ADDL. CIT, SPECIAL RANGE- 1, NEW DELHI vs. AON SERVICES INDIA P. LTD., NEW DELHI
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Income Tax Appellate Tribunal, DELHI BENCH: ‘I’ NEW DELHI
Before: SHRI SAKTIJIT DEY & SHRI PRADIP KUMAR KEDIA
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘I’ NEW DELHI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA Nos. 5986 & 5987/Del/2022 Assessment Years: 2006-07& 2007-08
Addl. CIT, Special Range, Vs. AON Services India Pvt. Ltd., New Delhi 710, Ansal Chamber-II, 6-Bhikaji Cama Place, New Delhi PAN :AABCH1559D (Appellant) (Respondent)
Department by Shri Harpreet Singh, Ajmani, Adv. Assessee by Ms. Mrinal Kumar Das, Sr. DR
Date of hearing 14.02.2023 Date of pronouncement 28.02.2023
ORDER PER SAKTIJIT DEY: JUDICIAL MEMBER: Captioned appeals have been filed by the Revenue challenging
two separate orders, both dated 30.04.2019, of learned Commissioner
of Income-Tax (Appeals)-44, New Delhi deleting penalty imposed
2 ITA Nos.5986 & 5987/Del./2019
under Section 271(1)(c) of the Income-Tax Act,1961 pertaining to
assessment years 2006-07 and 2007-08.
At the outset, we will deal with appeal relating to assessment
year 2006-07.
Briefly, the facts are, the assessee is a resident corporate entity
and is a subsidiary of Hewitt, USA. As stated, assessee is engaged in
providing global management consultancy services. For the
assessment year under dispute, the assessee filed its return of income
declaring income of Rs.12,10,71,067.
In course of assessment proceedings, the Assessing Officer
noticing that assessee has entered into international transaction with
his associates enterprises (AE) made a reference to the Transfer
Pricing Officer (TPO) to determine arms length price (ALP) of
international transactions. While examining the arms length nature of
international transactions, the TPO suggested adjustment of
Rs.24,23,62,055. In addition to the adjustment suggested by the TPO,
the Assessing Officer made a further addition of Rs.30,52,561, being
the disallowance of provision for doubtful debts. The assessee
contested both the additions by filing appeal before learned
3 ITA Nos.5986 & 5987/Del./2019
Commissioner (Appeals) and thereafter before the Tribunal. During
the pendency of the dispute in the appellate forum, the assessee
wanted to settle part of the transfer pricing adjustment relating to US
transaction amounting to Rs.22,30,70,035 under Mutual Agreement
Procedure (MAP). After MAP resolution, the adjustment in relation to
US transaction reduced to Rs.1,48,20,847. In so far as, non US
transactions for an amount of Rs.1,92,92,020, dispute was agitated
before the Tribunal. Be that as it may, based on the additions made in
the draft assessment order, the Assessing Officer initiated proceedings
for imposition of penalty under Section 271(1)(c) of the Act alleging
furnishing of inaccurate particulars of income and concealment of
income and ultimately passed an order imposing penalty of
Rs.8,26,06,560. Challenging imposition of penalty, assessee preferred
an appeal before learned Commissioner (Appeals).
After considering the submissions of the assessee, learned
Commissioner (Appeals) noticed that the transfer pricing adjustment
was on account of change/modification of certain filters adopted by
the assessee which ultimately resulted in rejection of comparables
selected by the assessee and selection of fresh comparables. Relying
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upon a decision of the Tribunal in case of Verizon India (Pvt.) Ltd. vs.
CIT - ITA No.5566/Del/2011 dated 17.09.2012, learned
Commissioner (Appeals) held that additions arising out of transfer
pricing adjustment based on change of filters and comparables cannot
lead to imposition of penalty under Section 271(1)(c) of the Act. As
regards, addition on account of disallowance of provision for doubtful
debts, learned Commissioner (Appeals) observed that the assessee has
shown the provision for doubtful debts in the original return of
income. Therefore, the assessee cannot be accused of furnishing
inaccurate particulars of income. In this context, he relied upon the
decision of Hon'ble Supreme Court in case of CIT vs. Reliance Petro-
products (P) Ltd. 322 ITR page 158 (SC). Thus, based on the aforesaid
reasoning, learned Commissioner (Appeals) deleted the penalty
imposed under Section 271(1)(c) of the Act.
We have heard Shri Harpreet Singh Ajmani, the learned counsel
appearing for the assessee and Ms. Mrinal Kumar Das, learned
Departmental Representative.
Undisputedly, the Assessing Officer has imposed penalty under
Section 271(1)(c) of the Act for the following two additions:
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i) Addition on account of transfer : Rs.24,23,62,055 pricing adjustment; & ii) Disallowance of provisions of doubt debts :Rs.30,52,561
In so far as TP adjustment is concerned, the assessee had opted
for resolving the issue relating to US transactions covering adjustment
of Rs.22,30,70,035. After the issue was resolved under MAP, the
adjustment was reduced to Rs.1,48,20,847. As regards, non US
transaction covering adjustment of Rs.1,92,92,020, the assessee
contested the adjustment before the Tribunal and the Tribunal decided
the issue more or less in favour of the assessee. While giving effect to
the order of the Tribunal, the TPO has reduced the adjustment to nil.
Thus, as could be seen from the facts on record, the adjustment of
Rs.24,23,62,055 originally suggested by the TPO, ultimately, got
reduced to Rs.1,48,20,847 only, that too, under MAP resolution.
Whereas, for the purpose of imposing penalty under Section 271(1)(c)
of the Act, the Assessing Officer has considered the entire adjustment
of Rs.24,23,62,055 made by the TPO. In any case of the matter, as
rightly observed by learned Commissioner (Appeals), the entire TP
adjustment was due to change in filter and comparables by the TPO.
There cannot be any doubt that application of filters and selection of
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comparables are highly debatable issues. Therefore, in respect of
additions made on such issues, the assessee cannot be accused of
furnishing inaccurate particulars of income or concealing income.
Therefore, in our view, learned Commissioner (Appeals) was justified
in deleting the penalty imposed in respect of addition made on account
of TP adjustment. In so far as the disallowance of provision of
doubtful debts is concerned, it is observed that while deciding the
issue in the appeal filed by the assessee in ITA No.5181/Del/2010
dated 02.08.2019, the Tribunal having taken note of assessee’s
submission that the assessee itself has disallowed the amount in the
computation of income had directed the Assessing Officer to factually
verify assessee’s claim, and withdraw the disallowance. Learned
counsel appearing for the assessee has submitted before us that till
date, the Assessing Officer has not given effect to the order of the
Tribunal.
Further, on perusing the computation of income filed by the
assessee along with return of income, prima facie, we are convinced
that the assessee has itself disallowed the amount in dispute while
computing its income. In any case of the matter, after the order of the
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Tribunal, the addition as on date, doesn’t survive. Thus, in our view,
learned Commissioner (Appeals) was justified in deleting the penalty
imposed under Section 271(1)(c) of the Act.
In so far as assessment year 2007-08 is concerned, while
completing the assessment, the Assessing Officer made the following
two additions:
i) Addition on account of transfer : Rs.41,20,14,305 pricing adjustment; & ii) Addition on account of denial of benefit: Rs. 2,04,37,456 of deduction under Section 10A of the Act.
Based on the aforesaid two additions, Assessing Officer has
proceeded to impose penalty under Section 271(1)(c) of the Act for an
amount of Rs7,82,43,260. While deciding assessee’s appeal
challenging imposition of penalty, learned Commissioner (Appeals)
having found that disallowance made under Section 10A of the Act
was deleted by DRP and the TP adjustment was on account of change
of filters and comparables, deleted the penalty imposed.
We have considered rival submissions and perused material on
record.
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Facts relating to TP adjustment are more or less identical to
assessment year 2006-07. In this year, the Assessing Officer suggested
total adjustment of Rs.41,20,14,305, out of which US transactions
amounted to Rs.38,30,08,498 and non-US transaction amounted to
Rs.2,90,05,807. The adjustment relating to US transactions were
settled under MAP and adjustment was reduced to Rs.6,96,57,816. In
so far as, non US transactions are concerned, the Tribunal while
deciding assessee’s appeal had granted substantial relief to the
assessee and as per the computation submitted before us by the
learned counsel for the assessee, after giving effect to the order of the
Tribunal, there would be no adjustment. However, it has been brought
to our notice that, till date, the TPO has not given effect to the order of
the Tribunal. Thus, our reasoning/decision in respect of penalty on TP
adjustment in assessment year 2006-07 would apply mutatis-mutandis
to this year also. As regards penalty imposed on the addition of
Rs.2,04,37,456, being addition on account of denial of benefit of
deduction under Section 10A of the Act, it is observed, though, the
aforesaid addition was proposed in the draft assessment order,
however, while considering assessee’s objection on the issue, learned
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Dispute Resolution Panel deleted the addition. In the final assessment
order, the Assessing Officer has allowed the entire claim of the
assessee. Thus, it is manifest, the Assessing Officer has imposed
penalty on non-existent addition by overlooking the facts on record.
In view of the aforesaid, we do not find any infirmity in the
decision of learned Commissioner (Appeals) in deleting the penalty
imposed under Section 271(1)(c) of the Act.
In the result, both the appeals are dismissed.
Pronounced in the open court on 28.02.2023.
Sd/- Sd/-
( PRADIP KUMAR KEDIA) (SAKTJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28th February, 2023. Mohan Lal
