COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-1, NEW DELHI vs. GENPACT SERVICES LLC

For the reasons stated in the application, the delay in re-filing the above captioned appeal is condoned.

The application stands disposed of. ITA 133/2025

The Revenue has filed the present appeal, impugning an order dated 06.06.2024 passed by the learned Income Tax Appellate Tribunal [ITAT] in ITA No. 899/Del/2018 in respect of Assessment Year [AY] 2010-11, whereby the Revenue’s appeal against an order dated 01.11.2017 passed by Digitally Signed By:RAM KUMAR Signing Date:14.05.2025 15:50:41 Signature Not Verified

The Assessee had appealed before the CIT(A) against the penalty order dated 27.03.2017 passed by the Assessing Officer [AO], imposing a penalty under Section 271(1)(c) of the Income Tax Act, 1961 [the Act] holding that the Respondent (Assessee) had wilfully attempted to reduce his income and, therefore, it was a fit case for imposition of penalty.

The Assessee had filed its return of income for AY 2010-11, declaring a loss of ₹3,89,17,092/- and subsequently revised the return on 27.12.2011, declaring a total loss of ₹6,78,78,188/-. The return was picked up for scrutiny, and the assessment proceedings culminated in an assessment order whereby the AO made an addition of ₹16,62,00,207/- on account of disallowance of revenue expenditure, which was treated as capital expenditure. The Assessee had acquired a business from a third party, related to debt collection services, as well as a part of the business of analytics from Genpact India for a total consideration of ₹62,12,70,648/-. Out of the aforesaid amount, a sum of ₹22,16,00,276/- was claimed as allowable expenditure. The Assessee claimed that the same was revenue expenditure as it was for certain intangible assets, which did not have any enduring value. However, the AO did not accept the said contention. Thus, the AO allowed twenty-five percent of the said expenditure as depreciation allowance and made an addition of the balance seventy-five percent of the said amount being ₹16,62,00,207/-.

The CIT(A) found that the issue involved was debatable and, therefore, no penalty proceedings under Section 271(1)(c) could be imposed. The relevant extract from the CIT(A)’s order dated 01.11.2017 is set out Digitally Signed By:RAM KUMAR Signing Date:14.05.2025 15:50:41 Signature Not Verified

14 In the appellant's case, the AO has held that the appellant merely facilitates the assessee's trading operations or enables the management and conduct of the assessee's business to be carried on more efficiently or more profitably whilst leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future. In Digitally Signed By:RAM KUMAR Signing Date:14.05.2025 15:50:41 Signature Not Verified

17 Such decisions highlight that two views are possible on this issue regarding claiming the expenditure as capital or revenue. Allowability of payments towards acquisition of customer contracts and assembled work force as an eligible revenue expenditure is a subject matter of debate and there are two possible views in this regard. If two views are possible on a particular matter and if an assessee has adopted a view most favorable to it, penalty proceedings are not warranted as held by Courts from time to time. The issue in the quantum appeal is debatable one as is evident from the above narration of facts. Moreover, the assessee has stated his position clearly in the Tax Audit Report in Form 3CD filed for the subject year. In this regard, it may be relevant to refer to the decision of Hon'ble Supreme Court in Reliance Petro products wherein it is held as under: ******

18 It is clear from the above extracts that the legislature does not intend to impose penalty on every assessee whose claim is rejected by the assessing officer. What is sought to be covered under Section 271(l)(c) is concealment of "particulars of income" or furnishing of" inaccurate particulars of income" and not making of an untenable claim. The claim made by the assessee has not been demonstrated to be false by the assessing officer. Even in MAK Data (supra), the Supreme Court held on facts that the assessee in the said case had no intention to declare its true income and no explanation was offered by it for the concealment of income. In the facts of the present case, there is no categorical finding to hold that Explanation 1 to Section 271(l)(c) of the Act was attracted. ******

20 Keeping in view the above, in my considered view, the appellant's explanation in the matter is held to be bonafide and acceptable. Accordingly the order of penalty is cancelled. It is Digitally Signed By:RAM KUMAR Signing Date:14.05.2025 15:50:41 Signature Not Verified

We have also perused the decision of the CIT(A) and we find no infirmity with the decision of the CIT(A) holding that the question involved was a debatable one and, therefore, a penalty under Section 271(1)(c) could not be imposed.

However, we note that the learned ITAT did not express any opinion as to the CIT(A)’s view; it rejected the Revenue’s appeal solely on the ground that the notice issued by the AO under Section 274 of the Act read with Section 271 of the Act did not specifically state as to under which limb of Section 271(1)(c) of the Act, penalty proceedings were intended to be proceeded. Section 271(1)(c) of the Act has two limbs: the first is where the allegation is that the assessee has concealed income; and the second is, that the assessee has furnished incorrect particulars of income.

This court has, in a number of decisions, held that the notice, which does not specifically indicate the particular limb of Section 271(1)(c) that is sought to be invoked, would be invalid as being vague.

Mr. Rai, the learned counsel for the Revenue, also does not dispute that the issue involved is covered by several decisions of this court including Principal Commissioner of Income Tax v. Gragerious Projects Pvt. Ltd: Neutral Citation; 2024:DHC:9019-DB, Pr. Commissioner of Income Tax, Delhi 1 v. M/S Blackroak Securities Pvt. Ltd.: Neutral Citation; 2023:DHC: 8841-DB and Pr. Commissioner of Income Tax, Delhi 7 v. Unitech Reliable Projects Pvt. Ltd.: Neutral Citation; 2023:DHC: 4258- Digitally Signed By:RAM KUMAR Signing Date:14.05.2025 15:50:41 Signature Not Verified

In view of the above, no substantial question of law arises for consideration of this court in the present appeal.

The appeal is dismissed. The pending applications also stand disposed of. VIBHU BAKHRU, J TEJAS KARIA, J MAY 07, 2025/sms Click here to check corrigendum, if any Digitally Signed By:RAM KUMAR Signing Date:14.05.2025 15:50:41 Signature Not Verified