  • Reliance was placed on the Supreme Court judgment in CIT vs Reliance Petroproducts Pvt. Ltd., wherein it was held that mere making of an unsustainable claim does not amount to furnishing inaccurate particulars.

The Court concluded that no substantial question of law arose and dismissed the appeal.

Important Clarification

  • Penalty under Section 271(1)(c) requires clear evidence of concealment or furnishing inaccurate particulars.
  • Debatable legal issues and interpretational differences in Transfer Pricing cannot be grounds for penalty.
  • Incorrect claims made in good faith do not amount to concealment.

Sections Involved

  • Section 271(1)(c), Income Tax Act, 1961
  • Section 274, Income Tax Act, 1961
  • Rule 10B(4), Income Tax Rules, 1962

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:4126-DB/NAC10122021ITA1412020_185355.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.