ACIT CIR 7(2)(2), MUMBAI vs. NOVARTIS INDIA LTD, MUMBAI

The present appeal filed by the revenue is directed against the order passed by the CIT(A)-13, Mumbai, dated 21.03.2016, which in P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. turn arises from the order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short ‘Act’), dated 26.02.2014 for Assessment Year 1992-93. Further, the assessee is also before us as a cross-objector. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal:

The respondents submit that the Hon'ble tribunal be pleased to hold that the penalty order passed by the ACIT on 26.02.2014 is barred by limitation in accordance with section 275(1)(a) of the Act and hence the penalty order should be held as null and void.

We find that the assessee as a cross-objector has assailed the validity of the jurisdiction assumed by the A.O for imposing penalty under Sec. 271(1)(c) of the Act. The cross-objection filed by the assessee involves a delay of 219 days. An application seeking condonation of the aforesaid delay in filing of the cross-objection was filed by an authorised signatory of the assessee. However, the ld. A.R sought the liberty of the bench to place on record the ‘Affidavit’ of the director of the assessee company for explaining the reasons leading to delay involved in filing of the cross objection, which in all fairness was permitted. The assessee had thereafter placed on record an ‘Affidavit’ of Ms. Monaz Noble, whole time director of the assessee company. It is deposed by the director that the delay in filing of the cross-objection had occasioned as she had gathered about the lapse on the part of the A.O in imposing penalty under Sec. 271(1)(c) beyond the stipulated time period, only after perusing the judgment of the Hon’ble High Court of Delhi in the case of Salora International Limited Vs. CIT, New Delhi (2018) 91 taxmann.com 287 (Delhi). We have given a thoughtful consideration to the contentions of the assessee cross-objector, and are of the considered view that the request of the assessee for condonation of delay merits acceptance. Firstly, the said delay to our understanding is not backed by any lapse or laches on the part of the cross-objector, but had occasioned for the reason that the director of the assessee company had learnt about the fact that the penalty under Sec. 271(1)(c) was imposed beyond limitation much subsequent to the receipt of the ‘Memorandum of appeal’ filed by the revenue. We are of the considered view, that in case the assessee would have been aware about the said material lapse on the part of the A.O, then there would have been no reason for it to have delayed the filing of the cross-objection. Further, we find that the assessee by raising a claim that the penalty imposed by the A.O under Sec. 271(1)(c) was barred P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. by limitation under Sec. 275(1)(a), has sought our indulgence for adjudication of a legal issue on the basis of the facts available on record, and no new facts are required to be looked into. We thus in the backdrop of our aforesaid observations, are of the considered view that the application of the assessee seeking condonation of delay of 219 days merits acceptance. In terms of our aforesaid observations, the delay of 219 days in filing of the cross-objection is condoned.

As the very assumption of jurisdiction by the A.O for levying the penalty under Sec. 271(1)(c) has been assailed before us by the assessee, therefore, we shall first advert to the same. We find that the assessee has challenged the validity of the order passed by the A.O under Sec. 271(1)(c), on the ground that the same as per Sec. 275(1)(a) is barred by limitation.

We shall briefly cull out the facts, to the extent the same are relevant for adjudicating the validity of the penalty imposed by the A.O under Sec. 271(1)(c) of the Act. The assessee company had filed its return of income for A.Y. 1992-93 on 31.12.1992, disclosing total income of Rs.27,34,40,960/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. The A.O vide his order passed under Sec. 143(3), dated 28.02.1995 assessed the income of the assessee company at Rs.30,84,75,261/- inter alia making the following additions/disallowances:

Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee, was however not persuaded to subscribe to the same and confirmed the aforementioned additions/disallowances made by the A.O. On further appeal, the Tribunal vide its order dated 12.10.2011 restored the following issues to the file of the A.O for fresh adjudication:

The A.O issued a notice under Sec. 143(2) r.w.s. 254 for giving effect to the order of the Tribunal in respect of the issues which were restored to his file, and called upon the assessee to furnish details along with supporting documents as regards the same. The A.O while framing the ‘set aside’ assessment inter alia upheld the disallowance of Rs.1,55,442/- i.e. 2% on tax free dividend income, for the reason that the assessee had in its submissions agreed for the same. However, it was observed by the A.O that the assessee had not given up its claim that no disallowance on the said count was called for in its hands. Subsequently, the order under Sec. 143(3) r.w.s. 254, dated P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. 28.08.2013 was passed by the A.O and the income of the assessee was assessed at Rs.28,84,84,380/-.

The A.O after culminating the assessment under Sec.143(3) r.w.s. 254, dated 28.03.2013, imposed penalty under Sec. 271(1)(c), vide his order dated 26.02.2014 in respect of the following additions/disallowances:

Aggrieved, the assessee assailed the penalty imposed by the A.O under Sec. 271(1)(c) before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee was persuaded to subscribe to the same and deleted the penalty of Rs.51,29,767/-.

The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. Further, the assessee is before us as a cross-objector. The ld. Authorized Representative (for short ‘A.R’) of the assessee, at the very outset of the hearing of the appeal submitted that the penalty under Sec. 271(1)(c) having been imposed by the A.O beyond the time limit contemplated under Sec. 275(1)(a), was thus barred by limitation and could not be sustained. It was the P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. contention of the ld. A.R that the additions viz. (i) disallowance on account of contingent liability: Rs. 90,00,000/-; (ii) damages on account of breach of contract considered as revenue receipt: Rs.5,05,000/-; and (iii) disallowance under Sec. 43B: Rs.2,52,152/-, were confirmed by the Tribunal, vide its order dated 12.10.2011 passed while disposing off the quantum appeal of the assessee for the year under consideration viz. Novartis India Ltd. Vs. JCIT, Spl. Range- 23, Mumbai, [ITA 1584/Mum/1999; dated 12.10.2011]. The ld. A.R averred that the A.O after receiving the order of the Tribunal had issued a notice under Sec. 143(2) r.w.s. 254, dated 26.07.2013, calling upon the assessee to furnish details along with supporting documents with regard to the issues which were ‘set aside’ to his file by the Tribunal. Thereafter, the A.O vide his order passed under Sec. 143(3) r.w.s. 254, dated 28.08.2013 had assessed the income of the assessee at Rs.28,84,84,380/-. In the backdrop of the aforesaid facts, it was the contention of the ld. A.R that it could safely be concluded that the order of the Tribunal, dated 12.10.2011 would have been received by the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax or Principal Commissioner of Income-tax or Commissioner of Income Tax, much prior to 26.07.2013 i.e. the date on which the A.O had issued the notice under Sec. 143(2) r.w.s. 254 to the assessee. In sum and substance, it was the contention of the ld. A.R that the order of the Tribunal dated 12.10.2011 would have been received by the specified authority contemplated under Sec. 275(1)(a), much prior to the date on which notice under Sec. 143(2) r.w.s 254 was issued by the A.O to give effect to the directions of the Tribunal. However, without prejudice to its aforesaid contention, it was averred by the ld. A.R that even if the date on which the specified authority had received the order of the Tribunal, dated 12.10.2011, was stretched upto the date on which the A.O had issued the notice P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. under Sec. 143(2) r.w Sec. 254 i.e 26.07.2013, even then the penalty under Sec.271(1)(c) could have been imposed latest by 31.01.2014. It was submitted by the ld. A.R, that as the penalty was imposed by the A.O under Sec.271(1)(c), vide his order dated 26.02.2014, thus the same was clearly beyond the time limit contemplated under Sec.275(1)(a) and was barred by limitation. In the backdrop of his aforesaid contentions, it was the claim of the ld. A.R that as the penalty imposed by the A.O was time barred, thus the same was liable to be vacated. Further, the ld. A.R relied on the order of the CIT(A), who after deliberating on the contentions advanced by the assessee had deleted the penalty imposed by the A.O on merits.

In the backdrop of the fact that the assessee has assailed the validity of the penalty imposed by the A.O under Sec. 271(1)(c) on the ground that the same was barred by limitation, the ld. Departmental Representative (for short ‘D.R’) was directed to verify the date on which the order of the Tribunal, dated 12.10.2011 was received by the specified authority contemplated under Sec. 275(1)(a) of the Act. Further, in order to facilitate the ld. D.R to gather the requisite details, the hearing of the case on 23.08.2018 was adjourned for 08.10.2018. However, on 08.10.2018 the ld. D.R failed to place on record the requisite details, for the reason that the records from where it could be gathered as to when the order of the Tribunal in the quantum appeal of the assessee was received by the specified authority could not be located.

We have deliberated on the issue under consideration and find that the penalty imposed by the A.O under Sec. 271(1)(c) is comprised of two parts viz. (A) as regards the additions/disallowances made by the A.O which thereafter had been upheld by the Tribunal, vide its P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. order dated 12.10.2011 viz. (i). disallowance on account of contingent liability : Rs. 90,00,000/-; (ii) amount received towards damages : Rs. 5,05,000/- ; and (iii). disallowance u/s. 43B: Rs. 2,52,152, AND (B). as regards the disallowance of 2% on tax free dividend income : Rs. 1,55,442/-, which was made by the A.O, vide his order passed under Sec. 143(3) r.w.s 254 of the Act, dated 28.08.2013. We find substantial force in the contentions advanced by the ld. A.R in support of his claim that the order of the A.O imposing penalty on the assessee under Sec. 271(1)(c) is barred by limitation. However, the aforesaid claim of the ld. A.R would only be in context of the aforesaid additions/disallowances, which after having been upheld by the Tribunal, vide its order dated 12.10.2011 had attained finality. In so far, the levy of penalty by the A.O as regards the disallowance of Rs. 1,55,412/- i.e 2% on tax free dividend income is concerned, the same having been made on the basis of the ‘set aside’ assessment under Sec. 143(3) r.w.s 254, dated 28.08.2013, is found to have been imposed well within the period of limitation.

We shall now advert to the contentions advanced by the ld. A.R as regards the penalty imposed by the A.O under Sec. 271(1)(c), which as per the ld. A.R is beyond the period of limitation contemplated under Sec. 275(1)(a). We shall deliberate on the aforesaid contentions of the ld. A.R, in context of the penalty imposed by the A.O under Sec. 271(1)(c) as regards the additions/disallowances which were upheld by the Tribunal, vide its order dated 12.10.2011 viz. (i). disallowance on account of contingent liability: Rs. 90,00,000/-; (ii) amount received towards damages : Rs. 5,05,000/- ; and (iii). disallowance u/s. 43B : Rs. 2,52,152/- and had thus attained finality. We are of the considered view, that now when the aforesaid additions/disallowances pursuant to the order of the Tribunal had attained finality, thus there P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. was no occasion for the A.O to have kept the penalty proceedings under Sec. 271(1)(c) in respect of the same in abeyance. Rather, now when the Tribunal had never restored the aforesaid additions/disallowances to the file of the A.O, thus the latter was not justified in deferring the imposition of penalty as regards the said issues, and thereafter assume jurisdiction and impose the same on the basis of the ‘set aside’ assessment which was framed by him under Sec. 143(3) r.w.s 254. In other words, as no addition or disallowance on the aforesaid issues, which pursuant to the order of the Tribunal had attained finality was to be made in the course of the ‘set aside’ assessment, which was only in context of certain specific issues that were restored by the Tribunal to the file of the A.O, thus the latter was divested of his jurisdiction to have directed initiation of penalty in respect of the said issue in the body of the ‘set aside’ assessment, and, thereafter impose penalty u/s 271(1)(c) in respect of the same on the basis of the ‘set aside’ assessment. We thus are of the considered view, that the period of limitation for imposing penalty u/s 271(1)(c) in context of the aforesaid additions/disallowances was to be arrived at on the basis of the date on which the order of the Tribunal, dated 12.10.2011 disposing off the quantum appeal of the assessee for the year under consideration was received by the specified authority contemplated under Sec.275(1)(a) of the Act.

In the backdrop of our aforesaid observations, we are of the considered view that now when the A.O had issued a notice under Sec. 143(2) r.w.s. 254, dated 26.07.2013, thus it could safely be concluded that the order of the Tribunal, dated 12.10.2011 would have been received by the specified authority contemplated under Sec. 275(1)(a) much prior to the said date. Rather, our conviction is substantially fortified by the fact that the order of the Tribunal which was passed P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. way back on 12.10.2011, would have beyond any doubt been received by the specified authority much prior to 26.07.2013 i.e the date on which notice under Sec. 143(2) r.w.s 254 was issued by the A.O to give effect to the order of the Tribunal. However, as averred by the ld. A.R., even if the date of receipt of the Tribunal order by the specified authority is stretched to 26.07.2013 i.e the date on which the A.O had issued notice under Sec. 143(2) r.w.s 254, even then the penalty under Sec.271(1)(c) could have been imposed latest by 31.01.2014. We are persuaded to subscribe to the contention advanced by the ld. A.R, that it is highly improbable that the Tribunal order, dated 12.10.2011 would not have been received by the CIT/PCIT or CCIT/Pr.CIT by 26.07.2013.

We find that as despite specific directions, no assistance is forthcoming on the part of the revenue to place on record the exact date of receipt of the order of the Tribunal, dated 12.10.2011, therefore, we are left with no other alternative but to adopt the same by embarking on the principle of preponderance of human probability on the basis of the material available on record. We are of the considered view, that the order of the Tribunal dated 12.10.2011 would have been received by the specified authority within a reasonable time. However, as observed by us hereinabove, even if the date of receipt of the same is stretched upto 26.07.2013 i.e the date on which the A.O had issued notice under Sec. 143(2) r.w.s 254, even then the penalty under Sec.271(1)(c) in respect of the aforesaid additions/disallowances which were upheld by the Tribunal, vide its order dated 12.10.2011 viz. (i). disallowance on account of contingent liability : Rs. 90,00,000/-; (ii) amount received towards damages : Rs. 5,05,000/- ; and (iii). disallowance u/s. 43B : Rs. 2,52,152/-, and had thus attained finality, could have been imposed latest by 31.01.2014.

That as the penalty imposed by the A.O under Sec. 271(1)(c) in context of the aforesaid additions/disallowances has been vacated by us, on the ground that the same has been imposed beyond limitation, thus we refrain from adverting to and adjudicating the contentions raised by the revenue in context of the same on merits in its appeal before us.

We shall now advert to the appeal of the revenue as regards the levy of penalty under Sec. 271(1)(c) on the disallowance of Rs.1,55,442/- i.e 2% on tax free dividend income, which was made by the A.O vide his order passed under Sec. 143(3) r.w.s 254 of the Act, dated 28.08.2013. For the sake of clarity, we may herein observe that as observed by us hereinabove, the levy of penalty by the A.O in P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. context of the disallowance of Rs. 1,55,442/- is not barred by limitation. Thus, the cross objection of the assessee to the said extent is dismissed.

We shall now advert to the merits of the penalty imposed under Sec. 271(1)(c) as regards the aforesaid disallowance of Rs.1,55,442/- i.e. 2% on the tax free dividend income. We find that the disallowance of 2% of dividend income on account of administrative and overhead expenses was originally done by the A.O at over 6%, but the same was thereafter in the quantum appeal brought down by the CIT(A) to 2%. Subsequently, the said issue was restored by the Tribunal to the file of the A.O to decide the same afresh. The A.O in the ‘set aside’ assessment framed under Sec. 143(3) r.w.s 254, dated 28.08.2013, upheld the disallowance to the extent of 2%. We have perused the order of the CIT(A), and find that it was observed by him that as the assessee while raising the said claim of deduction had came up with a complete disclosure of all the facts by way of a ‘note’ to the computation of income filed with its ‘return of income’ for the year under consideration, thus no penalty under Sec. 271(1)(c) was called for in its hands to the said extent. We have deliberated at length on the issue under consideration, and are persuaded to subscribe to the view taken by the CIT(A). We are of the considered view that now when the assessee had made a complete disclosure of all the facts in context of its aforesaid claim of deduction, thus merely because the same did not find favour with the A.O, no penalty under Sec. 271(1)(c) could have been imposed on the assessee on the said count. We find that our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petropoducts Pvt. Ltd. (2010) 322 ITR 158 (SC). In terms of our aforesaid observations, we uphold P a g e | C.O. No. 246/Mum/2018 - A.Y 1992-93 ACIT, Circle-7(2)(2) Vs. M/s Novartis India Pvt. Ltd. the order of the CIT(A) deleting the penalty imposed by the A.O in respect of the aforesaid disallowance of Rs. 1,55,442/-.