ACIT-2(1), Ujjain, Ujjain V. M/s Ruchi J Oil Pvt. Ltd, Mumbai

ITA 82/Ind/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0111 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 03-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Reasonable cause; Capital expenditure; Set aside
• Section: 271(1)(c); 273B; 92D; 92B; 92E; 10AA; 80IA; 264; 73; 92CA

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER VIRTUAL HEARING ITA No.82/Ind/2020 Assessment Year: 2014-15 ACIT, 2(1), Ujjain : Appellant V/s M/s. Ruchi J. Oil Pvt. Ltd. Mumbai PAN:AAGCR4475D : Respondent Appellant by Shri P.K. Mitra, CIT-DR Respondent by Shri P.D. Nagar, AR Date of Hearing 22.12.2021 Date of Pronouncement 17.01.2022 O R D E R PER MANISH BORAD, A.M.: The above captioned appeal filed at the instance of the Revenue for Assessment Year 2014-15 is directed against the order of Ld. Commissioner of Income Tax(Appeals) (in short ‘Ld. CIT] Ujjain dated 28.11.2019 which is arising out of the order u/s M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 2 271AA of the Income Tax Act 1961(In short the ‘Act’) dated 04.06.2018 framed by ACIT-2(1) Ujjain. 2. Brief facts of the case as culled out from the records are that the assessee is a Pvt. Ltd. Co. engaged in the business of manufacturing and processing of Soya Oil. Return of income for A.Y. 2014-15 filed on 25.11.2014 declaring total loss of Rs. (- )41,13,260/-. Case of the assessee was selected for scrutiny under CASS followed by serving of statutory notices. During the course of assessment proceedings Ld. AO observed that the assessee has entered into a transaction of acquisition of an undertaking by way of slump sale from its sister concern M/s Ruchi Soya Industries Ltd. for a consideration of Rs. 74,18,48,773/-. When asked about this transaction it was submitted before Ld. AO that the said transaction is not in the nature of revenue expenditure and the same is not covered under the definition of ‘specific domestic transaction’ defined u/s 92BA of the Act and the information about the said transaction has been provided in clause 9 of part A of form 3CEB filed with return of income. Ld. AO was not satisfied with this submission and considered the said transaction in the nature of ‘specific domestic transaction’ defined u/s 92BA of the M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 3 Act and further initiated the penalty proceedings u/s 271AA of the Act for not reporting the said transaction and failing to keep and maintain any such information as required u/s 91D(1) & 92D(2). Subsequently the penalty proceedings were carried out and Ld. AO after considering the submissions of the assessee concluded the proceedings levying penalty u/s 271AA of the Act @ 2% of the said transaction thereby computing the quantum of penalty at Rs.1,48,40,322/-. 3. Aggrieved assessee preferred an appeal before the Ld. CIT(A) and succeeded as Ld. CIT(A) came to conclusion that the said transaction was not in the nature of expenditure and the penalty was not leviable broadly on account of the following observations: 4.18 Hence, in light of the above facts and circumstances of the case, the following facts clearly emerge out which are mentioned as below:- 1. Slump sale was not an expenses and is also not covered u/s 40A(2)(b) . Hence, the slump sale was not treated as Specified Domestic Transaction. 2. However, the same was reported in form 3CEB clause 9 where the transaction was clearly mentioned as not to be Specified Domestic Transaction. 3. Thus, the appellant had disclosed the transaction and had given clarificatory note as to why the same was not considered as Specified Domestic Transaction. 4. In the penalty notice, the AO has referred to all the limbs of section 271AA. The notice issued for levy of penalty under section 271AA was vague, did not clearly bring out the purported default for which penalty was proposed to be levied. 5. The notice issued for levy of penalty under section 271AA was for failure to maintain or to report the information and document as required under section 92D(1), 92D or to maintain or furnish incorrect information M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 4 or document. But the penalty has been levied for failure to report Specified Domestic Transaction. 6. Even TPO has also mentioned in his order that the details of International transaction in term of section 92B and specified domestic transactions in terms of the act between the assessee and its associates enterprise were given in form 3CEB. 7. Thus, the AO as well as TPO have accepted that the transaction had been reported. 8. The assessee was under bona fide belief that the transaction was not specified domestic transaction and thus had reasonable cause for non treating it as specified domestic transaction. 4. Aggrieved revenue is now in appeal before this Tribunal raising following grounds of appeal: “1.Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the penalty imposed u/s 271AA at Rs.1,48,40,322/- without appreciating the facts and evidences brought by the assessing officer during the course of penalty proceedings? 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the penalty imposed u/s 271AA ignoring the fact that the assessee failed to report the Specified Domestic Transaction in Form No.3CEB without noting “Not applicable since less than Rs.5 crore? 3. Any other ground that may be adduced at the time of hearing. 5. Ld. DR vehemently argued supporting the order of Ld. CIT(A). 6. Per contra, Ld. counsel for the assessee vehemently argued referring to the following submissions placed on record: SUBMISSIONS : I) Reporting in Form 3CEB The assessee had acquired an undertaking by way of “slump sale” which was not a Specified Domestic Transaction yet it was reported by way of note against clause 9 of Part-A in Form 3CEB copy reproduced here under :- M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 5 “The Company has acquired an undertaking (comprising of fixed assets, net current assets and non-current assets) by way of slump sale. The acquisition of inventories as a part of slump sale is not a Specified Domestic Transaction as defined in section 92BA(i) of the Income Tax Act, 1961 and is not considered as such in this report.” (Page 2). Form 3CEB submitted to the Assessing Officer (AO) is enclosed herewith (Page 01 to 11). This fact has also been acknowledged by the Transfer Pricing Officer (TPO) on page 2 of his order dated 11.09.2017 u/s. 92CA (3) of the Act with a clear finding that the Specified Domestic Transaction has been reported in Form 3CEB, as reproduced below. [Page 12 to 14] :- “The details of International Transaction in term of Section 92B and Specified Domestic transactions in terms of Section 92BA of the Act between the assessee and its Associate Enterprise are given in Form 3CEB”. (Page 13). Thus, the finding of the Assessing Officer is not that the assessee has failed to report the Specified Domestic Transaction, but the finding is that in his opinion the Specified Domestic Transaction has not been correctly reported. We submit that there being detailed explainatory note in the Form 3CEB, there was proper compliance of section 92E of the Act hence penal provisions of section 271AA were not attracted. II) Specified Domestic Transaction : Without prejudice to the above, we also submit that as per plain reading of section 92BA, the assessee, it had not entered into a Specified Domestic Transaction, which required any reporting. The term SDT defined in section 92BA of the Income Tax Act, 1961 is reproduced here under :- “92BA. For the purposes of this section and sections 92, 92C, 92D and 92E, "specified domestic transaction" in case of an assessee means any of the following transactions, not being an international transaction, namely:— (i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A; (ii) any transaction referred to in section 80A; (iii) any transfer of goods or services referred to in sub-section (8) of section 80-IA; (iv) any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; (v) any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 6 (vi) any other transaction as may be prescribed ,and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of five crore rupees.” Thus, the provisions of section 92BA are attracted when (i) there has to be an expenditure in respect of which payment has been made and (ii) such payment is made to a person referred to in section 40A(2)(b). During the year, the assessee had acquired a running undertaking with all its assets and liabilities under a Business Transfer Agreement by way of slump sale from a party covered by provisions of section 40A(2)(b). On acquisition, the various assets acquired were recorded in the balance sheet and were not debited to the profit and loss account. No deduction was claimed as expenditure in respect of the consideration paid for the acquisition of the undertaking. The word “Slump Sale” as defined u/s 2(42C) of the Act, means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales”. It is an undisputed fact that the transaction entered into by the assessee is wholly covered by the above definition of the term “slump sale” covered by section 40A(2), but it was not an expenditure as contemplated under section 92BA read with section 40A(2). Kind attention is invited to the Guidance Note issued by the Institute of Chartered Accountants of India, according to which payments made towards purchase of an undertaking was not in the nature of expenditure, as per Para 4A.7 and 4A.11. reproduced hereunder :- “4A.7The transactions included in the ambit of this section would include expenditure transactions like (illustrative only): • Expenditure on buying goods • Expenditure on procurement of services • Expenditure on interest payments • Expenditure on salary, training services, marketing expenses • Expenditure on purchase of tangible and intangible property (provided the same is eligible for deduction while computing the taxable profits of the entity) • Director’s remuneration, commission, sitting fees • Group charges • Reimbursement expenditure • Guarantee fee expenditure 4A.11These provisions are applicable to expenditures which are in capital in nature and fully claimed as deduction under other provisions (eg. Sec 35(2AB), 35 or 35AD) since any expenditure is covered under the scope of sec 40A (2)(b).However, these provisions are not applicable to capital expenditures which are capitalized in the books of accounts and not claimed as deduction in the profit & loss account. M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 7 The Guidance Note categorically mentioned that provisions relating to Specified Domestic Transaction do not apply to capital expenditure which is capitalized in the books of account and not claimed as deduction in the profit and loss account. Kind attention is also invited to following judgments wherein it has held that in case of sale of business as a whole, when there is no allegation of price to any particular asset, the transaction is of the capital nature covered by Section 50B of the Act, liable for capital gain :- a) CIT vs. Accelerated Freeze Drying Co. Ltd. [2011] 337 ITR 440 (Kerala) b) Premier Automobiles Ltd. vs. ITO [2003] 264 ITR 193 (Bom.) It may please be appreciated that the slump sale transaction was therefore not a Specified Domestic Transaction as defined in section 92BA of the Act and it was not required to be reported in Form 3CEB. III) Initiation of penal proceedings, penalty notice and penalty order : It is submitted that the Assessing Officer did not clearly and specifically arrive at a conclusion as to the exact default committed by the assessee for which penalty is levied as explained hereunder :- (a) In Assessment order :-– Page 15 to 27] i) In para5.5.1 of the assessment order (Page-___), the Assessing Officer referred the order passed by the Transfer Pricing Officer (TPO) and stated that the TPO has considered purchase of undertaking by way of slump sale from Ruchi Soya Industries Ltd. as a Specified Domestic Transaction. ii) Thereafter, in para 5.5.2 of the order the AO stated “Therefore, the order of Ld. TPO u/s 92CA as regards valuation of the above transaction and the categorization of the same as a Specified Domestic Transaction is acceptable. However, “since the assessee Company has not truly and fully disclosed the said transaction as specified domestic transaction in Form 3CEB; therefore, penalty under section 271AA is hereby being separately initiated”. (Page 21/22 of P.B) iii) The last page of the assessment order, reads as`Initiate penalty proceedings u/s 271AA for Non-reporting of Specified Domestic Transaction in Form 3CEB.’ (Page 27). 1. Thus, learned Assessing Officer himself was not clear whether default is of non reporting of the specified domestic transaction or for not disclosing it truly and fully. a) Penalty Notice : [Page 28) The relevant portion of the notice was issued u/s 271AA on 26.12.2017 reads as under:- M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 8 “Whereas in the course of proceedings before me for the A.Y. 2014-15, it appears to me that you have, without reasonable cause, failed to keep and maintain or to report the information and documents as required u/s 92D(1) or 92D or he maintains or furnishes an incorrect information or document. Failure to furnish information and documents as required u/s 92D(4) (as amended by Finance Act, 2016, w.e.f. 1.4.2016.” (Page 28 of P.B) We submit that section 92D(1) before amendment w.e.f. 01.04.2016 reads as under :- “(1). Every person who had entered into an International transaction or Specified Domestic Transaction shall keep and maintain such information and documents in respect thereof, as may be prescribed”. Section 92D(4) was inserted by Finance Act 2016 which created an obligation on the person referred to in section 92(D) of the Act to furnish the information and documents to the authority prescribed u/s 286(1). Thus, on plain reading of section 92D there was no requirement to furnish any report in Form 3CEB hence aforesaid notice for levy of penalty for failure to furnish information u/s 92D(4) was itself invalid because said sub-section (4) was inserted with effect from 01.04.2016 hence not applicable for A.Y. 2014-15, the year under appeal. In fact, section 92D does not deal with reporting of Specified Domestic Transactions in Form 3CEB. Such obligation is created u/s 92E of the Act to furnish report by the person entering into International transaction or Specified Domestic Transaction. Presuming but not admitting, we submit that the notice u/s 271AA of the Act should have refer the failure to furnish the report u/s 92E of the Act instead of 92D hence the notice so issued was vague because it does not specified the exact default committed by the assessee, even if, acquisition of an undertaking on slump sale basis is treated as Specified Domestic Transaction covered by Section 92BA of the Act. b) Penalty Order dated 04.06.2018 :- (Page 29 to 55) 2. Though notice dated 26.12.2017 under section 271AA did not refer to failure to report Specified Domestic Transaction as contemplated u/s 92E read with clause (ii) of section 271AA, the AO for the first time refers to section 271AA(ii) in para 7.3 of the penalty order as under: “Therefore, the submission of the assessee that penalty u/s 271AA is applicable only for failure to keep and maintain the information and documents is not acceptable as the said penalty is also applicable when the assessee “fails to report such transaction which is required to do so” [As per sub-section (ii) of section 271AA of IT Act].” Even issue of shares was not considered by the assessee as an International Transaction and a clarificatory note to that effect was given in the Form 3CEB which was considered by AO in para 8.4 of penalty order (Page 53 of P.B) and held that “the assessee Company has “in M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 9 effect” reported the above transaction as an International Transaction and thereby complied with the requirement of sub-section (ii) of section 271AA of IT Act”. Hence the assessee company does not seem to be liable for penalty u/s 271AA of the Act w.r.t. the International Transaction”. However, in case of Specified Domestic Transaction a similar clarificatory note was duly given and yet the transaction of purchase of undertaking by way of slump sale was reported by way of a note in the Form 3CEB yet learned Assessing Officer held that the assessee had failed to report SDT in Form 3CEB correctly and levied penalty. The Assessing Officer in para 9.1.2 of the penalty order also acknowledged that the assessee has disclosed the transaction and observed as under :- “Even though the assessee company has obtained Audit Report in Form No. 3CEB, but has failed to Report specified Domestic transaction in Form 3CEB correctly” (Page53 of P.B). The learned Assessing Officer in the penalty order did not state any reason for holding the transaction to be a Specified Domestic Transaction under section 92BA & proceeded on the basis that the transaction was a Specified Domestic Transaction liable for penalty, which was wholly unjustified. Thus, the penalty notice was issued for failure to maintain or to report the information and document as required under section 92D(1), or maintaining or furnishing incorrect information or document, the penalty order resorts to section 271AA(ii) whereas penalty has been levied for not reporting specified domestic transaction. It is settled law that under such circumstances, levy of penalty would be untanable as held in following judgments :- i) CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 563 (Kar.) Held 'Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income.... But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law..... Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid'.” (Page 56 to 82 of P.B.) ii) Pr. CIT vs. Kulwantsingh Bhatia (2018) 33 ITJ 777 (MP) Held that “On due consideration of the arguments of the learned counsel for the appellant, so also considering the fact that the ground mentioned in show-cause notice would not satisfy the requirement of law, as notice M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 10 was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT vs. Manjunatha Cotton Ginning Factory (supra) and CIT vs. SSA’S Emerald Meadows (supra) rightly allowed the appeal of the assessee and set aside the order of penalty imposed by the authorities. (Page 83 to 88 of P.B.) iii) CIT vs Manu Engineering Works [1980] 122 ITR 306 (Gujarat) (Page 89 to 93 of P.B) iv) CIT vs Samson Perinchery [2017] 88 taxmann.com 413 (Bom.) (Page 94 to 96 of P.B) v) CIT vsSSA'S Emerald Meadows [2016] 73 taxman.com 241 (Kar.)(P.116 to 118 of P.B) vi) CIT vs. SSA'S Emerald Meadows[2016] 73 taxmann.com 248 (SC)(SLP dismissed). vii) Varad Mehta vs. DCIT (2019) 34 ITJ 125 (Indore Trib) Held “AO has merely mentioned the Section but the specific charge i.e. whether the penalty have been initiated for concealment of particulars of income or for furnishing inaccurate particulars of income has not been mentioned. Alleged notice issued u/s 272 r.w.s. 271(1)(c) is invalid, untenable and suffers from the infirmity of non application of mind by AO”.(Page 97 to 106 of P.B) viii) Gaurav Sharma vs. ACIT (2018) 33 ITJ 500 (Indore Trib) (Page 107 to 115 of P.B) ix) Keti Sangam Infrastructure (I) Ltd vs. DCIT (2018) 33 ITJ 590 (Indore Trib) Though above decisions are in the context of penalty under section 271(1)(c), it has been consistently held by this Hon’ble Bench that where notice proposing to levy penalty does not indicate the specific default or where penalty proceedings were initiated for one default while penalty was levied for another default, the penalty levied cannot be sustained. The ratio of the above decisions squarely applies in the case of the Respondent. IV) Reasonable cause within the meaning of Section 273B : 3. Last but not the least, it is submitted that considering the provisions of section 92BA and the Guidance Note issued by the Institute of Chartered Accountants of India, Respondent had a reasonable cause for not considering the transaction as Specified Domestic Transaction and this fact was disclosed in Form 3CEB. There being bona fide belief, that the transaction was not a Specified Domestic Transaction as defined u/s. 92BA of the Act because it cannot be covered within the term “Expenditure”. Accordingly disclosed the fact that it was not a Specified Domestic Transaction and reported the transaction in form 3CEB. M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 11 4. The assessee had disclosed the transaction and given clarificatory note in Form 3CEB as to why the same was not considered as Specified Domestic Transaction. 5. It may kindly be appreciated that even presuming but not accepting that there was a failure on the part of the Respondent to report the transaction, the Respondent had a reasonable cause and penalty imposed for alleged failure in view of provisions of section 273B r.w. section 271AA, was rightly quashed by the Hon’ble CIT(A). 7. We have heard rival contentions and perused the records placed before us and carefully gone through decisions referred and relied by the Ld. counsel for the assessee. The revenue’s sole grievance is that ld. CIT(A) erred in deleting the penalty levied u/s 271AA of the Act @ 2% of the transaction of purchase of an undertaking by the assessee from its sister concern M/s Ruchi Soya Ltd. at a consideration of Rs.74,18,48,773/-. We find that Ld. CIT(A) after taking into consideration the settled judicial precedents as well as facts of the case deleted the penalty observing as under: 4.0 These grounds of appeal are with regard to imposing penalty of Rs. 1,48,00,000/- u/s 271AA of the IT Act, 1961. I have carefully gone through the penalty order as well as submission of the appellant in this regard. 4.1 The brief facts of the case are that the appellant was engaged in the business of Manufacturing and processing of Soya Products. The AO had received information from DCIT, TPO-2, Ahmadabad that the appellant had entered into following International and Specified Domestic Transaction during the year under consideration. The details of the same were given as below:- M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 12 Details of International Transaction Name of the A.E. Nature of Transaction Amount MAM as per the assessee Toyota Tsusho Corporation Issue of 92,000 equity shares of Rs. 10 each 261342560 Other Method J Oil Mills Inc Issue of 1,04,000 equity shares of Rs. 10 each 295430720 Other Method Total value of International Transaction 556773280 Details of Specified Domestic Transaction Name of the A.E. Nature of Transaction Amount MAM as per the assessee Ruchi Soya Industries Limited Purchase of Undertakings by Slump Sale 741848773 Other Method 4.2 It was observed by the AO that the appellant had failed to keep and maintain or to report the information and documents as required u/s 92D(1) or 92D or furnish an incorrect information or document. The AO had asked the appellant to explain that in the specified Domestic Transaction (Payment made to persons specified under section 40A(2)(b), reported as per column no. 23 of form 3CD) were not reported in form 3CEB and the AO had also asked the appellant to submit its reply as to why the penalty u/s 271AA of the IT Act, 1961 should not be levied for the said default. The appellant had filed its reply before the AO but the AO was not satisfied with the same and had imposed the penalty u/s 271AA of the IT Act, 1961. 4.3 It would be pertinent to reproduce the language of section 271AA of the IT Act, 1961- M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 13 “Without prejudice to the provisions of section 271 or section 271BA, if any person in respect of an international transaction or specified domestic transaction,- 9. Fails to keep and maintain any such information and document as required by sub-section (1) or sub-section (2) of section 92D; 10. Fails to report such transaction which is required to do so; or 11. Maintains or furnishes an incorrect information or document, The AO or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal or two percent of the value of each international transaction or specified domestic transaction entered into by such person” 4.4 The AO had levied the penalty because as per his opinion, the appellant had entered into Specified Domestic Transaction and had committed default as per section 271AA of the IT Act, 1961. The term Specified Domestic Transaction is defined in section 92BA of the Income Tax Act, 1961 which reads as under:- 92BA. For the purpose of this section and sections 92, 92C, 92D and 92E “Specified Domestic Transaction” in case of an assessee means any of the following transactions, not being an international transaction, namely:- 12. Any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A; (emphasis supplied) 13. Any transaction referred to in section 80A; 14. Any transfer of goods or services referred to in sub-section (8) of section 80-IA; 15. Any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; 16. Any transaction , referred to in any other section under Chapter VI- A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or 17. Any other transaction as may be prescribed. M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 14 And where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of five crore rupees.” 4.5 There are two cumulative conditions for attracting the provisions of clause (i) of section 92BA. These are -- (i) there has to be an expenditure in respect of which payment has been made or is to be made; and (ii) such payment is to a person referred to in clause (b) of section 40A(2). 4.6 During the year relevant under consideration, the appellant had acquired a running undertaking with all its assets and liabilities under a Business Transfer Agreement by way of slump sale. The said undertaking was acquired from a party covered by provisions of section 40A(2)(b). On acquisition, the various assets acquired were recorded in the balance sheet by the appellant and were not debited to the profit and loss account. No deduction was claimed in respect of the consideration paid for the acquisition of the undertaking. 4.7 The definition of Slump Sale u/s 2(42C) of the Act is reproduced as below: 2(42C) "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Explanation 1,-For the purposes of this clause, "undertaking" shall have the meaning assigned to it in Explanation 1 to clause (19AA) Explanation 2.-For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities." Explanation 1 to Section 2(19AA"): "(19AA) Explanation 1-For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 15 but does not include individual assets or liabilities or any combination thereof not constituting a business activity" 4.8 The appellant has taken the plea that the transaction entered into by the appellant was wholly covered by the above definition of the term slump safe and was not payment for any expenditure. The appellant has also taken the plea that the slump sale was not an expenses and was also not covered u/s 40A(2)(b) of the IT Act, 1961. Hence, the slump sale was not treated as specified domestic transaction. 4.9 The section 40A(2)(a) provides for disallowance of such expenditure if the same is excessive or unreasonable having regard to the services or facilities for which the payment is made or the legitimate needs of the business or profession of the payee. Thus, what is sought to be covered by the provisions section 40A(2)(a) is expenditure in respect of which deduction is claimed. In the instant case, as stated above, payment has been made towards purchase of an undertaking which is not in the nature of expenditure. 4.10 The appellant has stated that although the transaction was with a person referred to in clause (b) of section 40A(2) , it was not an expenditure as contemplated under section 92BA read with section 40A(2). 4.11 The appellant has also relied on the guidance note issued by the Institute of Chartered Accountants of India. The para 4A.7 and 4A.11 of the said guideline is reproduced is as below:- 4A.7 The transactions included in the ambit of this section would include expenditure transactions like (Illustrative only):- 18. Expenditure on buying goods 19. Expenditure on procurement of services M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 16 20. Expenditure on interest payments 21. Expenditure on salary, training services, marketing expenses 22. Expenditure on purchase of tangible and intangible property (Provided the same is eligible for deduction while computing the taxable profits of the entity) 23. Director’s remuneration, commission, sitting fees. 24. Group charges 25. Reimbursement expenditure 26. Guarantee fee expenditure 4A.11 These provisions are applicable to expenditures which are in capital in nature and fully claimed as deduction under other provisions (eg Sec 35(2AB), 35 or 35AD) since any expenditure is covered under the scope of section 40A(2)(b) . However these provisions are not applicable to capital expenditures which are capitalized in the books of accounts and not claimed as deduction in the profit & loss account. 4.12 It is clear from the above guidance note that provisions relating to Specified Domestic Transaction do not apply to capital expenditure which is capitalized in the books of account and not claimed as deduction in the profit and loss account. The appellant has relied on the decision of Hon’ble Bombay High Court in the case of Premier Automobiles Ltd vs ITO (2003) 129 Taxman 289 and the decision of Hon’ble Kerala High Court in the case of CIT vs Accelerated Freeze Drying Co. Ltd (2011) 198 Taxman 18. In both the cases, it has been held that in case of sale of business as a whole, when there is no allegation of price to any particular asset, the transaction is of the capital nature not covered by the provisions of section 40A(2). 4.13 Further, the appellant has also taken the plea that in the instant case, the transaction was not a Specified Domestic Transaction as M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 17 defined in section 92BA of the Act and was not required to be reported in form 3CEB. The appellant has stated in its reply that the AO in its penalty order as well as the TPO in its order had not mentioned any reason for holding the transaction to be a Specified Domestic Transaction u/s 92BA of the IT Act, 1961. 4.14 The appellant has also stated that the appellant had disclosed the transaction in form 3CEB. The appellant had acquired an undertaking by way of slump sale and the same was not a Specified Domestic Transaction and not considered as such was reported by the appellant in the form 3CEB. The appellant has also submitted the copy of form 3CEB during the course of appellate proceedings. Further, the Transfer Pricing Officer (TPO) on page no.2 of its order u/s 92CA(3) of the Act had mentioned that the details of International Transaction in term of section 92B and Specified Domestic Transaction in terms of section 92BA of the Act between the assessee and its Associate Enterprise are given in form 3CEB. Further, the AO has also mentioned in para 9.1.2 and 10.1 that the appellant had disclosed the transaction. The language of para 9.1.2 is reproduced as below:- “Even though the assessee company has obtained Audit Report in Form No. 3CEB , but has failed to report Specified Domestic Transaction in Form 3CEB correctly.” 4.15 It is clear from the assessment order that the appellant had reported the said transaction in form 3CEB and the same is clear from the AO order as well as order of the TPO. The appellant has also stated that during the year under consideration, the appellant had issued shares to Toyota Tsusho Corporation and J Oil Mills Inc. The transaction of issue of shares was not considered by the appellant as an International Transaction and a note to that effect was given in form 3CEB. During the course of penalty proceedings, the AO had considered the said clarificatory note and in para 8.4 of the order, the AO has submitted that the assessee company had in effect reported the above transaction as an M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 18 International Transaction and thereby compiled with the requirement of subsection (ii) of section 271AA of the IT Act, 1961. 4.16 The appellant has stated that in case of Specified Domestic Transaction, the appellant had issued a similar clarificatory note and the AO had not considered the same. 4.17 The appellant has also taken the plea that the AO had failed to specify the charge on which he had levied the penalty. The appellant has stated that in para 5.5.2 of the assessment order, the AO has mentioned that penalty u/s 271AA of the Act was being initiated for not truly and fully disclosing the said transaction as specified domestic transaction in form 3CEB. Further, on the last page of the assessment order, the AO has mentioned that “initiate penalty proceedings u/s 271AA for non-reporting of Specified Domestic Transaction in form 3CEB”. It has been argued that the AO himself was not clear as to whether in his opinion the default was of not reporting of the specified domestic transaction or that of not disclosing truly and fully the purported specified domestic transaction. Further, the appellant has submitted the copy of notice u/s 271AA of the IT Act so issued by the AO. After going through the notice, it is clear that the AO had failed to specify the exact default purported to have been committed by the appellant. The relevant portion of the said noticed is as below:- “Whereas in the course of proceedings before me for A.Y. 2014-15, it appears to me that you have, without reasonable cause, failed to keep and maintain or to report the information and documents as required u/s 92D(1) or 92D or he maintains or furnishes an incorrect information or document. Failure to furnish information and documents as required u/s 92D(4) (as amended by Finance Act, 2016, w.e.f. 01.04.2016) ” M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 19 4.18 Hence, in light of the above facts and circumstances of the case, the following facts clearly emerge out which are mentioned as below:- 27. Slump sale was not an expenses and is also not covered u/s 40A(2)(b) . Hence, the slump sale was not treated as Specified Domestic Transaction. 28. However, the same was reported in form 3CEB clause 9 where the transaction was clearly mentioned as not to be Specified Domestic Transaction. 29. Thus, the appellant had disclosed the transaction and had given clarificatory note as to why the same was not considered as Specified Domestic Transaction. 30. In the penalty notice, the AO has referred to all the limbs of section 271AA. The notice issued for levy of penalty under section 271AA was vague, did not clearly bring out the purported default for which penalty was proposed to be levied. 31. The notice issued for levy of penalty under section 271AA was for failure to maintain or to report the information and document as required under section 92D(1), 92D or to maintain or furnish incorrect information or document. But the penalty has been levied for failure to report Specified Domestic Transaction. 32. Even TPO has also mentioned in his order that the details of International transaction in term of section 92B and specified domestic transactions in terms of the act between the assessee and its associates enterprise were given in form 3CEB. 33. Thus, the AO as well as TPO have accepted that the transaction had been reported. 34. The assessee was under bona fide belief that the transaction was not specified domestic transaction and thus had reasonable cause for non treating it as specified domestic transaction. 4.19 Thus, in light of the above facts, the penalty so imposed by the AO is hereby deleted and accordingly, these grounds of appeal are allowed. M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 20 8. From perusal of the above finding as well as considering submissions made by the assessee we notice that the said transaction was for the purchase of undertaking and is of a capital in nature. Assessee has not claimed any expenditure against its revenue for the year. Also auditor of the assessee company has specifically given a note in clause 9 of form 3CEB of the Act provided in the income Tax Rules that the said transaction is not “specified a domestic transaction”. Also on perusal of the provisions of section 271AA of the Act which is referred hereinabove in the finding of Ld. CIT(A) we notice that the penalty is leviable on specified domestic transaction or an international transaction if the assessee does not fulfill any of the following three conditions: a) Fail to keep and maintain any such information and documents as required u/s 91(1) & 92D(2) of the Act. b) Fails to report such transaction which is required to do so. c) Maintain or furnish or incurred information or document. 9. Now examining the facts of the case in light of the above stated provisions we find that the assessee has duly disclosed the said transaction in its regular books of account. There is no finding of the revenue authorities that the particulars furnished relating to M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 21 the said transition are inaccurate or suffers from any defect. It is clearly established that the said transaction is not expenditure as contemplated in the definition of specified domestic transaction defined u/s 92B of the Act as it is not an expenditure for making any payment to a person referred to in section 40A(2)(b) of the Act nor a transaction referred to in section 80(A), nor any transfer of goods or services referred to in sub-section (8) or sub-section (10) of section 80IA nor referred to any other section in chapter VI-A or section 10AA of the Act. We find that the assessee in all its fairness has submitted the necessary details to the auditor. The auditor has also incorporated the information in the form 3CEB by way of giving specific note about the said transaction being not to be treated as “specified domestic transaction”. 10. We, therefore, in view of our above discussion are of the considered view that firstly the said transaction is of purchase of an undertaking from sister Concern M/s Ruchi Soya Ltd. and is not a “specific domestic transaction” u/s 92BA of the Act leaving no room for the application the provision of section 271AA of the Act secondly, as the assessee has maintained and informed about all the details of the said transaction provisions of section 271AA of M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 22 the Act cannot be invoked and thirdly the penalty notice issued by the Ld. AO is vague as it did not clearly bring out the purported default for which the penalty is to be levied and for this third proposition we rely on the ratio laid down by Hon'ble Jurisdictional High Court in the case of CIT vs. Kulwant Singh Bhatia(supra). Under these given facts and circumstances of the case and our observations referred hereinabove, we find sufficient merit in the submissions of Ld. counsel for the assessee and fail to find any infirmity in the finding of Ld. CIT(A) deleting the penalty levied u/s 271AA of the Act at Rs. 1,48,40,322/- by the Ld. AO. All the grounds raised by the Revenue are dismissed. 11. In the result, Revenue’s appeal ITANo.82/Ind/2020 is dismissed. The order pronounced as per Rule 34 of ITAT Rules, 1963 on 17.01.2022. Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER दनांक /Dated : 17.01.2022 Patel/PS M/s. Ruchi J. Oil Pvt. Ltd. ITA No.82/Ind/2020 23 Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Asstt.Registrar, I.T.A.T., Indore