ACIT Vs Aon Services India Pvt. Ltd. (ITAT Delhi)
Different Comparables, Same Disclosures: Transfer Pricing Adjustment Does Not Automatically Invite Penalty
The controversy
A transfer pricing adjustment may arise because the Transfer Pricing Officer chooses different filters or comparable companies. Does that difference, by itself, establish concealment of income or furnishing of inaccurate particulars?
The Delhi Tribunal upheld the deletion of penalty under section 271(1)(c) in the case of Aon Services India Pvt. Ltd. It followed its decisions in the assessee’s preceding years, recognising that application of filters and selection of comparables are highly debatable issues.
The Revenue’s appeal was dismissed. The decision reinforces that an adjustment to the arm’s length price does not automatically establish the conduct necessary for imposing a concealment penalty.
The assessment and penalty proceedings
The assessee filed its return for assessment year 2008-09 on 30 September 2008, declaring income of ₹9,46,63,523.
Following scrutiny and transfer pricing proceedings, the Assessing Officer passed an order dated 24 August 2012, making a transfer pricing addition of ₹44,06,38,092, based on the arm’s length price determined by the TPO.
The adjustment comprised ₹19,87,96,730 in the software development services segment and ₹24,18,41,362 in the information technology enabled services segment.
Penalty proceedings under section 271(1)(c) were initiated separately, culminating in a penalty order dated 28 April 2016.
The CIT(A), by an order dated 30 April 2019, deleted the penalty. The Revenue challenged that relief before the Tribunal.
Why the Revenue sought restoration of penalty
The Revenue argued that the CIT(A) had wrongly deleted the entire penalty for furnishing inaccurate particulars in relation to the transfer pricing adjustment.
It emphasised that the Dispute Resolution Panel had confirmed the quantum addition, and that the Mutual Agreement Procedure resolution had not eliminated the adjustment entirely. According to the Revenue’s grounds, approximately ₹12.91 crore remained without relief under MAP.
The Revenue therefore contended that the surviving adjustment justified the penalty.
The assessee disputed the premise that confirmation or survival of a quantum adjustment necessarily established inaccurate particulars.
The adjustment arose from benchmarking differences
The assessee explained that the TPO had modified its economic analysis by changing the filters, rejecting certain comparables selected in the transfer pricing study, and introducing additional companies.
These changes produced the disputed adjustment.
The assessee submitted that transfer pricing allows different conclusions on the same disclosed facts, depending on the comparables, filters and benchmarking approach adopted. Such differences should not be equated with concealment or inaccurate disclosure.
It also maintained that it had prepared the prescribed transfer pricing documentation, conducted an economic analysis, and furnished the relevant particulars and supporting evidence. According to its submissions, the TPO and Assessing Officer had not identified any inaccuracy in the underlying details.
MAP and the quantum appeal
The assessee explained that the original adjustment relating to US-associated enterprise transactions, amounting to ₹41,79,89,294, had been addressed through MAP.
The adjustment concerning non-US transactions continued to be contested before the Tribunal.
In its written submissions, the assessee referred to the quantum appellate order directing exclusion of several comparables. It stated that six of eight disputed software development comparables had been excluded, while two were restored for reconsideration. Nine comparables in the IT-enabled services segment were also directed to be excluded.
The assessee anticipated that the non-US adjustment would disappear upon giving effect to the quantum order. However, the penalty decision should not be described as recording that every adjustment had already been finally deleted. Its principal reasoning rested on the debatable nature of the benchmarking issues and the earlier penalty precedent.
The assessee’s own earlier years proved decisive
The Tribunal referred to its decisions for assessment years 2006-07 and 2007-08, where deletion of penalty had been upheld.
The earlier reasoning recognised that the transfer pricing adjustment arose from changes in filters and comparables. Those issues were highly debatable, and additions resulting from them did not justify accusing the assessee of furnishing inaccurate particulars or concealing income.
The earlier order also distinguished between the original adjustment and the substantially reduced amount surviving after MAP and appellate proceedings.
Following that precedent, the Tribunal rejected the Revenue’s grounds as devoid of merit and dismissed its appeal, leaving the CIT(A)’s deletion of penalty undisturbed.
Author’s comments
The decision draws a practical distinction between a disagreement over valuation and an inaccurate statement of facts. A TPO may reject a comparable or apply a different filter without establishing that the taxpayer concealed the transaction or misstated the underlying information.
The survival of an adjustment after MAP does not, by itself, answer the penalty question. The nature of the adjustment and the taxpayer’s disclosures still require consideration.
At the same time, the ruling does not grant blanket immunity from penalty for all transfer pricing additions. Its reasoning concerns adjustments arising from debatable filters and comparables, supported by the assessee’s earlier decisions.
A different arm’s length result may justify an adjustment; it does not automatically prove inaccurate particulars.
Cases Discussed
- PCIT Vs Giesecke Devrient India, ITA No. 141 of 2020 (Delhi High Court) — relied upon in support of non-levy of penalty where the transfer pricing issue was debatable.
- Air Works India (Engineering) (P.) Ltd. Vs ITO, ITA Nos. 4314 & 4315/Mum/2023 — cited on bona fide maintenance of transfer pricing documentation and penalty under section 271(1)(c).
- Verizon Communications India Private Limited Vs DCIT, ITA No. 5566/Del/2011, upheld in PCIT v. Verizon Communications India Pvt. Ltd., ITA No. 460 of 2016 (Delhi High Court) — cited for the proposition that penalty cannot follow merely from a debatable transfer pricing difference.
- Sitel India Limited Vs DCIT, ITA No. 6875/Mum/2014 — cited regarding penalty arising from transfer pricing differences.
- ACIT Vs ADP (P.) Ltd., ITA No. 1491/Hyd/2012 — cited regarding non-levy of penalty on debatable transfer pricing issues.
- Giesecke Devrient India, ITA No. 3864/Del/2015 — relied upon regarding transfer pricing penalty; the decision was upheld by the Delhi High Court.
- M/s United Online Software Development (India) Private Limited Vs ITO, ITA No. 1658/Hyd/2011 — cited regarding transfer pricing penalty.
- DCIT Vs Honda Trading Corporation India (P) Ltd., ITA No. 747/Del/2017 — cited in support of the assessee’s penalty contention.
- Babcock & Brown India Private Limited Vs DCIT, ITA No. 2214/Mum/2015 — cited regarding bona fide transfer pricing documentation and penalty.
- Gap International Sourcing India (P.) Ltd. Vs DCIT, ITA No. 6743/Del/2013 — cited regarding good faith, due diligence and maintenance of prescribed transfer pricing documentation.
- DCIT Vs RBS Equities India Limited, ITA No. 2570/Mum/2010 — cited regarding penalty on an arm’s length price adjustment where transfer pricing documentation had been maintained.
- CIT Ahmedabad Vs Reliance Petroproducts Pvt. Ltd., Civil Appeal No. 2463 of 2010 (Supreme Court) — relied upon for the principle that an incorrect claim by itself does not amount to furnishing inaccurate particulars.
FULL TEXT OF THE ITAT DELHI ORDER
The appeal filed by the Revenue is against order dated 30.04.2019 of Ld. Commissioner of Income Tax (Appeals)- 44, New Delhi [hereinafter referred to as “the CIT(A)”] under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) arising out of penalty order dated 28.04.2016 of the Ld. Assessing Officer/DCIT, Circle 2(2), New Delhi (hereinafter referred to as ‘the Ld. AO’) u/s 144 r.w.s. 144B of the Act for A.Y. 2008-09.
2. Brief facts of the case are that, the Assessee filed return of income of Rs. 9,46,63,523/- on 30.09.2008, the return was processed under Section 143(1) of the Act. The case was selected for scrutiny and notice under Section 143(2) of the Act dated 04.08.2009 was issued. Notice under Section 142(1) along with detailed questionnaire was issued on 20.07.201. On completion of proceedings, Ld. AO vide order dated 24.08.2012 made addition of Rs. 44,06,38,092/- by adopting Arm’s Length Price determining by TPO and initiated penalty proceedings under Section 271(1)(c) of the Act separately. The penalty proceedings notice was issued to the Assessee. Assessee’s submitted written submission vide letter dated 21.04.2016. On culmination of penalty proceedings, Ld. AO passed penalty order dated 28.04.2016.
3. Against penalty order dated 28.04.2016 of Ld. AO, the Assessee filed appeal before the Ld. CIT(A) which was allowed vide order dated 30.04.2019.
4. Being aggrieved, Revenue preferred present appeal on following grounds:
“1. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting entire penalty made by the AO on the account of furnishing inaccurate particulars of income u/s 271(1)(c) of the Act w.r.t. ‘TP adjustment’.
2. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting penalty u/s 271(1)(c) of the act, ignoring the fact that Hon’ble DRP has confirmed the quantum addition and even the MAP resolution has not provided the relief to the assessee to the extent of Rs. 12,90,71,057/- of TP adjustment.
3. The appellant craves leave, modify, add or forgo any ground(s) of appeal at any time before or during the hearing of this appeal.”
5. The Ld. Departmental Representative submitted that Ld. CIT(A) erred in deleting entire penalty imposed by Ld. AO on account of furnishing incorrect particulars. Ld. CIT(A) ignored the fact that Hon’ble DRP confirmed quantum addition and even the MAP Resolution had not provided relief to the Assessee to the extent of Rs. 12,90,71,056/- of the TP Adjustment.
6. Ld. Authorized Representative for respondent/assessee in written submissions dated 09.07.2016 submitted as under:
“B. Respondent’s submission
3. In this regard, the Respondent humbly submits that, having regard to the facts and circumstances of the present case, the levy of penalty under section 271(1)(c) of the Act is unsustainable in law and on facts, for the reasons outlined in the subsequent paragraphs.
4. For the sake of convenience of the Hon’ble Tribunal, the Respondent has reproduced herein below the verbatim of section 271 of the Act:
“271. (1) If the Assessing Officer or the [Joint Commissioner (Appeals) or the] Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person-
(a)xxxx
(b)xxx
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
he may direct that such person shall pay by way of penalty.
(i)[**]
(ii)…..xx……..
(iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits
Re: Adjustment pertains to debatable issue
5. During the transfer pricing assessment proceedings, the Ld. Additional Commissioner of Income Tax, Transfer Pricing Officer 1(2) (‘Ld. TPO’) modified the economic analysis carried out by the Respondent by adopting the following approach:
a. Modified the filters applied by the Respondent,
b. Rejected certain comparable companies selected by the Respondent; and
c. Introduced additional companies as comparables.
6. Consequently, the Ld. TPO proposed an adjustment of INR 198,796,730 and INR 241,841,362 under the software development services segment and information technology enabled services segment, respectively.
7. Thereafter, the Ld. AO levied penalty u/s 271(1)(c) without appreciating that selection of comparables and application of filters are debatable issues and therefore, such penalty is not leviable in the Respondent’s case.
8. In this regard, the Respondent would like to place reliance on the order of this Hon’ble ITAT in Respondent’s own case for immediately preceding years, i.e. AY 2006-07 & AY 2007-08 (ITA No. 5986 & 5987/DEL/2022), wherein the Hon’ble Tribunal had upheld the deletion of penalty u/s 271(1)(c) on the basis that application of filters and selection of comparables are highly debatable issues. The relevant extracts from the order are provided below for your kind perusal:
“8xxxx 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 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.
Refer para 8 on page no. 2 & 3 of ITAT Order attached as Annexure 1)
9. It is further submitted that the Ld. AO has failed to appreciate that transfer pricing is not an exact science. While determining the arm’s length price, there is a possibility of drawing different conclusions on the same facts, depending upon the selection of comparables, application of filters and benchmarking approach adopted. Such difference in opinion cannot be construed as furnishing of inaccurate particulars.
10. In this regard, the Respondent would like to place reliance on the following judicial precedents wherein it has been held that penalty u/s 271(1)(c) cannot be levied merely due to difference in opinion:
a. Verizon Communications India Private Limited Vs DCIT (ITA No. 5566/Del/2011). upheld by the Hon’ble Delhi High Court in the case of PCIT v. Verizon Communications India Pvt. Ltd., (ITA No. 460 of 2016);
b. Sitel India Limited Vs DCIT (ITA No. 6875/Mum/2014);
c. ACIT VS ADP (P.) Ltd. (ITA No. 1491/Hyd/2012);
e. CIT Ahmedabad Vs Reliance Petro product Pvt. Ltd. (Civil Appeal No. 2463 of 2010);
f. M/s United Online Software Development (India) Private Limited Vs ITO (ITA No. 1658/Hyd/2011); and
g. DCIT Vs Honda Trading Corporation India (P) Ltd. (ITA No. 747/Del/2017)
Re: Maintenance of TP documentation in good faith and with due diligence
11. It is humbly submitted that the Respondent had undertaken the economic analysis for determination of arm’s length price in accordance with the statute and based on the transfer pricing study prepared for the subject year. Based thereon, it was concluded that the price received by the Respondent in respect of international transactions with its AEs, was at arm’s length.
12. The Respondent humbly submits that the Ld. TPO/Ld. AO has not pointed out any inaccuracy in the details furnished by the Respondent. Therefore, in the absence of anv such finding by the Ld. TPO/Ld. AO it cannot be held that the Respondent has furnished any inaccurate particulars.
13. The Respondent made full and complete disclosure of all relevant particulars in its return of income and all the necessary details and documentary evidence submitted before the Ld. AO/Ld. TPO which clearly establishes the bona fide intent of the Respondent.
14. Therefore, having regard to the fact that the Respondent had maintained all the requisite documentation and the Ld. TPO/Ld. AO have failed to bring on record any inaccuracy in the details furnished, penalty u/s 271(1)(c) of the Act cannot be levied.
15. In this regard, the Respondent wishes to place reliance on the following decisions wherein it was upheld that imposition of penalty under Section 271(1)(c) of the Act is not warranted when the Respondent acted in a bona fide manner and has duly maintained the documentatior prescribed under the Act:
a. DCIT Vs RBS Equities India Limited (ITA No. 2570/Mum/2010);
b. Babcock & Brown India Private Limited Vs DCIT (ITA No. 2214/Mum/2015);
c. Air Works India (Engineering) (P.) Ltd. Vs ITO (ITA No. 4314 & 4315/Mum/2023 and
d. Gap International Sourcing India (P.) Ltd. Vs DCIT (ITA No. 6743/Del/2013)
Re: Strong case on merits
16. To set the context, it would be imperative to bring to the kind attention of this Hon’ble Tribunal that for the subject AY, the transfer pricing adjustments pertaining to international transactions entered with US-based Associated Enterprises (“AEs”) was resolved under Mutual Agreement Procedure (“MAP”). The transfer pricing adjustment made to the remaining international transactions entered with non-US-based AEs were agitated before this Hon’ble Tribunal. A transfer pricing adjustment of INR 440,638,092 was proposed in the order u/s 92CA(3) of the Act issued by the Ld. TPO. Out of the said amount, transfer pricing adjustment pertaining to US transactions (i.e. INR 417,989,294) was resolved under MAP. For the balance non-US adjustment, the Respondent continued to appeal before the Hon’ble Delhi Tribunal.
17. Recently, whilst adjudicating the quantum appeal (ITA No. 5418/Del/2012) this Hon’ble Tribunal has followed the order passed by the co-ordinate bench in AY 2007-08 (ITA No. 5736/Del/2011). In the software development segment, 6 out of 8 comparables included by the Id. TPO were directed to excluded and balance 2 comparables were remanded back to the file of the Id. TPO to be considered afresh. As regards the ITeS segment, the Hon’ble Tribunal directed exclusion of 9 comparables included by the Id. TPO. Consequentially, the entire transfer pricing adjustment qua non-USA transactions relating to Software Development and ITES segment would be deleted once appeal effect order is passed by the Ld. TPO. The working is tabulated hereunder:
Software Development Segment
Scenario 1: Assuming the two comparables viz. Persistent Systems Pvt. Ltd. and Tata Elxsi Limited remanded by ITAT are excluded by the Ld. TPO:
18. Since the transfer pricing adjustment with respect to non-US transactions would stand deleted in pursuance to the quantum appeal and the US transactions being already settled under MAP the allegation regarding furnishing of inaccurate particulars / concealment of particulars of income under section 271(1)(c) of the Act have no legs to stand and are unsustainable in eyes of law. Copies of orders passed by this Hon’ble Tribunal in quantum appeals for AYs 2007-08 & 2008-09 have been attached herewith as Annexure-2 & Annexure-3 respectively.
19. At this, juncture, it would be of seminal importance to highlight that the fact pattern of the subject AY (penalty matter) is identical to the judgment of this Hon’ble Tribunal in Respondent’s own case for immediately preceding years, i.e. AY 2006-07 & AY 2007-08 (ITA No. 5986 & 5987/DEL/2012) (penalty appeal), wherein, the Hon’ble Tribunal had upheld the deletion of penalty u/s 271(1)(c) of the Act.”
7. From examination on record, in light of aforesaid rival contentions, it is crystal clear that Ld. CIT(A) vide order dated 30.04.2019 allowed the appeal of Assessee and set aside penalty order dated 28.04.2016 under Section 271(1)(c) of the Act for A.Y 2008-09.
7.1. Hon’ble ITAT in assessee’s own case for the preceding years A.Y 2006-07 and A.Y 2007-08 in ITA No. 5986 and 5987/Del/2022 upheld deletion of penalty under Section 271(1)(c) of the Act on the basis that application of filters and selection of comparables are highly debatable issues by observing in Para No. 8 as under:-
“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 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 Hewitt Associates (India) (P.) Ltd. v. Dy. CIT [2019] 111 taxmann.com 299 (Delhi – Trib) in ITA No. 5181/Del/2010 dated 2-8-2019, 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.”
8. In view of above material facts by following the judicial precedent, the Grounds of appeal being devoid of merit are rejected.
9. In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 05.10.2026
