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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SH. AMIT SHUKLA & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals), Noida, dated 10.02.2014, raising the following grounds of appeal:
“1. The CIT (A) has erred in law and on facts by deleting the penalty of Rs.44,60,100/- u/s 271(l)(c ) imposed by the A.O. without appreciating the fact that the assessee has failed to suomoto add the expenditure of Rs. 1,31,56,505/- in the computation of total income u/s 40(a)(ia) of the Income Tax Act, as the assessee failed to deduct the tax at source on the whole amount of expenditure.
The CIT (A) has erred in law and on facts by deleting the penalty of Rs.44,60,100/- u/s 271(l)(c ) imposed by the A.O. without appreciating the fact that the revenue has filed appeal before the Hon’ble High Court on the deletion of quantum amount of Rs.1,21,88,336/- out of Rs. 1,31,56,505/- directed by the ITAT observing that TDS liability arises only on the balance payable as on the 31st March of the financial year, on the following Question of Law.
QUESTION OF LAW “Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in holding that section 40(a)(ia) of the Income Tax Act applies only to the amounts remaining due at the end of the financial year and has no application to such amounts which has already been paid during the relevant financial year ?”
The CIT (A) has erred in law and on facts by deleting the penalty of Rs.3,25,000/- on the quantum additions of Rs.9,68,169/- confirmed by the of Hon’ble ITAT after verification without appreciating the fact that the assessee has failed to suomoto add the expenditure of Rs. 1,31,56,505/- in the computation of total income u/s 40(a)(ia) of the Income Tax Act, as the assessee failed to deduct the tax at source on the whole amount of expenditure and auditor should have reflected this disallowable amount u/s 40(a)(ia) in his audit report u/s 44 AB of the Income Tax Act.
The CIT (A) has erred in law and on facts by deleting the penalty of Rs.41,35,100/- on the ground that quantum additions on which penalty imposed has already been deleted by the Hon’ble ITAT, without considering the facts that the Department has filed an appeal before the Hon’ble Allahabad High Court on quantum addition, which is still pending.
The appellant craves to leave, add, alter and amend any of the grounds of appeal
on or before hearing.
6. The order of the CIT(A) deserves to be set-aside and the order of the A.O. be restored.”
2. The facts in brief of the case are that the assessee filed return of income on 31.10.2006, declaring total income of Rs.1,42,565/-. During the relevant period, the assessee firm was, a call centre, engaged in providing IT enabled services. The case was selected for scrutiny and the Assessing Officer vide order dated 30.12.2008 completed the assessment under Section 143(3) of the Income-tax Act, 1961 (for short “the Act”) on a total income of Rs.1,32,99,080/- and disallowed outsourcing expenses of Rs.1,31,56,505/- under section 40(a)(ia) of the Act. Thereafter, the Assessing Officer initiated penalty proceedings and after consideration of the facts & circumstances of the case and submission of the assessee, imposed a penalty of Rs.44,60,100/- under Section 271(1)(c) of the I.T. Act. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income Tax (Appeals). The learned Commissioner of Income Tax (Appeals) deleted the penalty by holding as under: “On careful consideration of penalty order passed under section 271(1)(c) I find that AO has not pointed out whether assessee has furnished inaccurate particulars of income leading to concealment of income. I have also noticed that there is only one reason for disallowance of outsourcing expenses due to non-deduction of TDS which appears to be a technical ground. Further, AO has not doubted the genuineness and correctness of expenditure. I agree that the mere fact that the addition was confirmed by the appellate authority would not necessarily warrant levying of penalty. Further, AO has also not pointed out whether any details supplied by the assessee in his return were incorrect or erroneous or false. It is a settled law that penalty proceedings are independent from assessment proceedings and that each and every addition made in the assessment cannot automatically lead to levy of penalty for concealment. The case for imposing of penalty has to be examined strictly in terms of provisions of section 271(1)(c) and that conditions prescribed in the Act must be satisfied before imposition of penalty. In the present case AO has failed to bring any material on record to establish that books of account, other necessary details and evidence produced before AO were not reliable. On plain reading of clause (b) of the explanation (1) of 271(1)(c) it is dear that in order to encompass a case within its purview the following two conditions must be fulfilled: i. the assessee offers an explanation which he is not able to substantiate; and ii. he fails to prove that such explanation is bonfide and all the facts relating to the same have been disclosed. The provisions of the Act as reproduced above clearly shows that both the above referred conditions must be cumulatively satisfied so as to bring a case within the ambit of this clause. The only one condition is satisfied and the other is not, the penalty will not follow. In the case of CIT vs. Reliance Petro Products, Hon'ble Supreme Court has held that by no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. The Hon’ble court further observed that if the contention of the revenue is accepted then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under section 271(1)(c) which is not intendment of toe legislature. In the appeal in hand I find that the Assessing Officer has not raised any doubt bonafide of claim in respect of non-compliance of the provisions of Section 40(a)(ia). The Assessing Officer has also not brought any material on record to show that the assessee had not made full disclosure of particulars and that the explanation offered by the assessee was not banafide. On perusal of submission made by the assessee before Assessing Officer and appellate authorities as reproduced above I find that the appellant had bonafide belief that provisions of Section 40(a)(ia) are not applicable in his case. On consideration of facts of the present case, I am of the view that more than one view are possible. More over in absence of any finding by the Assessing Officer that any details supplied by the assessee in his return were found to be incorrect, erroneous or false, there is no question of levying of penalty. Taking all the above into consideration penalty levied by the Assessing Officer vide order dated 30.03.2012 corresponding to disallowance of Rs.9,68,169/- passed under section 271(1)(c) is deleted.”
2.1 Aggrieved by the order learned Commissioner of Income Tax (Appeals), the Revenue in appeal before the ITAT. 3. Learned Sr. Departmental Representative reiterated the grounds of appeal and relied on the order of Assessing Officer and requested that the impugned order may be cancelled.
4. Learned counsel for the assessee, on the other hand, relied on the order of the learned Commissioner of Income Tax (Appeals) and submitted that out of quantum addition of Rs.1,31,56,505/-, addition of Rs.1,21,88,336/-has already been deleted by the Tribunal and, therefore, no penalty could have been levied, though the department has filed ITAT before the Hon’ble High Court, which is pending.
5. As regards the second addition of Rs.9,68,069/-, he submitted that the Tribunal upheld the addition only on technical ground i.e. whether the expenses were paid or payable. The assessee has submitted that all the informations in respect of the expenses were filed and both in the assessment proceedings as well as in the penalty proceedings, non- liability of tax deducting at source on the said payment was explained bonafidely. He submitted that parties to whom payment was transferred rendered services to the principal i.e. M/s. Core Integration LLC and the consolidated amount received by the assessee was then sent to those parties and, therefore, the assessee was not liable for deduction of tax at source on said payment as the said amount was not income in the hands of the assessee and it was diverted by overriding the title. The assessee acted only as a facilitator to pass only payments which it had received from ‘Core Integrators LLC’ on account of all those third party call centres.
6. We have heard the rival submissions and perused the material on record. We find that the penalty of Rs.44,60,100/- levied under Section 271(1)(c) of the Act by the Assessing Officer is in respect of the disallowance of amount of Rs.1,21,88,366/- and Rs.9,68,169/- u/s. 40(a)(ia) of the Act for non-deduction of tax at source. The first disallowance of Rs.1,21,88,336/- has already been deleted by the Tribunal and against which the department has filed appeal before the Hon’ble High Court, which is pending. Since the Tribunal has already deleted the quantum addition and the appeal against, which is still pending, the penalty cannot survive as on date, accordingly, we uphold the findings of the learned Commissioner of Income Tax (Appeals)
Rs.1,21,88,336/- under Section 40(a)(ia) of the Act.
As regards to the second disallowance of Rs.9,68,169/-, the assessee has furnished all the informations on the issue of liability for deduction of tax at source and furnished explanation as to why the tax was not deducted at source. The submission of the assessee reproduced by the learned Commissioner of Income Tax (Appeals) in his order is extracted as under: “In the instant case it would be evident that the amount received by the assessee on account of other third party call centres is an obligation which could not be said to be a part of the income of the assessee. This obligation stands diverted at source itself as it is an undisputed fact that the payments were made by Core Integrators LLC to be passed on to the third party call centres in pursuance of bills raised by them for services rendered by them ton Core Integrators LLC. It is an amount which neither belonged to the assessee not was meant for the assessee and in truth this amount of income never reached the assessee as it stood diverted by overriding charge. It was expressly understood by all the parties that such payments do not belong to the assessee and belonged to the third party call centres and the assessee only acted as a facilitator to pass all these payments which it had received from Core Integrators LLC on account of these third party call centres. It is therefore submitted that there is no justification for the learned Assessing Officer who has held that the assessee was liable to deduct any TDS u/s 194C of the Act, as it is not a case where assessee is responsible for making any payment but is a case where the assessee has acted only as a facilitator to make these payments to them received from Core Integrators LLC on their account.”
In our opinion, in the case of the assessee, the Explanation-1 of Section 271(1)(c) of the Act cannot be invoked because the essential conditions of the said Explanation are not fulfilled. The assessee has offered the Explanation and such Explanation has not been found to be non-bonafide and all the facts related to the explanation have been disclosed by the assessee. In such circumstances, no penalty under Section 271(1)(c) of the Act could be levied. The order of learned Commissioner of Income Tax (Appeals) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the order of the learned Commissioner of Income Tax (Appeals) on the issue in dispute. The grounds of the Revenue are accordingly dismissed. 8. In the result, appeal of the Revenue is dismissed. The decision is pronounced in the open court on 20th March, 2017.