Bombay H.C : Where petitioner had already paid full tax amount and also 25 per cent of penalty, Tribunal ought not to have required petitioner to deposit a further sum for hearing appeal

High Court Of Bombay

Deloitte Consulting India (P.) Ltd. VS. ACIT

Assessment Year : 2004-05

Section : 254, 271(1)(C), 10A, 92C(4)

Mohit S. Shah, Cj. And M.S. Sanklecha, J.

Writ Petition (L) No. 235 Of 2014

February 12, 2014

JUDGMENT

1. Rule. Learned counsel for the respondents waives service. By consent, the rule is made returnable forthwith and the writ petition is taken up for hearing and final disposal.

2. By this petition under article 226 of the Constitution of India, the petitioner-assessee challenges the order dated January 3, 2014, of the Income-tax Appellate Tribunal, (“the Tribunal”) directing the petitioner to deposit a further amount of Rs. 50 lakhs for staying the outstanding demand of Rs. 1.55 crores by way of penalty under section 271(1)(c) of the Income-tax Act, 1961 (“the Act”), for the assessment year 2004-05.

3. The petitioner is engaged in the business of export of computer software and providing information technology enabled services. The petitioner had in its return of income for the assessment year 2004-05 filed on November 1, 2004, declared a total income of Rs. 56.60 lakhs. In its Form 3CEB, the petitioner had, inter alia, declared an amount of Rs. 5.86 crores paid as marketing expenses to its associated enterprises, namely, Deloitte Consulting LLP. The aforesaid expenses was thus referred by the Assessing Officer to the Transfer Pricing Officer. However, in the meantime, for the assessment year 2002-03, the Transfer Pricing Officer’s order dated February 10, 2005, disallowed the expenditure on account of marketing expenses paid to the associated enterprises. In view of the above, on March 29, 2006, the petitioner filed the revised return of income, not claiming the deduction on account of marketing expenses paid to its associated enterprises to the extent of Rs. 5.86 crores and added the same to its income before claiming deduction under section 10A of the Act on its income under the head “Profits and gains of business”.

4. The Assessing Officer by an order dated December 15, 2006, passed under section 143(3) of the Act denied the benefit of exemption claimed under section 10A of the Act to the extent of Rs. 5.86 crores. This on the ground that the revised return adding the amount of Rs. 5.86 crores already claimed as expenditure was filed with a view to get over section 92C(4) of the Act and the proviso thereto. The proviso to section 92C(4) of the Act clearly states that no deduction under section 10A of the Act would be allowed in respect of the income by which the total income of an assessee is enhanced having regard to the arm’s length price. In this case, the Assessing Officer held that the revised return was only filed so as to get over the determination of the arm’s length price with regard to the marketing expenses by the Transfer Pricing Officer. In the circumstances, the total amount of the enhanced income of Rs. 5.86 crores was subjected to tax. The order of the Assessing Officer has been upheld in quantum proceedings right up to the Tribunal. The petitioner is in appeal before the High Court from the order of the Tribunal in quantum proceedings. The appeal is pending. However, the entire amount of tax has been paid.

5. Thereafter, by an order dated March 30, 2012, the Assessing Officer imposed a penalty of Rs. 2.05 crores upon the appellant under section 271(1)(c) of the Act for the assessment year 2004-05. Being aggrieved, the petitioner filed an appeal to the Commissioner of Income-tax (Appeals) and also an application for stay under section 220(6) of the Act before the Assessing Officer and, thereafter, before the Commissioner of Income-tax. However, both the Assessing Officer and the Commissioner of Income-tax rejected the stay application. At that stage, the petitioner had filed Writ Petition No. 152 of 2013 (Deloitte Consulting India (P.) Ltd. v. Asstt. CIT [2013] 351 ITR 160/31 taxmann.com 29 (Bom)) and this court had by order dated January 30, 2013, granted stay against recovery of penalty subject to the condition that the petitioner deposits an amount of Rs. 50 lakhs by March 31, 2013. This court in its above order dated January 30, 2013, had made the following observations in paragraphs 9 and 11 (page 164) :

“Prima facie, at this stage, it would appear from the record before the court that together with the return of income as originally filed, the petitioner annexed a copy of Form 3C in which there was a disclosure of the amount of Rs. 5.86 crores which was treated as a reimbursement in respect of marketing services alleged to have been availed of from Deloitte. The transfer pricing analysis which was filed during the course of assessment proceedings similarly indicated the basis on which the deduction was claimed, in paragraph 2.2 of the statement. When a revised return of income was filed, a disclosure was made to the effect that the return was revised with a view to add back the marketing expenses in the original return filed on November 1, 2004, with a view to avoid litigation in relation to the admissibility of the claim. The deduction under section 10A was stated to have been revised accordingly. The claim has been rejected by the Assessing Officer and in appeal as well as by the Tribunal . . .

In the present case, both the Assessing Officer as well as the Commissioner of Income-tax have failed to exercise their jurisdiction in accordance with law. The Commissioner of Income-tax adverted to the fact that the quantum appeal had been rejected by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. That in itself would not amount to a valid justification for imposition of a penalty. Before a penalty is imposed, the requirements of section 271 must be established. Accordingly, it would have been open to the court to set aside the impugned order in its entirety and to remand the proceedings back to the Assessing Officer for fresh consideration. However, since the arguments before the court have been addressed on the prima facie merits of the case as well, we are not inclined to follow that course of action since that would lead to another round of proceedings before this court again. Having regard to the circumstances which have been noted hereinabove, we are of the view that an appropriate order for partial deposit of the penalty would be necessitated. An order for the deposit of the entire penalty is clearly not justified having regard, prima facie to the nature of the issues and the submissions which have been urged . . .”

6. Subsequently, the Commissioner of Income-tax (Appeals) by order dated November 14, 2013, dismissed the appeal filed against the order dated March 30, 2012, of the Assessing Officer imposing penalty of Rs. 2.05 crores. The petitioner has, as directed by this court in its order dated January 30, 2013, had already deposited an amount of Rs. 50 lakhs before the disposal of its appeal by the Commissioner of Income-tax (Appeals). The petitioner has challenged the order dated November 14, 2013, by filing an appeal before the Tribunal and pending appeal, filed a stay application before the Tribunal. It is the order on the stay application directing the petitioner to pay a further amount of Rs. 50 lakhs as a condition for stay that is impugned in this petition.

7. The learned counsel for the petitioner submits that the Tribunal has not at all dealt with the petitioner’s arguments on the prima facie case. It is submitted that the petitioner had contended that the petitioner had filed the original return for the assessment year 2004-05 on November 1, 2004, and the revised return was filed on March 29, 2006. It is pointed out that the revised return was filed in March, 2006, after the Transfer Pricing Officer by order dated February 10, 2005, for the assessment year 2002-03 did not accept the claim for marketing expenses paid to its associated enterprises. It is further submitted that in respect of the assessment year 2004-05, the Transfer Pricing Officer has passed an order on August 10, 2006, and based on it that the Assessing Officer passed an order on December 15, 2006. The petitioner had challenged the order dated December 15, 2006, before the Commissioner of Income-tax (Appeals), who dismissed the same on February 18, 2009. Being aggrieved by the said order of the Commissioner of Income-tax (Appeals), the petitioner filed an appeal before the Tribunal, which appeal was dismissed on March 30, 2012. It is, therefore, contended that when the petitioner had filed the original return for the assessment year 2004-05, the Transfer Pricing Officer had not even passed any order for any earlier year and the earliest order being, for the assessment year 2002-03, was passed by the Transfer Pricing Officer on February 10, 2005. The learned counsel for the petitioner submitted that the assessee, in order to avoid any further litigation, gave up his claim in respect of the allowability of the expenses much before the Transfer Pricing Officer passed any adverse order. Thus, the petitioner is entitled to claim the benefit of deduction under section 10A of the Act in respect of Rs. 5.86 crores which were added on its income in the revised return. It is submitted that the prohibition imposed by the first proviso to section 92C(4) of the Act would not apply because that prohibition would come into effect only if the total income of the assessee is enhanced after computation of income under section 92C(4) of the Act is made. It is submitted that when the assessee gives up its claim even before the Transfer Pricing Officer passes an order, the assessee does not lose the benefit of deduction under section 10A of the Act. It is submitted that the Tribunal has not at all considered prima facie merits of the petitioner’s case and, therefore, no deposit/payment of penalty was called for in the facts of the present case.

8. It is submitted on behalf of the petitioner that the petitioner has paid full tax amount for the assessment year 2004-05. The assessee’s quantum appeals under section 260A of the Act are still pending before this court. Therefore, till that appeal is decided, it cannot be conclusively said that the petitioner had made any concealment of income or had furnished inaccurate particulars of income.

9. On the other hand, Mr. Suresh Kumar, learned counsel for the Revenue, supports the impugned order. It is submitted that the Tribunal has merely directed the petitioner to further deposit Rs. 50 lakhs over and above the penalty of Rs. 50 lakhs already deposited earlier by the petitioner. Therefore, the penalty to be deposited is only 50 per cent. of the penalty of Rs. 2.05 crores imposed by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals). It is submitted that the impugned order is reasonable and calls for no interference.

10. Having heard the learned counsel for the parties, we find that the impugned order of the Tribunal has been passed in total disregard of the principles laid down in KEC International Ltd. v. B. R. Balakrishnan [2001] 251 ITR 158/119 Taxman 974 (Bom.) wherein a Division Bench of this court laid down the following parameters to be observed by the authorities while considering the stay application (page 160) :

“Parameters

(a) While considering the stay application, the authority concerned will at least briefly set out the case of the assessee.

(b) In cases where the assessed income under the impugned order far exceeds returned income, the authority will consider whether the assessee has made out a case for unconditional stay. If not, whether looking to the questions involved in appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order.

(c) In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit.

(d) The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order.

(e) We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the Department like respondent No. 2 herein need not once again give reasoned order.”

11. Instead of giving some short prima facie reasons recording the petitioner’s case, the Tribunal has merely observed as under :

“6. . . . The learned counsel for the assessee no doubt has made an attempt to show that the assessee has a good prima facie case to succeed on the merits in its appeal filed before the Tribunal. However, this matter can be decided finally only after hearing both the sides while disposing of the appeals of the assessee by the Tribunal . . .”

12. Having heard learned counsel for the parties, we find that the petitioner has a strong prima facie case on the merits before the Tribunal. Thus, having regard to the fact that the petitioner has already paid the full tax amount and also approximately 25 per cent. of the penalty amount earlier, the Tribunal ought not to have required the petitioner to deposit a further sum of Rs. 50 lakhs. In fact, the Tribunal while passing the impugned order has not only ignored the directions in KEC International Ltd. (supra) but also the observations made by this court in the order dated January 30, 2013, in the petitioner’s own case.

13. In view of the above discussion, the writ petition is allowed and the impugned order dated January 3, 2014, passed by the Income-tax Appellate Tribunal for the assessment year 2004-05 is set aside only to the extent it directs the petitioner to deposit a further amount of Rs. 50 lakhs. The other directions contained in the impugned order dated January 3, 2014, are not disturbed. The writ petition is accordingly allowed to the above extent.

14. The petition is accordingly disposed of in the above terms. No order as to costs.

[Citation : 362 ITR 46]