THE COMMISSIONER OF INCOME TAX vs M/S. PALMER INVESTMENT GROUP LTD.
- Court
- Karnataka High Court
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HC-KAR
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ITA No. 164 of 2026
CNR: KAHC010655372026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 27 DAY OF OCTOBER, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA
INCOME TAX APPEAL NO. 164 OF 2026
BETWEEN:
1. THE COMMISSIONER OF INCOME TAX
(INTERNATIONAL TAXATION)
BMTC BUILDING, 80 FEET ROAD
TH
6 BLOCK, KORAMANGALA
BENGALURU - 560 095
2.
THE DEPUTY COMMISSIONER OF INCOMET-TAX
(INTERNATIONAL TAXATION)
TH
CIRCLE -2(1), 4 FLOOR
INCOME TAX DEPARTMENT
BMTC BUILDING, 80 FEET ROAD
KORAMANGALA
BENGALURU - 560 095
…APPELLANTS
Digitally
signed by
SRIDEVI S
Location:
High Court
of Karnataka
(BY SRI/SMT. NIRMAL MATHEW, ADVOCATE FOR
SRI E.I. SANMATHI, ADVOCATE)
AND:
1. M/S. PALMER INVESTMENT GROUP LTD.,
SEA MEADOW HOUSE
BLACKBURNE HIGHWAY
P.O. BOX 116
ROAD TOWN
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ITA No. 164 of 2026
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TORTOLA BRITISH VIRGIN
ISLANDS 999999
FOREIGN, UNITED KINGDOM
…RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF
INCOME TAX ACT 1961, PRAYING TO ALLOW THE APPEAL AND
SET ASIDE THE ORDER DATED.01.04.2026 PASSED BY THE
INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, BANGALORE IN
IT(IT)A NO.2431/Bang/2024 FOR ASSESSMENT YEAR 2014-15 &
ETC.
THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MRS. JUSTICE K.S. HEMALEKHA
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. The Revenue has filed the present appeal under Section
260A of the Income Tax Act, 1961, [ the Act ] impugning the order
dated 01.04.2026 passed by the learned Income Tax Appellate
Tribunal [ Tribunal ] in IT(IT)A No. 2431/BANG/2024 for
Assessment Year [ AY ] 2014-15. The Revenue had filed the
aforementioned appeal challenging the order dated 13.11.2024
passed by the learned Commissioner of Income Tax (Appeals)-12,
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ITA No. 164 of 2026
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Bengaluru [ CIT (A) ] dated 13.11.2024 in respect of penalty
proceedings under Section 271(1)(c) of the Act for AY 2014-15.
2. The Respondent [ Assessee ] is a non-resident foreign
company, and had filed its Return of income on 31.03.2015. The
Returns were selected for scrutiny and notices under Section
143(2) and 142(1) were issued. During the course of the
proceedings, it was found that the Assessee had sold 43,76,771
shares of United Spirits Ltd [ USL ] to Relay BV [ Relay ] at the rate of
` 1,440/- per share. The Assessing Officer [ AO ] made a reference
to the Transfer Pricing Officer [ TPO ] for computing the Arm's
Length Price [ ALP ] in respect of the said transaction, assuming the
same to be an international transaction. The learned TPO passed
an order making a Transfer Pricing Adjustment [ TPA ] of
` 262,07,66,707/-, which according to the TPO was the ALP of the
shares of USL as against declared sale consideration of
`
135,37,05,283/-.
3. The AO issued a draft assessment order, which was
challenged by the assessee before the Dispute Resolution Panel
[ DRP ]. However, the DRP did not accept the objections. The
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Assessee filed an appeal before the learned Tribunal challenging
the assessment order but did not succeed. The Assessee preferred
an appeal before this Court – ITA Nos. 452/2023 and 456/2023.
The said appeals stand admitted to consider the following
substantial questions of law:
1. Whether, on the facts and in the circumstances of
the case and on the grounds urged, the Appellant
and Relay B.V which were unrelated at the time
of execution of the SPA and the transfer of
shares of USL can be said to be ‘associated
enterprises’ as per section 92A(2) of the Act,
solely on account of the subsequent acquisition
of shares in USL by Relay B.V crossing the
threshold of 26% of the share capital, and
consequently, the transaction deemed to be an
‘international transaction’ within the meaning of
section 92B of the Act?
2. Whether, on the facts and in the circumstances of
the case and on the grounds urged, even if
Chapter X is held to be applicable, the
transaction, is essence, entered into between two
unrelated parties, the contractually agreed price
can only represent the arm’s length price?
3. Whether, on the facts and in the circumstances of
the case and on the grounds urged, the finding of
the Tribunal that the Appellant has transferred its
controlling interest in USL to Relay B.V is
contrary to the material on record and thus is
perverse?
4. Whether, on the facts, and in the circumstances
of the case and on the grounds urged, the
Tribunal was right in upholding the adoption of
the DCF method by the TPO for computation of
the ALP of the transfer of the shares by the
Appellant, although the same is not one of the
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prescribed methods under the Act and the Rules
and comparable uncontrolled prices are available
in the form of prices quoted on the stock
exchange and/or preferential allotment by USL to
Relay and open offer to the public?
4. As noted above, one of the principal questions is whether the
transaction of sale of shares was an international transaction within
the meaning of Section 92(B) of the Act.
5. The AO had thereafter issued penalty proceedings by issuing
a notice under Section 274 of the Act. It is the Assessee’s case that
no penalty could be levied as it had neither concealed any income
nor furnished any inaccurate particulars. The Revenue had
estimated the income by treating the transaction of sale of shares
as an international transaction, which was seriously disputed by the
Assessee. This Court is considering the said question as a
substantial question of law. The Assessee contented that since the
question involved is a debatable question of law, no penalty could
be levied.
6. The AO did not accept the Assessee’s response and
confirmed the penalty, holding that the assessee had deliberately
furnished inaccurate particulars.
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7. The learned CIT(A) noted that this Court had admitted the
appeals on the question of law as set out above. It was also of the
view that the issue was contentious and therefore there was no
occasion to levy a penalty. The learned CIT(A) also referred to the
decision of this Court in CIT v. Dr. Harsha N Biliangady [2017] 79
taxman.com 376 (Karnataka) , in support of its view. Penalty
under Section 271(1)(c) could be imposed for concealment of
material particulars or furnishing inaccurate particulars. In the
aforesaid decision, this Court held that since an appeal has been
admitted on substantial questions of law, the same indicates that it
is debatable question. The relevant extract of the said decision as
noted by the CIT(A) set out below :
5.1 The appellant challenged the quantum
appeal order of the ITAT before the Karnataka
High Court on 06.07.2023. The Karnataka High
Court in its order dated 29.08.2023 admitted the
appeal and framed the substantial questions of
law. The appellant contended that once High
Court admitted the appeal the issue becomes
debatable and accordingly penalty cannot be
levied. The appellant relied on Karnataka High
Court decision in the case of CIT vs Dr. Harsha N.
Biliangady [2017] 79 taxmann.com 376
(Karnataka) wherein it is held that:
"8. We do not find any reason to hold that the
finding given and the conclusion arrived at by
the Tribunal as incorrect. We are also of the
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opinion that where penalty is imposed in
respect of any addition where the High Court
has admitted the appeal on substantial
question of law, then the sustainability of the
addition itself becomes debatable, and in such
circumstances penalty cannot be levied under
Section 271(1)(c) of the Act. Penalty can only
be imposed for concealment of material
particulars or furnishing of inaccurate
particulars by the assessee. In the facts of the
present case, we are of the view that the
assessee cannot be held guilty of the
concealment of any material particulars of his
income or having furnished inaccurate
particulars of such income, so as to attract
provisions of Section 271(1)(c) of the Act.
9. Appeal is accordingly dismissed at the stage
of admission itself as no substantial question
of law arises for our consideration."
8. In view of the aforesaid decision, the learned CIT(A) allowed
the Assessee's appeal. The learned Tribunal upheld the view of
the learned CIT(A).
9. The learned counsel appearing for the appellant submits that
Explanation 7 to Section 271(1)(c) of the Act provides that if any
amount is added or disallowed in computing the total income under
Section 92 (C)(4), the said amount would be treated to represent
income in respect of which particulars have been concealed or
inaccurate particulars have been furnished, unless the assessee
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proves the stated exception. He submitted that in view of
Explanation 7, the impugned order as well as the order passed by
CITA is required to be set aside.
10. Whilst Explanation 7 Section 271(1)(c) clarifies that if any
addition or any disallowance is made in computing the total income
in respect of an international transaction or a specified domestic
transaction, the same would be considered as representing income
in respect of which particulars have been concealed, unless the
price charged or any such transaction is computed in accordance
with the provisions of Section 92(C) of the Act and the manner
prescribed under that Section in good faith and with due diligence.
11. However, in the present case, whether the Assessee entered
into an international transaction is itself debatable. According to the
Assessee, Relay was not an Associated Enterprise under Section
92A of the Act at the material time and became one on
consummation of the transaction. Plainly, the question involved is
debatable, and there appears to be no cavil that the Assessee had
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fully disclosed the transaction in question. Thus the impugned
order setting aside the penalty proceedings cannot be faulted.
12. The learned counsel also fairly states that this question is
covered by the decision of this court in Dr. Harsha N Biliangady
( supra ). Since it is not disputed that the question is covered by the
earlier decision of this Court in Dr. Harsha N Biliangady ( supra ),
and CIT V. Ankita Electronics (P) Ltd ., (2015) 379 ITR 529
(Karnataka) , no substantial question of law arises for consideration
of this court. The present appeal is, accordingly, dismissed.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(K.S. HEMALEKHA)
JUDGE
SD
List No.: 2 Sl No.: 18