M/s. Intercontinental Hotels Group India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 2188/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8391 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2017
• Court: TRIBUNAL

Judgement Text

1 ITA NO. 2188/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 2188/DEL/20 17 (A.Y 2007-08) (THROUGH VIDEO CON FERENCING) INTERCONTINENTAL HOTELS GROUP INDIA PVT. LTD. 11 TH FLOOR, BUILDING NO. 10, TOWER-C, DLF CYBER CITY, DLF PHASE-II GURGAON, AAGCS7613G (APPELLANT) VS DCIT CIRCLE7(1) NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 01/02/2017 PASSED BY CIT(A)-22, NEW DELHI FOR ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER PASSED BY THE CIT(A) CONFIRMING THE PENALTY L EVIED BY THE LD. AO UNDER SECTION 271(1 )(C) OF THE ACT AMOUNTING TO RS. 10,4 9,995 IS WRONG AND BAD IN LAW, AS THERE WAS NEITHER ANY CONCEALMENT OF INCOME NOR FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME BY THE APPELLANT. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE C1T(A) HAS GROSSLY ERRED IN CONFIRMING THE PENALTY LEVIED BY THE LD. AO IN APPELLANT BY SH. S. K. AGGARWAL, CA & SH. PIYUSH GUPTA, CA RESPONDENT BY SH. MAHESH THAKUR, SR. DR DATE OF HEARING 22.03.2021 DATE OF PRONOUNCEMENT 22.03.2021 2 ITA NO. 2188/DEL/2017 RESPECT OF THE DISALLOWANCES MADE UNDER SECTION 40( A)(I) OF THE ACT FOR ALLEGED NON-DEDUCTION OF TAX AT SOURCE FROM PAYMENTS MADE T O PROFESSIONALS FOR DUE DILIGENCE REPORTS AND RELOCATION EXPENSES OF EMPLOY EES OUTSIDE INDIA, WITHOUT APPRECIATING THAT THE SAME WERE NOT CHARGEABLE TO T AX IN INDIA IN THE HANDS OF NON-RESIDENTS AND NO TAX WAS REQUIRED TO BE DEDUCTE D UNDER SECTION 195 OF THE ACT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) HAS ERRED IN CONFIRMING THE PENALTY LEVIED B Y THE LD. AO ON THE APPELLANT ON THE BASIS THAT THE APPELLANT DID NOT F ILE AN APPEAL AGAINST THE ORDER PASSED BY THE CIT(A) BEFORE THE HIGHER THE IT AT AGAINST APPEAL FILED BY TAX DEPARTMENT. THE C1T(A) FAILED TO APPRECIATE THA T THE APPEAL FILED BY THE TAX DEPARTMENT WAS DISMISSED BY HONBLE ITAT VIDE O RDER DATED 8 FEBRUARY 2013. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ALLEGING THAT THE APPELLANT HAS ACCEPTED ITS LIABILITY TO WITHHOLD TAX WHILE MAKING PAYMENT TO NON-RESIDENTS OUTSIDE INDIA IN RELATION TO PROFESSIONAL FEE FOR DUE DILIGENCE REPORTS AND R ELOCATION EXPENSES OF EMPLOYEES OUTSIDE INDIA, MERELY BECAUSE THE APPELLA NT HAS NOT FILED APPEAL AGAINST THE ORDER OF CIT(A) IN QUANTUM PROCEEDINGS. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THAT THE CIT(A) HAS FAILED TO APPRECIATE THAT A MERE DIS ALLOWANCE OF A CLAIM DOES NOT AUTOMATICALLY RESULT IN LEVY OF PENALTY. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 271(L)(C) OF THE ACT ARE NOT APPLICABLE IN THIS CASE AS THE APPELLANT HA S FURNISHED COMPLETE AND RELEVANT FACTS IN THE RETURN OF INCOME AND OFFERED A BONAFIDE EXPLANATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE DI SALLOWANCES MADE IN THE ASSESSMENT ORDER IS MERELY DUE TO DIFFERENCE OF OPI NION. THE CIT(A) FURTHER ERRED IN OBSERVING THAT THE FACT OF NON-DEDUCTION O F TDS ON THE PAYMENTS MADE TO NON-RESIDENTS WAS NOT DISCLOSED IN THE RETU RN OF INCOME FILED ELECTRONICALLY. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT (A) HAS FAILED TO APPRECIATE THAT THE DISALLOWANCE MADE BY THE ID. AO WERE DEBATABLE QUESTION OF LAW AND WERE SUBJECT MATTER O F JUDICIAL INTERPRETATION. THE CIT(A) FAILED TO APPRECIATE THAT THE PENALTY CA NNOT BE LEVIED IN THE CASE INVOLVING QUESTION OF LAW IN THE LIGHT OF DECISION OF THE APEX COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. [2010] 322 ITR 158 (SC). 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS FAILED TO TAKE COGNIZANCE OF THE DECISIO N OF JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME- TAX V. AT & T COMMUNICATION SERVICES 3 ITA NO. 2188/DEL/2017 INDIA (P.) LTD (18 TAXMANN.COM 144 (DELHI) WHEREIN IT HAS BEEN HELD THAT A MERE DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT WILL NOT RESULT IN LEVY OF PENALTY. 9. THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 3. THE ASSESSEE WAS ENGAGED PRIMARILY IN THE BUSINE SS OF MANAGEMENT AND OPERATION OF HOTELS IN INDIA. IN THIS RESPECT, IT H AS RECEIVED MANAGEMENT FEE FOR AGREEMENTS ENTERED INTO WITH VARIOUS INDIAN HOTELS FOR OPERATION AND MANAGEMENT; OF HOTELS. THE ASSESSEE ALSO PROVIDED A NCILLARY MANAGEMENT SUPPORT SERVICES, TO ITS OVERSEAS GROUP ENTITY FOR WINCH THE ASSESSEE RECEIVES CONSULTANCY FEE FROM ITS GROUP COMPANY, SIX CONTINE NTS HOTELS INC, USA. FOR THE RELEVANT YEAR, THE ASSESSEE FILED A BELATED RETURN OF INCOME UNDER SECTION 139(4) OF THE ACT ON 31 MARCH 2008, DECLARING TAXAB LE INCOME OF RS. 22,097,130 UNDER THE NORMAL PROVISIONS OF THE ACT. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDE R DATED 30 NOVEMBER 2009, WHEREIN THE INCOME HAS BEEN ASSESSED AT RS. 32,463, 650 AND A DEMAND OF RS 52,40,385 (INCLUDING INTEREST) HAS BEEN RAISED. THE FOLLOWING ADDITIONS WERE MADE TO THE TAXABLE INCOME: SR. NO. DISALLOWANCE AMOUNT (IN RS.) 1 AD-HOC DISALLOWANCE AT THE RATE OF 80 PERCENT OF TH E TOTAL EXPENDITURE INCURRED AS UNDER: PROFESSIONAL FEE OF RS. 4,887,931 FOR DUE-DILIGEN CE SERVICES PAID TO M/S CONTROL RISKS GROUP (S) PTE LT D. (CONTROL RISK); AND CONSULTANCY FEE OF RS. 876,642 FOR OFFICE SPACE PAID TO AST INVESCAP CONSULTANCY. 4,611,658/- 2 EXPENDITURE INCURRED ON ADVERTISEMENT AND SALES PROMOTION 2,013,366/- 3 DEPRECIATION ON UPS 193,541/- 4 RECRUITMENT AND TRAINING EXPENSES 3,547,953/- 4 ITA NO. 2188/DEL/2017 TOTAL 10,366,518/- AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE FIL ED AN APPEAL BEFORE CIT(A) AND THE CIT(A) GRANTED SUBSTANTIAL RELIEFS TO THE A SSESSEE VIDE ORDER DATED 27 APRIL 2012. HOWEVER, THE FOLLOWING ADDITIONS MADE B Y THE ASSESSING OFFICER WERE UPHELD BY CIT(A): SR. NO PARTICULARS DISALLOWAN CE UPHELD 1 DISALLOWANCE' UNDER SECTION 40(A)(1) OF THE ACT ON ACCOUNT OF PAYMENT MADE FOR DUE- DILIGENCE SERVICES TO CONTROL RISK 1,718,119 2 DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT ON ACCOUNT OF RECRUITMENT AND TRAINING EXPENSES 1,401,295 TOTAL 3,119,414 THE ASSESSEE HAS NOT FILED ANY APPEAL THEREAFTER TO THE TRIBUNAL IN RESPECT OF QUANTUM. IN THE MEANWHILE, THE ASSESSING OFFICER IN ITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 . THE ASSESSING OFFICER PASSED PENALTY ORDER DATED 27 NOVEMBER 2013 UNDER S ECTION 271(1)(C) OF THE ACT AND HELD THAT THE ASSESSEE HAS CONCEALED THE PA RTICULARS OF ITS INCOME AND HAS ALSO FURNISHED INACCURATE PARTICULARS OF ITS IN COME. THE ASSESSING OFFICER LEVIED PENALTY OF 100 PERCENT OF THE TAX WHICH WORK S OUT TO RS. 10,49,995/-. 4. BEING AGGRIEVED BY THE PENALTY ORDER, THE ASSESS EE FILED APPEAL BEFORE THE CIT(A), THE CIT(A) DISMISSED THE APPEAL OF THE ASSE SSEE. 5. THE LD. AR SUBMITTED IN RESPECT OF PENALTY FOR D ISALLOWANCE OF PROFESSIONAL FEES AMOUNTING TO RS. 17,18,119 FOR NO N-DEDUCTION OF TDS, THE ASSESSEE IN ORDER TO BUY PEACE WITH REVENUE AND CON SIDERING THE TIME AND COST INVOLVED IN THE LITIGATION DID NOT CHALLENGE THE OR DER PASSED BY THE CIT(A) ORDER BEFORE THE TRIBUNAL. HOWEVER, TAX DEPARTMENT CHALLE NGED THE ORDER OF THE CIT(A) 5 ITA NO. 2188/DEL/2017 AND THE TRIBUNAL CONCURRING WITH THE VIEW OF THE CI T(A) DISMISSED THE APPEAL OF THE TAX DEPARTMENT . THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) IN HI S PENALTY ORDER HAS INCORRECTLY OBSERVED THAT THE DETAILS OF TDS COMPLIANCE ON THE AMOUNT PAYABLE TO CONTROL RISK WERE NOT FURNISHED B Y THE ASSESSEE. IN FACT, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER CONTENDED THAT THE AMOUNT PAYABLE TO CONTROL RISK WAS CAPITAL IN NATURE. HOWEVER, THE CIT(A) AFTER EXAMINATION OF FACTS AND LAW IN CASE OF THE ASSESSEE HELD THAT THE EXPENSES WERE REVENUE IN NATURE. THE CIT(A) FURTHER DIRECTED THE ASSESSEE TO FURNISH THE DETAILS FOR WITHHOLDING TAX COMPLIANCES IN RELATION TO PAYMENT MADE TO CONTROL RISK. THE RELEVANT DETAILS WERE DULY FURNISHED BY THE ASSESSE E. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE MADE WITHHOLDING INITIA LLY ON THE AMOUNTS PAYABLE TO CONTROL RISK, HOWEVER THE ASSESSEE WAS LATER ADV ISED NOT TO WITHHOLD TAXES ON THE AMOUNTS PAYABLE TO CONTROL RISK, AS THE SAME WAS NOT TAXABLE IN THE HANDS OF CONTROL RISK IN INDIA. THE LD. AR SUBMITTE D THAT OUT OF TOTAL EXPENSE OF INR 48,87,931 IN RELATION TO CONTROL RISK, TDS W AS DEDUCTED ON AN AMOUNT OF INR 31,69,862 AND NO TDS WAS DEDUCTED ON THE BAL ANCE AMOUNT OF INR 17,18,069. THEREFORE, THE DISALLOWANCE WAS MADE BY THE CIT(A) U/S 40(A)(I) OF THE ACT. IN THIS REGARD, THE LD. AR POINTED OUT THA T THE ISSUE OF TAXABILITY OF AMOUNT RECEIVED BY CONTROL RISK IS A QUESTION OF IN TERPRETATION WHICH INVOLVES EXAMINATION OF PROVISIONS OF INCOME-TAX ACT AND DTA A BETWEEN INDIA AND SINGAPORE. THE LD. AR FURTHER POINTED OUT THAT PAYM ENT MADE TO CONTROL RISK DOES NOT AMOUNT TO FTS AS PER PROVISIONS OF ARTICLE 12(4) OF INDIA SINGAPORE DTAA AS THE SAME DOES NOT RESULT INTO MAKING AVAILA BLE TECHNICAL KNOW-HOW ETC. TO THE RECIPIENT (I.E. TO THE ASSESSEE), HENCE NO TAXES WERE REQUIRED TO BE DEDUCTED ON THE SAID PAYMENT. IN THIS REGARD, DETAI LED SUBMISSION WERE MADE BEFORE THE CIT(A) IN THE QUANTUM WHEREIN EXPLAINING THE REASONS AS TO WHY THE AMOUNT PAID TO CONTROL RISK IS NOT CHARGEABLE TO TA X. HOWEVER, THE CIT(A) WITHOUT EXAMINING THE TAXABILITY OF RECEIPTS IN THE HANDS OF CONTROL RISK IN INDIA, DISALLOWED THE SAME IN THE HANDS OF THE ASSE SSEE U/S 40(A)(IA) OF THE ACT ON THE ASSUMPTION THAT THE WITHHOLDING WAS REQUIRED ON THE AFORESAID AMOUNT. THE LD. AR SUBMITTED THAT THE DETAILS WERE SUBMITTE D BEFORE THE ASSESSING 6 ITA NO. 2188/DEL/2017 OFFICER AND THE CIT(A) IN QUANTUM PROCEEDINGS AND T HUS, THE ASSESSEE HAS FURNISHED CORRECT PARTICULARS OF INCOME AND NEVER C ONCEALMENT ANY INCOME. BESIDES THIS AS RELATES TO PENALTY ON DISALLOWANCE OF EXPENSES DEBITED TO THE ACCOUNT RECRUITMENT AND TRAINING EXPENSES AMOUNTIN G TO RS. 14,01,295 UPHELD BY THE CIT(A) FOR NON-DEDUCTION OF TPS IN QU ANTUM PROCEEDINGS, THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATI ON, THE AMOUNT OF RS. 14,01,295 WAS PAID TO NON-RESIDENTS FOR MOVERS AND PACKERS SERVICES IN RESPECT OF EXPAT EMPLOYEES SECONDED TO THE ASSESSEE COMPANY, WHICH WAS DEBITED UNDER THE HEAD- RECRUITMENT AND TRAINING E XPENSES. THE ASSESSEE DULY WITHHELD TAXES ON THE EXPENSES CHARGED UNDER T HE HEAD-RECRUITMENT AND TRAINING EXPENSES, WHEREVER APPLICABLE. IN THE ASS ESSMENT ORDER, THE ASSESSING OFFICER DISALLOWED THE ENTIRE AMOUNT CHAN GED UNDER THE HEAD - RECRUITMENT AND TRAINING EXPENSES OF RS. 35,47,95 3. HOWEVER, THE CIT(A) RESTRICTED THE DISALLOWANCE TO AFORESAID EXPENSES O F RS. 14,01,295 FOR NON- DEDUCTION OF TDS, IGNORING THE SUBMISSION OF THE AS SESSEE THAT WITHHOLDING WAS NOT REQUIRED AS IT IS NOT TAXABLE IN THE HANDS OF THE NON-RESIDENT RECIPIENTS. THE CIT(A) WITHOUT ADJUDICATING THE ABO VE ISSUE IN HIS ORDER, UPHELD THE DISALLOWANCE. THE ASSESSING OFFICER AND THE CIT (A) INVOKED AND LEVIED PENALTY U/S 27L (L)(C)OF THE ACT MERELY ON THE GROU ND THAT THE ASSESSEE DID NOT FILE AN APPEAL AGAINST THE CIT(A) IN QUANTUM PROCEE DINGS, WHICH DEMONSTRATES THAT THE LIABILITY TO WITHHOLD TAX ON PAYMENTS MADE TO CONTROL RISK CHARGED UNDER THE HEAD - PROFESSIONAL FEE AND CONSULTANCY FEE (AMOUNTING TO INR 17,18,119), AND PAYMENT MADE TO CROWN AND SCHENKER CHARGED UNDER THE HEAD - PROFESSIONAL FEE AND CONSULTANCY FEE (AMOU NTING TO INR 14,01,295) WAS ACCEPTED BY THE ASSESSEE. IN THIS REGARD, THE L D. AR SUBMITTED THAT THE ASSESSEE IN ORDER TO BUY PEACE WITH REVENUE AND CON SIDERING THE TIME AND COST INVOLVED IN THE LITIGATION DID NOT CHALLENGE THE OR DER PASSED BY THE CIT(A) ORDER BEFORE THE TRIBUNAL. FURTHER, JUDICIARY AT VARIOUS OCCASIONS HAS HELD THAT MERELY NON FILING OF APPEAL SHOULD NOT BE CONSTRUED AS ACCEPTANCE BY THE ASSESSE IN ORDER TO LEVY OF PENALTY. THE LD. AR FUR THER SUBMITTED THAT THE BASIC 7 ITA NO. 2188/DEL/2017 PRINCIPLES WHICH EMERGES FROM THE READING OF SECTIO N 271(1 )(C) OF THE ACT IS THAT THE ASSESSING OFFICER HAS TO ESTABLISH THAT TH E ASSESSEE HAS EITHER, (I) CONCEALED INCOME; OR (II) FURNISHED INACCURATE PARTICULARS OF INCOME; OR (III) DEEMING PROVISIONS OF EXPLANATION 1 TO SECTION 271 (L)(C) OF THE ACT APPLIES THE FACTUM OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS NEEDS TO BE ESTABLISHED BEFORE PENALTY CAN BE LEVIED. IN OTHER WORDS, PENALTY UNDER SECTION 271 (L)(C) OF THE ACT CANNOT BE LEVIED WHERE THE ASSESSEE ACTED ON A BONAFIDE BELIEF AND HAD FURNISH ED ALL THE FACTS RELATING TO THE INCOME OF THE SUBJECT YEAR. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE PENALTY HAS BEEN LEVIED BASED ON THE DISALLOWANCE M ADE IN THE ASSESSMENT ORDER U/S 40(A)(I) OF THE ACT. THE LD. AR FURTHER P OINTED OUT THAT THE MATTER ON WHICH DISALLOWANCE IS MADE INVOLVES INTERPRETATION OF PROVISIONS OF THE ACT ALONG WITH RELEVANT DTAA. FURTHER, THE DISALLOWANCE U/S 40(A)(IA) WAS UPHELD IN THE QUANTUM PROCEEDINGS WITHOUT ADJUDICATING THE TAXABILITY OF RECEIPTS IN THE HANDS OF THE NON-RESIDENT RECIPIENTS. IN THIS R EGARD, IT IS SUBMITTED THAT THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT V. AT & T COMMUNICATION SERVICES INDIA (P.) LTD [2012] 18 TAXMANN.COM 144 ( DELHI HIGH COURT) HAS HELD THAT DISALLOWANCE UNDER SECTION 40(A)(I) CANNOT BE A REASON TO IMPOSE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. FURTHER, THE AP EX COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. [2010] 322 ITR158( SC) HAS HELD THAT MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LA W, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT IN THE MATTER UNDER C ONSIDERATION, THERE IS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURAT E PARTICULARS OF INCOME BY THE ASSESSEE. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE WORDS CONCEAL MEANS TO HIDE, TO KEEP SECRET. IN COMMISSIONER OF INCOME-TAX VS. INDIAN METALS AND FERRO ALLOYS LIMITED REPORTED IN [1995] 211 ITR 35, IT WAS HELD BY THE HONBLE ORISSA HIGH COURT THAT THE OFFENCE OF CONCE ALMENT IS THUS A DIRECT 8 ITA NO. 2188/DEL/2017 ATTEMPT TO HIDE AN ITEM OF INCOME OR A PORTION THEREOF FRO M THE KNOWLEDGE OF THE INCOME-TAX AUTHORITIES. THE ADMISSION OR REJEC TION OF A CLAIM IS A SUBJECTIVE EXERCISE AND WHETHER A CLAIM IS ACCEPTED OR REJECTED HAS NOTHING TO DO WITH FURNISHING OF INACCURATE PARTICULARS OF INC OME. WHAT IS A CORRECT CLAIM AND WHAT IS AN INCORRECT CLAIM COULD BE A MATTER OF PERCEPTION. THE LD. AR SUBMITTED THAT IN VIEW OF THE DETAILS FURNISHED BEF ORE THE ASSESSING OFFICER AND THE CIT(A), IT IS APPARENT AND CLEAR THAT THE ASSES SEE HAD DULY SUBMITTED THE RELEVANT DETAILS AND DISCLOSED ALL THE MATERIAL FAC TS IN THE COURSE OF QUANTUM PROCEEDINGS. AS REGARDS TO CONDITIONS OF EXPLANATIO N 1 TO SECTION 271(L)(C) OF THE ACT, THE SAME ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. THE LD. AR SUBMITS THAT COMPLETE FACTS WERE SUBMITTED DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THEREFORE, ONCE COMPLETE PARTICULARS WERE FILED ON A BONA FIDE BELIEF THAT NO PAYMENTS MADE TO CONTROL RISK FOR DU E DILIGENCE SERVICES AND TO CROWN AND SCHENKER FOR RELOCATION CHARGES WERE NOT SUBJECT TO WITHHOLDING TAX IN INDIA ON THE BASIS OF THE FACTS AND LEGAL PRECED ENTS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND PENALTY PROCEE DINGS, THE DISALLOWANCE UNDER SECTION 40(A)(I) CANNOT UNDER ANY CIRCUMSTANC ES LEAD TO LEVY OF PENALTY . MERELY BECAUSE THE ARGUMENT/ CONTENTION OF THE ASSE SSEE WAS NOT ACCEPTED, IT CANNOT BE ASSUMED THAT THERE WAS CONCEALMENT OF PAR TICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BY T HE ASSESSEE. SECONDLY, THE PROVISIONS OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT WOULD ALSO NOT BE APPLICABLE TO THE FACTS OF THE ASSESSEES CASE BECA USE THE PRESENT CASE DOES NOT FALL WITHIN ANY OF THE CLAUSES OF THE SAID EXPLANAT ION. THE PROVISIONS OF THE SAID EXPLANATION ARE NOT APPLICABLE TO THE ASSESSEES CA SE BECAUSE THE ASSESSEE HAS GIVEN/OFFERED AN EXPLANATION. THE ASSESSEE HAS FURN ISHED COMPLETE DETAILS OF THE PAYMENTS MADE TO CONTROL RISK (FOR DUE DILIGENC E SERVICES) AND CROWN AND SCHENKER FOR (RELOCATION SERVICES), NAMELY COPY OF INVOICES, CERTIFICATE OBTAINED FROM CHARTERED ACCOUNTANTS, COPY OF EXTRACT OF PROP OSAL AND REPORT FROM CONTROL RISK. IT HAS NOT BEEN ALLEGED IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS FA LSE. MERELY THE CONTENTION OF THE ASSESSEE HAS NOT BEEN ACCEPTED AND NO MATERIAL/ EVIDENCE WERE PRODUCED 9 ITA NO. 2188/DEL/2017 BEFORE THE ASSESSEE TO CONTRADICT THE EXPLANATION O FFERED BY IT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, COMPLETE DETAILS AND REQUISITE EVIDENCE (NAMELY COPY OF INVOICES, CERTIFICATE OBTAINED FROM CHARTERED ACCOUNTANTS, COPY OF EXTRACT OF PROPOSAL AND REPORT FROM CONROL RISK) IN SUPPORT OF THE CLAIM OF THE ASSESSEE WERE FURNISHED. THEREFORE, IT CANNOT B E SAID THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM. THE LD. AR SUMM ARIZED ITS CONTENTIONS AS UNDER: NO PARTICULARS OF INCOME HAVE BEEN CONCEALED; NO INACCURATE PARTICULARS OF INCOME HAS BEEN FURNIS HED; THE ADDITIONS MADE DURING THE ASSESSMENT PROCEEDING S/ APPELLATE PROCEEDINGS WERE ON ACCOUNT OF DIFFERENCE IN OPINIO N AND DEBATABLE QUESTION OF LAW; NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO ESTABLIS H THAT THE ASSESSEE HAD ACTED DELIBERATELY OR WAS GUILTY OF CONTUMACIOU S CONDUCT; THE CONDITIONS PROVIDED UNDER EXPLANATION 1 TO SECT ION 271(1)(C) ARE NOT SATISFIED IN THE PRESENT CASE OF THE APPELLANT. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED ANY INACCURATE PARTICULARS DURING THE COURSE OF ANY PRO CEEDINGS. FURTHER, THE CASE OF THE ASSESSEE ALSO DOES NOT FALL WITHIN EXPLANATI ON 1 TO SECTION 271 (L)(C) OF THE ACT. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CASE CIT VS. RELIANCE PETROPRODUCTS PVT. LTD . [2010] 322 ITR158(SC) WHILE DECIDING THE MATTER IN RELATION TO AN ADDITIO N IN RESPECT OF INTEREST EXPENDITURE MADE DURING THE COURSE OF ASSESSMENT PR OCEEDINGS. THE PRINCIPLE WHICH EMERGES FROM RELIANCE PETROPRODUCTS (SUPRA) CASE IS THAT MAKING A CLAIM WHICH IS DISALLOWED BY THE ASSESSING OFFICER WOULD NOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME. THEREFORE, IN VIEW OF THE ABOVE, MERE REJECTION OF A CLAIM CANNOT RESULT INTO LEVY OF PENALTY. IN THE FACTS OF THE CASE, MERE REJECTION OF CLAIM OF T HE ASSESSEE THAT THE AMOUNT PAYABLE TO CONTROL RISK, CROWN AND SCHENKER (BEING NON-RESIDENT PARTIES) DOES NOT WARRANT WITHHOLDING AND THUS DISALLOWANCE MADE U/S 40( CANNOT RESULT INTO LEVY OF PENALTY U/S 271(L)(C)OF THE ACT. FOLLO WING ARE THE KEY GROUNDS BASIS 10 ITA NO. 2188/DEL/2017 WHICH PENALTY U/S 27 L(L)(C) OF THE ACT IS NOT LEVI ABLE IN CASE OF THE ASSESSEE: I) DIFFERENCE OF OPINION - NOT A FIT CASE TO LEVY P ENALTY. CASE LAWS RELIED UPON BY THE ASSESSEE IN THIS REGARD ARE AS UNDER: A) CIT VS RELIANCE PETROPRODUCTS PVT. LTD. [(2010) 322ITR 158] (SC) B) CIT VS. NATH BROS. EXIM INTERNATIONAL LTD [2007] 288 ITR 670 (DELHI HC) C) DEVSONS PVT. LTD VS. CIT(A) [2011] 196 TAXMAN 21 (DELHI HC) D) CIT VS. BACARDI MARTINI (2007) (288 ITR 585) (DE LHI. HC) E) KARAN RAGH A V EXPORTS P LTD VS CIT [2012] 349 I TR 112 (DEL HC) F) CIT V. KRISHNA MARUTI LTD. [2011] 11 TAXMANN.COM L48 (DELHI HC) G) HARSHVARDHAN CHEMICALS AND MINERALS LTD. [2003] (259 ITR 212) (RAJASTHAN HC) H) CALCUTTA CREDIT CORPORATION [1987] (166 ITR 29) (CALCUTTA HC) I) GARG ENGINEERING CO [1999] 235 ITR 451) (ALLAHAB AD HIGH COURT) J) CIT VS GD NAIDU AND OTHERS (1987) 165 ITR 63 (MA DRAS HC) K) NUCHEM LTD V. DEPUTY COMMISSIONER OF INCOME-TAX [1993] (47ITD 487) (DELHI ITAT) II) REJECTION OF CLAIM MADE BY THE APPELLANT BY THE AO CANNOT RESULT IN IMPOSITION OF PENALTY UNDER SECTION 271 (L)(C) OF T HE ACT. CASE LAWS RELIED UPON BY THE ASSESSEE IN THIS REGARD ARE AS UNDER: A) CIT VS RELIANCE PETROPRODUCTS PVT. LTD. [(2010) 322 ITR 158] (SC) B) CIT VS LOTUS TRANS TRAVELS (P) LTD. [177 TAXMAN 37 (DEL)] (DELHI HC) C) CIT VS REGENCY EXPRESS BUILDERS (P) LTD. [166 TA XMAN 269 (DEL)] (DEL HC) D) GLORIOUS REALTY (P) LTD. VS ITO (29 SOT 292) (MUMBA I ITAT) III) PENALTY CANNOT BE INITIATED MERELY FOR THE REA SON THAT ADDITIONS HAVE BEEN MADE IN QUANTUM PROCEEDINGS AS PENALTY PROCEED INGS ARE SEPARATE AND DISTINCT FROM SUCH PROCEEDINGS AND THEREFORE IMPOSI TION OF PENALTY IS NOT MANDATORY/ AUTOMATIC. CASE LAWS RELIED UPON BY THE ASSESSEE IN THIS REGARD ARE AS UNDER:- A) ANANTHRAM VEERSINGHAIAH & CO. [1980] (123 ITR 45 7 (SUPREME COURT) B) CIT VS. CHETAN DASS LACHHMAN DASS (1995)214 1TR 726 (DELHI HC) C) CIT VS JK SYNTHETICS LTD (1996)219 ITR 267 (DELH I HC) D) CIT VS DHARMACHAND L. SHAH (1993)204 ITR 462 (BO MBAY HC) 11 ITA NO. 2188/DEL/2017 E) CIT VS ISHTIAQ HUSSAIN (1998) 232 ITR 673 (ALLAH ABAD HC) IV) DISALLOWANCE UNDER SECTION 40(A)(I) CANNOT BE A REA SON TO IMPOSE PENALTY UNDER SECTION 271(L)(C)OF THE ACT. CASE LAWS RELIED UPON BY THE ASSESSEE IN THIS REGARD ARE AS UNDER: A) CIT V. AT & T COMMUNICATION SERVICES INDIA (P.) LTD [2012] 18 TAXMANN.COM 144 (DELHI HIGH COURT) HELD THAT TRIBUN AL WAS JUSTIFIED IN DELETING LEVY OF PENALTY UPON ASSESSEE HOLDING THAT DISALLOWANCE OF AN AMOUNT BY INVOKING PROVISIONS OF SECTION 40(A)(I) C OULD NOT BE A GROUND TO LEVY PENALTY UNDER SECTION 271(1)(C) UPON ASSESSEE. B) CIT V. FILTREX TECHNOLOGIES (P.) LTD. [2015] 59 TAXMANN.COM 371 (KARNATAKA HIGH COURT) C) DCIT V. INDIAHITCOM (P.) LTD [2007] 15 SOT 440 ( DELHI ITAT) D) DCIT, NEW DELHI V. M/S PODDAR PIGMENTS LTD [2014 ] ITA NO. 2219/DEL/2014 (DELHI - TRIBUNAL) V) MERELY NON FILING OF APPEAL SHOULD NOT BE CONSTR UED AS ACCEPTANCE BY THE ASSESSE IN ORDER TO LEVY OF PENALTY. CASE LAWS RELI ED UPON BY THE ASSESSEE IN THIS REGARD ARE AS UNDER: A) CIT VS. ASIAN HOTELS LTD. (2007) 296 ITR 374 B) CIT V. RAJRTISH NATH AGGARWAL [2008] 172 TAXMAN 26 (P&H) C) CIT V. MANJUNATHA COTTON & GINNING FACTORY [TS-9 36-HC-2012 (KAR HC)] D) DCIT V. MS. AISHWARYARAI [2007] 12 SOT 114(MUM.I TAT) E) RAI INDUSTRIAL POWER PVT. LTD. VS DCIT (ITA 4862 /DEL/2013) [DELHI ITAT] 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER, PEN ALTY ORDER AS WELL AS ORDER OF THE CIT(A). THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE SHOULD HAVE CHALLENGED THE QUANTUM APPEAL, AND CANNOT CONT EST THE MERIT OF THE ADDITION AS THE PENALTY STAGE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THIS APPEAL IS RELATED TO PENALTY LEVIED U/S 271(1)(C). FOR INVOCATION OF SECTION 271(1)(C) OF THE ACT, THE THREE ELEMENTS S HOULD BE PRESENT WHICH ARE 12 ITA NO. 2188/DEL/2017 CONCEALMENT OF INCOME FURNISHING, INACCURATE PARTIC ULARS OF INCOME, AND IF THERE IS ANY INVOLVEMENT OF DEEMING PROVISIONS AS P ER EXPLANATION1 TO SECTION 271(1)(C). AND THESE ELEMENT WHETHER APPLICABLE OR NOT HAS TO BE DETERMINED FIRST. THE PENALTY IS LEVIED BY THE REVENUE ON THE BASIS OF DISALLOWANCE MADE IN THE ASSESSMENT ORDER U/S 40(A)(I) OF THE ACT AND TH E SAME REQUIRES INTERPRETATION OF PROVISIONS OF THE ACT ALONG WITH DTAA BETWEEN INDIA AND SINGAPORE. EXPENSES DISALLOWED U/S 40(A)(I) ON ACC OUNT OF NON WITHHOLDING OF TAXES WAS SUBJECT TO PAYMENTS MADE TO VENDORS BASED IN THAILAND WHO ARE IN THE BUSINESS OF PROVIDING MOVERS AND PACKERS SERVIC ES TO ITS CLIENT. THIS WAS IN RELATION TO THE EXPATS TRANSFER MOVEMENT. THE SERVICE RELATED TO MOVERS AND PACKERS CANNOT BE CHARACTERIZED AS ROYALTY INCOME I N THE HANDS OF THOSE VENDORS UNDER THE PROVISIONS OF INDIA THAILAND DTAA AND THE SAME DOES NOT QUALITY AS TECHNICAL SERVICE AS IT DOES NOT INCLUDE THE ELEMENT OF TECHNICAL SERVICES RELATING TO FTS. HENCE, THE TAX RELATING TO SECTION 40(A)(I) WILL NOT BE APPLICABLE IN ASSESSEES CASE AND IS A CONTESTING I SSUE. MERELY NOT FILING APPEAL ON THE CONTESTING ISSUES DOES NOT TANTAMOUNT TO CON CEALMENT OF INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME. THESE TWO ELEMENTS ALONG WITH EXPLANATION 1 OF SECTION 271(1)(C) ARE NOT PRESENT IN ASSESSEES CASE FOR IMPOSING PENALTY OR INITIATING PENALTY PROCEEDINGS. AS RELATED TO PAYMENT MADE TO CONTROL RISK, THE SAME ALSO DOES NOT IMPUGN ED TO FTS AS PER THE PROVISIONS OF ARTICLE 12(4) OF INDIA SINGAPORE DTAA AS THE SAME DOES NOT RESULT IN MAKING AVAILABLE TECHNICAL KNOWHOW TO THE RECIPI ENT. THUS, THESE TWO ELEMENTS UPON WHICH THE PENALTY HAS BEEN IMPOSED BY THE REVENUE ASSESSMENT YEAR CONTESTING IN NATURE AND THE ASSES SEE THOUGH HAS NOT OPTED FOR ANY APPEAL, IT CANNOT BE STATED THAT THESE ARE THE ELEMENT OF CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS. T HE CASE LAWS GIVEN BY THE ASSESSEE ARE CLEARLY APPLICABLE IN ASSESSEES CASE SPECIALLY THAT OF RELIANCE PETROPRODUCTS PVT. LTD.(SUPRA). HENCE WE DELETE TH E PENALTY AND ALLOW THE APPEAL OF THE ASSESSEE. 13 ITA NO. 2188/DEL/2017 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT IN PRESENCE OF B OTH THE PARTIES ON THIS DAY OF MARCH, 2021 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 22/03/2021 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI