M/S. VIRGIN MOBILE INDIA PVT. LTD.,NEW DELHI vs. JCIT (TDS), NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 3431/Del/2015 (Assessment Year: 2009-10) Virgin Mobile India Pvt. Ltd, Vs. JCIT(TDS), C/o. Tata Teleservices Ltd, Range-51, Room NO. 406, 4th Floor, Aayakar Bhawan, 2A, Old Ishwar Nagar, Mathura Road, New Delhi District Centre, Laxmi PAN: AADCR5798J Nagar, New Delhi (Appellant) (Respondent)

Assessee by : Ms. Ashita Farsanja, Adv Revenue by: Shri Surender Pal, Sr. DR Date of Hearing 30/08/2018 Date of pronouncement 28/11/2018

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT (A)- 41, New Delhi dated 02.03.2015 for the Assessment Year 2009-10. 2. The assessee has raised the following grounds of appeal:- “A. That the Ld. CIT (A) failed to appreciate that the penalty was in violation of the principles of natural justice. i. That the Ld. CIT (A) erred by not appreciating that the Appellant was not given an opportunity of being heard as prescribed under Section 274 of the Income Tax Act, 1961 („the Act‟). ii. That the Ld CIT (A) failed to appreciate that the penalty has been imposed pursuant to the Show Cause Notice („SCN‟) dated 8.8.2013 received by the Appellant on 16.8.2013 with hearing date of 16.8.2013 itself. The appellant vide its letter dated 23.8.2013 has requested the Ld. JCIT that since the notice is received around closure of business hours on 16.8.2013 with date of hearing of 16.8.2013 itself which was denied. iii. That the Ld CIT (A) failed to appreciate that hearings on on 26.4.2013, 16.5.2013 and 20.5.2013 cannot be said to be in compliance with

B. That the Ld. CIT (A) failed to appreciate that the Appellant‟s appeals filed under Section 246A (1)(a) of the Act against the assessment order dated 27.12.2011 passed under Section 143(3) of the Act were pending before the Commissioner (Appeals), hence, there was no question of penalty proceedings getting time barred on 31.8.2013 under Section 275 of the Act. C. That the Ld. CIT (A) erred in passing the impugned order without considering that the Penalty order dated 23.8.2013 passed by JCIT was wholly without jurisdiction as: i. No proceedings under Section 201 of the Act had been initiated against the Appellant and order could not be passed by merely placing reliance on proceedings under Section 143(3) of the Act. ii. The Appellant was not adjudged to be liable to pay tax under Section 194J on in-sharing charges or pre-operative expenses under Section 201. Thus, penalty under Section 271C of the Act which is equivalent to amount of tax which a person is liable to deduct cannot be imposed. D. That the Ld. CIT (A) erred in passing the impugned penalty order in complete ignorance that reliance of Assessment Order passed under Section 143(3) of the Act ignoring the well settled position of law that penalty proceedings are independent of assessment proceedings and the officer levying the penalty has to come to an independent factual and legal conclusion that there is deliberate, willful failure on part of assessee in alleged non deduction of tax at source. E. That the Ld. CIT (A) erred in holding that the assessee company has defaulted in complying with Section 194J of the Act in respect of in-sharing expenses. F. That the Ld. CIT (A) failed to appreciate that the credits/payments were made only on 31.03.2009 and at that time there was a certificate under Section 197(1) dated 10.12.2008 in favour of the payee requiring no deduction of tax under Section 194J of the Act and that the date of invoice is immaterial. G. That the Ld. CIT (A) failed to appreciate that since no tax was payable by the deductee, no amount was liable to be deducted and there was no short payment of tax. H. That the Ld. CIT (A) failed to consider that as the deductee was assessed to tax on its income, no tax was payable by the Appellant and no penalty could be imposed on the Appellant. I. That the Ld. CIT (A) erred in holding in Para 4.10 that payments were being made on a monthly basis in as much as the credit to the account was made only at the end of the year.

J. That the Ld. CIT (A) erred in holding that the assessee company has defaulted in complying with the applicable provisions of Chapter XVII-B of the Act on alleged pre-operative expenses: i. Ld. CIT (A) erred in confirming the Penalty Order dated 23.8.2013 without considering any grounds or giving any finding on alleged pre-operative expenses.

ii. Ld. CIT (A) failed to appreciate that TDS has been deducted on alleged pre-operative expense in August 2008 as per provisions of Section 40a(ia) of the Act and deposited in accordance with law. K. That the Ld. CIT (A) grossly erred in not considering the contentions and grounds raised by the Appellant.” 3. The brief facts of the case is that in the case of the assessee reference was received from the deputy Commissioner of income tax, circle 17(1), New Delhi stating that the penalty under section 271C for non-deduction of TDS should be levied for the amount of ₹ 1 1329146 on account of an asset in provisions added back to the income of the assessee. Therefore, the notice under section 271C was issued on 13/2/2013. None attended before the joint Commissioner of income tax (range – 51), New Delhi. However written submission dated 26/4/2013 was submitted requesting to drop the penalty proceedings as there is no default or compliance and further the company is not held to be an assessee in default under section 201 (one) of the act. Further submission was made that the amount of ₹ 19 9984945/– was assumed offered by the company to tax in the return of income for FY 2008 – 09 on account of certain under certain liabilities were tedious could not be deducted and deposited as neither the recipient were certain and nor the amount payable were crystallized. It was further stated that the aforesaid amount was based on accounting estimates and subsequently on the liability being crystallized, the company has duly deducted and deposited the applicable tax deduction at source thereon. Further, during the course of hearing the assessee also submitted the detail with respect to the total amount of liability provided as on 31st of March 2009. The assessee submitted that amount of uncertain provisions offered to tax as on 31/03/2009 is ₹ 1 99984945/– and out of which amount which became due and payable Page | 3

during financial year 2009 – 10 on which applicable tax deduction at source was paid is ₹ 1 67640693/–. Further the uncertain amount were reversed in the books during the financial year 2009 – 10 of Rs. 28118863/–. The resulting excess of uncertain provisions for which company has not declaimed any deduction is ₹ 4225389/–. The details were also supported by the competition copy for the financial year 2009 – 10. The learned adjudicating officer considered the reply of the assessee and stated that assessee has not deducted tax at source on sharing expenses disallowed for financial year 2008 – 09 of ₹ 15 9640 7822/– on which tax under section 194J of the act was to be deducted of ₹ 1 5964782 and for FY 2006 – 07 preoperative expenses were disallowed of ₹ 22.50 lakhs on which tax was required to be deducted under section 194J of ₹ 2.25 lakhs totaling in all to ₹ 1 6189782/– has not been deducted by the assessee thereby the penalty provisions under section 271C of the income tax act were attracted. The learned adjudicating officer further issued a show cause notice for imposition of penalty for which no reply was received. In absence of any reply in explanation furnished by the assessee the learned adjudicating officer held that assessee has no reasonable cause for non-deduction of tax at source amounting to ₹ 1 6189782/– during the financial year 2008 – 09 and held that failure to deduct tax at source was due to deliberate negligence on the part of the deduct and negligence has no excuse in law. Accordingly he levied a penalty of ₹ 1 6189782/– under section 271C of the act by the order dated 23/8/2013. 4. The assessee aggrieved with the order of the learned adjudicating officer has preferred an appeal before the learned Commissioner of income tax appeals – 41, New Delhi. He confirmed the penalty order. Therefore, the assessee aggrieved with the order of the learned CIT – A has preferred an appeal before us. 5. The learned authorised representative submitted that there is a reasonable cause for failure to deduct tax at source for which the details have been given which are mentioned at para number five of the order of the adjudicating officer. She further stated that that no proceedings Page | 4

under section 201 of the act had been initiated against the appellant and order could not be passed by merely placing reliance on proceedings under section 143 (three) of the act. She further stated that assessee was not adjudged to be liable to pay tax under section 194J of the income tax act on in sharing charges or preoperative expenses under section 201 of the act thus penalty under section 271C of the act which is equivalent to the amount of tax cannot be imposed. She further stated that the credits and payments were made only on 31/3/2009 and at that time there was a certificate under section 197 (1) dated 10/12/2018 favour of the payee requiring no deduction of tax under section 194J of the act on the date of invoice is immaterial. Even otherwise he submitted that deductees were assessed to tax on its income and no tax was payable by the appellant and therefore no penalty could be imposed on the appellant. She further stated that for the levy of the penalty under section 271C of the act it is necessary to establish that there was contumacious conduct on the part of the assessee. 6. The learned departmental representative vehemently relied upon the orders of the lower authorities and submitted that assessee has failed to deduct tax at source under section 194J of the act and has also not shown any reasonable cause for non-deduction of tax at source and therefore the penalty has rightly been levied by the lower authorities under section 271C of the act. 7. We have carefully considered the rival contention and perused the orders of the lower authorities. The brief facts of the cases that the assessee has claimed deduction of in sharing expenses to the tune of ₹ 1 69369687 on which there existed the tax liability to deduct tax under section 194J at the rate of 10%. The appellant paid these expenses to Tata teleservices Ltd but has not deducted tax at source on the said payment as Tata teleservices Ltd from 01/04/2008 to 10/12/2008 the exemption certificate under section 197 (1) was available from 10/12/2008 231/3/2009. Further, the assessee has debited preoperative expenses of ₹ 2.25 lakhs on which tax was not deducted under section 194J of the income tax act. The assessee stated that it was covered by Page | 5

the exemption certificate under section 197 (1) of the income tax act dated 16th/1/2015. The learned assessing officer noted that the about tax deduction at source certificate has been given for the period from 10/12/2000 08/02/1931/3/2009 only. However, there was admittedly a failure on the part of the assessee to deduct tax at source on these above two expenses. However merely failure to deduct tax does not result into penalty under section 271C of the income tax act unless the adjudicating authority shows that there is a contumacious conduct of the assessee in failure to deduct tax at source. The issue is now squarely covered in favour of the assessee by the decision of the honourable Supreme Court of India wherein it has been held that for levy of the penalty under section 271C of the income tax act the learned adjudicating authority has to show contumacious conduct on the part of the assessee. The honourable Supreme Court in[2016] 66 taxmann.com 175 (SC)/[2016] 237 Taxman 594 (SC)/[2016] 380 ITR 550 (SC)/[2016] 283 CTR 128 (SC) Commissioner of income tax vs bank of Nova Scotia has held as under:- “2. The matter was pursued by the Revenue before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal vide order dated 31.03.2006 entered the following findings: "11. We have carefully considered the rival submissions. In the instant case we are not dealing with collection of tax u/s 201(1) or compensatory interest u/s 201(1A). The case of the assessee is that these amounts have already been paid so as to end dispute with Revenue. In the present appeals we are concerned with levy of penalty u/s 271-C for which it is necessary to establish that there was contumacious conduct on the part of the assessee. We find that on similar facts Hon'ble Delhi High Court have deleted levy of penalty u/s 271-C in the case of Itochu Corporation 268 ITR 172 (Del) and in the case of CIT v. Mitsui & Company Ltd. 272 ITR 545. Respectfully following the aforesaid judgments of Hon'ble Delhi High Court and the decision of the ITAT, Delhi in the case of Television Eighteen India Ltd., we allow the assessee's appeal and cancel the penalty as levied u/s 271-C." 3. Being aggrieved, the Revenue took up the matter before the High Court of Delhi against the order of the Income Tax Appellate Tribunal. The High Court rejected the appeal only on the ground that no substantial question of law arises in the matter. 4. On facts, we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income Tax (Appeals) as

well as by the Income Tax Appellate Tribunal. Thus, we see no merits in the appeal and it is accordingly dismissed.”