ACIT, CIRCLE- 26(2), NEW DELHI vs. VODAFONE IDEA LTD. (EARLIER KNWON AS VODAFONE MOBILE SERVICES LTD.), NEW DELHI

3 | P a g e In the case of T. Ashok Pai vs. CIT (292 ITR 11), the Hon'ble Supreme Court observed that the word "inaccurate" in the context of levying penalty under Section 271(1)(c) signifies a deliberate act or omission on the part of the Assessee and has held that: "such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars."

2. The principle emerging out of the above submission of the Appellant is that penalty cannot be levied by the AO where there has been no concealment of income or filing of inaccurate particulars of income. The Appellant has stated that it had duly disclosed the fact about the treatment of interest on late payment of license fee in the audited financial statements and also furnished entire details sought by the AO during the course of assessment proceedings. In contrast, the assessing officer has mentioned that it is primary duty of every assessee to disclose true and correct particulars of income while filing the return from year to year (para 8). Further, it has also relied on the fact that the inaccurate particulars in the instant case would not have come to notice if the return would not have been picked up for scrutiny. In support of the same, the AO has also relied on CIT vs. Zoom Communications Pvt Ltd. (327 ITR 516), which state that penalty is leviable where claim has been wrongly made by the assessee. However, the Appellant has distinguished the aforementioned judgment by stating as follows: *In the case of Zoom Communication Pvt Ltd, the assessee-company had debited certain amount as 'equipment written off in its P&L account. It was stated by the assessee that due to oversight, this amount was not added back in computation of income and the same ought to have been adjusted in the block of assets. The aforesaid amount was added back to the income of the assessee, with its consent. It was further noticed that another sum of INR 1 lakh had been debited to P&L account under the head 'Income-tax paid'. The assessee claimed that due to oversight, this amount was not added back in the computation of income. Hence, the assessing officer added this amount also to the income of the assessee. Penalty proceedings were also initiated against the assessee. * During penalty proceedings, the assessee claimed that it had committed a bona fide mistake and all the facts material to the computation were disclosed. The Assessing Officer was of the view that there was no difference of opinion as regards disallowance of these expenses and the incorrect computation given by the assessee was an act of paying less tax than what was due from it. The Hon'ble High Court held that the assessee did not explain either to the income- tax authorities or to the ITAT as to in what circumstances and on 4 | P a g e account of whose mistake, the amounts claimed as deductions in this case were not added, while computing the income of the assessee company. The High Court observed that it failed to appreciate how such deductions could have been left out while computing the income of the assessee company and how it could also have escaped the attention of the auditors of the company. Given the above, we wish to submit that the aforesaid decision is based on the facts where an assessee had claimed a deduction by oversight and such claim was not only incorrect in law but was also without any basis and explanations. The tax authorities found that the claim made was not bonafide and hence, penalty was levied on the assessee. However, in the instant case, the appellant has co-operated with the Revenue authorities and furnished the details/ information/ documents to substantiate its claim. Further, the issue involved in the instant case is a debatable one and the Appellant was in a bona fide belief that the interest on license fee is a revenue expenditure, whereas the Respondent was of the view that such expenditure was of capital nature. Given that two views are possible and the department has taken a different view, viz-a-viz the position adopted by the appellant, cannot form a basis for levying penalty under section 271(1)(c). Where the assessing officer accepts one version in preference to the other does not make out a case for penalty, nor can the guilt of concealment of income be said to have been established. Further, nowhere in the assessment or the appellate orders have the revenue authorities held that the details furnished by the appellant are false or incorrect. Hence, the decision of the Hon'ble Delhi High Court, being based on different set of facts, cannot be relied upon by the Respondent in the instant case." 5.6 I have considered the facts of the case and submission of the AR of the appellant. It is further noted that the appellant also relied on the recent judgment of the Hon'ble Delhi High Court in case of PCIT- 8 vs. Samtel India [96 Taxmann.com 162), which considered all latest precedent (including Zoom communications (supra)) and held that penalty under section 271(1)(c) of the Act, could not be imposed merely because assessee had claimed expenditure, which was not accepted or which was not acceptable to revenue. Based on perusal of the facts on record, I am of the opinion that the Appellant indeed furnished its particulars of income to the best of its knowledge. However, merely for the reason that the view adopted by the Appellant is different than the view of the AO, cannot be reason alone for levy of penalty. There has to be evidence on record which proves that the Appellant furnished its particulars of income which clearly are in a way so as to 5 | P a g e provide undue benefits to the Appellant. As the issue involved is a debatable one since substantial question of law was framed and admitted by the Hon'ble Delhi High Court, it is apparent that merely because of the reason that the Appellant adopted a view over the other, will not go on to say that it had furnished inaccurate particulars of income. Accordingly, I concur with the Appellant's argument on the aspect that it had not furnished inaccurate particulars of income. 5.7 Further, given that the Appellant has furnished its explanation during the course of remand proceedings as well as penalty proceedings, then the explanation offered by the Appellant to the AO should be accepted as bona fide. It is observed that the Appellant offered full disclosure of the facts and offered its explanation wherever required, hence it cannot be said that the Appellant had not furnished its explanation. Nowhere in the impugned order has the AO disregarded the explanations offered to it by the Appellant. In support of the argument, the Appellant relied on judgments of CIT vs. Steel Authorities of India Limited (52 taxmann.com 328) by Hon'ble Delhi High Court wherein the penalty levied u/s 271(1)(c) had been deleted by observing that the assessee had declared and disclosed full and true material facts in the returns. Also, Hon'ble Supreme Court in case of Cement Marketing Company of India Ltd. vs. Asst. CST (124 ITR 15) also made an observation on similar lines in its judgment, stating that "where the assessee does not include a particular item under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting imposition of penalty." In view of the above, I am of the opinion that the Appellant's argument and explanations were bona fide. Additionally, it had furnished its explanations with respect to the positions adopted in its return of income, and accordingly, since there has been no concealment of income and no failure on part of the Appellant to offer explanations, I am of the view that the argument of the Appellant is accepted 5.8 Additionally, the Appellant has also stated in its submission that the issue of allowance of interest on license fee was a debatable issue on which question of law was framed and admitted by the Delhi High Court for adjudication. In this regard, the Appellant has made following submission, which is being reproduced for reference: "(D) WHERE TWO OPINIONS ARE POSSIBLE OR THERE ARE DEBATABLE VIEWS THEN THERE CAN BE NO PENALTY FOR CONCEALMENT OF INCOME At the very outset, we wish to submit that based on a plain reading of the provisions of section 271(1)(c) of the Act, along with Explanation attached thereto, it is apparent that penalty under for concealment of 6 | P a g e income/furnishing of inaccurate particulars of income cannot be levied on account of additions/disallowance, which involve questions of law. It is well established that penalty under section 271(1) (c) of the Act is not leviable in case of 'difference in opinion'. It is humbly submitted that where two views are possible in interpreting the law, resulting in difference of opinion between the assessee and the revenue authorities, no case for furnishing inaccurate particulars of income or concealment of income could be made out. Accordingly, where a case set up by the assessee in a given situation is found plausible and there could legitimately be two opinions about it, the fact that the authorities have accepted one version in preference to the other, does not make out a case for penalty, nor could the guilt of concealment of income be said to have been established. In the instant case, the issue under consideration was a debatable issue and the very fact that the Hon'ble Delhi High Court had also ended up bifurcating the total amount incurred towards license fee into two parts, one being revenue in nature and other being capital in nature, itself goes to show that the issue is a debatable one. Judicial precedents: In Commissioner of Income-tax v Bacardi Martini India Ltd. (2007) (158 TAXMAN 348), the Delhi High Court held as follows: "In the instant case, the assessee had explained all the expenditures and had actually incurred the expenditure, but the expenditures were disallowed because of difference of opinion between the assessee and the Assessing Officer. The revised return was filed because some of the expenditures were disallowed by the Commissioner (Appeals) for year 1998-89, although the expenditures were not doubted. There are cases where an expenditure is disallowed by the Assessing Officer but it is allowed by the Commissioner (Appeals). It is again disallowed by the Tribunal and in appeal allowed by the High Court but may be disallowed by the Supreme Court. Merely because there is difference of opinion for allowing or disallowing the expenditure between the assessee and the Assessing Officer, it cannot be said that the assessee has intention to conceal the income. The filing of the revised return, excluding some of the disallowed expenditure and claiming expenditure of INR 2 crores which was actually spent by the assessee in the relevant assessment year as deduction, did not amount to concealment or furnishing inaccurate particulars. 7 | P a g e The assessee had given all particulars of expenditure and income and had disclosed all facts to the Assessing Officer. It was not the case of the Assessing Officer or the assessee that in reply to the questionnaire of the Assessing Officer, some new facts were discovered or the Assessing Officer had dug out some information which was not furnished by the assessee. Thus, department's contention of concealment of income by the assessee or furnishing of false particulars by the assessee had no basis. There was no force in the appeal and, therefore, the appeal was to be dismissed." In the case of Asst. Director of Income Tax vs. Nortel Networks Ltd (2014) (Delhi High Court) (ITA No. 7/2014), the Hon'ble Delhi Court has confirmed the order of the Hon'ble Delhi ITAT wherein it had been held that in cases where more than one view is possible, penalty cannot be levied under section 271(1)(c) of the Act. In the case of ACIT vs. Porritts & Spencer (A) Ltd. (2008) (Delhi ITAT), the Hon'ble Bench observed that where the assesse has disclosed all the material facts and after placing the facts on record the assessing authority adopts a view different than that of the assesse, then it is merely a case of difference in perception of viewing the transaction and it cannot be branded as "furnished inaccurate particulars of income" for purpose of section 271(1)(c) of the Act. Relevant extract of the same is being reproduced hereunder: *8... This fact has been substantiated by the assessee not only in assessment proceedings but also in penalty proceedings. It is a different fact that the Tribunal has held such transaction to be speculative transaction but the assessee at all time substantiated its claim that the transaction was not a speculative transaction. If after disclosing all the materials and after substantiating the claim based on such material merely because the view of the Assessing Officer or appellate authority is different than that of the assessee, it cannot be said that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income for the purpose of levy of penalty under section 271(1)(c) of the Act. It is a difference in perception of viewing a transaction but cannot be branded as "furnished inaccurate particulars of income" for the purpose of section 271(1)(c) of the Act. It is settled law that finding arrived at in the assessment proceedings is relevant but not conclusive for the purpose of levy of penalty under section 271(1)(c)." * In Commissioner of Income-tax v Liquid Investment and Trading Co. (ITA 240/2009), the Delhi High Court held as follows: 8 | P a g e "Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment whereunder deduction under Section 14A of the Act was prescribed to the assessee, the assessee has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case. This appeal is accordingly dismissed." In DCIT Vs Nuchem Ltd (1993) (47 ITD 487) (Delhi), the jurisdictional Tribunal has held that: "If after furnishing all necessary particulars of income the assessee claimed benefit of certain provisions of the Act and raised contention but it did not find favour with the authorities, it may be on account of difference of opinion on particular set of facts but it does not amount that there had been a concealment of particulars of income. In view of our above discussion, we are of the opinion that penalty levied in the given facts and circumstances is illegal and invalid. We, therefore, cancel the same." In CIT Vs Calcutta Credit Corporation (1987) (166 ITR 29) (Calcutta), the Calcutta High Court has held that: "The facts found by the Tribunal had not been challenged as perverse or based on no evidence. It was settled law that mere addition to the taxable income did not automatically lead to an order of penalty. No case for levy of penalty had been made out as two opinions were arrived at on the same facts. The Tribunal was justified in holding that no penalty was leviable." (Emphasis supplied) Similar view has been expressed in a plethora of other judgments of various Courts, such as: Vidyut Metallics Vs Deputy Commissioner of Income tax (2001) (116 Taxman 275) (Mag.); CIT Vs Jagabandhu Kumar Ruplal Sen Poddar (1982) 133 ITR 156 (Calcutta High Court); CIT Vs Garg Engineering Co., (1999) 235 ITR 451 (Allahabad High Court);

9 | P a g e ITO Vs Burmah Shell Oil Storage & Distributing Co of India Ltd. (1987) 163 ITR 496 (Calcutta High Court); Vijayshree Realty Pvt. Ltd Vs ITO Ward 9 (3) (2007 TIOL 444) (Mumbai ITAT); CIT v Harshvardhan Chemicals and Mineral Ltd. (259 ITR 212) (Rajasthan High Court); CIT vs GD Naidu and Others (1987) 165 ITR 63 (Madras), CIT vs Sivananda Steels Ltd (2002) 256 ITR 683 (Madras); and Commissioner of Income tax vs Ajaib Singh and Co (2002) 253 ITR 630 (Punjab and Haryana High Court). Further, in any case, it is well settled that that no penalty under section 271(1)(c) of the Act can be levied in a case where a substantial question of law is framed and admitted by the Hon'ble High Court or the Hon'ble Supreme Court of India. In this context, it is noteworthy that an appeal under section 260A of the Act lies to the High Court from an order of the Tribunal only where the High Court is satisfied that the case involves a substantial question of law and the full bench of the Hon'ble Supreme Court in the case of Santosh Hazari vs. Purshottam, 251 ITR 84 (SC) held that to be a substantial, a question of law must be debatable, not previously settled by law of the land or a binding precedent, i.e., it was not free from difficulty or that it called for a discussion for an alternate view. It further held that the word "substantial" qualifying "question of law" meant having substance, essential, real, of sound worth, important or considerable. Similarly, the Hon'ble Patna High Court in the case of DCIT vs. Sulabh Intemational Social Service Organisation, 350 ITR 189 (Patna) has held that a substantial question of law must be one which was debatable and not previously settled under the law of the land or a binding precedent. Thus, once the substantial question of law is admitted, the issue undisputedly become debatable and hence no penalty in such case can be levied. Reliance in this regard is placed on the decision of the Hon'ble Delhi High Court in the case of Commissioner of Income-tax v Liquid Investment and Trading Co. (ITA 240/2009), wherein the Hon'ble Court has held follows: "Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment whereunder deduction under Section 14A of the Act was prescribed to the assessee, the assessee has preferred 10 | P a g e an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case. This appeal is accordingly dismissed." Similarly, the Hon'ble Delhi Tribunal in the case of ACIT v Shri Pawan Kumar Malhotra ITA 5556/Del/2011, it is order dated April 29, 2016 held as under. 11. in the context of the appeals of the assessee we are of the considered opinion that the issue on hand is debatable, open and capable of having an alternate view as the same is held to be representing a substantial question of law by the Jurisdictional High Court at the time of admission of appeal. Accordingly, it is appropriate for us to hold, that the assessee was under a bona fide belief for staking its claim and in the presence of these factors, no penalty under section 271(1)(c) is leviable. The Hon'ble Delhi High Court in the case of CIT vs. Liquid Investment Limited (I.T.A.No. 240/2009 vide its order dated 5.10.2010) has clearly held that where High Court has accepted substantial question of law u/s 260A, this itself shows that issue is debatable and in such a case no penalty was imposable u/s 271(1)(c) of the Income-tax Act, 1961. In view of the above, respectfully following the proposition laid down by Hon'ble Delhi High Court and Hon'ble Bombay High Court, as narrated above, we confirm the order of the Ld. CIT (A). Hence, the appeal of the department is dismissed." * In the instant case, a substantial question of law was framed and admitted by the Hon'ble Delhi High Court and a decision was also rendered on the same. Accordingly, no penalty under section 271(1)(c) of the Act can be levied." 5.9 From the perusal of the facts on record, the Appellant's submission as well as the impugned order, it is not a doubt that the issue involved of allowance of interest on license fee was a debatable one where two opinions were possible. The Appellant has relied on judgments of Hon'ble Supreme Court in case of Santosh Hazari vs. Purshottam (251 ITR 84), DCIT vs. Sulabh Intemational Social Service Organisation, 350 ITR 189, CIT vs. Liquid Investment and Trading Co. (ITA 240/2009) and other judicial precedents mentioned above in support of its arguments. However, the Respondent has relied on Hon'ble Gujarat High Court's judgment of CIT vs. Prakash S Vyas (58 taxmann.com 335) stating that there are contrary judgments to the case laws relied upon by the Appellant. However, this issue has already been examined and adjudicated upon by Hon'ble Supreme Court as well as jurisdictional Delhi High Court - in the case of Santosh Hazari (supra) and Liquid Investment and Trading Co. 11 | P a g e (supra) respectively Further, the Appellant has submitted that the case of Prakash S Vyas itself (supra) mentions that it has to be decided on case by case basis whether the issue is debatable or not. Relevant extract of the judgment is being reproduced below for reference: "12. This is not to suggest that no such intention can be gathered from the order of Court even if so expressed either explicitly or in implied terms. This is also not to suggest that in no case, admission of a Tax Appeal would be a relevant factor for the purpose of deciding validity of a penalty order. This is only to put the record straight insofar as the opinion that the Tribunal as expressed in the present impugned order viz. that upon mere admission of a Tax Appeal on quantum additions, is an indication that the issue is debatable one and that therefore, penalty should automatically be deleted without any further reasons or grounds emerging from the record." 5.10 In the instant case, the Hon'ble High Court in its order dated 04.12.2008 made a clear observation that a substantial question of law is framed with respect to issue of interest on license fee, which clearly goes on to show that the issue in the instant case was indeed debatable. Accordingly, in view of the discussion above, I am of the view that in the instant case, there is a difference of opinion between the Appellant and the AO which arises out of a debatable issue whether interest on license fee is revenue expenditure or capital expenditure and due to such difference of opinion, in conformity to the various judgments discussed above, argument of the Appellant is accepted and no penalty can be levied in the instant case. 5.11 In addition to the above, the Appellant also furnished its submission that there has to be presence of 'mens rea' for levy of penalty u/s 271(1)(c) and there has to be a deliberate attempt on part of the assessee to conceal the particulars of income. The Appellant contended that since it had disclosed all the material facts to the AO, it cannot be said that it had concealed particulars of income. However, the AO has observed on this issue and has relied on Hon'ble Supreme Court judgment in the case of UOI vs. Dharmendra Textile Processors (174 Taxman 571), wherein it has been held that mens rea was not an essential ingredient and hence was not required for levy of penalty. Further, as per Explanation 1 of the penalty section 271 of the Act, the onus is on the Appellant to prove that there has been no concealment or inaccurate filing of particulars of income. In view of the discussion above, I am of the view that this argument of the Appellant fails more particularly in view of the Supreme Court judgment mentioned above. 5.12 In view of the discussions of various arguments of the Appellant discussed above and the impugned order, I am of the opinion that the 12 | P a g e penalty levied in the instant case is not tenable as the prime issue involved in the instant case, i.e. whether interest on license fee is capital expenditure or revenue expenditure, is a debatable issue on which substantial question of law was framed by the Hon'ble Delhi high Court, and penalty levied by the AO cannot be sustained. Accordingly, the penalty is deleted and the ground is allowed.”

13 | P a g e their lordships restored the matter back to the Assessing Officer in light of Commissioner of Income-tax vs. Bharti Hexacom Ltd., [2014] 221 Taxman 323 (Delhi). And that the Assessing Officer thereafter passed his consequential order on 30th December, 2016 again disallowing the assessee’s interest expenditure claim on delayed licence fee in very terms. All this has admittedly attained finality now.

14 | P a g e fee on the ground that not only it failed to file any cogent rebuttal under section 271(1)(c) Explanation I of the Act which makes it liable for the penalty herein in light of CIT Vs. Zoom Communication Pvt Ltd. (2016) 327 ITR 516 (Del) and Mak Data (P) Ltd. Vs. CIT (2013) 353 ITR 593 (SC), but also the issue herein involves interest on licence fee which itself is in the nature of capital expenditure than a revenue item.

15 | P a g e long-back that quantum and penalty proceedings are parallel in nature, wherein each and every disallowance made in the course of the former does not ipso facto attract the latter penalty provision, to conclude that the learned Assessing Officer’s action levying the impugned penalty has been rightly reversed in the lower appellate proceedings. We hold accordingly and confirm the CIT(A)’s findings under challenge.

16 | P a g e claimed and under such circumstances ad-hoc disallowance was justified.

3. On the facts and circumstances of the case the Id. CIT(A) erred in deleting the addition of Rs. 39,99,98,2377- made by the AO by treating the payment of Royalty-WPC charges is capital in nature without appreciating the detailed justification given by the AO in the assessment order.

4. On the facts and circumstances of the case the Id. CIT(A) erred in deleting the addition of Rs. 10,40,29,1607- on account of advertisement expenditure claimed by assessee as revenue expenditure without appreciating the detailed justification given by the AO in the assessment order.

18 | P a g e its claim commission expenditure in all preceding and succeeding assessment years, wherein, it has sought to buttress the point that these telecommunication business activities require various marketing strategy(ies) including commission payments etc., which already stand accepted to the extent of 90%. We thus see no reason to interfere with the learned CIT(A)’s findings deleting the impugned disallowance. This second substantive ground raised at the Revenue’s behest stand rejected.

18. The Revenue’s third substantive ground seeks to revive the Assessing Officer’s action disallowing the assessee’s royalty and Wireless Planning Commission (WPC) charges treated as capital expenditure in the course of assessment and deleted in the CIT(A)’s lower appellate order. Suffice to say, it emerges herein as well that this tribunal in Vodafone Idea Ltd. case (2017) 83 taxmann.com 7 (Del.) has followed CIT Vs. Fascel Ltd. (2009) 221 CTR 305 (Del) whilst concluding such expenses as revenue in nature only. We thus uphold the learned CIT(A)’a action deleting the impugned disallowance in very terms.

19. Lastly comes the Revenue’s fourth substantive ground that CIT(A) has erred in law and on facts in treating the assessee’s

19 | P a g e advertisement expenditure of Rs.10,40,29,160/- as revenue in nature as against the assessment findings holding the same as capital expenditure. We are informed during the course of hearing that this tribunal’s earlier coordinate bench’s decision in Vodafone Mobile Services Ltd. (supra) has already decided the issue in assessee’s favour and against the department that such advertisement explained is a revenue item only. We accordingly adopt judicial consistency to reject the Revenue’s instant last substantive grounds in very terms. Ordered accordingly.