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Income Tax Act, 1961 – Sections 271(1)(c), 274 and 43(5) - The assessee, a telecom company, filed returns for AYs 2009-10, 2010-11, and 2011-12, declaring losses. The Assessing Officer (AO) disallowed certain expenditures, including pre-operative expenses and customer acquisition costs, treating them as capital in nature. Additionally, for AY 2011-12, a loss of Rs. 15,26,33,459 arising from hedging contracts was classified as a speculative loss under Section 43(5). The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income and levied a penalty of Rs. 5,08,08,00,000. The CIT(A) deleted the penalty, holding that the disallowance of expenses was a debatable issue and that the AO had not established concealment or inaccuracy. The Revenue appealed before the ITAT - Whether the disallowance of pre-operative expenses and customer acquisition costs amounted to furnishing inaccurate particulars of income under Section 271(1)(c) - Whether the hedging loss was correctly treated as speculative under Section 43(5) and whether its disallowance warranted penalty - Whether the penalty proceedings under Section 271(1)(c) were valid despite the AO’s failure to specify the charge in the notice issued under Section 274 – HELD - Mere disallowance of expenses does not constitute concealment or furnishing of inaccurate particulars unless the claim was found to be fraudulent or unsupported. The CIT(A) had partially allowed depreciation and amortization on the disallowed expenses, indicating that the matter was debatable. Relying on Reliance Petroproducts Ltd., ITAT ruled that making an incorrect claim in law does not amount to furnishing inaccurate particulars - Regarding the hedging loss, ITAT observed that speculative classification under Section 43(5) depends on the nature of transactions. The CIT(A) had already deleted the addition, and no fresh material was presented by the Revenue to justify the penalty - ITAT found that the penalty notice under Section 274 was defective as it failed to specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars". Citing CIT v. SSA’s Emerald Meadows and CIT v. Manjunatha Cotton & Ginning Factory, ITAT ruled that such a vague notice invalidates the penalty - ITAT further noted that the Supreme Court had dismissed the Revenue’s SLP against the Karnataka High Court ruling in SSA’s Emerald Meadows, reinforcing that an unspecified notice under Section 274 renders the penalty order unsustainable - The ITAT dismissed the Revenue’s appeal, holding that the penalty under Section 271(1)(c) was not legally sustainable due to the debatable nature of disallowances and the defective notice under Section 274

 

2025-VIL-217-ITAT-DEL

 

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: ‘G’ NEW DELHI

 

ITA No. 1207/Del/2019

Assessment Year: 2009-10

 

Date of Hearing: 08.01.2025

Date of Pronouncement: 31.01.2025

 

DCIT

 

Vs

 

M/s TATA TELESERVICES LIMITED

 

ITA No: 1208/Del/2019

Assessment Year: 2010-11

 

DCIT

 

Vs

 

M/s TATA TELESERVICES LIMITED

 

ITA No: 1974/Del/2021

Assessment Years: 2011-12

 

ACIT

 

Vs

 

M/s TATA TELESERVICES LIMITED

 

Assessee by: Shri Salil Kapoor, Adv., Ms. Ananya Kapoor, Adv., Shri Shivam Yadav, Ad.

Revenue by: Ms. Jaya Chaudhary, CIT(DR)

 

BEFORE

SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

SHRI SUDHIR PAREEK, JUDICIAL MEMBER

 

ORDER

 

PER SUDHIR PAREEK, JM

 

These appeals are preferred by the Revenue against the different order of Learned Commissioner of Income Tax (Appeal) (hereinafter referred to as ‘Ld. CIT(A)’), Delhi vide order dated 29.11.2018 and 05.02.2020 for the Assessment Years (‘AY’) 2009- 10, 2010-11 and 2011-12. Since the identical issues are raised in these appeals of Revenue, and they are being disposed of by this consolidated order for the sake of convenience and brevity.

 

1.1 The Revenue has raised the following grounds of appeal:

 

ITA No.- 1207/Del/2019

 

“1. The impugned order of the CIT (A) is bad in law as well as on facts of the case.

 

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of assessee against the penalty order passed u/s 271(1)(C) of the IT Act, 1961 on the issues of Pre-operative expenses and customer Acquisition Costs amounting to Rs.1,26,84,51,180/- for A.Y - 2009-10 and deleting the penalty ignoring the fact that the assessee has furnished inaccurate particulars within the meaning of explanation 1 to the sub-section (1) of the section 271 (1)(c) of the Income Tax Act, 1961.

 

3 "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty by ignoring decision of Hon'ble jurisdictional High Court in case of CIT vs Zoom Communication P Ltd (2010) 327 ITR 510, CIT vs NG Technologies Ltd 370 ITR7 and CIT vs Escorts Finance Ltd. (2010) 328 ITR 44.

 

4 "The Appellant craves, leave or reserving the right to amend, modify, alter, add or forego any of the Ground(s) of Appeal at any time before or during the hearing of this appeal."

 

ITA No.- 1208/Del/2019

 

“1. "The impugned order of the CIT (A) is bad in law as well as on facts of the case."

 

2 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of assessee against the penalty order passed u/s 271(1)(C) of the I.T Act, 1961 on the issues of Pre-operative expenses and customer Acquisition Costs amounting to Rs. 1,56,99,67,200/- for A.Y- 2010-11 and deleting the penalty ignoring the fact that the assessee has furnished inaccurate particulars within the meaning of explanation 1 to the sub-section (1) of the section 271 (1)(c) of the Income Tax Act, 1961,

 

3 " on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty by ignoring the decision of Hon'ble jurisdictional High Court in case of CIT vs Zoom Communication P Ltd (2010) 327 ITR 510, CIT vs NG Technologies Ltd 370 ITR7 and CIT vs Escorts Finance Ltd. (2010) 328 ITR 44.

 

4 "The Appellant craves, leave or reserving the right to amend, modify, alter, add or forego any of the Ground(s) of Appeal at any time before or during the hearing of this appeal."

 

ITA No.-1974/Del/2021

 

“1. "The impugned order of the CIT(A) is bad in law as well as on facts of the case."

 

2. "On the facts and in the circumstances of the case and in law, the case law, the Ld. CIT(A) has erred in deleting the addition of Rs. 15,26,33,459/- made by the AO on account of premium and interest [of Rs. 13,26,33,459/- & Rs. 2,58,34,740/- - respectively] on hedging contract which was held as speculation loss as per provisions of section 43(5) of the Income tax Act, 1961.

 

3. "On the facts and in the circumstances of the case the Ld. CIT(A) has erred in allowing the appeal of the assessee against the penalty order passed u/s 271(1)(C) of the Income Tax Act, 1961 on the issue pre-operative expenses of Rs. 13,23,00,000/- and customer acquisition costs equipment subsidy of Rs. 2,06,17,23,259/- for A.Y. 2011-12 and deleting the penalty ignoring the facts the assessee has furnished inaccurate particulars within the meaning of explanation 1 of the sub-section (1) of the section 271 of the Income Tax Act, 1961.

 

4. "On the facts in the circumstances of the case the Ld. CIT(A) as erred in deleting the penalty by ignoring the decision of Hon'ble Jurisdictional High Court in the case of CIT v/s Zoom communication Pvt. Ltd. (2010)327 ITR 510, CIT V/s NG Technologies Ltd. 370 ITR 7 and CIT V/s Escorts Finance Ltd. (2010) 328 ITR 44."

 

5. "The appellant craves to leave or reserving the right demand, modify after, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."

 

3. Similar grounds have been raised in these appeals, involving Pre-operative expenses, customer acquisition costs and the issue of penalty deletion u/s 271(1)(c) of the Act.

 

4. We take ITA No. 1207/Del/2019 as a lead case, to adjudicate these appeals.

 

4.1 Brief facts are summarized in this case as may be the assessee company e-filed its return of income declaring a total loss of Rs. 1163,19,51,248/- for the assessment year 2009-10 on 28.09.2009. The case was selected for scrutiny in CASS. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 26.12.2011 determining a total loss of rs. 571,64,72,090/- by making certain additions. The AO initiated penalty proceedings u/s 271(1) r.w.s. 274 on the disallowance made vide order u/s 143(3) of the I.T. Act. Aggrieved the assessee company filed an appeal before the CIT(A) against the AO order dated 26.12.2011 u/s 143(3) of the I.T. Act.

 

4.2 The Ld. CIT(A) finally passed an order dated 17.10.2016 in the instant case whereby giving relief to the petition made in grounds of appeal by the assessee. The following additions sustained by Ld. CIT(A) are being considered for penalty u/s 271(1)(c) of the Act.

 

(i) Disallowance of pre-operative expenses.

 

(ii) Disallowance of Customer Acquisition Cost.

 

4.3 thereafter, the Ld. ACIT Circle-25(1), New Delhi ordered on dated 30.03.2018 imposing payment of penalty u/s 271(1)(c) r/w 274 of the Act of the amount of Rs. 5,08,08,00, 000/- by stating that the assessee has furnished in accurate particulars of income which is not tenable in the eyes of law.

 

4.4. Assailing the above order, assessee preferred appeal before the Ld. CIT(A), in which appeal of assessee was partly allowed. Relevant para nos. 6.13, 6.16, 6.17, 6.18 and 6.19 is reproduced as under:

 

“6.13 From the perusal of the facts on record, it is undisputed that the issue involved of allowance of pre-operating expenses and customer acquisition costs were a debatable one where two opinions were possible. The Appellant has relied on judgments so as to support its stand of the expenditure being allowed to it. Further, the Appellant has submitted that the Learned CIT(A) while disposing of the appeal had himself allowed depreciation on preoperative expenses and allowed 50% of total customer acquisition costs on the basis that the entire expenditure cannot be claimed in the current year and should be deferred which means that Learned CIT(A) also had a different view from the AO and it has to be decided on case to case basis whether the issue is debatable or not. Further, it is also significant to observe that even otherwise, what remains the cause of focus of the submissions of the appellant is that the validity of the expenditures has nowhere been questioned by the CIT(A).

 

6.16 Admittedly, it is case of the appellant that all the information and particulars of income have been disclosed truly and fairly in the Income Tax Return. It is also undisputed fact that AO has not brought on record to the effect that claimed expenditures were either bogus or inaccurate or any part of the consideration has not been recorded in the Income Tax Return so filed. The only action carried out by the AO is that he has adopted one of the possible view w.r.t admissibility of stated claim of expenditure. Hence, this case turns out to be where certain claim of expenditures have been denied. Mere disallowance of stated claim of expenditures may not ipso facto attract penalty as has been held by the Hon'ble Apex Court in the case of Reliance petrochemicals (2010) 11 SCC 762 wherein the Hon'ble Apex Court has interalia held thus:

 

"A glance of provision of section 271(1)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. [Para 7]

 

Therefore, it must be shown that the conditions under section 271(1)(c) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. [Para 8]"

 

6.17 Further, the appellant has also aptly distinguished the judgment of CIT vs. Zoom Communications Pvt. Ltd. (327 ITR 516) as has been relied upon by the AO.

 

6.18 In view of factual matrix of the cases wherein the appellant is found to have disclosed all facts in the income tax return and that disallowance of certain type of expenses made by the AO has been either deleted in part or allowed on depreciation basis (pre-operative exp.) and on amortization basis (customer acquisition costs) and that issues in the given factual context are debatable one, and relying on judicial precedents (supra), I am of the considered view that AO is not justified in levying the impugned penalty u/s 271(1)(c) of the Act.

 

6.19 In view of the discussions as noted above and in due deference to the judicial pronouncements (supra), I am of the opinion that the penalty levied by the AO in the instant case is not tenable and cannot be sustained in the eyes of law. Accordingly, the penalty is deleted and the ground is allowed.”

 

5. The assessee has submitted an application under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963, to support the order of the commissioner of Income Tax (Appeals) as per the provisions of rule 27 of the IT(AT) Rules, on the following ground:

 

“1. That on the facts and circumstances of the case and in law, notice dated 26.12.2011 issued u/s 274 r.w.s. 271(1)(c) is illegal and bad in law as the same is without any specific charge. Hence the order dated 30.03.2018 passed u/s 271(1)(c) is also illegal, bad in law and without jurisdiction. Therefore, the aforesaid notice and the said penalty order are liable to be quashed.”

 

6. We have heard the rival contentions and perused the material available on record. The Ld. CIT(A) has deleted the penalty order imposed by the Ld. Assessing Officer.

 

7. There is a provision in section 271(1)(c) of the Act, that if the Ld. AO in the case of proceedings is satisfied that any person has concealed the particulars of his income or furnished particulars of such income, may direct that such person shall pay by way of penalty as mentioned in the section 271(1)(c)(iii).

 

8. In the course of hearing, reiterating the grounds of appeal, the Ld. DR submitted that the Ld. CIT(A) ignored the relevant and material fact that assessee has furnished inaccurate particulars within the meaning of explanation 1 to the Section 271(1)(c) of the Act.

 

9. Per contra, the Ld. AR submitted that the notice dated 28.03.2013, 26.12.2011 issued by the Ld. AO under section 271 r/w section 274 of the Act, not specify that in which of the reasons penalty was proposed to impose i.e. whether for concealment the particulars of income or furnishing inaccurate particulars of such income and it is mandatory that notice should be specify that which limbs of section 271(1)(c) of the Act, the penalty proceedings had been initiated. Above notices in question reproduced as under:

 

 

 

10. In support of submissions advanced on behalf of the assessee, referred the [2016] 73 taxmann.com 241 (Karnataka) CIT, Banglore v/s SSA’s Emerald Meadows and CIT vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565, in which the Hon’ble Karnataka High Court held in relevant para 3 as under:

 

“3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITE 565/218 Taxman 423/35 taxmann.com 250 (Kar.).”

 

11. It is pertinent to mention that the revenue challenged the abovecited judgments of Karnataka High Court by way of SLP before Hon’ble Supreme Court and SLP dismissed by the Hon’ble Apex Court.

 

12. Where the notice is not specifying or mentioning the concealment or the furnishing of inaccurate particulars, the ratio laid down by the Hon’ble Delhi High Court in the case of M/s Sahara India Life Insurance Company Ltd. (2021) 432 ITR 84 (Delhi), squarely applicable in the case in hand before us, in which the Hon’ble Delhi High court held as under:

 

“21. The Respondent had challenged the upholding of the penalty imposed under section 271(1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 and observed that the notice issued by the AO would be bad in law if it did not specify which limb of section 271(1)(c) the penalty 4 proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in CIT v. SSA's Emerald Meadows [2016] 73 taxmann.com 241, the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order dated 5th August, 2016.”

 

22. On this issue again this court is unable to fund any error having been committed by the ITAT, No substantial question of law arises.”

 

13. On the basis of foregoing submissions / discussions and respectfully following the binding judicial precedents cited hereinbefore, we find that notice u/s 271(1)(c) r/w 274 of the Act itself bad in law which was unable to specify that in which limb of section 271(1)(c) penalty processed to be imposed and in that case foundation of imposing of penalty in question legally missing, which is mandatory required by law. It is relevant to mention here in the instant case, perusal of notice placed on record, evident the Ld. AO had not struck off or ticked the relevant portion thereon mentioning the specific offence committed by the assessee and above legal infirmity cannot be ignored.

 

Hence, there is material substance in the submission advanced and ground raised by assessee that notice in question issued u/s 274 r/w 271(1)(c) is illegal and bad in law as same is without any specific charge, so issues / grounds raised by the assessee allowable and on this issue the appeals of the Revenue is liable to be dismissed. Consequently, the appeals of the Revenue are dismissed.

 

14. In the result, all three appeals of the Revenue are dismissed.

 

Order pronounced in the Open Court on 31.01.2025.

 

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