HIGH COURT OF BOMBAY
Deloitte Consulting India (P.) Ltd.
Assistant Commissioner of Income-tax, Circle 2(2), Mumbai
WRIT PETITION NO. 152 OF 2013
Date of Pronouncement – 30.01.2013
Dr. D.Y. Chandrachud, J.
The Petitioner has challenged in this petition a notice of demand dated 30 March 2012 issued by the Assessing Officer under Section 156 of the Income Tax Act, 1961 for assessment year 2004-05 demanding payment of an amount of Rs.2.05 crores and an order dated 2 January 2013 of the Commissioner of Income Tax-2, Mumbai rejecting an application for stay of demand pending disposal of the appeal.
2. These proceedings relate to A.Y.2004-05 in respect of which a penalty has been imposed by the Assessing Officer under Section 271(1) (c) of the Income Tax Act, 1961 in the amount of Rs. 2.05 crores by an order dated 30 March 2012.
3. Briefly stated, the Petitioner is a joint venture company between Mastek Limited and Deloitte Consulting LLP in pursuance of a joint venture agreement dated 18 July 2001. During the previous year relevant to A.Y.2004-05, the Petitioner claims to have rendered software development and IT related services to Deloitte, for which a consideration of Rs. 103.04 crores was received. The Petitioner claims to have incurred, inter alia, a sum of Rs. 5.86 crores towards reimbursement of expenses incurred by Deloitte, an associated enterprise, on five senior managers seconded by Deloitte to the Petitioner. On 1 November 2004, the Petitioner filed its return of income for Assessment Year 2004-05 determining a total income of Rs. 56.60 lakhs. During the course of the scrutiny, a reference was made by the Assessing Officer to the Transfer Pricing Officer (‘TPO’) to investigate into the reasonableness of the international transactions of the Petitioner with its associated enterprise. On 29 March 2006, the Petitioner filed a revised return of income under section 139(5) without claiming the payment of Rs.5.86 crores made to Deloitte as a deduction and increased its total income for the year by the amount. However, the Petitioner increased the corresponding claim for a deduction under section 10A by the said amount. The TPO following his findings for earlier assessment years (A.Y. 2002-03 and 2003-04) came to the conclusion that no services which would benefit the Petitioner, had been rendered by Deloitte and that the Petitioner should not have made the claim for reimbursement. The TPO accordingly passed an order on 10 August 2006 making an addition of Rs.5.86 crores under section 92CA(3), which was subsequently amended on 1 September 2006.
4. By an order dated 15 December 2006, the Assessing Officer passed an order under Section 143(3)(iii) determining a total income of Rs. 6.41 crores after making an adjustment in terms of the findings of TPO, in the amount of Rs. 5.86 crores to the the total income returned by the Petitioner. Following this, a notice was issued under section 271(1) (c) on 15 December 2006.
5. The Petitioner filed an appeal before the Commissioner of Income Tax (Appeals). The appeal was dismissed on 24 January 2011. Following a fresh notice under section 271(1)(c), an order was passed on 30 March 2012 imposing a penalty of Rs. 2.05 crores. The quantum appeal was in the meantime also dismissed by the Tribunal on 30 March 2012. Against the order of the Tribunal, the Petitioner has filed an appeal before this Court which is pending admission.
6. An appeal was filed before CIT (A) against the order of penalty. On an application made before the assessing officer under section 220(6), by an order dated 7 August 2012, the application for stay of demand came to be rejected and the Petitioner was directed to deposit 50% of the outstanding demand by 11 September 2012 and the balance by 10 October 2012. Thereafter, the Petitioner moved the Additional Commissioner of Income Tax who similarly rejected the application on 10 December 2012 observing that the quantum addition on the basis of which the penalty was imposed, had been confirmed by the first appellate authority. The Petitioner received a notice of the hearing of the appeal against the penalty on 5 December 2012 but the Court is informed that the hearing was adjourned sine-die when the appeal came up on 20 December 2012. Upon an application made before the CIT(2), the request for stay of demand was rejected.
7. The following submissions have been urged on behalf of the Petitioner :
(i) The Petitioner has a prima facie case having regard to the fact that the order imposing a penalty under Section 271(1)(c) does not find that there was any concealment of income or failure to file accurate particulars of income. As a matter of fact, in the present case, there was no concealment whatsoever since the claim of the Petitioner was ex- facie disclosed, together with its basis, during the assessment proceedings;
(ii) The mere fact that the addition which has been made, was confirmed in quantum proceedings, would not justify the imposition of a penalty unless the requirements of Section 271(1)(c) are fulfilled;
(iii) Neither of the orders disposing of the application for stay of demand contains a prima facie evaluation of the merits of the case. The assessing officer under Section 220(6) is duty bound while exercising his discretion to apply his mind prima facie before deciding whether to grant a stay of demand and if so subject to such conditions as may be prescribed. Similarly, it was submitted that the CIT (2) has also failed to even prima facie evaluate the case.
8. On the other hand, it was urged on behalf of Revenue that the fact that the Petitioner had filed a revised return of income tax, withdrawing the claim of deduction which had been made earlier, would be indicative of the fact that the Petitioner had furnished incorrect particulars of income. Hence, no case for a grant of stay has been made out.
9. Prima facie, at this stage, it would appear from the record before the Court that together with the return of income as originally filed, the Petitioner annexed a copy of Form-3C in which there was a disclosure of the amount of Rs.5.86 crores which was treated as a reimbursement in respect of marketing services alleged to have been availed of from Deloitte. The transfer pricing analysis which was filed during the course of assessment proceedings similarly indicated the basis on which the deduction was claimed, in paragraph 2.2 of the statement. When a revised return of income was filed, a disclosure was made to the effect that the return was revised with a view to add back the marketing expenses in the original return filed on 1 November 2004 with a view to avoid litigation in relation to the admissibility of the claim. The deduction under section 10A was stated to have been revised accordingly. That claim has been rejected by the assessing officer and in appeal as well as by the Tribunal.
10. At the present stage, it is necessary for the Court to take note of the provisions of Section 220(6) under which the assessing officer is vested with the discretion, where an assessee has presented an appeal under section 246 or Section 246A and subject to such conditions as he may think fit to impose in the circumstances of the case to treat the assessee as not being default in respect of the amount in dispute in the appeal. When the statute confers a discretion on the assessing officer, that is a discretion which is wielded in the exercise of a quasi judicial function. Assessing officers, as the Court repeatedly finds in several cases, reject stay applications in a cavalier fashion by making a bald statement to the effect that ‘looking to the facts and circumstances of the case’, no case for stay has been made out. This, in our view, does not amount to a valid or proper exercise of discretion. What is expected of an assessing officer is at least a brief statement in the order of the reasons on the basis of which he formed his decision under section 220(6). Otherwise recourse to Section 220(6) is a meaningless formality. Assessing Officers when they dispose of applications under Section 220(6) are required to act fairly. Fairness as a concept does not undergo a change in the hands of an assessing officer. Fairness requires objectivity: Objectivity that is guided by the need to protect the revenue while at the same time being fair to the assessee whose case has to be tested in a statutory appeal. The reasons are subject to judicial review and must be capable of withstanding scrutiny.
11. In the present case, both the assessing officer as well as the CIT have failed to exercise their jurisdiction in accordance with law. The CIT adverted to the fact that the quantum appeal had been rejected by the CIT (A) and the ITAT. That in itself would not amount to a valid justification for imposition of a penalty. Before a penalty is imposed, the requirements of Section 271 must be established. Accordingly, it would have been open to the Court to set aside the impugned order in its entirety and to remand the proceedings back to the assessing officer for fresh consideration. However, since arguments before the Court have been addressed on the prima facie merits of the case as well, we are not inclined to follow that course of action since that would lead to another round of proceedings before this Court again. Having regard to the circumstances which have been noted hereinabove, we are of the view that an appropriate order for partial deposit of the penalty would be necessitated. An order for the deposit of the entire penalty is clearly not justified having regard, prima facie to the nature of the issues and the submissions which have been urged. We are refraining from making anything more than a prima facie observation at this stage so as to not to foreclose the determination of the appeal by the appellate authority against the order of penalty.
12. Accordingly, we dispose of the petition by directing that the Petitioner shall deposit an amount of Rs. Fifty lakhs in two installments each of Rs. Twenty five lakhs to be paid on or before 28 February 2013 and 31 March 2013. Conditional on the aforesaid payments, there shall be a stay of recovery of the demand in the amount of Rs.2.05 crores towards the penalty which has been imposed under section 271(1)(c) pending the disposal of the appeal before the CIT (A). In the event an order adverse to the Petitioner is passed by the CIT (A), no coercive steps for the recovery of the balance demand shall be pursued for a period of two weeks thereafter.
The Petition is accordingly disposed of.
There shall be no order as to costs.