S. 271(1)(c): The giving up of a bogus claim for deduction to eschew inquiry by AO/ TPO is not voluntary & bona fide & attracts levy of penalty

Deloitte Consulting India Pvt. Ltd vs. ACIT (ITAT Mumbai)

 

The assessee entered into a software development service agreement with Deloitte Consulting, USA (“Deloitte”), to provide software related services to Deloitte. Deloitte enters into consulting assignments with its US clients. For such assignments, the areas pertaining to software development and information technology services are provided by the assessee. The assessee’s income was eligible for 100% deduction u/s 10A. The assessee claimed a deduction towards reimbursement of marketing support services in the return of income. As the said arms length price of similar reimbursement had been determined by the TPO at Rs. Nil for the earlier years, the assessee, after the reference was made by the AO to the TPO, withdrew the claim for deduction and stated that no transfer pricing adjustment was required to be made. It also stated that its income should be enhanced by the disallowance and s. 10A deduction granted on the enhanced income. The AO & TPO rejected the withdrawal of the claim and determined the ALP thereof at Rs. Nil. The claim for s. 10A deduction on the said enhanced income was rejected by relying on s. 92CA(4). The said view of the AO was upheld by the Tribunal. In the s. 271(1)(c) penalty proceedings, the assessee claimed that no penalty can be levied on the basis that (a) there was merit in its claim for deduction of the marketing expenditure and that claim was voluntarily given up only to avoid litigation, (b) that in view of Gems Jewellery 330 ITR 175 (Bom), the enhanced income was eligible was s. 10A deduction and so there was no tax effect and (c) there was full disclosure of the material facts in the return. The AO & CIT(A) rejected the claim. On appeal to the Tribunal HELD dismissing the Tribunal:

(iv) The assessee’s next plea is of a complete disclosure of material facts, made, adverting to the audit report u/s 92E. We are at loss to fathom even the import of the argument. It is only on failing, and abysmally at that, to demonstrate any business purpose of its relevant international transaction that a TP adjustment, valuing the same at nil, was advised by the TPO and came to be made. The disclosure per the audit report u/s 92E is thus both false and misleading. The argument of complete disclosure, unless the same is true, is of little consequence in law and, in fact, itself false. As such, looked at from any angle there has been both concealment as well as furnishing inaccurate particulars of income in the present case (Mak Data 352 ITR 1 (Del) affirmed in 358 ITR 593 (SC) referred)