PR. COMMISSIONER OF INCOME TAX-4 vs. M/S GIESECKS & DEVRIENT (INDIA) PVT. LTD

This appeal has been filed by the appellant challenging the order dated 28.01.2019 passed by the Income Tax Appellant Tribunal, Delhi of ‘I-2’ Bench, New Delhi (hereinafter referred to as the ‘ITAT’) in ITA No.3864/Del/2015. 2. By the impugned order, the learned ITAT has allowed the appeal of the respondent and set aside the demand of penalty levied by the Assessing Officer vide order dated 26.11.2013 as subsequently upheld by the learned Commissioner of Income Tax (Appeal) (hereinafter referred to as ‘CIT(A)’) vide order dated 13.03.2015. 2021:DHC:4126-DB

It is the case of the appellant that the respondent is a wholly- owned subsidiary of Giesecke & Devrient Gmbh (hereinafter referred to as ‘G&D GmbH’). During the Assessment Year 2007-08 (hereinafter referred to as ‘relevant AY’) , the appellant was engaged in the business of wholesale trading of currency verification and processing systems (‘CVPS’), their maintenance and providing SIM card systems to telecommunication operators. The respondent also renders software development agreements, wherein it develops software applications software(s) for G & D GmbH. As a part of this, the respondent is also engaged in the business development of smartcard-related applications. 4. The respondent filed its return of income for the relevant AY. Pursuant to the order of the Transfer Pricing Officer and subsequently the Dispute Resolution Panel, the Assessing Officer made an addition of Rs.25,31,59,381/- (Rupees Twenty Five Crores Thirty One Lakhs Fifty Nine Thousand Three Hundred Eight One) to the returned income, making the following adjustments: i) Provision for software development services

Aggrieved by the assessment order dated 24.10.2011, the respondent filed an appeal being ITA No.5735/Del/2011 before the learned ITAT. The said appeal was partly allowed by the learned 2021:DHC:4126-DB

We have considered the submissions made by the learned counsel for the appellant, however, find no force in the same. 11. The learned ITAT in its impugned order has recorded that prior to 2007, there was a legal debate as to whether multiple-year data can be used or only current-year data is to be used under Rule 10B(4) of the Rules. In fact, this Court in its judgment dated 06.08.2019 passed in ITA No.335 of 2019, in the case of the respondent itself for the AY 2005-06, has upheld a similar view of the learned ITAT, observing as under: “7. The Court notes that after the words “data relating to the financial year” occurring in Rule 10B(4) of the Rules, there is an insertion made in the Rules with effect from 19th October, 2015, which reads “hereafter in this Rule and in Rule 10(C)(a) referred to as the „current year‟.

While it could be argued that this was a clarificatory amendment, the fact remains that the legislature thought it necessary to clarify that the data that was required to be used had to necessarily relate to the financial year in question and not to multiple year data.

The view taken by the ITAT that during the AY in question, the issue was debatable cannot, in the circumstances, said to be an implausible view.”

The learned ITAT in its impugned order further records that the other reason for making the adjustments in the relevant AY was the denial of the capacity utilization claimed by the respondent. It has held that difference in the level of capacity utilization is an accepted principle, though denied in the relevant AY to the respondent. The same cannot, however, tantamount to filing without good faith and due diligence. 2021:DHC:4126-DB

We do not find any infirmity in the above observation of the learned ITAT. As held by the Supreme Court in Commissioner of Income Tax, Ahmedabad vs. Reliance Petroproducts Pvt. Ltd.,