CONNERSTONE ONDEMAND LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION )-2(1)(1), MUMBAI

3 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited - AY 2015-16

4 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited particulars or to conceal. The assessee relied on various judicial precedents in this regard. However, the AO did not accept the submissions of the assessee and proceeded to levy the penalty under section 271(1)(c) of the Act. On further appeal the CIT(A) confirmed the penalty. Assessee is in appeal before the Tribunal against the order of the CIT(A).

5 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited detailed submission on why CSOD India cannot be considered as DAPE of the assessee.

6 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited ‘furnish inaccurate particulars of income’. The relevant observations of the Hon'ble Supreme Court is extracted as under – 7. As against this, learned Counsel appearing on behalf of the respondent pointed out that the language of section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under :— "271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person— (c )has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned Counsel for revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished 7 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that :— "13. It goes without saying that for applicability of section 271(1)( c), conditions stated therein must exist."

9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as :— "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.

10. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its 9 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.

11. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu[2009] 23 VST 249 as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed : "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.

ITA No.3751/Mum/2024 – AY 2016-17

11. The facts in AY 2016-17 are identical where the AO has levied penalty under section 271(1)(c) on the same ground. Therefore our decision in AY 2015-

11 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited 16 is mutatis mutandis applicable to AY 2016-17 also. Accordingly we direct the AO to delete the penalty for AY 2016-17.

12. For AY 2017-18 the assessee filed the return of income on 22.11.2017 declaring Nil income and claiming refund of Rs. 1,84,56,026/-. The AO treated the CSOD India as DAPE of the assessee and accordingly attributed 80% of the total receipts as income in the hands of the assessee taxable in India. The DRP reduced the attribution of income to 30%. The AO subsequently initiated penalty proceedings under section 270A r.w.s. 274 of the Act requiring the assessee to show-cause as to why penalty should not be levied for under reporting of income. The assessee submitted before the AO that all the necessary details including the agreement with CSOD India have been submitted from time to time and that explanations in relation to the nature and the taxability of the transactions undertaken by the assessee in support of its position on non-taxability before the AO. The assessee further submitted that as per section 270A(6)(a) of the Act under reporting of income shall not include any amount of income in respect of which the assessee offers an explanation and the AO is satisfied that the explanations is bonafide and that the assessee has disclosed all material facts to substantiate the explanation offered. Considering these facts the assessee submitted that no penalty is leviable under section 270A of the Act. The AO however did not accept the submissions of the assessee and levied penalty of 50% of the tax under section 270A of the Act. On further appeal the CIT(A) confirmed the penalty.

(2) A person shall be considered to have under-reported his income, if— (a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143; (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished; (c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;

13 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143; (e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed; (f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment; (g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

(3) to (5)****

(6) The under-reported income, for the purposes of this section, shall not include the following, namely:— (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB.

14 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited 16. The argument of the ld AR is that the assessee's case would get covered under the exception provided under section 270A(6)(a) of the Act since the assessee has made full disclosure and has offered explanation which is bonafide. It is also relevant to consider the argument of the ld AR that in the hands of CSOD the revenue has accepted that the compensation received from the assessee towards services rendered is at Arm's length and no TP adjustments are made (page 342, 369 and 343 of PB). Accordingly it was argued that once the dependant agent i.e. CSOD India's remuneration is accepted there cannot be any attribution of income and that the addition made is not sustainable on merits. In this regard we notice that during the course assessment, the AO issued a show cause notice as to why the impugned receipts from CSOD India cannot be assessed to tax in India, the assessee has furnished details such as the agreement with CSOD India, Tri-parte agreement with the customer application made before Authority for Advance Ruling with regard to the taxability of the impugned receipts etc., before the AO. We further notice that the application made before the AAR contains the elaborate details pertaining to the receipts from CSOD and explanations of the assessee as to why the same is not taxable in India. We also notice that the AO while completing the assessment has relied on these documents submitted to make addition and has not recorded any adverse finding alleging any material facts or evidence have concealed by the assessee. It is noticed that the addition is arising due to the fact that the explanation provided by the assessee are not acceptable to the revenue. Therefore we see merit in the submission of the ld AR that the exception under section 270A(6)(a) is applicable to assessee's case. The coordinate bench in the case of D.C.Polyester vs DCIT ([(2023) 157 taxmann.com 753 (Mum-Trib)] has considered the issue of levy of penalty under section 270A and held that – 10. We heard rival contentions and perused the record. We notice that section 270A of the Act uses the expression "the Assessing Officer 'may direct". Hence 15 ITA 3747, 3751, 3753, 3752 and 5677/Mum/2024 Cornerstone Ondemand Limited there is merit in the contention of the assessee that levying of penalty is not automatic and discretion is given to the Assessing Officer not to initiate penalty proceedings under section 270A of the Act. From the facts discussed earlier, it can be noticed that the addition came to be made on account of change in the head of income for assessing the rental income. We noticed that the assessee had offered rental income under the head "Income from House Property", but the assessing officer has assessed the same under the head "Income from business." The standard deduction @ 30% allowable u/s 24(a) while computing income under the head Income from house property will not be available when it is assessed under the Income from business. Thus, it is not a case that the assessee has suppressed or under reported any income. The addition came to be made to the total income returned by the assessee, due to change in the head of income, i.e., the addition has arisen on account of computational methodology prescribed in the Act. In our view, this kind of addition will not give rise to under reporting of income. Accordingly, we are of the view that the AO should have exercised his discretion not to initiate penalty proceedings u/s 270A of the Act in the facts and circumstances of the case.

ITA No.3752/Mum/2024 – AY 2018-19

ITA No.5677/Mum/2024 – AY 2019-20