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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI O.P.KANT & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, Standard Chartered Grindlays Pty Limited (hereinafter referred to as ‘the assessee’), by filing the present appeal sought to set aside the impugned order dated 13.03.2014 passed by the Commissioner of Income-tax (Appeals)-XXV, New Delhi , affirming the penalty order dated 30.11.2012 passed u/s 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’), qua the assessment year 2009-10 on the grounds inter alia that :-
“The Learned Commissioner of Income tax (Appeals) - XXV, New Delhi [“Ld. CIT(A)”] erred in law and facts by sustaining the penalty imposed on the appellant vide order dated 30-3- 2009 passed under section 271(1)(c) of the Income tax Act, 1961 (“the Act”) for Assessment year 1996-97 without appreciating the facts that the penalty order is barred by limitation as per the proviso to Sec 275(1 )(A) of the Act. Hence, impugned order is void ab initio in the eyes of law and need to be struck down.
2. The Ld. CIT(A) has grossly erred in law by confirming the imposition of penalty of Rs. 20,39,73,947/- under section 271(1)(c) of the Act without giving any reasons for the same and in absence of any finding recorded by any authority of concealment of income or furnishing in-accurate particulars by the appellant company. The capricious and arbitrary order passed by the Ld. CIT(A) for sustaining the penalty tantamount to abuse of the process of law and hence it should be struck down.
3. The Ld. CIT(A) has erred in law and on facts in sustaining penalty of Rs. 17,71,00,000/- for interest paid by the appellant to its overseas head office on account of borrowing funds for its Indian business. The Ld. CIT(A) has failed to appreciate that in case of Sumitomo Mitsui Banking Corporation v. DCIT [136 ITD 66 (Mumbai) (SB)], Hon’ble Tribunal has held that interest paid to overseas head office is allowed as tax deductible expenses.
4. The Ld. CIT(A) has erred in law and on facts in sustaining the imposition of penalty of Rs. 2,68,73,947/- on account of erroneous interpretation of the provision of Sec. 36(i)(viia), which now stands clarified by the Supreme Court in case of Southern Technologies reported (320 ITR 577).
The order passed by Ld. CIT (A) for upholding the penalty imposed by the Assessing officer is ex-facie bad in law as this is against the settled law that no penalty is imposable on additions made on debatable issues which is evident from the decisions
cited above on both issues. [CIT v. Jaswinder Singh Ahuja 351 ITR 262 (Del) ].
6. There is no finding in the impugned order as to whether this imposition of penalty is with the prior approval of DIT-Range 2, International taxation, New Delhi. Section 274(2)(b) of the Act, provides that such approval is mandatory for passing any order for imposing penalty. As such approval does not appear to have been sought, hence the order passed by Ld. CIT(A) sustaining penalty is void ab initio and invalid in the eyes of law and hence should be quashed.
The Ld.CIT(A) is not justified in sustaining penalty u/s 274 read with 271 for concealment of income without assigning any reasons, without application of mind and purely on conjectures and surmises.
Briefly stated that facts necessary for adjudication of the controversy at hand are : Assessee is a non-resident banking company having branches in India which constitute a Permanent Establishment (PE) of the assessee within the meaning of Article 5 of the Indo-UK Double Taxation Avoidance Agreement (DTAA).
On the basis of completed assessment u/s 143(3) at the income of Rs. 2,05,53,28,410/- which has been confirmed up to Tribunal penalty proceedings have been initiated and the assessing officer has sought to levy penalty on the basis of two additions viz. ; One Disallowance out of deduction claimed u/s 36(i)(viia) of the IT Act, and Two Disallowance of Rs. 32,20,00,000/- an account of interest paid to head office. AO proceeded to hold that disallowance of Rs. 4,88,61,772/- in respect of deduction u/s 36(i)(viia) confirmed by the Ld. CIT(A) as well as Tribunal amounts to furnishing of inaccurate particular income. Similarly disallowance of Rs. 32,20,00,000/- on account of interest paid to head office also held to be furnishing inaccurate particulars of income and thereby levied the penalty of Rs. 20,39,73,947/-.
Assessee challenged the penalty order by way of an appeal before the ld. CIT(A) who has affirmed the penalty levied by the AO 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.
5. At the very outset, the Ld. AR for the assessee contended that issue as to disallowance of Rs. 4,88,61,772/- out of deduction claimed by the assessee u/s 36(i)(viia) and disallowance of Rs. 32,20,00,000/- on account of interest paid to the head office made by the AO and confirmed by Ld. CIT(A) as well as the Tribunal is still debatable as the appeal is pending before Hon’ble Delhi High Court. On the other hand, the Ld. DR for the revenue filed comprehensive submissions by relying upon decision rendered by Hon’ble Supreme Court and Hon’ble High Court of Delhi cited as :
Southern Technologies (320 ITR 577), Reliance Petroproducts (P.) Ltd. 322 ITR 158 (SC), Jaswinder Singh Ahuja [2013] 351 ITR 262 (Delhi), Liquid Investment dated 05.10.2010 Delhi (HC). Ld. DR further relied upon order passed by the AO as well as Ld. CIT(A).
Undisputedly the issue as to addition on account of disallowances made by the revenue in relation to the alleged incorrect claim of deduction u/s 36(i)(viia) of the Act and disallowance on account of alleged incorrect claim of deduction of interest paid by the assessee to the head office is still debatable having been pending before Hon’ble High Court of Delhi vide & 5010/Del/2003 dt. 24.10.2008 A.Y. 1996- 97 in which following substantial questions of law have been framed :-
“(a) Whether the ld. Tribunal has erred in law with respect to NRI expenses by ignoring the material on record regarding foreign currency Deposits brought into India by erroneously observing that “we do not find that a Deposits raised at Dubai were brought into India and utilized in respect of the business carried on in India?
(b) Whether the Ld. Tribunal has erred in law by holding that the Provision made as per sec. 36(1) (viia) was only net of debit & credit entries and consequently disallowed Rs. 4,88,61,772/- of the Provision made u/s 36(1) (viia)?
(c) Whether the Ld. Tribunal was right in law in disallowing the interest paid by the Appellant Bank to Head Office of ANZ Grindlays London by following the Special Bench order in the case of ABN Amro Bank vs. CIT(A) reported in 97 ITD 89?
(d) Whether the Ld. ITAT has erred in omitting to make the interest paid on foreign currency deposit was ……..with the approval of the RBI and hence was exempt from tax in accordance with the provisions of section …..(15)(iv)(fa) of the Income Tax Act, 1961 and hence did not attract tax deduction at source provisions ?”
7. Perusal of the aforesaid substantial questions of law framed by Hon’ble High Court of Delhi in the appeal against the assessment order on the basis of which this penalty has been levied shows that it is still debatable if the disallowance of Rs. 4,88,61,772/- u/s 36(i)(viia) and disallowance of the interest payment made by the assessee to its head office by following the special bench order in case of ABN AMBRO BANK vs. ADIT343 ITR 81 (CAL) is sustainable or not. So when the issue as to disallowances is still debatable no penalty can be levied and as such penalty imposed in this case is liable to be deleted on this score only.
Even on merit when we examine the assessment order as well as penalty order, the revenue has not come up with any allegation that there is concealment of income or furnishing of inaccurate particulars of income rather simple allegation made by the revenue is that the assessee has claimed incorrect deduction u/s 36(i)(viia) of the Act out of which Rs. 4,88,61,722/- has been disallowed and that the assessee has claimed deduction on account of interest payment of Rs. 32,20,00,000/- paid to its head office which has also been disallowed. Mere claiming of deductions under the relevant provisions of law and as per RBI Guidelines does not and cannot amount to furnishing of inaccurate particulars of income.
More over it is not case of the revenue that the assessee has not claimed the deductions as per law nor it is claim of the revenue that the assessee has made a double claim of such deductions.
Hon’ble Supreme Court in a case cited as CIT vs. Reliance Petro Products Pvt. Ltd. 322 ITR 158 (SC) decided the identical issue in favour of the assessee. Operative part of which is reproduced for ready reference as under :-
“A glance at the provisions of section 271(1)(c) of the I.T. Act, 1961 suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the detail of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”
In view of what has been discussed above, we are of the considered view that penalty levied by AO and confirmed by CIT(A) is not sustainable in the eyes of law as the issue as to the disallowances made by the AO is still debatable before Hon’ble Delhi High Court and even on merit the revenue has failed to prove that the assessee has furnished inaccurate particulars of income while claiming the aforesaid deductions. Consequently the appeal filed by the assessee is hereby allowed. Order pronounced in open court on this 25th October, 2018.