PCIT Vs. M/S Giesecks & Devrient (India) Pvt. Ltd. (Delhi High Court)
The appeal is filed by the revenue against the order passed by the Hon’ble ITAT Delhi (I-2 Bench) in ITA No. 3864/DEL/2015.
Background of the Case:
M/S Giesecks & Devrient (India) Pvt. Ltd (hereinafter referred as the “Respondent”) is a wholly owned subsidiary of Giesecke & Devrient Gmbh (hereinafter referred to as ‘G&D GmbH’). During the Assessment Year 2007-08, the respondent 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 smart card-related applications.
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 on account of Provision for software development services, Purchase of raw material for SIM Card assemble, Payment of consultancy fees and Purchase of finished goods.
Aggrieved by the assessment order, the respondent filed an appeal before the Hon’ble ITAT wherein partly relief was granted to the respondent.
The Assessing Officer thereafter issued a show-cause notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (‘Act’) and passed the order, levying a penalty on the respondent. The respondent challenged the above order before Ld. CIT(A). Ld. CIT(A) dismissed the appeal filed by the Respondent. Thereafter, the respondent preferred appeal before the Hon’ble ITAT wherein Hon’ble ITAT allowed the appeal of the respondent.
The learned counsel for the appellant submits that in terms of Rule 10B(4) of the Income Tax Rules, 1962 (hereinafter referred to as the ‘Rules’), no contrary view on the issue of use of single-year data was available to the respondent. This itself shows lack of bona fide on part of the respondent, making it liable to levy of penalty.
It was further further submitted that the TP documentation of the respondent for provision of software development services segment and purchase of raw material for SIM card assembly segment are faulty, misleading and prepared without proper care, which also clearly proves that there was lack of good faith and diligence on part of the respondent, making it liable to levy of penalty.
Hon’ble High Court’s Finding
Hon’ble High Court considered the finding of the Hon’ble ITAT 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. Further, Hon’ble ITAT recorded 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.
Furthermore, placing reliance on the judgement of Hon’ble Supreme Court in the case of Commissioner of Income Tax, Ahmedabad vs. Reliance Petroproducts Pvt. Ltd., (2010) 11 SCC 762 , Hon’ble High Court dismissed the appeal filed by the Revenue.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. 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 13.03.201 5.
3. It is the case of the appellant that the respondent is a wholly-owned subsidiary of Giesecke & Devrient Gmbh (hereinafter referred to as ‘G & 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.25,3 1,59,381/- (Rupees Twenty Five Crores Thirty One Lakhs Fifty Nine Thousand Three Hundred Eight One) to the returned income, making the following adjustments:
