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Income Tax Appellate Tribunal - Mumbai

Acit 14(2)(1), Mumbai vs Idea Cellular Ltd, Mumbai on 6 February, 2017

  IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI

   BEFORE SHRI DT GARASIA, JM AND SHRI ASHWANI TANEJA, AM

                              I.T.A. No. 3372/Mum/2015
                              Assessment Year: 2007 -08

ACIT-14(2)(1),                                    M/s IDEA CELLUAR LTD.
432, 4 t h Floor, AaykarBhavan,                   5thfloor, Windsor, off CST road,
Mumbai-400020                                     Kalina, near Vidyanagari,
                                        Vs.       Santacruz (E), Mumbai-400098

                                                  PANNo-AAACB2100P

        (Appellant)                                    (Respondent)


                        Appellant by       :     Shri M.C. Omi Ningshen, DR
                       Respondent by       :     Ms. ManshiPadhiar, AR

                Date of Hearing            :     06/02/2017
         Date of Pronouncement             :     06 /02/2017

                                    ORDER

 PER D. T. GARASIA, JM:

This appeal is filed by the Revenue against the order of CIT(A)-8, Mumbai dated 27.2.2015 arising out of the order of Assessing Officer dated 12.3.2013 u/s 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act').

2. The only ground in this appeal is against deletion of penalty of Rs..23,56,462/-. The short facts of the case are as under.

3. The Assessee has filed the return for Assessment Year 2007-08 on 30.10.2007 showing loss of Rs.23,89,63,799/-. The Assessee has claimed Rs.3,26,25,000/- under the head "Management service chargesto 2 Idea Cellular Ltd.

shareholders" under the head "Administrative cost". The Assessing Officer found that assessee has paid above amount for transfer of technical know-how and license to use its intellectual property rights and, therefore, treated the same as capital expenditure. The depreciation was allowed and net addition was made. The assessee went in appeal and CIT (A) has confirmed 25% of Rs.3,26,25,000/-treating it as a capital expenditure as per the ratio laid down by the Hon'ble Supreme Court in the case of Jonus Woodhead and Sons (India) Pvt. Ltd. vs CIT, 224 ITR 342. The Assessing Officer was of the view that benefit of know-how which includes only skill, expertise and experience of Modicorp Group is a benefit of enduring nature with would be used by the assessee company over a number of years in its business. Therefore, Assessing Officer was of the view that assessee has made a claim for deduction and it has been challenged in appeal. Therefore, once assessee has claimed wrong deduction and it was only disallowed after detection by the Department, if assessment would not have come for scrutiny assessment, assessee could have benefitted by filing inaccurate particulars of income. The assessee took chance with the Department, therefore, assessee has filed inaccurate particulars of income. Therefore, show cause, notice was given. The assessee has taken the contention that assessee has made all the particulars of income and disclosed all the relevant facts and he has not concealed any details. The disallowance or addition has been made because of conceptual difference between our view and Department's view, therefore, no penalty should be levied. But the Assessing Officer has levied a penalty u/s 271(1)(c) @ 100% which comes to Rs.23,56,462/-. The matter carried to CIT(A) and CIT(A) has allowed the appeal by observing as under :-

"5. ....... It has been held in the case of CIT vs Reliance Petroproducts (P) Ltd., 322 ITR 158 (SC) that mere addition cannot lead to inference that there

3 Idea Cellular Ltd.

has been concealment or furnishing of inaccurate particulars so as to levy penalty u/s 271 (1) (c). It has been held in the case of CIT vs. Yahoo India Pvt. Ltd. 216 Taxman 66 (Bom) that no penalty u/s. 271 (1) (c) is liveable when the issue is debatable.

I also find that it has been held in the case of Shriram Refrigeration Industries Ltd. vs CIT (127 ITR 746); Glaxo Smithkline Asia (Pvt.) Ltd. vs ACIT (6 SOT 113) (2006) that the management service charges are revenue expenditure.

That the disallowance made by the Assessing Officer is debatable one is supported by the partial confirmation of it i.e. 25% by the CIT(A) vide his order dated 28th February, 2011.

In view of the above, the penalty of Rs.23,56,462/- imposed by the Assessing Officer u/s. 271 (1) (c) is deleted."

4. The Ld. DR submitted that the CIT(A) has deleted the penalty but the definition of intangible assets includes know-how, copyright, trademark, license, franchise or any other business or commercial rights of similar nature. The provisions of Sec. 32 of the Act states that depreciation is allowable onintangible assets owned wholly or partly by the assessee. The CIT(A) has confirmed the addition of 25% treating it as capital in nature. Thus, the Assessing Officer has rightly disallowed the claim of Revenue expenditure on account of management services as they were capital in nature and part of intangible assets as per provisions of Sub-section 1 of Section 32 of the Act. The Hon'ble Supreme Court in the case of Reliance Petroproducts (P) Ltd., 322 ITR 158 (SC)has held that making incorrect claim of expenditure does not constitute furnishing of inaccurate particulars of income. The decision will be applicable only where a claim of deduction was made in bona fidemanner and the information with respect to claim was provided in the return and 4 Idea Cellular Ltd.

document submitted in assessment. In the instant case, assessee has never claimed this expenditure is capital in nature. The decision in the case of Reliance Petroproducts (P) Ltd. (supra) will be applicable only in a case where a claim of deduction was made in a bonafide manner. The assessee-company has not given any reason for failure on its part to report the true and correct profit. It is also laid down by the Hon'ble Supreme Court that the initial burden of dischargingthe onus of rebuttal is on the assessee. Once the initial burden is discharged, assessee would be out of mischief unless further evidence was adduced. The assessee must give explanation which is bonafide and which is to be accepted, therefore, assessee has furnished inaccurate particulars of income and CIT(A) has wrongly relied upon the decision in Reliance Petroproducts (P) Ltd. (supra) and deleted the addition.

5. On the other hand, Ld. AR has submitted the copy of the decision of Tribunal and submitted that assessee has claimed deduction of Rs.3,26,25,000/- towards management service fees paid to Modicorp Group. The expenditure has been incurred for technical know-how and license use is intellectual property rights and in that case, in the original assessment order the CIT (A) has allowed claim of 25% as capital expenditure and 75% was allowed as Revenue expenditure. Further, the Tribunal in the earlier years and the year under consideration has followed the decision of Hon'ble Supreme Court in case of Jonus Woodhead and Sons (India) Pvt. Ltd. (supra) and following that decision, 25% of expenditure was treated as capital expenditure and 75% of same as Revenue expenditure. Moreover, whether this kind of expenditure is to be treated as Revenue expenditure or capital expenditure is a debatable issue and when there is a debatable issue, the penalty cannot be levied. Assesse has already disclosed all the expenditure along with filing 5 Idea Cellular Ltd.

return, therefore, the judgement in Reliance Petroproducts (P) Ltd. (supra) is applicable to the facts of the case and penalty may be deleted.

6. We have heard the rival contentions of both the parties. The issue is regarding the payment of Rs.3,26,25,000/-under the head 'management service charges to shareholders'. The Assessing Officer in assessment has treated it as capital expenditure. The matter went to CIT(A) and CIT(A) has confirmed 25% of the expenditure as capital expenditure and remaining expenditure was treated as revenue expenditure. Moreover, when the assessee has filed the return of income, assessee has disclosed all the facts in his return of income. As per the decision of Reliance Petroproducts (P) Ltd. (supra) we find that for penalty for concealment of income if the assessee has made a claim of expenditure which was not accepted or was not acceptable to revenue by disallow not attract the penalty u/s 271(1)(c) of the Act for imposing the penalty there has to be concealment of particulars of income of the assessee secondly assessee must for furnish inaccurate particulars of this income. It is admitted fact that no information given in the return of assessee was found to be incorrect or inaccurate. The statement given by the assessee was not found to be factually incorrect hence prima facie assessee could not be held guilty for furnishing inaccurate particulars. Therefore, in this case the claim of the assessee was partly allowed by the CIT(A) and Tribunal has submitted the finding of CIT(A). Therefore, we are of the view that CIT(A) has rightly justified in following the decision of Hon'ble Supreme Court. We also find that the Bombay High Court in case ofSesa Resource Ltd. Vs Assistant Commissioner of Income Tax where in the Hon'ble High Court has relying upon the decision of Reliance Petroproducts (P) Ltd. (supra) has deleted the penalty manner we also find in the case of Director of Income Tax Vs. Administrator of 6 Idea Cellular Ltd.

the Estate of Late Mr. E.F. Dinshaw(218 Taxman 125) (Bom) similar view has been taken by the jurisdictional High Court. We also find that in the case of Commissioner of Income Tax Vs. Yahoo India (P.) Ltd. 33 taxmann.com 322 Bombay wherein the Hon'ble High Court has held that whenever there is a debatable issue the penalty cannot be levied. Therefore, we respectfully following the same we are of the view that CIT(A) is justified in deleting the penalty in the result the appeal of the Department is dismissed.

7. In the result, appeal of Department is dismissed.

Order pronounced in the open court on 6th February, 2017.

             Sd/-                                       Sd/-
        (ASHWANI TANEJA)                          (D.T. GARASIA)
      ACCOUNTANT MEMBER                         JUDICIAL MEMBER

Mumbai, Date: 6th February, 2017

Copy to :
1)    The Appellant
2)    The Respondent
3)    The CIT(A) concerned
4)    The CIT concerned
5)    The D.R, "H" Bench, Mumbai
6)    Guard file

                                                      By Order


                                                  Dy./Asstt. Registrar
                                                  I.T.A.T, Mumbai