LG ELECTRONICS INDIA PVT. LTD., NEW DELHI V. CIT(A), Noida

ITA 7895/DEL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1983 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 29-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJAY VOHRA SR ADV ADITYA VOHRA
• Keywords: Opportunity of being heard; Non-deduction of tax
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI BEFORE SH. INTURI RAMA RAO, ACCOUNTANT MEMBER AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.7895-96/DEL/2017 (ASSESSMENT YEAR: 2005-06, 2006-07) LG ELECTRONICS INDIA (P) LTD. A-WING (3 RD FLOOR), D-3, DISTRICT CENTRE SAKET, NEW DELHI-110017 VS. COMMISSIONER OF INCOME TAX (APPEALS), NOIDA APPELLANT RESPONDENT ASSESSEE BY : SH. AJAY VOHRA, SR. ADV., ADITYA VOHRA, ADV. REVENUE BY : SH. H.K. CHOUDHARY, CIT-DR DATE OF HEARING : 05.09.2018 DATE OF PRONOUNCEMENT : 07.09.2018 O R D E R PER BENCH : ITA NO. 7895/DEL/2017 IS ASSESSEES APPEAL PREFERRE D AGAINST ORDER PASSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1 961 (HEREINAFTER CALLED TO AS THE ACT) FOR ASSESSMENT YEAR 2005-0 6 WHEREIN THE PENALTY HAS BEEN IMPOSED BY THE LD. CIT (A), NOIDA AFTER ENHANCING THE ASSESSED INCOME TO RS. 7,10,87,13,603/- AS AGAI NST THE 2 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) ASSESSED INCOME OF RS. 3,34,18,55,880/-. THE IMPUG NED PENALTY AMOUNTS TO RS. 1,36,34,75,765/-. SIMILARLY, ITA NO. 7896/DEL/2017 IS THE ASSESSEES APPEAL CHALLENGING IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT FOR ASSESSMENT YEA R 2006-07. THIS PENALTY WAS ALSO IMPOSED BY THE LD. CIT (A), NOIDA A FTER ENHANCING THE ASSESSED INCOME FROM RS. 4,97,93,69,060/- TO RS . 8,74,91,98,537/-. THE IMPUGNED PENALTY FOR THIS YEA R IS RS. 1,23,47,00,375/-. SINCE BOTH THESE APPEALS INVOLVED IDENTICAL ISSUES, THEY WERE HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS COMMON ORDER. THE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE AS UNDER:- ITA NO. 7895/DEL/2017 1. THAT THE COMMISSIONER OF INCOME TAX APPEALS [ CIT(A)] ERRED ON FACTS AND IN LAW IN LEVYING PENALTY UNDER SECTION 271(L)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) F OR ALLEGED CONCEALMENT AND FURNISHING OF INACCURATE PARTICULAR S OF INCOME IN RESPECT OF ENHANCEMENT MADE BY THE CIT(A) IN ORD ER DATED 31.03.2017 PASSED UNDER SECTION 250/143(3) OF THE A CT, ON ACCOUNT OF (I) NON-DEDUCTION OF TAX AT SOURCE ON PA YMENTS MADE TO VENDORS FOR PURCHASE OF FINISHED GOODS, AND (II) AD-HOC DISALLOWANCE OF RS. 131,07,31,300 BEING 50% OF THE ADVERTISEMENT, MARKETING AND PROMOTION EXPENSES. 3 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN PA SSING THE IMPUGNED PENALTY ORDER IN UNDUE HASTE, WITHOUT AFFO RDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLAN T. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT SATISFACTION FOR INITIATING PENALTY WAS NOT RE CORDED IN ORDER PASSED BY THE CIT(A) IN QUANTUM PROCEEDINGS, WHICH IS SINE QUA NON FOR ASSUMPTION OF JURISDICTION TO IMPOSE PENALT Y. 4. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN LE VYING PENALTY UNDER SECTION 271 (1 )(C) OF THE ACT WITHOU T SPECIFYING THE EXACT CHARGE FOR INITIATING PENALTY PROCEEDINGS IN NOTICE DATED 31.03.2017 ISSUED UNDER SECTION 274 READ WITH SECTION 271(1 )(C) OF THE ACT , AS ALSO IN THE IMPUGNED ORDER DATED 30.09.2017. 5. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN LE VYING PENALTY QUA ENHANCEMENT MADE BY THE CIT(A) IN QUANT UM PROCEEDINGS WITHOUT APPRECIATING THAT (A) ALL MATER IAL FACTS WERE DULY DISCLOSED BY THE APPELLANT; (B) CLAIMS MA DE WERE JUSTIFIED IN LAW AND EXPLANATION FURNISHED WAS BONA FIDE, AND IN ANY CASE, (C) NO PENALTY IS LEVIABLE QUA ADD ITIONS/ DISALLOWANCES RELATED TO ISSUES WHICH ARE DEBATABLE . 6.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN LEVYING PENALTY QUA DISALLOWANCE MADE UNDER SECTION 40(A)(I A) OF THE ACT WITHOUT APPRECIATING THAT THE STAND TAKEN B Y THE APPELLANT TO NOT WITHHOLD TAX ON PAYMENTS MADE TO V ENDORS WAS IN CONSONANCE WITH THE DECISION OF THE SUPREME COURT IN THE APPELLANTS OWN CASE FOR EARLIER ASSESSMENT YEARS. 4 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) 6.2 THAT THE C1T(A) ERRED ON FACTS AND IN LAW IN P ROCEEDING ON THE FALLACIOUS AND ERRONEOUS PRESUMPTION THAT DU RING THE QUANTUM PROCEEDINGS, THE APPELLANT HAD ADMITTED ITS LIABILITY TO DEDUCT TAX AT SOURCE UNDER SECTION 194 C WHILE MAKING PAYMENT TO VENDORS, WHILE LEVYING PENALTY QU A DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE AC T. 7. THAT THE ORDER PASSED BY THE CIT(A) LEVY ING PENALTY UNDER SECTION 271 (1 )(C), BEING BEYOND LIMITATION PRESCRIBED UNDER SECTION 275 OF THE ACT, IS BAD IN LAW AND VOI D AB INITIO. ITA NO. 7896/DEL/2017 1.THAT THE COMMISSIONER OF INCOME TAX APPEALS [CIT (A)] ERRED ON FACTS AND IN LAW IN LEVYING PENALTY UNDER SECTIO N 271(L)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR ALLEGED CO NCEALMENT AND FURNISHING OF INACCURATE PARTICULARS OF INCOME IN R ESPECT OF ENHANCEMENT MADE BY THE CIT(A) IN ORDER DATED 31.03 .2017 PASSED UNDER SECTION 250/143(3) OF THE ACT, ON ACCO UNT OF (I) NON-DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE TO VENDORS FOR PURCHASE OF FINISHED GOODS, AND (II) AD-HOC DISALLO WANCE OF RS.156,58,71,670 BEING 50% OF THE ADVERTISEMENT, MA RKETING AND PROMOTION EXPENSES. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN PAS SING THE IMPUGNED PENALTY ORDER IN UNDUE HASTE, WITHOUT AFFO RDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLAN T. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING 5 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) THAT SATISFACTION FOR INITIATING PENALTY WAS NOT RE CORDED IN ORDER PASSED BY THE CIT(A) IN QUANTUM PROCEEDINGS, WHICH IS SINE QUA NON FOR ASSUMPTION OF JURISDICTION TO IMPOSE PENALT Y. 4. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN LE VYING PENALTY UNDER SECTION 271(L)(C) OF THE ACT WITHOUT SPECIFYI NG THE EXACT CHARGE FOR INITIATING PENALTY PROCEEDINGS IN NOTICE DATED 31.03.2017 ISSUED UNDER SECTION 274 READ WITH SECTI ON 271(1 )(C) OF THE ACT, AS ALSO IN THE IMPUGNED ORDE R DATED 30.09.2017. 5. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN LE VYING PENALTY QUA ENHANCEMENT MADE BY THE C1T(A) IN QUANT UM PROCEEDINGS WITHOUT APPRECIATING THAT (A) ALL MATER IAL FACTS WERE DULY DISCLOSED BY THE APPELLANT; (B) CLAIMS MADE WE RE JUSTIFIED IN LAW AND EXPLANATION FURNISHED WAS BONA FIDE, AND IN ANY CASE, (C) NO PENALTY IS LEVIABLE QUA ADDITIONS/ DIS ALLOWANCES RELATED TO ISSUES WHICH ARE DEBATABLE. 6.1 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN L EVYING PENALTY QUA DISALLOWANCE MADE UNDER SECTION 40(A)(I A) OF THE ACT WITHOUT APPRECIATING THAT THE STAND TAKEN BY THE AP PELLANT TO NOT WITHHOLD TAX ON PAYMENTS MADE TO VENDORS WAS IN CON SONANCE WITH THE DECISION OF THE SUPREME COURT IN THE APPEL LANTS OWN CASE FOR EARLIER ASSESSMENT YEARS. 6.2THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN PRO CEEDING ON THE FALLACIOUS AND ERRONEOUS PRESUMPTION THAT DURIN G THE QUANTUM PROCEEDINGS, THE APPELLANT HAD ADMITTED ITS LIABILITY TO DEDUCT TAX AT SOURCE UNDER SECTION 194C WHILE MAKIN G PAYMENT 6 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) TO VENDORS, WHILE LEVYING PENALTY QUA DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT. 7. THAT THE ORDER PASSED BY THE CIT(A) LEVYING PENA LTY UNDER SECTION 271(1) (C), BEING BEYOND LIMITATION PRESCRI BED UNDER SECTION 275 OF THE ACT, IS BAD IN LAW AND VOID AB INITIO. 2. THE LD. AUTHORISED REPRESENTATIVE APPEARING ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE IMPUGNED PENALTIES HAD BEEN IMPOSED ON IDENTICAL ENHANCEMENTS BY THE LD. CIT (A). IT WA S SUBMITTED THAT THE PENALTIES HAVE BEEN IMPOSED FOR NON-DEDUCTION O F TAX AT SOURCE ON PAYMENTS MADE TO THE VENDORS FOR PURCHASE OF FIN ISHED GOODS AND ALSO ON ACCOUNT OF AD HOC DISALLOWANCE OUT OF ADVERTISING, MARKETING AND PROMOTION (AMP) EXPENSES. THE LD. AUT HORISED REPRESENTATIVE SUBMITTED THAT IN ASSESSMENT YEAR 20 05-06, THE LD. CIT(A) MADE AN ENHANCEMENT OF RS. 3,76,68,57,723/- BY MAKING A DISALLOWANCE U/S 40(A)(IA) OF THE ACT AS WELL AS BY DISALLOWING 50% OF THE EXPENSES ON ADVERTISING, MARKETING AND PROMO TION. SIMILARLY, IN ASSESSMENT YEAR 2006-07, THE ASSESSED INCOME WAS ENHANCED BY THE LD. CIT(A) BY AN AMOUNT OF 3,76,98,29,477/- ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT AND AD HOC DISALLOWANCE OUT OF ADVERTISING, MARKETING AND PROMOTION EXPENSES. THE LD. AUTHORISED 7 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE S QUANTUM APPEALS FOR THESE TWO YEARS HAVE BEEN DECIDED BY THE ITAT IN FAVOUR OF THE ASSESSEE IN ITA NOS. 3612 AND 3613/DEL/2017 VIDE CONSOLIDATED ORDER DATED 18.7.2018 WHEREIN THE ENHAN CEMENT MADE BY THE LD. CIT (A) U/S 40(A)(IA) WAS HELD TO BE VIDE AB INITIO AS THE ENHANCEMENT WAS MADE BY THE LD. CIT(A) BY INTRODUCI NG/ DISCOVERING A NEW SOURCE OF INCOME. HE DREW OUR ATTE NTION TO THE RELEVANT PARAGRAPHS OF THE ORDER OF THE ITAT, AS CO NTAINED IN PAGES 13 TO 16 OF THE ITATS ORDER, AND SUBMITTED THAT SI NCE THE QUANTUM ENHANCEMENT U/S 40(A0(IA) HAS BEEN DELETED BY THE I TAT IN BOTH THE ASSESSMENT YEARS, THE PENALTIES IMPOSED THEREON WOULD NOT SURVIVE. 2.1 WITH RESPECT TO THE ENHANCEMENT MADE ON ACCOUNT OF ADVERTISING, MARKETING AND PROMOTION EXPENSES, THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO PAGES 25 TO 28 OF THE ORDER OF THE ITAT FOR THE YEARS UNDER CONSIDERATION AND SUBM ITTED THAT THIS ISSUE HAD BEEN RESTORED TO THE FILE OF THE AO/TPO F OR FRESH ADJUDICATION IN LIGHT OF THE DECISION OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 WHICH WAS DECIDED BY THE SPECIAL BENCH. IT WAS SUBMITTED THAT FOR BOTH THE AS SESSMENT YEARS, 8 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) 2005-06 AND 2006-07, THE QUANTUM WITH RESPECT TO THE ENHANCEMENT RELATING TO ADVERTISING, MARKETING AND PROMOTION EXPENSES HAD BEEN RESTORED TO THE FILE OF THE AO/TP O AND, THEREFORE, THE PENALTY AS IMPOSED U/S 271(1)(C) ON THIS ENHANCEMENT WOULD ALSO NOT SURVIVE. THE LD. AUTHORIS ED REPRESENTATIVE ALSO PLACED RELIANCE ON NUMBER OF JU DICIAL PRECEDENTS WHILE CONTENDING THAT THE PENALTIES IMPOS ED WITH RESPECT TO ENHANCEMENT PERTAINING TO ADVERTISING, M ARKETING AND PROMOTION EXPENSES NEED NOT BE SET ASIDE TO THE FIL E OF THE AO/TPO BUT SHOULD BE DIRECTED TO BE DELETED TOTALLY AS THE VERY BASIS FOR THE QUANTUM ADDITION HAS BEEN MODIFIED BY THE ITAT TO K EEP IN LINE WITH THE ORDER OF ITAT SPECIAL BENCH IN ASSESSEES O WN CASE FOR ASSESSMENT YEAR 2007-08. 3. IN RESPONSE, THE LD. CIT-DR PLACED RELIANCE ON T HE ORDER OF THE LD. CIT (A) BUT HE COULD NOT NEGATE THE FACT THAT T HE DISALLOWANCE/ ENHANCEMENT MADE BY THE LD. CIT (A) U/S 40(A)(IA) H AS BEEN DELETED BY THE TRIBUNAL BY HOLDING THE SAME AS VOID AB INITIO . HOWEVER, IN RESPECT OF THE OTHER ADDITION ON WHICH THE PENALTIES HAVE BEEN IMPOSED I.E. ENHANCEMENT IN RESPECT OF ADVERTISING, MARKETING AND PROMOTION EXPENDITURE, THE LD. CIT-DR SUBMITTED THA T THE ISSUE 9 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) SHOULD ALSO BE RESTORED TO THE FILE OF THE AO/TPO R ATHER THAN DELETING THE PENALTIES. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIAL ON RECORD. IT IS UNDISPUTED THAT IN BO TH THE YEARS UNDER CONSIDERATION THE QUANTUM ADDITION ON ACCOUNT OF ENHANCEMENT BY THE LD. CIT (A) WITH RESPECT TO DISAL LOWANCE U/S 40 (A)(IA) OF THE ACT HAS BEEN DELETED BY THE TRIBUNAL IN ITA NOS. 3612 AND 3613/DEL/2017 AND, THEREFORE, SINCE THE IMPUGNE D QUANTUM ADDITIONS HAVE BEEN DELETED BY THE ITAT, THE PENALT IES U/S 271(1)(C) IMPOSED ON SUCH ENHANCEMENTS ALSO DO NOT SURVIVE. A CCORDINGLY, THE PENALTIES WITH RESPECT TO ENHANCEMENT U/S 40(A)( IA) IN BOTH THE YEARS UNDER CONSIDERATION STAND DELETED AND THE GRO UNDS RAISED BY THE ASSESSEE IN THIS REGARD STAND ALLOWED. 4.1 AS FAR AS THE OTHER ISSUE ON WHICH THE PENALTIES HAVE BEEN IMPOSED IS CONCERNED, I.E. ENHANCEMENT ON ACCOUNT O F ADVERTISEMENT, MARKETING AND PROMOTION EXPENSES, IT IS SEEN THAT THE ITAT DELHI BENCH HAS RESTORED THIS ISSUE TO THE FILE OF THE AO/ TPO FOR BOTH THE YEARS UNDER CONSIDERATION FOR THE PURPOSE OF RE- ADJUDICATING THE ISSUE IN LIGHT OF THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT Y EAR 2007-08. 10 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) ALTHOUGH, THE LD. AUTHORISED REPRESENTATIVE HAS ARG UED VEHEMENTLY FOR DELETING THE PENALTIES ON THE GROUND THAT THE V ERY BASIS OF LEVY OF PENALTIES HAS BEEN MODIFIED BY THE ORDER OF THE ITA T IN ITA NOS. 3612 & 3613/DEL/2017, WE ARE OF THE CONSIDERED OPINI ON THAT INTEREST OF JUSTICE WOULD BE SERVED IF THE PENALTIES FOR BOTH THE YEARS ON THE QUANTUM ENHANCEMENT PERTAINING TO ADVERTISIN G, MARKETING AND PROMOTION EXPENSES IS ALSO RESTORED TO THE FILE OF THE AO/TPO. IT IS DIRECTED ACCORDINGLY. THUS, THE GROUNDS RAISE D IN THIS REGARD ARE ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE FINAL RESULT, BOTH THE APPEALS OF THE ASSESSEE STAND ALLOWED IN TERMS OF OUR OBSERVATIONS AS CONTAINED I N THE PRECEDING PARAGRAPHS. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH SEPTEMBER, 2018. SD/- SD/- (INTURI RAMA RAO) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 07 TH SEPTEMBER, 2018 *BINITA* COPY OF ORDER TO: - 1) THE APPELLANT; 2) THE RESPONDENT; 3) THE CIT; 4) THE CIT(A)-, NEW DELHI; 11 ITA NO.7895, 7896/DEL/2017) (L G ELECTRONICS INDIA P. LTD.) 5) THE DR, I.T.A.T., NEW DELHI; TRUE COPY BY ORDER ITAT, NEW DELHI DATE OF DICTATION 05 .0 9 .2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06 .09.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 06 .09.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 0 7 .0 9 .2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 0 7 .0 9 .2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 0 7 .0 9 .2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT .0 9 .2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .0 9 .2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER