ITAT Quashes Section 271(1)(c) Penalty as Transfer Pricing Adjustment Was Remanded:

The assessee is M/s. Transoceanic Financial Engineering Pvt. Ltd. who filed an appeal against the order dated October 15, 2025 passed by the NFAC on penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2011-12. The penalty amounting to Rs. 18,17,200 was levied in connection with a transfer pricing adjustment of Rs. 9,08,60,000 relating to the assessee’s international transactions with its associated enterprise. The adjustment comprised Rs. 5.60 crore towards software and assets purchased and Rs. 3.486 crore towards operating licences.

Before the Tribunal, the assessee submitted that the transfer pricing adjustment forming the basis of the penalty had already been set aside by the Tribunal in its earlier order dated January 28, 2019 in ITA No. 675/Mum/2016. The earlier proceedings had been restored for fresh adjudication after the Tribunal found that the assessee’s submissions and supporting evidence had not been properly considered. The Tribunal had directed the authorities to examine the material furnished by the assessee and adjudicate the issues afresh after providing due opportunity of hearing.

The Tribunal had held that where an assessee furnishes submissions and evidence to demonstrate that no transfer pricing adjustment was warranted, the Departmental authorities are duty-bound to consider the submissions and examine the evidence. Failure to do so amounted to violation of the principles of natural justice. Consequently, the issues had been restored to the DRP for fresh adjudication, without expressing any opinion on their merits.

The Tribunal observed that the transfer pricing adjustment underlying the penalty, therefore, had not attained finality and was required to be reconsidered in the remanded proceedings. Accordingly, the Tribunal held that the penalty order under appeal, having been founded upon the earlier transfer pricing adjustment which itself had been set aside for fresh adjudication, could not be sustained. The Tribunal therefore set aside and quashed the  penalty of Rs. 18.17 lakh and allowed the assessee’s appeal.