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Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’ : NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI KULDIP SINGH
Date of Hearing : 02.11.2020 Date of Order : 24.11.2020
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Chegg India (P) Ltd. (hereinafter referred to as ‘the assessee’), by filing the present appeal sought to set aside the impugned order dated 11.09.2017 passed by the Commissioner of Income-tax (Appeals)-25, New Delhi, affirming the penalty order dated 28.10.2016 passed under section 271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’), qua the assessment year 2012-13 on the grounds inter alia that :-
“1. That under the facts and circumstances of the case and in law Ld. CIT (A) has erred in law as much as in fact in upholding the penalty levied u/s 271(1) (c) of the Act.
That under the facts and circumstances of the case and in law Ld. CIT(A) has failed to appreciate that the impugned penalty is bad in law because it was initiated for both the charges and as against that it is levied for one charge as:- (a) the penalty was initiated in the Assessment Order for both the charges namely for concealing the income and for furnishing inaccurate particulars and while issuing the Notice dated 29th April 2016 also both the charges were mentioned along with explanation 1, 2, 3, 4 and 5. There was no mention of explanation 7; (b) in the second Notice issued on 14th October 2016 also both the charges were mentioned but there was no reference to any of the explanation; however, while imposing penalty vide Order 28th (c) October 2016, the basis of levy of penalty is only for furnishing inaccurate particulars; 3. That under the facts and in the circumstances of the case Ld. (IT(A) has erred in law as much as in fact in upholding the penalty as during the course of penalty proceedings the assessee had furnished the explanation which has not been found to be false and, therefore, Explanation 1 to section 271(1) was not applicable and the impugned addition could not be deemed to represent the income in respect of which particulars have been concealed.
4. That under the facts and circumstances of the case, Ld. (IT (A) has erred in law as much as in fact in sustaining the concealment penalty as he has failed to appreciate that neither there was concealment of income nor there was furnishing of inaccurate particulars and all the particulars furnished by the assessee were correct and disclosure of the particulars was in good faith and with due diligence. Explanation-7 to Section 271(1)(c) was not applicable, therefore, also penalty levied was not valid in law.
5. That under the facts and circumstances of the case, Ld. (IT (A) has erred in law as much as in fact in sustaining the penalty, as he has failed to appreciate that the mere acceptance of the addition and not challenging the same in further Appeal in itself is not sufficient for levy of penalty as the necessary ingredients to levy penalty as described in Section 271 (1) (c) are required to be shown as existed.
6. That under the facts and circumstances of the case and in law, Ld. (IT (A) has erred in sustaining the levy of penalty as he has failed to appreciate that the ALP determined by the TPO was only a matter of difference of opinion on which there could be difference and if the difference is based on bona fide view then it will not attract the penalty U/S 271 (1) (c).
7. Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of assessment order framed u/s 143(3)/144C at an income of Rs.2,03,92,252/- for AY 2012-13 by making addition of Rs.74,41,060/- on account of arm’s length price qua international transactions carried out by the assessee with its Associated Enterprises (AE), the penalty proceedings were initiated u/s 271(1)(c) of the Act by way of issuance of notices dated 29.04.2016 & 14.10.2016 u/s 274 r/w section 271(1)(c) of the Act. Declining the contentions raised by the assessee, Assessing Officer (AO) levied the penalty of Rs.22,99,287/- u/s 271(1)(c) of the Act.
3. Assessee challenged the penalty order by way of an appeal before the ld. CIT (A) who has affirmed the penalty order by dismissing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by challenging the penalty order passed u/s 271(1)(c) of the Act.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, transfer pricing analysis was carried out by the ld. TPO u/s 92CA(3) of the Act who has determined the arm’s length price qua international transactions carried out by the assessee with its AE to the tune of Rs.74,41,060/- which has been added to the taxable income of the assessee. It is also not in dispute that arm’s length price has been determined by the TPO by rejecting the TP analysis carried out by the assessee who has computed the margin of comparables at 10.67% vis-à-vis the margin computed by the TPO at 24.59% by selecting different companies for comparability analysis.
In the backdrop of the aforesaid facts and circumstances of the case, order passed by the lower authorities and arguments addressed by the authorized representatives of both the parties, the sole question arises for determination in this case is:-
“as to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during transfer pricing as well as assessment proceedings?”
Ld. AR for the assessee contended that in order to initiate the penalty proceedings, the AO has failed to specify in the show- cause notice issued u/s 271(1)(c)/274 of the Act if the assessee has “concealed the particulars of income” or has “furnished inaccurate particulars of income” and relied upon the decisions of Hon’ble High Court of Delhi in Pr. CIT vs. Sahara India Life Insurance Company Ltd. in ITA 475/2019 order dated 02.08.2019 and coordinate Bench of the Tribunal in Smt. Harmeet Kaur Sran vs. DCIT in 2646 & 2647 / De l /2017 for Assessment Years 2008-09 to 2010-11 order dated 29.11.2019.
In order to proceed further, we would like to peruse the notice dated 29.04.2016 issued by AO u/s 274 read with section 271 of the Act to initiate the penalty proceedings for Assessment Year 2012-13 which is extracted as under for ready perusal:-
“Notice Under Section 274 Read With Section 271 of the Income Tax Act-1961 To M/s Cramster E-Learning Services Pvt. Ltd. (Now known as Chegg India Pvt. Ltd. PAN AACCC7975R 312-315, DLF Tower-A, Jasola, New Delhi. Where in the course of proceeding before me for the assessment year 2012-13 it appears to me that you:-
*have without reasonable cause failed to comply with a notice under section 142(1)/143(2) of the income Tax Act, 1961 dated *have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1,2,3,4 and 5. You are requested to appear before me at 11 :30 A.M./P.M. on 31/05/2016 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271. Place Date : 29.04.2016 Assessing Officer *Delete inappropriate paragraphs and words”
On the change of incumbency, second notice dated 14.10.2016 u/s 271(1)(c) of the Act was issued which is also vague and ambiguous and is extracted for ready perusal as under :-
“Office of the Asst. Commissioner of Income Tax Circle 6(2), Room No.390, Central Revenue Building, I.P. Estate, New Delhi. Phone : 011-23705637 F.No.DCIT/CIR-6(2)/2016-17 Dated : 14/10/2016 NOTICE UNDER SECTION 271(1)(c) OF THE INCOME TAX ACT, 1961. To The Principal Officer, M/s. Chegg India Pvt. Ltd. (Formerly known as M/s. Cramester E-LearningPvt. Ltd.) 312-314-315, 3rd Floor, DLF Tower A, Jasola Distt. Centre, New delhi-110 076. Whereas in the course of proceedings before me for the A.Y. 2012-13, it appears to me that you have concealed the particulars of your income or furnished inaccurate particulars of such income.
You are hereby requested to appear before me at 2.00 PM on 22.10.2016 and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271. Yours faithfully, Sd/- (Praduman Chauhan) Asst. Commissioner of Income Tax, Circle 6 (2), New Delhi.”
Bare perusal of the notices issued u/s 274 read with section 271(1)(c) of the Act, extracted above, in order to initiate the penalty proceedings against the assessee go to prove that at that point of time, AO himself was not aware/sure as to whether he is initiating penalty proceedings by way of impugned notice either for “concealment of particulars of income” or “furnishing of inaccurate particulars of income” by the assessee rather issued vague or ambiguous notice by incorporating both the limbs of section 271 (1) (c) of the Act. AO also neither invoked Explanation 7 of section 271(1)(c) of the Act nor any satisfaction note in the notices initiating the penalty proceedings has been recorded. When the charge is to be framed against any person so as to move the penal provision against assessee, he is required to be specifically made aware of the charges to be levied against the assessee under specific provisions of the Act.
Not only this, even at the time of assessment proceedings, AO has not applied his mind as to whether he is satisfied if the assessee company has “concealed the income” or “furnished inaccurate particulars of income” mandatory to initiate the penalty proceedings u/s 271(1)(c) of the Act which is apparent from the satisfaction note of the AO, extracted for ready perusal as under :-
“For the above mentioned reasons, I am satisfied that assessee company concealed the income/filed inaccurate particulars, hence penalty proceedings u/s 271(1)(c) of the I.T. Act have been initiated separately.”
When the AO has not applied his mind at the time of initiation of penalty proceedings by satisfying himself if it is a case of “concealment of income” or “furnishing of inaccurate particulars of income” then the entire penalty proceedings are vitiated and bad in law.
Coordinate Bench of the Tribunal in the case of Smt.
Harmeet Kaur Sran (supra) dealt with the identical issue and deleted the penalty by returning the following findings :-
“13. Hon’ble Delhi High Court in case of Pr. CIT vs. Sahara India Life Insurance Company Ltd. (supra) while deciding the identical issue held as under :- “21. The Respondent had challenged the upholding of the penalty imposed under Section 271 (1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA's Emerald Meadows (2016) 73 Taxman.com 241 (Kar) , the appeal against which was dismissed by the Supreme Court of India in SLP No.11485 of2016 by order dated 5th August, 2016.”
Following the decisions rendered in the cases of CIT vs. Manjunatha Cotton and Ginning Factory, CIT vs. SSA’s Emerala Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd. (supra), we are of the considered view that when the notices issued by the AO are bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act, the penalty proceedings initiated u/s 271(1)(c) are not sustainable.”
Following the decisions rendered by Hon’ble Delhi High Court in the case of Pr. CIT vs. Sahara India Life Insurance Company Ltd. (supra) and order passed by the coordinate Bench of the Tribunal in Smt. Harmeet Kaur Sran (supra), we are of the considered view that when the notices issued by the AO are bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act, the penalty proceedings have been initiated, the penalty levied by the AO and confirmed by the ld. CIT (A) is not sustainable in the eyes of law.
14. As discussed in the preceding paras, even at the time of initiation of penalty proceedings, AO has not applied his mind to be satisfied as to which limb of section 271(1)(c) of the Act, penalty is being initiated. Even Explanation 7 to section 271(1)(c) of the Act has never been invoked by the AO in order to initiate the penalty proceedings. Consequently, penalty levied by the AO and confirmed by the ld. CIT (A) is hereby deleted being not sustainable in the eyes of law, hence present appeal filed by the assessee is allowed. Order pronounced in open court on this 24TH day of November, 2020.