• Service: Tax, Global Transfer Pricing Services
  • Type: Regulatory update
  • Date: 5/28/2014

India - Amended return filed in anticipating transfer pricing adjustment 

May 28:  The Mumbai bench of the Income-tax Appellate Tribunal upheld the imposition of a 100% penalty under section 271(1)(c) of the Income-tax Act. The tribunal determined that the amended (revised) return was filed by the taxpayer only after the return had been referred to the Transfer Pricing Officer and was filed only in anticipation of a transfer pricing adjustment. The tribunal, therefore, held that the amended return was not “voluntarily” filed. Deloitte Consulting India Pvt. Ltd. v. ACIT (ITA Nos. 7650 and 7651/Mum/2013)


The taxpayer (a joint venture between two companies) entered into an agreement to provide software development and information technology services for one of these two companies. The taxpayer’s entire turnover represented earnings from this agreement.

The Assessing Officer referred the international transactions reported by the taxpayer to the Transfer Pricing Officer, who accepted all of the transactions—except for a claim for reimbursement of market services—to be at arm’s length.

The Transfer Pricing Officer took the position that the taxpayer was not required to undertake any marketing function as per the master service agreement and that both parties to the agreement had clearly demarcated roles for which they were compensated. Thus, the Transfer Pricing Officer concluded that there was no valid reason for the joint venture-party company to the service agreement to allocate any part of the cost incurred by it to perform the marketing function.

The taxpayer filed an amended (revised) return before the order for a transfer pricing adjustment was issued.

As part of the “regular assessment” proceeding, the Assessing Officer did not recognize the amended returns and imposed a penalty under section 271(1)(c) equal to 100% of the tax on the amount initially claimed as a marketing expense.

The penalty was upheld on administrative appeal, and the tribunal rejected the taxpayer’s judicial appeal. The tribunal held that the penalty proceedings could be dropped only if the taxpayer had voluntarily withdrawn the claimed marketing expenditure—which did not occur in this case because the taxpayer filed the amended return in anticipation of a transfer pricing adjustment.

Read a May 2014 report [PDF 228 KB] prepared by the KPMG member firm in India: Mumbai Tribunal confirms concealment penalty under Section 271(1)(c) of the Income-tax Act and also rules on the validity of revised return

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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