Facts of the Case

The petitioner, Ericsson India Pvt. Ltd., filed its return for AY 2011–12 along with a transfer pricing report. The Transfer Pricing Officer (TPO) issued a notice dated 18.02.2014 requiring production of documents under Section 92D(3), with compliance due by 25.03.2014.

The assessee failed to comply within the stipulated time. Subsequently, a fresh notice was issued on 05.12.2014 proposing penalty under Section 271G. Eventually, a penalty of ₹64.43 crore was imposed by the TPO through an order dated 22.06.2015.

At the relevant time (March 2014), the authority to impose penalty under Section 271G rested with the Assessing Officer (AO), not the TPO. This power was extended to the TPO only after amendment effective from 01.10.2014.

Issues Involved

  1. Whether the Transfer Pricing Officer had jurisdiction to impose penalty under Section 271G for default that occurred prior to 01.10.2014.
  2. Whether issuance of a fresh notice after amendment could validate jurisdiction retrospectively.
  3. Whether the “event of default” determines the applicable authority for imposing penalty.

Petitioner’s Arguments

  • The default occurred on 25.03.2014 when the assessee failed to comply with the initial notice.
  • On that date, the TPO did not have jurisdiction to initiate penalty proceedings.
  • Jurisdiction cannot be retrospectively conferred by subsequent amendment.
  • Reliance placed on:
    • Brij Mohan vs Commissioner of Income Tax (1979)
    • Varkey Chacko vs Commissioner of Income Tax (1993)
  • It was argued that the date of default is decisive for determining jurisdiction.

Respondent’s Arguments

  • The initial notice was not pursued; instead, a fresh notice was issued on 05.12.2014 after the amendment.
  • At the time of issuing the second notice, the TPO had jurisdiction.
  • The amendment merely changed the forum and did not affect substantive rights.
  • Reliance placed on:
    • SEBI vs Classic Credit Ltd. (2017)

Court’s Findings / Order

  • The Court held that penalty proceedings are governed by the law prevailing at the time of the default.
  • The “event of default” occurred on 25.03.2014, prior to the amendment granting jurisdiction to the TPO.
  • The subsequent issuance of notice could not shift or postpone the date of default.
  • Reliance on Brij Mohan and Varkey Chacko reaffirmed that jurisdiction depends on the date of the wrongful act.
  • The reliance on SEBI vs Classic Credit Ltd. was rejected as inapplicable.

Important Clarification

  • The judgment clearly establishes that:
    • Jurisdiction for penalty is determined by the date of default, not by subsequent procedural actions.
    • Amendments expanding authority cannot operate retrospectively to validate earlier jurisdictional defects.
    • The distinction between assessment proceedings and penalty proceedings is crucial, as penalty is linked to the wrongful act date.

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:6218-DB/AKC25092018CW74352015.pdf

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