HINDUSTAN COCA COLA MARKETING COMPANY PVT. LTD.,GURGAON vs. DCIT, CIRCLE-11(2), NEW DELHI

PER: ANADEE NATH MISSHRA, AM

This is an appeal filed by Assessee against impugned appellate order

dated 24.09.2018 of the Commissioner of Income Tax (Appeals)[‘CIT(A)’ for

short]-35, Delhi. Page 1 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

1.1. The grounds of appeal are as under:

GROUNDS OF APPEAL 1. Ground no. 1 That on the facts and circumstances of the case and in the law, the order passed u/s 250(6) r.w.s 271(1)(c) of the Act passed by the Ld. AO/ Ld. CIT(A) dismissing the appeal filed by the Appellant, ignoring the submissions made before the Ld. AO/ Ld. CIT(A) and without appreciating the facts of the case and judicial precedents, is bad in law and is liable to be quashed. 2. Ground. No 2 That on the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate the fact that the order of penalty passed by the Ld. AO under section 271 (l)(c) of the Act is bad in law as from the notice issued u/s 274 read with Section 271 of the Act, it is not discernible as to whether the penalty proceedings were initiated for furnishing of inaccurate particulars of income or concealment of income under the facts and circumstances of the Appellant’s case, both of which are mutually exclusive and apply to different set of facts, is bad in law and is liable to be quashed; Without prejudice to the above: 3. Ground No. 3 That on the facts and circumstances of the case, the Ld. CIT(A) / Ld. AO has failed to appreciate that the Appellant has disclosed fully and truly all the details in the return of income, during the course of appellate and assessment proceedings and in the absence of failure to furnish accurate particulars, which is sine qua non for initiating penalty, the Ld. CIT(A) / Ld. AO erred in initiating penalty proceedings and levy thereof. 4. Ground No. 4 That on the facts and circumstances of the case and in law, the Ld. CIT(A)/ Ld. AO erred in misinterpreting the facts of the case, by stating that the Appellant has not disallowed the impugned amount of Rs. 13,97,08,721/- (in its return of income) despite the auditor had quantified the amount in his report u/s 44AB of the Act, ignoring the fact that no such quantification was made in the report u/s 44AB of the Act and the same was quantified only during the course of assessment proceedings. 5. Ground No. 5 That on the facts and circumstances of the case and in law, the Ld. CIT(A) Page 2 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

erred in confirming penalty levied by the Ld. AO in respect of disallowances made under section 40(a)(ia) of the Act, which were suo- moto offered by the Appellant during the course of assessment proceedings and not detected pursuant to any inquiry / investigation by the Ld. AO. 6. Ground No. 6 That on the facts and circumstances of the case and in law, the Ld. CIT(A) / Ld. AO failed to appreciate that the claim for allowance of the impugned expenditure was made in the proceedings for the subsequent year, and accordingly, the Appellant did not challenged the assessment order and merely because the Appellant has not challenged the order of assessment would not itself be sufficient to initiate / levy penalty. 7. Ground No. 7 That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the Ld. AO proceeded to pass the a non- speaking penalty order without application of mind, in undue haste and without affording adequate opportunity of being heard to the appellant, in gross violation of principles of natural justice and liable to be quashed.

short) 271(1)(c) of Income Tax Act(‘IT Act’ for short) wherein certain additions

were made and penalty proceedings U/s 271(1)(c) of IT Act were initiated in

respect of some of these additions; whereas penalty proceedings U/s 271(1)(c)

of IT Act were not initiated in respect of the rest of the additions. A summary of

the additions made, and whether penalty proceedings U/s 271(1)(c) of IT Act

were initiated or not, is contained in a tabular form as under:

Sl. Description of addition Amount of Whether penalty No. addition proceedings U/s 271(1)(c) were initated 1 Capitalization of service 1,38,64,065/- Yes charges 2 Capitalization of 69,77,437/- Yes advertisement expenses 3 Cessation of liability in 7,61,884/- No Page 3 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

case of static creditors 4 Disallowance U/s 13,97,08,721/- No 40A(i)(a) 5 Incorrect claim U/s 2,43,72,131/- No 40A(i)(a) 6 Excess 20,89,501/- No shortage/breakage

A notice dated 30.12.2008 U/s 271(1)(c) was issued by the Assessing

Officer(‘AO’ for short) accordingly, thereby initiating penalty proceedings U/s

271(1)(c) of IT Act.

2.1. Vide order dated 23.03.2016, the Assessing Officer (‘AO’ for short) passed

penalty order U/s 271(1)(c) of Income Tax Act (‘IT Act’ for short) levying penalty

amounting of Rs. 5,74,603/- U/s 271(1)(c) of IT Act. The penalty has been

levied in respect of disallowances of Rs. 13,97,08,721/- and Rs. 15,07,658/-

U/s 40A(i)(a) of IT Act, totaling Rs. 14,12,16,379/-.

23.03.2016, before the Ld. CIT(A). Vide order dated 24.09.2018, the Ld. CIT(A)

is dismissed the Assessee’s appeal. The relevant part of the order of the Ld.

CIT(A) is reproduced as under:

“4.2.3.1. The appellant filed return for AY 2006-07 at loss of Rs. 25,80,27,830/- and loss was reduced to Rs. 7,02,54,091/- in the order u/s 143(3). With regard to the addition of Rs. 15,07,658 under section 40(a)(ia) of the Act, the Appellant has submitted that a sum of Rs. 12,38,99,557 was recorded as provision for expenses during previous year FY 2004-05 relevant to AY 2005-06 in the profit and loss account. However, in the tax computation the Appellant suo-moto disallowed the aforesaid sum in accordance with the newly inserted Section 40(a)(ia) of the Act for failure to comply with the withholding Page 4 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

tax provisions. Subsequently, out of the aforesaid provisions of Rs. 12,38,99,557/- the provisions worth Rs. 2,28,64,473/- were reversed and in respect of provisions amounting to Rs. 15,07,658/- it was found out that the expenses in respect of which the provisions were created were not liable to TDS in accordance with the provisions of Chapter XVII B of the Act and were erroneously included in the other provisions liable for TDS and not allowable as deduction (in AY 2005-06) in accordance with the provisions of section 40(a)(ia) of the Act. In view of the above facts the aforesaid provisions of Rs. 2,43,72,131/- (i.e. Rs. 2,28,64,473 + Rs.15,07,658) were claimed as a deduction while computing the taxable income for A.Y. 2006-07. Rejecting the aforesaid submission, the Ld. AO proceeded to make a disallowance of Rs. 2,43,72,131 to the Appellant's income. The CIT(A) upheld the addition of Rs. 15,07,658/- on account of incorrect claim u/s 40 A(i)(a), out of the total addition of Rs. 2,43,72,131/- made on this issue. The relevant extracts of the OT(A) order, dated 29.09.2014, on quantum, with regard to the amount of Rs. 15,07,658/-, are reproduced below: " ...The appellant’s reply and reconciliation is duly considered. Regarding the amount of Rs. 15,07,658/-the appellant has not specified the amounts on which TDS provisions were not applicable and no details could be provided by them.. In absence of details, the appellant's claim cannot be entertained. The disallowance of Rs. 15,07,658/- is, therefore, partly justified and hence upheld..." The appellant did not file appeal before ITAT on the amount of Rs. 15,07,658/- on account of incorrect claim u/s 40 A(i)(a) which was upheld by the CIT (A). 4.2.3.2. The AO had made an addition of Rs. 13,97,08,721/-on the issue of disallowance u/s 40A(i)(a) of the I T Act. The appellant did not contest the issue of disallowance u/s 40A(i)(a) of Rs. 13,97,08,721/- before CIT(A).In the audit report u/s 44AB, the auditor had quantified the report stating that the appellant company has not furnished the required information in respect of deduction of TDS. As per the said report the Auditors have duly certified that an amount of Rs. 13,97,08,721/- was required to be disallowed on account of non deduction of TDS. In spite of the above findings of the auditor, the appellant did not add back this amount in its computation of income. Further appellant company has not disputed this issue before the CIT(A). Thus the appellant company has knowingly not disallowed the expenditure of Rs. 13,97,08,721/- which tantamount to the filling of inaccurate particulars of income. 4.3.2.3. The above claims would have gone unnoticed but for scrutiny and this is a primary issue with no disputes and reflects ip the appellant's admission to the same the case is squarely covered for levy of penalty as per the decision of the Hon’ble Delhi High Court in the case of CIT vs Zoom Communication Pvt. Ltd. Page 5 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

(327 TTR 510 Del), wherein the Hon'ble jurisdictional High Court has very clearly brought out that the same is liable for penalty. The AO has specifically mentioned in the penalty order dated 23.03.2016, that the penalty u/s 271(1) (c ) has been levied on the amount of Rs. 13,97,08,721/- and Rs. 15,07,658/- for filing inaccurate particulars of income. I find no reason to interfere with the AO's order on the imposition of penalty. The appeal is dismissed. 4.3. Additional Ground of appeal: is with regard to "Ground no. VI – The order of penalty passed u/s 271(l)(c) of the Act is bad in law as from the notice issued u/s 274 read with Section 271 of the Act it is not discernible as to whether the penalty proceedings were initiated for furnishing of inaccurate particulars of income or concealment of income under the facts and circumstances of the Appellant's case and therefore, the impugned penalty order deserves to be cancelled." 4.3.1. The Ground has been considered and found to be devoid of merits. In the penalty order dated 23.03.2016, the AO has specifically mentioned that the penalty u/s 271(1) (c) has been levied on the amount of Rs. 13,97,08,721/- and Rs. 15,07,658/- for filing inaccurate particulars of income, Appeal on additional ground is dismissed.”

Appellate Tribunal (‘ITAT’ for short).

4.1. At the time of hearing before us, the Ld. Counsel for Assessee drew our

attention to the fact that penalty proceedings U/s 271(1)(c) of IT Act were not

initiated by the AO in respect of the aforesaid additions of Rs. 13,97,08,721/-

and Rs. 15,07,658/-, totaling Rs. 14,12,16,379/- made U/s 40A(i)(a) of IT Act.

For this purpose the Ld. Counsel for Assessee took us through the assessment

order. The Ld. Counsel for Assessee also contended that in the notice U/s

271(1)(c) of the IT Act, the AO did not make a specific charge whether the

penalty proceedings were being initiated for furnishing of inaccurate

particulars of income or for concealment of particulars of income. Relying on

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order dated 14.09.2018 of Co-ordinate Bench of ITAT, Delhi Benches, Delhi in

the case of M/s Times Internet Limited v/s DCIT in ITA No. 1421/Del/2015 for

AY 2008-09, the Ld. Counsel contended that penalty levied by the AO and

confirmed by the Ld. CIT(A) should be cancelled. The Ld. CIT(DR) relied on the

orders of the AO and Ld. CIT(A). She drew our attention to the last sentence in

the assessment order dated 30.12.2008 which reads: “Penalty proceedings U/s

271(1)(c) have been initiated separately”, and submitted that this sentence in

the assessment order should be construed as sufficient for initiation of penalty

proceedings U/s 271(1)(c) of IT Act in respect of all the additions made in the

assessment order dated 30.12.2008.

have considered judicial precedents brought to our notice at the time of

hearing, and which have been referred in the orders of the lower Authorities

[namely the AO and the Ld. CIT(A)]. On perusal of the assessment order dated

30.12.2008 we find that the AO specifically recorded initiation of penalty

proceedings U/s 271(1)(c) of IT Act in respect of certain additions. These are

addition of Rs. 1,38,64,065/- towards capitalization of service charges (in

paragraph 3 of the assessment order); and addition of Rs. 69,77,437/- on

account of capitalization of advertisement expenses (in paragraph 4 of the

assessment order). However, on perusal of the assessment order dated

30.12.2008, there is no initiation of penalty proceedings in respect of additions

on account of cessation of liability in case of static creditors amounting to Rs. Page 7 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

7,61,884/- (in paragraph 5 of the assessment order); disallowance U/s 40A(i)(a)

of IT Act amounting to Rs. 13,97,08,721/- (in paragraph 6 of the assessment

order); incorrect claim U/s 40A(i)(a) of IT Act amounting to Rs. 2,43,72,131/-;

and addition on account of excess shortage/breakage amounting to Rs.

20,89,501/- (in paragraph 8 of the assessment order). Thus it is obvious that

as far as additions on account of disallowances U/s 40A(i)(a) of IT Act,

amounting to aforesaid Rs. 13,97,08,721/- and 15,07,658/-, totaling to Rs.

14,12,16,379/- is concerned, AO has not recorded satisfaction for initiation of

penalty proceedings U/s 271(1)(c) of IT 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 Page 8 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

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. In this context, it will be

useful to refer to statutory provisions U/s 271(1)(c) of IT Act. On its perusal, it

is obvious that 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

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.

5.1. Useful reference may be made to judicial precedents in the cases of CIT

vs. Rajan and Co. (No. 1) [2007] 291 ITR 340 (Delhi), CIT vs. Vikas Promoters P.

Ltd. [2005] 277 ITR 337 (Delhi), CIT vs. Auto Lamps Ltd. [2005] 278 ITR 32

(Delhi), CIT vs. Ram Commercial Enterprises Ltd. 246 ITR 568 (Delhi), CIT vs.

Super Metal Re-rollers 265 ITR 82 (Delhi), Everplus Securities and Finance Ltd.

vs. DCIT [2006] 285 ITR (AT) 112 (Delhi) in support of the view taken by us in

the foregoing paragraph no. 5 of this order. In the case of CIT vs. Rajan and Co. Page 9 of 14

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(No. 1)(supra), the Hon’ble Delhi High Court, upheld the deletion of penalty by

ITAT when the AO had recorded satisfaction with regard to one sum while with

regard to the other he made no such indication. In the case of CIT vs. Vikas

Promoters P. Ltd. (supra), the AO had mentioned simply that penalty

proceedings U/s 271(1)(c) of IT Act were initiated separately but had not

recorded satisfaction as contemplated U/s 271(1)(c) of IT Act. The Hon’ble Delhi

High Court held that it was mandatory for the AO to record satisfaction before

drawing an inference for the purpose of levying penalty while completing the

assessment. In the case of CIT vs. Auto Lamps Ltd.(supra), the AO had recorded

in his order that penalty proceedings U/s 271(1)(c) of IT Act for furnishing

inaccurate particulars of the income had been initiated separately. Hon’ble

Delhi High Court held that before initiating penalty proceedings U/s 271(1)(c)

of IT Act, 1961, it is the AO who has to form his own opinion and record his

satisfaction; and further that merely because the penalty proceedings have

been initiated, it cannot be assumed that such a satisfaction was arrived at. In

the case of CIT vs. Ram Commercial Enterprises Ltd.(supra), the Hon’ble Delhi

High Court held that the satisfaction as to the assessee having concealed the

particulars of his income or furnished inaccurate particulars of such income is

to be arrived at by the AO during the course of any proceedings under the Act,

which would mean the assessment proceedings, without which, the very

jurisdiction to initiate the penalty proceedings is not conferred on the assessing

authority by reference to Section 271(1)(c) of IT Act. Relying on CIT vs. Angidi

Chettiar (S.V.) [1962] 44 ITR 739 (SC) and Manasvi (D.M.) vs. CIT [1972] 86 ITR Page 10 of 14

ITA No.- 7900/Del/2018 and SA No.- 62/Del/2019 (Arising out of ITA No.- 7900/Del/2018) In the case of Hindustan Coca Cola Marketing Company Pvt. Ltd.

557 (SC) the Hon’ble Delhi High Court held that a bare reading of the

provisions of section 271 and the law laid down by the Supreme Court makes it

clear that, it is the assessing authority who has to form his own opinion and

record his satisfaction before initiating the penalty proceedings; and further

that merely because the penalty proceedings have been initiated it cannot be

assumed that such a satisfaction was arrived at. In the case of CIT vs. Super

Metal Re-rollers (supra), Hon’ble Delhi High Court once again took the view that

it is the assessing authority which has to form its own opinion and record its

satisfaction before initiating the penalty proceedings; and further that merely

because the penalty proceedings have been initiated, it cannot be assumed that

such a satisfaction was arrived at, in the absence of the same being spelt out

by the order of the assessing authority. The Hon’ble Delhi High Court,

dismissing Revenue’s appeal, held in this case that it was not sufficient that

the satisfaction of the AO as contemplated in section 271(1)(c) of the Act was

inherent in the queries raised by him during the course of the assessment

proceedings and that the AO had directed the issue of notice for levy of penalty

under the section after being satisfied that the assessee had concealed the

particulars of its income. Similar view was taken in Everplus Securities and

Finance Ltd. vs. DCIT (supra).

5.2. In view of the foregoing paragraphs 5 and 5.1 of this order, we are of the

view that there was no valid initiation of penalty proceedings U/s 271(1)(c)

of IT Act in respect of the additions on which penalty U/s 271(1)(c) of IT Page 11 of 14

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Act was levied by the AO in aforesaid order dated 23.03.2016 U/s

271(1)(c) of IT Act. Therefore, the penalty levied by AO under Section 271(1)(c)

of IT Act, and upheld by the Ld. CIT(A) in his impugned appellate order dated

24.09.2018; is hereby cancelled. As regards the submission of the Ld. Counsel

for Assessee that the AO did not make specific charge against the Assessee in

the notice U/s 271(1)(c) of IT Act whether the penalty proceeding were for

concealment of particulars of income or for furnishing of inaccurate particulars

of income, this ground need not be adjudicated as we have already cancelled

the penalty and this ground/contention is purely academic in view of our

decision to cancel the penalty. When there is no valid initiation of penalty

proceedings U/s 271(1)(c) of IT Act in respect of certain additions made in

the assessment order; it is immaterial if the AO made specific charge

against the Assessee: whether the penalty proceedings were for

concealment of the particulars of income or for furnishing of inaccurate

particulars of income. Therefore, ground no. 2 of the appeal is not

adjudicated and is left open for the Assessee to take up in future if deemed fit.

by us in our adjudication of ITA No. 7900/Del/2018; the stay application vide

SA No. 62/Del/2019 arising from ITA No. 7900/Del/2018 has become

infructuous. Therefore, the stay application vide SA No. 62/Del/2019 is hereby

dismissed, being infructuous.

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6.1. For statistical purposes the appeal is partly allowed and the stay

application is dismissed.

Order pronounced in the open court on 27.02.2019.

Sd/- Sd/- (KULDIP SINGH) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 27.02.2019 Bidhan