ITA 5987/DEL/2019: Addl. CIT, Special Range-1, New Delhi vs. Aon Services India Pvt. Ltd. – Penalty Deletion Under Section 271(1)(c) for AY 2007-08

Final Tribunal Order in ITA 5987/DEL/2019: Addl. CIT, Special Range-1, New Delhi vs. Aon Services India Pvt. Ltd.

Case Number: ITA 5987/DEL/2019

Appellant: Addl. CIT, Special Range-1, New Delhi

Respondent: Aon Services India Pvt. Ltd., New Delhi

Assessment Year: 2007-08

Order Type: Final Tribunal Order

Date of Order: 2023-02-28

Pronounced On: 2023-02-28

Introduction:

This case involves an appeal filed by the Additional Commissioner of Income Tax (Addl. CIT), Special Range-1, New Delhi, against Aon Services India Pvt. Ltd., New Delhi, for the assessment year 2007-08. The appeal challenged the deletion of a penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, related to transfer pricing adjustments and disallowances made during the assessment.

Background:

The respondent, Aon Services India Pvt. Ltd., a subsidiary of Hewitt, USA, is engaged in providing global management consultancy services. For the assessment year 2007-08, the respondent filed its income tax return declaring an income of Rs.12,10,71,067. During the assessment, the Assessing Officer (AO) noticed that the respondent had engaged in international transactions with associated enterprises (AEs) and referred the matter to the Transfer Pricing Officer (TPO) to determine the arm’s length price (ALP) of these transactions.

The TPO suggested a transfer pricing adjustment of Rs.24,23,62,055. Additionally, the AO made a disallowance of Rs.30,52,561 for provisions related to doubtful debts. Based on these adjustments, the AO initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, accusing the respondent of furnishing inaccurate particulars of income and concealing income. The AO ultimately imposed a penalty of Rs.8,26,06,560.

Appeal to Commissioner of Income Tax (Appeals):

The respondent appealed the penalty order to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) considered the submissions made by the respondent and found that the transfer pricing adjustment was primarily due to changes in filters and comparables applied by the TPO, leading to the rejection of the comparables originally selected by the respondent. The CIT(A) relied on the Tribunal’s decision in Verizon India Pvt. Ltd. vs. CIT (ITA No.5566/Del/2011) and concluded that penalty under Section 271(1)(c) could not be imposed for adjustments arising from such debatable issues.

Regarding the disallowance of provisions for doubtful debts, the CIT(A) observed that the respondent had duly disclosed the provision in its original return of income. Citing the Supreme Court’s decision in CIT vs. Reliance Petroproducts Pvt. Ltd. (322 ITR 158), the CIT(A) held that there was no concealment or furnishing of inaccurate particulars of income by the respondent. Consequently, the CIT(A) deleted the penalty imposed by the AO.

Appeal to the ITAT:

The Revenue, dissatisfied with the CIT(A)’s decision, appealed to the Income Tax Appellate Tribunal (ITAT), Delhi Bench. The ITAT, comprising Judicial Member Shri Saktijit Dey and Accountant Member Shri Pradip Kumar Kedia, heard the case on 14.02.2023 and pronounced its decision on 28.02.2023.

Tribunal’s Analysis and Decision:

The ITAT examined the facts and circumstances of the case, particularly focusing on the two primary issues: the transfer pricing adjustment and the disallowance of provisions for doubtful debts.

For the transfer pricing adjustment, the ITAT observed that the TPO had initially recommended an adjustment of Rs.24,23,62,055. However, after the respondent opted to settle the US-related transactions under the Mutual Agreement Procedure (MAP), the adjustment was reduced to Rs.1,48,20,847. The Tribunal noted that transfer pricing adjustments are often based on subjective judgments involving the application of various filters and comparables, which are inherently debatable. Therefore, the Tribunal agreed with the CIT(A) that imposing a penalty under Section 271(1)(c) for such adjustments was not justified.

Regarding the disallowance of provisions for doubtful debts, the ITAT noted that the respondent had already disallowed the amount in its computation of income, as reflected in the return filed. The Tribunal emphasized that the AO had imposed the penalty without adequately considering the factual submissions made by the respondent. The ITAT reaffirmed the CIT(A)’s conclusion that there was no concealment or furnishing of inaccurate particulars of income by the respondent and that the penalty was unjustified.

In the context of the assessment year 2007-08, the ITAT noted that the AO had made two primary additions: a transfer pricing adjustment of Rs.41,20,14,305 and a denial of deduction under Section 10A of the Income Tax Act amounting to Rs.2,04,37,456. The ITAT observed that the Dispute Resolution Panel (DRP) had already deleted the disallowance made under Section 10A, and the penalty imposed by the AO was based on non-existent additions. This further supported the Tribunal’s decision to uphold the CIT(A)’s deletion of the penalty.

Conclusion:

After thoroughly reviewing the case, the ITAT concluded that the CIT(A) had correctly deleted the penalty imposed under Section 271(1)(c) of the Income Tax Act. The Tribunal found no infirmity in the CIT(A)’s decision and upheld the order, dismissing the Revenue’s appeal.

Final Judgment:

The ITAT dismissed the appeal filed by the Additional Commissioner of Income Tax, Special Range-1, New Delhi, and upheld the deletion of the penalty imposed on Aon Services India Pvt. Ltd. under Section 271(1)(c) for the assessment year 2007-08.

Order Pronounced: 28th February 2023

Judges: Shri Saktijit Dey (Judicial Member) and Shri Pradip Kumar Kedia (Accountant Member)

Reference: INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH “I”, NEW DELHI

ITA 5987/DEL/2019: Addl. CIT, Special Range-1, New Delhi vs. Aon Services India Pvt. Ltd. – Penalty Deletion Under Section 271(1)(c) for AY 2007-08