THE DDIT(IT)-2(1), MUMBAI V. M/S. SATELLITE TELEVISON ASIAN REGION LTD, MUMBAI

ITA 7191/MUM/2007

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100602 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 23-02-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 03-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bonafide belief; Retrospective amendment; Reasonable cause

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI VIJA Y PAL RAO, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT, MEMBER ./ ITA NO. 7191 /MUM/20 07 ( / ASSESSMENT YEAR: 2002 - 2003 ) DEPUTY DIRECTOR OF INCOME - TAX(IT) - 2(1), MUMBAI. APPELLANT VS. M/S.SATELLITE TELEVISION ASIAN REGION LTD. C/O. S.R.BATLIBOI & CO. 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI - 21. RESPONDENT APPELLANT BY : SHRI JASBIR S.CHOUHAN. RESPONDENT B Y : SHRI PORUS KAKA . DATE OF HEARING : 0 4 /08/2015 DATE OF PRONOUNCEMENT : 12 /08/2015 P ER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 28/09/2007 OF THE CIT(A) - XXXI, MUMBAI ARISING FROM THE PENALTY ORDER PASSED U/S 271(1)(C) OF THE INCOME - TAX ACT, 1961 (THE ACT FOR SHORT) FOR THE ASSESSMENT YEAR 2002 - 03. 2. THE REVENUE HAS RAISE D THE FOLLOWING GROUNDS: ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 2 OF 15 (1) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE FURNISHING OF INACCURATE PARTICULARS IS NOT PROVED AND THEREFORE, THERE CAN BE NO JUSTIFIABLE BASIS FOR LEVY OF PENALTY AND THUS NO MERIT IN THE FINDING OF THE ASSESSING OFFICER THAT THE PENALTY IS LIVABLE . (2) THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. (3) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE ASSESSEE IS A FO REIGN COMPANY INCORPORATED IN HONGKONG. THE ASSESSEE IS ENGAGED, INTER ALIA, IN PROCUREMENT AND SALE OF ADVERTISEMENT AIRTIME AND SATELLITE TELEVISION BROADCASTING. THE ASSESSEE IS SELLING ADVERTISING AIR TIME ON CERTAIN CHANNELS OF THE STAR TV NETWORK T HROUGH ITS INDIAN ADVERTISING SALES AGENT, STAR INDIA PVT. LTD. ASSESSEE FILED ITS RETURN OF INCOME ON 31/10/2002 DECLARING A TOTAL INCOME OF RS.53,78,26,350/ - . IN THE COMPUTATION OF ITS TAXABLE INCOME, ASSESSEE CLAIMED DEDUCTION FOR THE COST OF ADVERTIS ING AIRTIME PROCURED FROM THE CHANNEL COMPANIES. WHILE COMPLETING THE ASSESSMENT U/S 143(3), AO MADE AN ADDITION OF RS.515,26,66,000/ - U/S 40(A)(I) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF PAYMENTS MADE BY THE ASSESSEE TO CHAN NEL COMPANIES VIZ., STAR TV, STAR NEWS LTD., STAR V NETWORK LTD, STAR SPORTS LTD., STAR TV ENTERTAINMENT LTD. AO HELD THAT SUCH PAYMENTS RECEIVED BY THE CHANNEL COMPANIES ARE CHARGEABLE TO TAX IN INDIA. THEREFORE, IT IS ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 3 OF 15 SUBJECT TO PROVISIONS OF SECTION 19 5 FOR DEDUCTION OF TAX AT SOURCE. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE, AO DISALLOWED THE SAID AMOUNT AND ADDED TO THE INCOME OF THE ASSESSEE. APART FROM ABOVE, AO HAS ALSO DISALLOWED THE CLAIM OF EXPENDITURE BEING 5% OF THE TOTAL INCOME TOW ARDS EXPENDITURE IN THE NATURE OF HEAD OFFICE EXPENDITURE ATTRIBUTABLE TO BUSINESS OR PROFESSION OF THE ASSESSEE IN INDIA AMOUNTING TO RS.2,83,06.650/ - CLAIMED BY THE ASSESSEE U/S 44C OF THE ACT. THUS THERE WAS A TOTAL DISALLOWANCE MADE BY THE AO OF RS.51 5,09,72,650/ - ON ACCOUNT OF DISALLOWANCE U/S 40(A)(I) AND DISALLOWANCE U/S 44C. CONSEQUENTLY, AO HAS INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) AND LEVIED A PENALTY OF RS.248,68,66,872/ - BEING 100% OF THE TAX SOUGHT TO BE EVADED VIDE ORDER DATED 27/3/200 7. 4 . THE ASSESSEE CHALLENGED THE ACTION OF THE AO IN LEVYING PENALTY U/S 271(1)(C) IN RESPECT OF THESE TWO DISALLOWANCES BEFORE THE CIT(A) AND CONTENDED THAT THE PAYMENTS MADE TO CHANNEL COMPANIES IS NOT TAXABLE IN INDIA BECAUSE THE PAYMENT WAS MA DE BY A NON - RESIDENT TO ANOTHER NON - RESIDENT OUTSIDE INDIA AND THEREFORE ASSESSEE WAS NOT UNDER OBLIGATION TO DEDUCT TAX AT SOURCE AS PER THE PROVISIONS OF SEC.195. THE CIT(A) HAS DELETED THE PENALTY BY HOLDING THAT THE ISSUE OF INCOME CHARGEABLE TO TAX A ND CONSEQUENTIAL APPLICABILITY OF SEC.195 IN THIS CASE IS A HIGHLY DEBATABLE AND COMPLICATED ISSUE. ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 4 OF 15 THEREFORE, ALL THESE QUESTIONS ARE SUBSTANTIAL QUESTIONS OF LAW ARISING ON THE BASIS OF THE FACTS AND INTERPRETATION OF LAW. THUS, THE CIT(A) HELD THAT TH ERE IS NO MERIT IN THE FINDING OF THE AO THAT THE ASSESSEE HAS CONCEALED ANY INCOME OR PARTICULARS OF INCOME. THE CIT(A) HAS STATED THAT THE ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS NECESSARY FOR COMPUTATION OF INCOME IN THE RETURN OF INCOME AND SUBS EQUENTLY DURING THE ASSESSMENT PROCEEDINGS. THEREFORE, NO DISCLOSURE OF WRONG FACTS WAS DISCOVERED BY THE AO. AS REGARDS THE PENALTY IN RESPECT OF DISALLOWANCE MADE BY THE AO U/S 44C, THE CIT(A) HAS HELD THAT THE CLAIM OF THE ASSESSEE WAS BASED ON APPOR TIONMENT METHOD AS PER THE PROVISIONS OF SEC.44C OF THE ACT AND WAS PRIMARILY BASED ON CONCEPT OF ADJUSTED TOTAL INCOME. THE ASSESSEE PRODUCED BEFORE THE AO ALL MATERIALS NECESSARY FOR DETERMINATION OF THE SAID ADJUSTED INCOME BASED ON WHICH THE HEAD OFFI CE EXPENSES WERE CALCULATED. ACCORDINGLY, THE CIT(A) HAS DELETED THE PENALTY LEVIED BY THE AO IN RESPECT OF THESE TWO DISALLOWANCES MADE BY THE AO. 5. BEFORE US, THE LEARNED DR HAS HEAVILY RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE IN RESPECT OF PAYMENTS MADE TO CHANNEL COMPANIES. HE HAS FURTHER CONTENDED THAT THE ISSUE OF DISALLOWANCE U/S 40(A)(I) AS WELL AS APPLICABILITY OF SEC.195 OF THE ACT ARE PENDING IN THE QUANTUM A PPEAL AND THEREFORE LEVY OF PENALTY U/S 271(1)(C) IS ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 5 OF 15 DEPENDENT UPON THE OUTCOME OF THE QUANTUM APPEAL. HE FURTHER SUBMITTED THAT THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S 44C IS A FACTUAL ISSUE WHICH IS PENDING IN THE QUANTUM APPEAL FILED BY THE ASSESSEE BEFORE THIS TRIBUNAL. THEREFORE, SO LONG AS THE DISALLOWANCE SUBSISTS, PENALTY IS SUSTAINABLE. HE HAS CONTENDED THAT THE AO WAS JUSTIFIED IN LEVYING PENALTY U/S 271(1)(C). 6. ON THE OTHER HAND, THE LEARNED SENIOR COUNSEL SHRI PORUS KAKA HAS SUBMITT ED THAT THIS ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE ARISING FROM LEVY OF PENALTY U/S 271C IN SO FAR AS LEVY OF PENALTY U/S 271(1)(C) AGAINST THE DISALLOWANCE MADE U/S 40(A)(I) FOR WANT OF DEDUCTION OF TAX AT SOURCE. HE HAS REFERRED TO THE FINDING OF THIS TRIBUNAL IN ITA NO.6475/MUM/2009 VIDE ORDER DATED 6/7/2012 AND SUBMITTED THAT THE TRIBUNAL HAS DELETED THE PENALTY LEVIED U/S 271 C BY HOLDING THAT THE PAYMENT IN QUESTION WAS MADE BY A NON - RESIDENT TO NON - RESIDENT AND THEREFORE IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS VS. UNION OF INDIA ( 341 ITR 1 ), SEC.195 IS NOT APPLICABLE ON THE PAYMENT MADE BY ONE NON - RESIDENT TO ANOTHER NON - RESIDENT. THE LEARNED SENIOR COUNSEL HAS FURTHER SUBMITTED THAT EVEN PRIOR TO AMENDMENT IN SEC.9 AS WELL AS SEC.195, VIDE FINANCE ACT, 2012, THE CLAIM OF THE ASSESSEE WAS A BONA FIDE CLAIM THAT NO TAX AT SOURCE WAS LIABLE TO BE DEDUCTED ON ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 6 OF 15 SUCH PAYMENTS MADE BY THE ASSESSEE TO NON - RE SIDENT. EVEN OTHERWISE, THE ISSUE OF TAXABILITY OF INCOME IN INDIA IN THE HANDS OF THE NON - RESIDENTS HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. V. DIT (332 ITR 340). THE LEARNED SENIOR COUN SEL HAS FURTHER SUBMITTED THAT SEC.195(2) ALSO HAS NO APPLICATION WHEN THE INCOME IN THE HANDS OF THE NON - RESIDENT IS NOT TAXABLE IN INDIA. EVEN IN CASE THE ASSESSEE HAS NOT MADE AN APPLICATION U/S 195(2), IT DOES NOT RENDER THE GROSS AMOUNT TAXABLE IN I NDIA AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE VS. CIT (327 ITR 456). HE HAS POINTED OUT THAT THE DECISION OF THE TRIBUNAL IN DELETING PENALTY LEVIED U/S 271 C HAS BEEN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 6/12/2013. THEREFORE, WHEN THE PENALTY U/S 271 C HAS BEEN DELETED BY THIS TRIBUNAL AND UPH ELD BY THE HONBLE JURISDICTIONAL HIGH COURT ON THE GROUND THAT THE PROVISIONS OF SEC.195 AR E NOT APPLICABLE ON A PAYMENT MADE BY THE NON - RESIDENT TO A NON - RESIDENT, THEREFORE, ON THE SAID ANALOGY AND FINDING OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT, PENALTY U/S 271(1)(C) IS NOT JUSTIFIED IN THIS CASE AND THE CIT(A) HAS RIGHTLY DELETED T HE SAME. THE LEARNED SENIOR COUNSEL HAS THEN RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT DATED 8/3/2013 IN THE CASE OF CIT VS. YAHOO INDIA PVT. LTD., AND SUBMITTED THAT THE HONBLE HIGH COURT HAS UPHELD ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 7 OF 15 THE DELETION OF PENALTY LEVIED U/S 271(1)(C) IN RESPECT OF DISALLOWANCE MADE U/S 40(A) , DESPITE THE APPEAL IN RESPECT OF DISALLOWANCE WAS PENDING BEFORE THE HONBLE HIGH COURT , ON THE GROUND THAT THE VERY FACT THAT THE LAW HAS BEEN AMENDED WITH RETROSPECTIVE EFFECT CLEARLY SHOW THAT T HE ISSUE WAS DEBATABLE AND IN THE ABSENCE OF FAILURE TO DISCLOSE MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT, DELETION OF PENALTY LEVIED U/S 271(1)(C) CANNOT BE FAULTED. THUS THE LEARNED SENIOR COUNSEL HAS SUBMITTED THAT BEING A DEBATABLE ISSUE , PENALTY CANNOT BE LEVIED IN RESPECT OF DISALLOWANCE MADE U/S 40(A)(I). 7. AS REGARDS THE PENALTY LEVIED AGAINST THE DISALLOWANCE MADE BY THE AO U/S 44C, THE LEARNED SENIOR COUNSEL HAS SUBMITTED THAT THE ASSESSEE HAS MADE THE MINIMUM CLAIM OF EXPENDITURE ATTRIBUTABLE U/S 44C OF THE ACT. HE FURTHER CONTENDED THAT THE ASSESSEE HAS EARNED REVENUE AS WELL AS INCOME AND IN COMPARISON TO THE HUGE AMOUNT OF INCOME, IT IS NOT POSSIBLE THAT THE ASSESSEE IS RUNNING ITS BUSINESS WITHOUT ANY MANAGEMENT. HE FURTHER SUBMITTED THAT WHEN THE ASSESSEE HAS DISCLOSED ALL NECESSARY PARTICULARS REQU IRED FOR ASSESSMENT, THEN DISALLOWANCE MADE BY THE AO ON THE GROUND THAT HO EXPENDITURE CAN BE ATTRIBUTED TO THE BUSINESS OF THE ASSESSEE IN INDIA. HE FURTHER CONTENDED THAT THE ASSESSEE HAS CLAIMED THE MINIMUM AMOUNT PERMISSIBLE U/S 44C OTHERWISE THE EXP ENDITURE BOOKED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT IS MANY TIMES MORE ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 8 OF 15 THAN THE CLAIM MADE BY THE ASSESSEE. THUS, THE LEARNED SENIOR COUNSEL HAS SUBMITTED THAT THE CLAIM IS STRICTLY AS PER THE PROVISIONS OF SEC.44C AND THE DISALLOWANCE OF T HE SAID CLA IM DOES NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCS PVT. LTD.(322 ITR 158). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE PAYMENTS TO CHANNEL COMPANIES WERE MADE BY THE ASSESSEE DURING THE FINANCIAL YEAR 2001 - 02. THEREFORE, AT THE RELEVANT POINT OF TIME, ISSUE OF TAXABILITY OF SAID PAYME NT MADE BY A NON - RESIDENT TO A NON - RESIDENT WAS A HIGHLY DEBATABLE ISSUE. THE CO - ORDINATE BENCH OF THIS TRIBUNAL, WHILE DEALING WITH THE ISSUE OF LEVY OF PENALTY U/S 271 C VIDE ORDER DATED 6/7/2012 (SUPRA) HAS HELD IN PARA 6 AND 6.1 AS UNDER: 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDINGS GIVEN BY THE CIT(A) AS WELL AS THE ASSESSING OFFICER AND ALSO PERUSED THE MATERIAL PLACED ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS A NON - RESIDENT COMPANY HAVING ITS PR INCIPAL PLACE OF BUSINESS AT HONKONG AND THE VARIOUS CHANNEL COMPANIES ARE ALSO NON - RESIDENT COMPANIES BASED IN HONKONG. HENCE, THE PAYMENT IN QUESTION IS MADE BY A NON - RESIDENT COMPANY TO A NON - RESIDENT COMPANY. IN THE RETURN OF INCOME, WHILE COMPUTING TH E TAXABLE INCOME, THE ASSESSEE HAS SHOWN HIS TAXABLE INCOME AND ALSO CLAIMED DEDUCTION OF THE COST OF ADVERTISING AIRTIME ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 9 OF 15 PROCURED FROM THE CHANNEL COMPANIES ON PRINCIPAL - TO - PRINCIPAL BASIS OUTSIDE INDIA. AT THE TIME OF FILING OF RETURN THERE WAS A PREVALE NT VIEW OF THE JUDICIAL PRONOUNCEMENT BY THE ITAT MUMBAI BENCH IN THE CASE OF SHREE KUMAR PODDAR VS. CIT, REPORTED IN 65 ITD 248 AND COMMENTARIES GIVEN IN KANGA AND PALKHIVALA. THUS, THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT NO TAX WAS DEDUCTIBLE AT S OURCE UNDER SECTION 195 WITH RESPECT TO TRANSACTION WITH THE CHANNEL COMPANIES FOR ADVERTISING AIRTIME, SINCE THE COMPANIES WERE NOT TAXABLE IN INDIA. IT IS ALSO UNDISPUTED FACT THAT AFTER PASSING OF THE ASSESSMENT ORDER UNDER SECTION 143(3), THE ASSESSEE HAS DEPOSITED ALL THE TAX, THE DETAILS OF WHICH HAVE BEEN GIVEN AT PAGES 11 TO 12 OF THE IMPUGNED PENALTY ORDER. THE BASIC CHARGE OF THE ASSESSING OFFICER IS THAT SINCE THE ASSESSEE HAD NOT COME BEFORE THE ASSESSING OFFICER UNDER SECTION 195(2), THEREFORE, THE GROSS AMOUNT WAS TO BE TAXED. EVEN THOUGH THIS WAS UPHELD BY THE CIT(A) AND ITAT, HOWEVER, IT HAS BEEN OBSERVED BY THE ITAT THAT THE ISSUE INVOLVED IS QUITE COMPLEX AND IS DEBATABLE. NOW IN WAKE OF LAW SETTLED BY THE HONBLE APEX COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS(SUPRA), ONE CAN SAY THAT THE ASSESSEE WAS DEFINITELY UNDER THE BONAFIDE BELIEF THAT THERE WAS NO REQUIREMENT TO DEDUCT TDS ON THE PAYMENT MADE BY A NON - RESIDENT TO A NON - RESIDENT UNDER SECTION 195. EVEN THE TELECASTING OF SI GNALS BY SATELLITE COMPANIES AND LOCATION OF ULTIMATE VIEWERSHIP IN INDIA IS NOT A SOURCE OF INCOME IN INDIA OR BUSINESS CONNECTION IN INDIA, HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD.(SUPRA). FROM ALL THESE JUDICIAL PROPOSITIONS, WHICH HAVE BEEN SETTLED RECENTLY, WE HOLD THAT THERE WAS NO LIABILITY TO DEDUCT TAX AND AT LEAST ONE CAN SAY THAT THERE WAS A BONAFIDE BELIEF AND REASONABLE CAUSE FOR NON - DEDUCTING OF TAX ON THE PAYMENTS MADE TO THE CH ANNEL COMPANIES UNDER SECTION 195. 6.1. THUS, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ELI LILLY & CO. LTD. (SUPRA), THAT IF THE ASSESSEE HAD A BONAFIDE BELIEF THAT IT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE EVEN IF THE AMOUNT IS HELD TAXABLE LATER ON WILL NOT RESULT IN LEVY OF PENALTY UNDER SECTION 271C, WE HOLD THAT NO PENALTY UNDER SECTION 271C ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 10 OF 15 CANNOT BE LEVIED. ACCORDINGLY, THE REASONING GIVEN BY THE CIT(A) FOR DELETING THE PENALTY IS UPHELD AND THE GROUNDS TAKEN BY THE DEP ARTMENT ARE DISMISSED. THUS IT IS CLEAR THAT PRIOR TO AMENDMENT IN SEC.195 AS WELL AS SEC.9(1) OF THE ACT BY THE FINANCE ACT, 2012, THE ISSUE OF TAXABILITY OF PAYMENT MADE BY NON - RESIDENT TO A NON - RESIDENT WAS RATHER DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL H OLDINGS (SUPRA). FURTHER, AN IDENTICAL ISSUE OF TAXABILITY OF SUCH PAYMENTS TO NON - RESIDENT CHANNEL COMPANIES WAS ALSO CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. (SUPRA) AND IT WAS HELD THAT SUCH P AYMENTS ARE NOT TAXABLE IN INDIA. THE CO - ORDINATE BENCH, WHILE CONFIRMING THE DELETION OF PENALTY U/S 271 C HAS HELD THAT THE CLAIM OF THE ASSESSEE WAS A BONAFIDE AND BASED ON BONAFIDE BELIEF THAT IT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE, EVEN IF THE A MOUNT IS HELD TAXABLE IN THE QUANTUM APPEAL. THE SAID FINDING OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 6/2/2013 AND INPARA.3 & 4 AS UNDER: 3. THE TRIBUNAL BY THE IMPUGNED ORDER CONCLUDED THAT THERE WAS NO WARRANT FOR IMPOSITION OF PENALTY IN VIEW OF THE FOLLOWING FINDING OF FACTS: ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 11 OF 15 (A) THE RESPONDENT - ASSESSEE AS WELL AS THE CHANNEL COMPANIES ARE A NON - RESIDENT COMPANIES HAVING ITS PRINCIPAL PLACE OF BUSINESS OUTSIDE INDIA. HENCE, THE PAYMENTS ARE MADE OUTSIDE INDIA BY ONE NON - RESIDENT TO ANOTHER (B) IN ITS RETURN OF INCOME, THE RESPONDENT - ASSESSEE WHILE COMPUTING THE TAXABLE INCOME HAD CLAIMED DEDUCTION OF THE COSTS OF ADVERTISING AIR TIME PROCURED FROM CHANNEL COMPANIES ON PRINCIPAL TO PRINCIPAL BASIS OUTSIDE INDIA AND (C) AT THE TIME OF FILING ITS RETURN, THERE WAS A PREVALENT VIEW IN FAVO UR OF RESPONDENT - ASSESSEE BY THE ITAT IN THE MATTER OF SHRI KUMAR PODDAR V/S CIT, REPORTED IN 65 ITD 248 THAT IN SUCH CASES, NO TAX WAS DEDUCTABLE UNDER SECTION 195 OF THE ACT. 4. THUS ON THE AFORESAID FACTS, TRIBUNAL CAME TO THE CONCLUSION THAT THERE W AS A BONAFIDE BELIEF ON THE PART OF THE RESPONDENT - ASSESSEE THAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE INCOME - TAX ACT, 1961. SINCE THE DECISION OF THE TRIBUNAL IS BASED ON A FINDING OF FACT AND ALSO ON THE FINDING THAT T THE TIME WHEN THE RETURNS WERE FILED, ISSUE OF DEDUCTION OF TAX AT SOURCE IN THE PRESENT FACTS WAS A DEBATABLE ISSUE. THUS, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE TRIBUNAL. THUS, THE HONBLE HIGH COURT HAS ACCEPTED THAT IT WAS A BONAFIDE BEL IEF ON THE PART OF THE ASSESSEE THAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT. THE HON'BLE HIGH COURT HAS OBSERVED THAT AT THE TIME OF FILING RETURN OF INCOME, THE ISSUE OF DEDUCTION OF TAX AT SOURCE IN THE PRESENT CASE WAS A DEBA TABLE ISSUE THEREFORE THEIR LORDSHIPS DID NOT SEE ANY REASON TO INTERFERE WITH THE ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 12 OF 15 ORDER OF THE TRIBUNAL. WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL WHILE DELETING THE PENALTY U/S 271 C THAT PRIOR TO AMENDMENT IN THE P ROVISIONS OF SEC.195 AS WELL AS SEC.9, THE ISSUE OF ASSESSABILITY OF THE PAYMENT OF BY A NON - RESIDENT COMPANY TO A NON - RESIDENT COMPANY ON PRINCIPAL TO PRINCIPAL BASIS OUTSIDE INDIA WAS A HIGHLY DEBATABLE ISSUE AND THEREFORE THE CLAIM OF THE ASSESSEE WAS A BONA FIDE CLAIM AND THEREFORE NON - DEDUCTION OF TAX AT SOURCE ON SUCH A DEBATABLE ISSUE WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME. IT IS A MATTER OF RECORD THAT THE ASSESSEE HAS DISCLOSED FULL PARTICULARS REQUIRED AND NECESSARY FOR DETERMINATION OF THE INCOME AND ASSESSMENT. 8. AS REGARDS THE OBJECTION OF THE LEARNED DR THAT THE ISSUE OF DISALLOWANCE U/S 40(A)(I) IS PENDING IN THE QUANTUM APPEAL, IT IS PERTINENT TO NOTE THAT WHEN THE ISSUE OF TAXABILITY OF THE PAYMENT IN THE HANDS OF THE NON - RESIDENT IS A HIGHLY DEBATABLE ISSUE, THEREFORE THE OUTCOME OF THE QUANTUM APPEAL WILL NOT HAVE A MUCH BEARING AS FAR AS THE ISSUE OF LEVY OF PENALTY ON SUCH DISALLO WANCE MADE BY THE AO. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF YAHOO INDIA PVT. LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE OF LEVY OF PENALTY U/S 271(1)(C) IN RESPECT OF DISALLOWANCE MADE U/S 40(A) OF THE ACT BY CONSIDERING THE FACT THAT THE APPEAL FILED BY THE REVENUE AGAINST THE ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 13 OF 15 DISALLOWANCE MADE IN THE QUANTUM DELETED BY THE TRIBUNAL WAS PENDING , HELD IN PARA.3 AS UNDER : 3. THE TRIBUNAL DELETED THE PENALTY ON THE GROUND THAT IN QUANTUM APPEAL, THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER HAS BEEN DELETED BY THE TRIBUNAL. CHALLENGING THE ORDER OF THE TRIBUNAL IN DELETING THE DISALLOWANCE, THE REVENUE HAS FILED APPEAL BEFORE THIS COURT, WHEREIN THE REVENUE HAS SOUGHT TO JUSTIFY THE DISALLOWANCES BY PLACING RELIANCE ON EXPLANATION 5 INTRODUCED TO SECTION 9 OF THE ACT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1 ST JUNE, 1976. THE VERY FACT THAT THE LAW HAS BEEN AMENDED WITH RETROSPECTIVE EFFECT CLEARLY SHOWS THAT THE ISSUE WAS DEBATABLE AND IN THE ABSENCE OF ANY FAILUR E TO DISCLOSE MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT, THE DELETION OF PENALTY LEVIED UNDER SECTION U/S 271(1)(C) OF THE ACT CANNOT BE FAULTED. THEREFORE, WHEN THE ISSUE IS COVERE D BY THE DECISION OF THE CO - OR D I NATE BENCH AS WELL AS BY THE HON'BLE JURISDICTIONAL HIGH COURT THAT THIS IS HIGHLY DEBATABLE ISSUE AND THE DISALLOWANCE MADE BY THE AO U/S 40(A)(I) WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME . THIS VIEW HAS BEEN FORTIFIED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD.(322 ITR 158) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT MERELY BECAUSE ASSESSEE HAS CLAIMED THE EXPENDITURE WHICH CLA IM WAS NOT ACCEPTABLE TO THE REVENUE THAT BY ITSELF WOULD NOT ATTRACT THE PENALTY U/S 271(1)(C). THE CLAIM OF THE ASSESSEE THAT NO TDS WAS REQUIRED TO BE MADE IN RESPECT OF PAYMENT MADE BY THE ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 14 OF 15 ASSESSEE TO CHANNEL COMPANIES IS A BONAFIDE CLAIM AND WAS A HI GHLY DEBATABLE ISSUE AT THE RELEVANT POINT OF TIME PRIOR TO AMENDMENT BY THE FINANCE ACT,2012. THUS PENALTY LEVIED U/S 271(1)(C) AGAINST DISALLOWANCE MADE U/S 40(A)(I) IS NOT JUSTIFIED AND THE CIT(A) HAS RIGHTLY DELETED THE SAME. 9. AS REGARDS PENALT Y LEVIED U/S 271(1)(C) IN RESPECT OF DISALLOWANCE MADE BY THE AO U/S 44C, WE FIND THAT THE ISSUE OF ALLOWING EXPENDITURE U/S 44C IS A FACTUAL ISSUE AND SUBJECT TO THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE WHICH IS ATTRIBUTABLE TO BUSINESS OF THE ASSE SSEE IN INDIA. THEREFORE 5% OF THE ADJUSTED TOTAL INCOME IS THE MAXIMUM LIMIT OF ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF SEC.44C AND THIS CLAIM IS NOT IN THE NATURE OF STANDARD DEDUCTION. HENCE, IF THE AO, ON INQUIRY COMES TO THE CONCLUSION THAT TH E ASSESSEE HAS INCURRED NO EXPENDITURE WHICH IS ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE IN INDIA THEN THE FINDING OF FACT IS REQUIRED TO BE EXAMINED IN THE QUANTUM PROCEEDINGS. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE ISSUE O F DISALLOWANCE MADE BY THE AO U/S 44C IS PENDING IN THE QUANTUM APPEAL, WE DO NOT PROPOSE TO DECIDE THE ISSUE OF LEVY OF PENALTY ON THIS ACCOUNT. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE AO TO CONSIDER THE LEVY OF PENALTY AFTER CONSIDERIN G THE OUTCOME OF THE QUANTUM APPEAL ON THIS ISSUE. ITA NO.7191/ MUM/2007 SATELLITE TELEVISION ASIA REGION LTD. PAGE 15 OF 15 10. IN THE RESULT, THE REVENUES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 1 2 TH AUGUST, 2015. S D / - S D / - (N.K.BILLAIYA) (VIJAY PAL RAO) ACCOUNANT MEMBER JUDICIAL MEMBER EKSRINIVASULU, SR.PS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) MUMBAI 4 CIT 5 DR, ITAT, MUMBAI 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME - TAX APPELLATE TRIBUNAL, MUMBAI .