AB 4 BV vs. DEPUTY ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1 1 1 INTERNATIONAL TAXATION DELHI & ANR.

PDF · subscribers
W.P.(C)/5992/2024HC DelhiDLHC01023057202429 April 2024Bench: HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV,HON'BLE MR. JUSTICE YASHWANT VARMA4 pages
AI SummaryAllowed

What did the High Court hold?

The Delhi High Court allowed the writ petition and quashed the impugned order imposing penalty under Section 270A of the Income Tax Act, 1961, and the consequent notice of demand. The Court reasoned that for a penalty to be justified under Section 270A(8), the assessee must be found guilty of under-reporting or mis-reporting income. The Court noted that the record established that the petitioner was neither guilty of mis-reporting nor under-reporting income. Furthermore, the fact that the Return of Income was ultimately accepted and the benefits under Section 194LD were extended to the petitioner, as conceded by the revenue's counsel, supported the conclusion that the imposition of penalty was not sustainable. The operative direction was to quash the penalty order and the demand notice.

What were the facts?

The petitioner, for Assessment Year 2020-21, filed its Return of Income including interest on Non-Convertible Debentures (NCDs) taxable at 5% under Section 194LD and interest on External Commercial Borrowings (ECBs) taxable at 10% as per the India-Netherlands DTAA. A draft assessment order initially held the petitioner ineligible for Section 194LD benefits. The petitioner filed objections before the Dispute Resolution Panel (DRP), which remitted the matter to the Assessing Officer (AO) for examination, considering a clarification from the Principal Chief Commissioner of Income Tax (PCCIT) dated November 30, 2017. This clarification stated that 'bonds' in Section 194LD should include NCDs, provided the debt is rupee-dominated, issued by an Indian company to a specified foreign investor, and interest is payable as per the section. Subsequently, the AO passed an assessment order accepting the Return of Income and extending Section 194LD benefits. Despite this, a penalty notice under Section 270A was issued, leading to the impugned penalty order.

What were the issues?

1. Whether the penalty imposed under Section 270A of the Income Tax Act, 1961, is sustainable when the assessee's Return of Income was ultimately accepted and the benefits under Section 194LD of the Act were extended? Assessee's Contention: The assessee argued that the penalty under Section 270A is not sustainable because the Return of Income was accepted, and the benefits under Section 194LD were granted. The assessee contended that they could not be held guilty of under-reporting or mis-reporting income, which are prerequisites for penalty under Section 270A(8). Revenue's Contention: The revenue did not dispute that the Return of Income was ultimately accepted and the benefits under Section 194LD were extended to the petitioner. Their argument implicitly focused on the imposition of penalty despite the initial assessment order.

Which sections of the Income-tax Act were involved?

Section 270A,Section 194LD,Section 156,Section 144C

AI-generated summary — verify with the full judgment below

$~96 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 5992/2024

AB 4 BV

..... Petitioner Through: Mr. Sachit Jolly with Mr. Aditya Rathore, Mr. Abhyudaya Shankar Bajpai, Advs.

versus

DEPUTY ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1 1 1 INTERNATIONAL TAXATION DELHI & ANR.

..... Respondents Through: Mr. Puneet Rai, SSC with Mr. Ashwini Kumar, Mr. Rishabh Nangia, Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA

HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

O R D E R %

29.04.2024 CM APPL. 24876/2024(Exemption)

Allowed, subject to all just exceptions.

The application stands disposed of. W.P.(C) 5992/2024 & CM APPL. 24875/2024 (Stay) 1. The instant writ petition impugns the order dated 31 March 2024 pursuant to which a penalty amounting to INR 32,83,95,730/- has come to be imposed upon the petitioner in respect of Assessment Year [‘AY’] 2020-21 with the respondents invoking the provisions of Section 270A(8) read with Section 270A(9)(a) of the Income Tax Act, 1961 [‘Act’]. 2. From the undisputed facts which emerge from the record, we find that for AY 2020-21 the petitioner had filed its Return of Income which included interest on Non-Convertible Debentures [‘NCD’] This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/05/2024 at 11:33:20

issued by its group entity Home Credit Finance Private Limited taxable @5% under Section 194LD of the Act as well as interest on External Commercial Borrowings [‘ECB’] taxable @10% as per the Double Taxation Avoidance Agreement between India and Netherlands [‘DTAA’]. 3. On 29 September 2022, a draft assessment order in terms of Section 144C of the Act came to be framed by respondent no. 1 which held that the petitioner was not eligible to claim the benefits of Section 194LD of the Act. The petitioner filed detailed objections on 21 October 2022 before the Dispute Resolution Panel [‘DRP’]. On due consideration of the issues which stood raised, the DRP vide its directions dated 12 May 2023 remitted the matter to the Assessing Officer [‘AO’] requiring it to examine the contention of the petitioner, bearing in mind the letter dated 30 November 2017 as penned by the Principal Chief Commissioner of Income Tax, International Taxation, New Delhi. [‘PCCIT’] 4. It becomes pertinent to note that the PCCIT in terms of the aforenoted communication of 30 November 2017 had clarified that bearing in mind the provisions enshrined in Section 194LD of the Act, there would exist no justification to construe a distinction existing between debentures and bonds. It was further opined that the primary condition required to be satisfied is that the debt should be rupee dominated, must have been issued by an Indian company to a specified foreign investor and interest thereon payable in accordance with the aforenoted Section. 5. The PCCIT also took into consideration the relevant provisions of the Companies Act, 2013 as well as the Regulations framed by Securities and Exchange Board of India to ultimately come to hold This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/05/2024 at 11:33:20

that the term ‘bonds’ as appearing in Section 194LD of the Act should be considered as including NCD. 6. Pursuant to the directions framed by the DRP, respondent no.1 on 28 June 2023 passed an assessment order accepting the Return of Income as submitted by the petitioner and extending the benefit of Section 194LD of the Act. The notice of demand under Section 156 of the Act further certified that no additional sums were liable to be paid by the petitioner. 7. However on 16 January 2024, the respondent proceeded to issue a notice calling upon the petitioner to show cause why penalty should not be imposed under Section 270A of the Act. The petitioner submitted its reply on 23 January 2024 whereafter the impugned order of 31 March 2024 came to be passed. 8. The fact that the Return of Income was ultimately accepted and benefits under Section 194LD of the Act extended to the petitioner could not be disputed by Mr. Rai, learned counsel appearing for the respondents. 9. That only leaves us to consider the question whether penalty could have been imposed at all in terms of Section 270A of the Act. As is evident from a reading of sub-section (8) thereof, penalty would have been justified provided the assessee could be held to be guilty of having under-reported income or the under-reporting being in consequence to a mis-reporting of income. However, and as the recordal of facts would establish, the petitioner could neither be said to be guilty of mis-reporting or under-reporting of income. In that view of the matter, the imposition of penalty would clearly not sustain.

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/05/2024 at 11:33:20

10.

We, accordingly, and for reasons recorded hereinabove, allow the instant writ petition and quash the impugned order under Section 270A of the Act dated 31 March 2024 along with notice of demand under Section 156 of the Act dated 31 March 2024.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. APRIL 29, 2024 RW

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/05/2024 at 11:33:20

More judgments on Section 270A

All 4,156 judgments and leading authorities on Section 270A →

Recent GST High Court judgments

Search GST case law →