The assessee was a subsidiary of a USA company. For AY 2006-07, based on the additions made in the draft assessment order, the AO initiated proceedings for imposition of penalty u/s 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income and concealment of income and passed an order imposing penalty. On appeal against imposition of penalty, the CIT(A) held that the additions arising out of the transfer pricing adjustment based on change of filters and comparables being debatable issues,it could not lead to imposition of penalty u/s 271(1)(c) of the Act. Insofar as provision for doubtful debts was concerned, the ITAT observed that the assessee itself had disallowed the same in its computation of income and directed the AO to verify the same and withdraw the disallowance, therefore, the addition did not survive and hence the assessee could not be accused of furnishing inaccurate particulars of income.

For AY 2007-08, one of the grounds for imposing penalty u/s 271(1)(c) was  transfer pricing adjustment, wherein the ITAT upheld its order passed for AY 2006-07 above. The ITAT further observed that though the addition on account of denial of benefit of deduction under section 10A of the Act was proposed in the draft assessment order, while considering the assessee’s objections on the issue, the DRP deleted the addition. In the final assessment order, the AO had allowed the entire claim of the assessee. Thus, the AO had imposed a penalty on a non-existent addition. Therefore, the ITAT held that there was no infirmity in the decision of the CIT(A) deleting the penalty imposed under section 271(1)(c) of the Act.(AY.2006-07, 2007-08)