ACIT Vs Zee Entertainment Enterprises Ltd. (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal challenging deletion of a penalty of Rs.29,32,21,591/- imposed under Section 271(1)(c) of the Income Tax Act, 1961, on Zee Entertainment Enterprises Ltd. for assessment year 2008-09. The assessee, engaged in broadcasting television channels, had filed its original return declaring income of Rs.459,60,84,672/- and subsequently filed a revised return declaring income of Rs.471,34,52,865/-. During assessment proceedings, the Assessing Officer made additions arising from transfer pricing adjustments and disallowances relating to Section 14A, advances written off in connection with BCCI, and foreign exchange losses. Penalty proceedings were initiated alleging concealment of income or furnishing of inaccurate particulars.
The Assessing Officer imposed a penalty equivalent to 100% of the tax allegedly sought to be evaded. However, substantial additions made in the quantum assessment were subsequently deleted in appellate proceedings. The Commissioner of Income Tax (Appeals) examined the surviving additions and held that they did not establish any offence under Section 271(1)(c). Accordingly, the Commissioner deleted the penalty, prompting the Revenue to appeal before the Tribunal.
The Tribunal noted that, following the quantum appellate proceedings, only two additions remained relevant: Rs.27,19,342/- towards the arm’s length pricing of a corporate guarantee and Rs.25,50,925/- towards disallowance under Section 14A read with Rule 8D. Regarding the corporate guarantee, the Tribunal observed that whether such a transaction constituted an international transaction was highly debatable during the relevant period. Moreover, the arm’s length guarantee commission had ultimately been fixed at 0.5%, against the Transfer Pricing Officer’s determination of 3%. The Tribunal regarded this as essentially an estimation-based adjustment, insufficient to establish concealment or inaccurate particulars of income.
As regards the Section 14A disallowance, the Tribunal observed that substantial relief had already been granted in quantum proceedings. It further noted that disallowance computed under Section 14A read with Rule 8D was, to some extent, notional and based on a prescribed formula. Such a computational disallowance did not, by itself, justify a finding that the assessee had concealed income or furnished inaccurate particulars.
Consequently, the Tribunal agreed with the Commissioner of Income Tax (Appeals) that the penalty was unsustainable and dismissed the Revenue’s appeal. The assessee’s cross-objection was also dismissed as infructuous. The ruling distinguishes adjustments involving debatable legal issues and estimation-based computations from circumstances warranting penalty under Section 271(1)(c).
FULL TEXT OF THE ITAT MUMBAI ORDER
Captioned appeals and Cross Objection arise out of order dated 18.07.2019 learned Commissioner of Income Tax (Appeals)-4, Mumbai deleting the penalty imposed Under section 271(1)(c) of the Act for the assessment year 2008-09.
2. Briefly the facts are, the assessee is a resident company engaged in the business of broadcasting TV Channels. For the assessment year under dispute, assessee had filed its return of income on 26.09.2008 declaring total income of Rs. 459,60,84,672/- under the normal provision of the Act. Subsequently, the assessee filed a revised return of income on 31.03.2010 declaring total income of Rs. 471,34,52,865/-. During the year under consideration, since, the assesssee had entered into international transactions with its Associate Enterprises (AE), a reference was made to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of such transaction. Based on the order passed by the TPO, addition of Rs. 7,32,63,970/- was made to the income of the assessee. Besides, the aforesaid addition, the Assessing Officer made further additions towards disallowance under section 14A, writing off of advances given to BCCI and forex loss. Accordingly, the AO completed the assessment under section 143(3) r.w.s. 144C of the Act. Against the assessment order so passed, assessee filed objections before learned Dispute Resolution Panel (DRP) and thereafter before the Tribunal. Be that as it may based on the additions made in the assessment order, the AO initiated penalty proceedings under section 271(1)(c) of the Act alleging concealment of income or furnishing inaccurate particulars of income. During the penalty proceeding, the AO noticed that the TPO had revoked the TP adjustment by reducing it to Rs. 26,54,75,570/- as against the original adjustment of Rs. 73,26,03,970/-. Thus, ultimately rejecting the explanation of the assessee, the AO imposed penalty of Rs. 29,32,21,591/-, being 100% of the tax on the income allegedly sought to be evaded. Against the penalty order so passed, assessee filed an appeal before learned Commissioner (Appeals). Noticing that substantial part of the addition was deleted by the Tribunal and the remaining additions did not make out any offence under section 271(1)(c) of the Act, learned Commissioner (Appeals) deleted the penalty imposed under section 271(1)(c) of the Act.
3. We have considered rival submissions and perused the materials on record. The undisputed factual position before us is, the only surviving additions after the decision of the Tribunal in quantum proceedings are, an amount of Rs. 27,19,342/-, being adjustment made towards provisions of corporate guarantee and Rs. 25,50,925/-, being disallowance made under section 14A r.w.r. 8D. Thus, as could be seen, substantial part of the addition on which penalty under section 271(1)(c) of the Act was imposed, in the meanwhile, has been deleted by the Tribunal. As far as the addition on account of corporate guarantee is concerned, undisputedly, at the relevant point of time it was a highly debatable issue as to whether such transaction falls within the definition of international transaction. In any case of the matter, the ALP of corporate guarantee has ultimately been fixed at 0.5% based on certain judicial precedents as against 3% determined by TPO. Thus, more or less, it is a case of estimation. Thus, in our view such addition cannot lead to the conclusion that the assessee has either concealed its income or furnished inaccurate particulars of income.
4. As far as disallowance under section 14A r.w.r. 8D is concerned, it is a fact that substantial relief has been granted to the assessee by the Tribunal. Even, otherwise also, disallowance under section 14A r.w.r. 8D, to some extent, is a notional disallowance based on certain formula. Thus, in our view, it cannot lead to concealment of income or furnishing of inaccurate particulars of income. In view of the aforesaid, we agree with the decision of learned Commissioner (Appals) in deleting the penalty imposed under section 271(1)(c) of the Act. Grounds are dismissed.
5. In the result, appeal is dismissed.
6. In view of our decision above, the Cross Objection filed by the assessee having become infructuous, is dismissed.
7. To sum up, revenue’s appeal and assessee’s cross objection are dismissed.
