ITAT Sets Aside Rs 18.17 Lakh Penalty under Section 271(1)(c) Based on Non-Final Transfer Pricing Adjustment:

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has quashed a penalty of Rs 18.17 lakh imposed on Transoceanic Financial Engineering Pvt. Ltd. under Section 271(1)(c) of the Income-tax Act, 1961, for Assessment Year 2011-12.

The penalty was imposed in connection with a transfer pricing adjustment of Rs 9.08 crore relating to the company’s international transactions with its associated enterprise. The adjustment included Rs 5.60 crore towards software and assets purchased and Rs 3.48 crore towards operating licences.

The assessee submitted that the transfer pricing adjustment forming the basis of the penalty had already been set aside by the ITAT in its earlier order dated January 28, 2019. At that time, the Tribunal had restored the issues to the Dispute Resolution Panel (DRP) for fresh adjudication after observing that the assessee’s submissions and supporting evidence had not been properly considered.

The ITAT noted that the earlier transfer pricing adjustment was therefore not a final determination on merits. It also took note of the assessee’s submission that, following the remand, the Assessing Officer had passed a fresh assessment order and initiated fresh penalty proceedings.

The Mumbai ITAT held that the penalty under appeal was based on the earlier transfer pricing adjustment, which had been set aside for fresh adjudication. Accordingly, the Tribunal held that the penalty could not be sustained and quashed the penalty order.

The Tribunal clarified that it had not expressed any opinion on the merits of the fresh assessment or the validity of the fresh penalty proceedings. Those proceedings would be dealt with independently in accordance with law. The appeal filed by Transoceanic Financial Engineering Pvt. Ltd. was accordingly allowed.