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ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under section 253 of Income-tax Act (‘Act’) is directed against the separate orders of ld. Commissioner of Income-tax (Appeals)-4, Mumbai [hereinafter referred as ld. CIT(A)], which in turn arises from the penalty levied by Assessing Officer under section 271AA of the Act dated 30.09.2015 for Assessment Year 2012-13.The assessee has raised the following grounds of appeal:
1. The CIT(A) erred in upholding the penalty levied by AO under section 271AA of the Act of Rs.29,55,350.
2. The CIT(A) failed to appreciate that receipt of share application money and issue/allotment of shares out of share application money received in the previous year by the Appellant from its parent/holding company did not give rise to an international transaction and 1 Mum 2017-Fremantle India Television Productions Pvt. Ltd.
consequently there was no obligation on it to report the said transaction in Form 3CEB. This position is also confirmed by the said Form prescribed for assessment year 2012-13 which did not contain any requirement for reporting such transaction.
In the alternative and without prejudice to the above, the Appellant was under the bonafide belief that no income arises and hence no transfer pricing adjustment could result from the receipt of share application money and, therefore, no requirement to report the said transaction arose. As per section 2736 of the Act, no penalty shall be levied on the assessee for any failure if he proves that there was a reasonable cause for such failure.
The CIT(A) failed to appreciate that the fact of receipt of share application money and allotment of shares out of share application money received in the previous year had been disclosed in the Annual Accounts as well as the Tax Audit Report of the Appellant.
Further, vide application dated 27.11.2018, the assessee has raised the following additional ground of appeal:
5. On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the action of the AO without appreciating the fact that the penalty order passed by the AO u/s. 271AA of the Act is bad in law due to non- application of mind which is evident from the notice u/s. 274 r.w. section 271AA of the Act wherein the specific charge on which penalty proceeding is initiated is not mentioned as well as from the fact that the initiation of the penalty in the assessment order and levy of penalty in penalty order are on two different clauses of section 271AA of the Act; 3. Brief facts of the case is extracted from the order of lower authorities are that the assessee is a corporate entity and tax resident of India. During the relevant period under consideration, the assessee-company received share application money of Rs. 13,22,60,000/- from its holding/parent Mum 2017-Fremantle India Television Productions Pvt. Ltd. company M/s Free Mental Overseas Holding BV, Netherland and also paid share application money of Rs. 1,55,07,500/- to its Associated Enterprises (AE). The said transaction was not reported by assessee in Form-3CEB. The Assessing Officer while making the scrutiny assessment issued show-cause notice under section 271AA and 271G for not reporting the transaction in Form 3CEB. The assessee filed its reply on 09.03.2015. In the reply, the assessee stated that receipt of share application money from its Associate Enterprises is not an international transaction with Chapter- X of Income-Tax Act. Accordingly, penalty cannot be initiated. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer while passing the assessment order under section 143(3) initiated the penalty on the ground that the information regarding domestic and international transaction has not been maintained as required by Clause (1) or sub-section (2) of section 92D and the assessee is liable for penalty under section 271AA and 271G, vide order dated 23.03.2015.
4. During the penalty proceedings a afresh show-cause under section 271AA and 271G dated 02.09.2015 was served on the assessee. The assessee filed its reply dated 15.09.2015 on 18.09.2015. In the reply, the assessee stated that the alleged transaction is not an international transaction and thus show-cause notice is without jurisdiction. The assessee has not failed to maintain the prescribed record. No reporting of 3 ITA No. 529 Mum 2017-Fremantle India Television Productions Pvt. Ltd. transaction cannot give rise presumption to failure to maintain the specific record. Even if it is assumed that allotment on share is an international transaction, though without accepting and admitting, even based on the bonafide belief of the Accountant that the allotment of share is not an international transaction, the assessee is eligible for relief under section 273B. It was further stated that even if it is assumed, though without accepting or admitting, the allotment of share is an international transaction covered by Chapter-X, and that the Accountant has not reported the transaction in Form 3CEB which had already been submitted with the revenue within prescribed time because of wrong opinion of the professional Accountant, the assessee cannot be penalized. The contention of assessee was not accepted by Assessing Officer holding that section 271AA(ii) clearly stipulates that failure to report international transaction attract penalty under section 271AA. The Assessing Officer took the view that under international transaction, the assessee received share application money of Rs. 13,22,60,000/- and by way of allotment of share capital, the assessee out of share application money received Rs. 1,55,07,500/-, thus, there is total transaction of Rs. 14,77,67,500/-. The Assessing Officer levied the penalty under section 271AA @ 2% of the above transaction and worked out the penalty of Rs. 29,55,350/- vide its order dated 30.09.2015. On appeal before the ld. CIT(A), the action of Assessing Officer was confirmed. The ld. CIT(A) 4 Mum 2017-Fremantle India Television Productions Pvt. Ltd. while confirming the action of Assessing Officer concluded that share capital is a business transaction and earning of income or causing of finance transaction in the business scenario, therefore, the concept of transaction is very much present. Further aggrieved by the order of ld. CIT (A), the assessee has filed the present appeal before this Tribunal.
We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Department Representative (DR) for the revenue and perused the material available on record. In support of application for filing additional ground of appeal, the ld. AR of the assessee submits that the additional ground of appeal raised by assessee are purely legal ground and facts pertaining to the grounds, ground is already on record.
The additional ground goes to the root of the issue. The ld. AR of the assessee prayed for admitting the additional ground and to decide the appeal on merit. 6. On the other hand, the ld. DR for the revenue submits that the assessee has not raised such legal ground before the First Appellate Authority.
The assessee has raised for the first time, these ground of appeal
, therefore, the additional ground should not be entertained.
7. Considering the facts and circumstances of the case and the fact that additional ground raised by the assessee is purely legal in nature and that no further fact are necessary to brought on record for adjudicating the issue and all the facts are emanating from the orders of the lower 5 Mum 2017-Fremantle India Television Productions Pvt. Ltd. authorities. The additional ground of appeal raised by assessee is allowed.
8. On additional ground as well as on original grounds of appeal, the ld. AR of the assessee submits that during the period under consideration, the assessee received share application money of Rs. 13,22,60,000/- and paid share application money of Rs. 1,55,07,500/-. These transactions were not reported in Form 3CEB. The ld. AR of the assessee further submits that penalty under section 271AA is leviable (i) failed to keep and maintain any such information and document required under sub- section (1) or sub-section (2) of section 92D or, (ii) failed to report such transaction which the assessee is required to do, or (iii) maintained or furnished inaccurate information or documents. The ld. AR of the assessee further submits that while issuing show-cause notice, the Assessing Officer has not specified the specific limb of the charge. The Assessing Officer while passing the assessment order in para-9 of the order recorded that assessee has not maintained the information and document. The Assessing Officer while issuing show-cause notice dated 23.03.2015, issued the said notice on performa has not specified to specific charge. The second show-cause notice was issued on 02.09.2015. Similarly, no specific charge was mentioned in the show- cause notice. The Assessing Officer while levying the penalty on the charge to failure to report the international transaction. The ld. AR of the 6 ITA No. 529 Mum 2017-Fremantle India Television Productions Pvt. Ltd. assessee further submits that Form 3CEB was filed in November 2012.
At the time of filing Form 3CEB, there is no requirement to furnish such information related with international transaction; substituted format is applicable from 01.04.2013. The ld. AR of the assessee submits that there was impossibility of performance for furnishing the required information in Form 3CEB (amended) which is applicable only from 01.04.2013. In support of his submissions the ld. AR for the assessee relied on the decision of Bombay High Court in CIT Vs NGC Network (India) Private Limited (ITA No. 397 of 2015 dated 29.01.2018).
The ld. AR of the assessee further submits that the Assessing Officer initiated the penalty for not maintaining the record, however, the penalty was levied by Assessing Officer for not reporting international transaction, therefore, and there was an infirmity in the notice which reflects the non-application of mind by Assessing Officer. Thus, initiation on one limb and levying penalty on another limb, the order itself is in violation of natural justice and accordingly the penalty order is not sustainable. In support of his submission, the ld. AR of the assessee relied upon the decision of Mumbai Tribunal in Meherjee Cassinath Holdings (P.) Ltd. vs. ACIT [ 2017] 88 taxmann.com 777 (Mumbai –Trib).
On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR for the revenue further submits that the 7 Mum 2017-Fremantle India Television Productions Pvt. Ltd. assessee was very well aware about the charge, the assessee has contested the case on merit and no prejudice was shown by assessee.
The Assessing Officer has issued non-statutory notice. The notice is not mandatory, when the assessee has fully participated and contested the proceeding. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in Maharaj Garage & Co. vs. CIT [2017 ] 400 ITR 292 (Bom).
In the rejoinder submission, the ld. AR of the assessee submits that the decision of Maharaj Garage & Co. vs. CIT (supra) has been distinguished by Tribunal in dated 19.01.2018 in Indrani Sunil Pillai vs. ACIT, wherein it was held that the observation of Hon’ble High Court appears to be in context of quantum penalty proposed and not with reference to doing away with the issuance of show-cause notice as contemplated under section 274. The decision of Hon’ble High Court cannot be read out in a context or in a manner to mean that there is no need for mentioning specific charge of section 271(1)(c) for which the penalty was intended to be proposed.
We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment the assessing officer recorded that during relevant period under consideration, the assessee-company received share application money of Rs. 13,22,60,000/- from its holding/parent company M/s Free Mental 8 ITA No. 529 Mum 2017-Fremantle India Television Productions Pvt. Ltd. Overseas Holding BV, Netherland and also allotted share capital of Rs. 1,55,07,500/-. The assessee has not reported the said transaction in Form-3CEB. The Assessing Officer while making the scrutiny assessment initiated penalty under section 271AA and 271G for not reporting the transaction in Form 3CEB. The assessing officer during the penalty proceedings again issued show cause notice vide notice dated before passing the order while levying the penalty under section 271AA. The assessee filed its reply dated 15.09.2015 and again on 18.09.2015. In the reply the assessee stated that the transaction of receipt of share application from holding company and allotment of shares, is not an international transaction, and thus show-cause notice is without jurisdiction. No reporting of transaction cannot give rise presumption to failure to maintain the specific record. It was also stated even, if, it is assumed that allotment on share is an international transaction, though without accepting and admitting, even based on the bonafide belief of the Accountant that the allotment of share is not an international transaction. The assessee also claimed it was bonafide explanation and prayed for relief under section 273B.
We have further noted that the assessee claimed that even if it is assumed, though without accepting or admitting, the allotment of share is an international transaction covered by Chapter-X, and that the Accountant has not reported the transaction in Form 3CEB which had 9 ITA No. 529 Mum 2017-Fremantle India Television Productions Pvt. Ltd.
already been submitted with the revenue within prescribed time because of wrong opinion of the professional Accountant, the assessee cannot be penalized. In our view the assessee has clearly set out a case of reasonable cause for not imposing penalty.
We have also examined the submissions of the ld. AR for the assessee that Form 3CEB was filed in November 2012. At the time of filing Form 3CEB, there is no requirement to furnish such information related with international transaction; substituted format is applicable from 01.04.2013. The ld. AR of the assessee submits that there was impossibility of performance for furnishing the required information in Form 3CEB (amended) which is applicable only from 01.04.2013. We find convincing force in the submissions of the ld. AR for the assessee that substituted Form No. 3CEB is applicable from 01.04.2013 only, thus there was impossibility of performance. Similar view was taken by Hon’ble Bombay High Court in CIT Vs NGC Network (India) Private Limited, wherein the Court has applied the legal maxim lex non cogit ad impossiblia (law does not compel a man to do what he cannot perform). Thus, the assessee also succeeded on this submission.
Therefore, in our view no penalty was leviable on the assessee under such circumstances. Mum 2017-Fremantle India Television Productions Pvt. Ltd.
As we have accepted the appeal of the assessee on two submissions therefore, the adjudication of the additional ground of appeal has become academic.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 24/06/2019.
Sd/- Sd/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER Mumbai, Date: .06.2019 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “K” Bench, ITAT, Mumbai 6. Guard File