ADDL/CIT, NEW DELHI vs M/S ONGC VIDESH LTD.,, NEW DELHI

Income Tax Appellate Tribunal, DELHI BENCH: ‘E’: NEW DELHI

Before: SHRI AMIT SHUKLA & SHRI ANADEE NATH MISSHRA

(A) This appeal has been filed by the assessee against the impugned appellate order dated 01.12.2016 passed by Learned Commissioner of Income-Tax (Appeals)-7, New Delhi, [in short, “Ld.CIT(A)”] pertaining to Assessment Year 2006-07. The Assessee has raised following grounds of appeal:-

“1. Whether Hon’ble Ld. CIT(A) was correct in deleting the penalty levied u/s 271(1)(c) Income Tax Act ignoring the circumstances and fact of the case that assessee has furnished inaccurate particulars of its income

ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. while claiming the expenditure for which neither the liability has arisen nor revenue has accrued. 2. Whether claiming the expenditure for which neither the liability has arisen nor revenue has accrued does not construes to furnishing of inaccurate particulars of income. 3. The appellant craves to be allowed to add any fresh ground(s) of appeal and / or Deleted or amend any of the ground(s) of appeal.”

(B) Assessment Order dated 04.12.2009 was passed under Section 143(3) of Income Tax Act, 1961 (“I.T. Act”, for short), wherein, interalia, addition of Rs. 149,31,02,715/- was made. The Assessing Officer (“AO”, for short) held that this amount had accrued to the assessee though the assessee had not recognized this Revenue. The assessee’s contention was, that pending the settlement of EPC contract, this amount had not accrued to the assessee. However, the AO rejected this contention of the assessee and made the aforesaid addition amounting to Rs. 149,31,02,715/-. Penalty proceedings were initiated by the AO under Section 271(1)(c) of I.T. Act in respect of the aforesaid addition of Rs. 149,31,02,715/-. The AO, however, held that if in appeal the assessee’s claim of treating revenues as non- taxable on account of it being uncertain is accepted, then the provision made by assessee for the additional expense to the extent of Rs. 102,60,80,000/- should be disallowed on matching principles and on the same logic as for exclusion of revenues.

In effect, therefore, the AO was of the view that if the aforesaid revenue amounting to Rs. 149,31,02,715/- is not held as taxable in the hands of the assessee, then, the corresponding expenses amounting to Rs. 102,60,80,000/- should be disallowed on matching principles. However, the AO did not initiate penalty proceedings under ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. Section 271(1)(c) of I.T. Act in respect of the aforesaid alternate stand of the AO that the aforesaid expenses amounting to Rs. 102,60,80,000/- is to be disallowed if the aforesaid revenue amounting to Rs. 149,31,02,715/- is not taxed in the hands of the assessee. The assessee filed appeal against aforesaid Assessment Order dated 04.12.2009 before the Ld. CIT(A). Vide his appellate order dated 24.02.2014, Ld. CIT(A) deleted the aforesaid addition of Rs. 149,31,02,715/-. However, the Ld. CIT(A) also agreed with the alternate stand of the AO holding that if the assessee’s claim for treating revenues as non-taxable on account of it being uncertain is accepted, then the corresponding expenses to the extent of Rs. 102,60,80,000/- should be disallowed on matching principles. The dispute traveled to Income Tax Appellate Tribunal (“ITAT”, for short). Vide order dated 01.07.2019 of Co-ordinate Bench of ITAT, Delhi in assessee’s case for Assessment Year 2006-07 in ITA Nos.- 3150/Del/2014 and 3208/Del/2014, the order of Ld. CIT(A) was upheld on this issue. In effect therefore, as things stands today, pursuant to the aforesaid order dated 01.07.2019 of Co- ordinate Bench of ITAT, Delhi, the addition amounting to Rs. 149,31,02,715/- stands deleted, but the assessee’s claim for expenses amounting to Rs. 102,60,80,000/- also stands disallowed.

(B.1) The AO has passed penalty order dated 30.03.2015 under Section 271(1)(c) of Income Tax Act, in which the AO levied penalty amounting to Rs. 34,53,78,528/- on the aforesaid disallowance amounting to Rs. 102,60,80,000/-. Before levying this penalty, the AO issued notice to the Assessee. The relevant portion of the aforesaid

ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. penalty order under Section 271(1)(c) of I.T. Act dated 30.03.2015 is reproduced as under:

ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd.

”

(B.1.1) Aggrieved, the assessee filed appeal before the Ld. CIT(A). Vide impugned appellate order dated 01.12.2016, the Ld. CIT(A) deleted he aforesaid penalty amounting to Rs. 34,53,78,528/-, holding as under:

”

(B.2) This present appeal has been filed by Revenue against the aforesaid impugned appellate order dated 01.12.2016 of Ld. CIT(A). During appellate proceedings in Income Tax Appellate Tribunal (“ITAT”, for short) synopsis was filed from the assessee’s side. The relevant portion of the synopsis is reproduced as under:

ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. (B.2.1) A copy of order dated 02.08.2019 of Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax v s. M/s Sahara India Life Insurance Company Ltd and others in and others was also filed from the assessee’s side, during appellate proceedings in ITAT, mention of which was made in the aforesaid synopsis.

(C) At the time of hearing before us, the Ld. Commissioner of Income Tax (Departmental Representative) [“Ld. CIT(DR)”, for short] placed reliance on the aforesaid penalty order dated 30.03.2015 of the Assessing Officer. However, in response to specific query from the Bench, she conceded that there was full disclosure of material facts by the assessee in the Return of Income, and during the assessment proceedings; and further, that no relevant information of fact was withheld by the assessee from the Revenue’s authorities during assessment proceedings. She also conceded that the question whether the aforesaid amount of Rs. 102,60,80,000/-, would be allowable in the hands of the assessee, or not; was highly disputable and, that different points of view could legitimately exist on the question of its allowability.

She also did not dispute the fact that the AO had failed to specifically record his satisfaction for initiation of penalty proceedings in respect of the aforesaid amount of Rs. 102,60,80,000/- in the Assessment Order dated 04.12.2009, although the AO had specifically recorded such satisfaction in respect of the other additions (such as, addition of aforesaid amount of Rs. 149,31,02,715/-; disallowance of claims of depreciation amounting to Rs. 204,57,99,264/- and Rs. 1,94,58,972/-; and disallowance of pre-acquisition expenses amounting to Rs. 112,51,25,851/-.)

ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. (C.1) On the other hand, the Ld. Senior Advocate appearing for assessee strongly supported the aforesaid impugned appellate order dated 01.12.2016 of Ld. CIT(A) and placed reliance on the aforesaid synopsis [relevant portion of which have been reproduced earlier in foregoing paragraph (B.2)] and the order dated 02.08.2019 of the Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax vs. M/s Sahara India Life Insurance Company Ltd. (supra).

(D) We have heard both sides patiently. We have perused the materials available on record carefully. We have considered the precedents mentioned in the records or referred to in the course of appellate proceedings in ITAT. It is not in dispute that the AO had failed to initiate penalty proceedings under Section 271(1)(c) of I.T. Act in respect of the aforesaid disallowance of expenses amounting to Rs. 102,60,80,000/- although the AO had specifically initiated penalty proceedings in respect of other additions (such as, the addition of aforesaid amount of Rs. 149,31,02,715/-; disallowance of claims of depreciation amounting to Rs. 204,57,99,264/- and Rs. 1,94,58,972/-; and disallowance of pre-acquisition expenses amounting to Rs. 112,51,25,851/-.) On perusal of the aforesaid order dated 01.12.2016 of the Ld. CIT(A); we also find that the Ld. CIT(A) has also failed to initiate penalty proceedings under Section 271(1)(c) of I.T. Act, in respect of the aforesaid disallowance of Rs. 102,60,80,000/-. Thus, penalty proceedings under Section 271(1)(c) of I.T. Act were neither initiated by the AO during assessment proceedings nor by the Ld. CIT(A) during the appellate proceedings in respect of the aforesaid disallowance of Rs. 102,60,80,000/-. The Ld. CIT(A) has also not levied any penalty under Section ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. 271(1)(c) of I.T. Act. When the AO specifically initiates penalty proceedings in respect of certain additions in the assessment order, but does not record initiation of penalty proceeding in respect of the other additions; it has to be inferred that the additions in respect of which penalty proceedings were not initiated, were not intended to be considered for subsequent order imposing penalty U/s 271(1)(c) of IT Act. When certain things are specifically included and remaining things are not included therein, it has to be inferred that what was not specifically included was not intended to be included at all. Scope of penalty proceedings U/s 271(1)(c) of IT Act cannot be widened later to include within its scope such additions which were not sought to be covered within the scope of penalty U/s 271(1)(c) of IT Act, at the time when penalty proceedings were initiated and assessment order was passed.

The retrospective widening of the scope of penalty, to include those items for levy of penalty U/s 271(1)(c) of IT Act which were not included for this purpose at the time when penalty proceedings U/s 271(1)(c) of IT Act were initiated and assessment order was passed; amounts to review and change of opinion by the AO, to the detriment of the Assessee; which has no authority of law. Initiation of penalty proceedings by the AO is valid only if the AO is satisfied in the course of any proceedings, that the Assessee has concealed the particulars of income or furnished inaccurate particulars of income. When this satisfaction for initiation of penalty proceedings U/s 271(1)(c) of IT Act is recorded by the AO in assessment order in respect of ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. certain additions during the assessment proceedings; and not recorded in respect of certain other additions; it acts as a bar against levy of penalty U/s 271(1)(c) of IT Act in respect of those additions in respect of which such satisfaction was not recorded in the assessment order or during the assessment proceedings.

(D.1) It is also not in dispute that the issue regarding disallowance and consequent addition amounting to aforesaid Rs. 102,60,80,000/- was highly disputable issue, on which two different views were legitimately possible. It is further not in dispute that there was full disclosure of materials facts and circumstances by the assessee in the Returns of Income and during assessment proceedings; and that no relevant information of fact was withheld by the assessee from the revenue’s authorities during assessment proceedings. When there was full disclosure of materials facts and circumstances by the assessee in the Return of Income and during assessment proceedings; then, on a the disputable issue of quantum addition, on which two different views are legitimately possible, of which the one favourable to the assessee has been adopted by the assessee; eventually, the Assessee may or may not succeed in the quantum proceedings and the disputable issue, on which two different views were possible, may eventually be decided against the Assessee in quantum proceedings. However, the assessee cannot be burdened with penalty U/s 271(1)(c) of I.T. Act, if on a disputable issue of quantum addition, on which two different views were legitimately possible, the Assessee decided to ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. adopt the view which was favourable to the assessee; in a case in which all necessary details were filed by the Assessee in support of the claim and when no material inaccuracies were found in these details, and when the assessee is not guilty of suppression of any material facts. In quantum proceedings, when two different views are legitimately possible on a disputable claim made by the assessee; one of which is favourable to the assessee, the multiplicity of legitimate views and disputability of the claim has the effect of excluding the scope of penalty U/s 271(1)(c) of I.T. Act in respect of such disputable claim even if the disputable claim is decided against the assessee in quantum proceedings; because in such a case the disputable claim made by the assessee neither amounts to ‘concealment of particulars of income’ nor to ‘furnishing of inaccurate particulars of income’ (D.2) The Ld. CIT(DR) has failed to bring any facts and circumstances legal provision or judicial precedents to our attention to persuade us to take a view different from the view taken by the Ld. CIT(A) deleting the aforesaid penalty amounting to Rs. 34,53,78,528/-, vide his impugned appellate order dated 01.12.2016.

(D.3) In view of the foregoing, we are of the view that this is not a fit case for penalty under Section 271(1)(c) of I.T. Act and we decline to interfere with the impugned appellate order dated 01.12.2016 of the Ld. CIT(A). For this view taken by us, we take support from Reliance Petroproducts (P) Ltd. 322 ITR 158 (SC); Devsons (P) Ltd. vs. CIT 329 ITR 483 (Del.); Hindustan Coca Cola Marketing Company Pvt. Ltd. Vs. DCIT

ITA No.- 1552/Del/2017 M/s ONGC Videsh Ltd. (2019) 198 TTJ 0513 (Del.) and M/s Padmini Infrastructure Developers India Ltd. Vs.

DCIT (2019) 55 CCH 0420 DelTrib. (E) In the result, appeal filed by Revenue is dismissed. Order pronounced in the open court on 18/02/2020.

ADDL/CIT, NEW DELHI vs. M/S ONGC VIDESH LTD.,, NEW DELHI