$~11
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 25.09.2018
+ W.P.(C) 7435/2015
ERICSSON INDIA PRIVATE LTD. ..... Petitioner
Through: Mr.M. S. Syali, Senior Advocate
with Mr.Mayank Nagi & Mr.Tarun
Singh, Advocates.
versus
ADDITIONAL COMMISSIONER OF INCOME TAX
..... Respondent
Through: Mr.Ruchir Bhatia, Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A. K. CHAWLA
S. RAVINDRA BHAT, J.(ORAL)
1. The petitioners grievance is that the penalty imposed under
Section 271G of the Income Tax Act, 1961 (hereinafter ,,the Act)
was illegal because the Transfer Pricing Officer (TPO) did not
possess the requisite jurisdiction, when he issued first show-cause
notice dated 30.04.2014 upon the default of the notice dated
18.02.2014, requiring the petitioner/assessee to produce the relevant
documents under Section 92D(3) of the Act. The time given for this
purpose was till 25.03.2014. It is therefore submitted that the default,
W.P.(C) 7435/2015 Page 1 of 7
if any, occasioning penalty event occurred on 25.03.2014; since as on
that date, the TPO did not possess the requisite jurisdiction to initiate
penalty proceedings and its imposition subsequently on 16.01.2015,
was not justified.
2. The necessary facts are that for the Assessment Year (AY)
2011-12, the assessee had filed its returns. This included a transfer
pricing report. The TPO apparently took cognizance of reports and
desired the assessee to produce some documents in support of its
case; a notice was issued on 18.02.2014, giving time up-to
25.03.2014. Concededly, the assessee did not comply with the notice.
Apparently, on 05.12.2014, second notice was issued by the TPO
alleging default and proposing penalty under Section 271G of the Act.
The TPO made his recommendations by way of an order dated
16.01.2015. By this order, significantly the adjustments
recommended were in line with the adjustments proposed for the past
years based upon the methodology for AY 2009-10. The draft
assessment order based upon the TPOs report, was issued on
22.06.2015.
3. Till 01.10.2014, the jurisdiction and authority to impose
penalty under Section 271G was with the Assessing Officer (AO)
defined in Section 2(7A) to mean the Assistant Commissioner or
Deputy Commissioner or Assistant Director or Deputy Director or the
Income-tax Officer. This changed with the enactment of Finance Act
2014 and the amendment expanding the jurisdiction of the TPO, who
was for the first time authorized to inflict penalty for non-compliance
W.P.(C) 7435/2015 Page 2 of 7
with the notice requirements under Section 271G of the Act. Based
upon this, the TPO issued notice for assessees default (which was
subject matter of the previous notice dated 18.02.2014) afresh on
05.12.2014. The assessee contested this notice and it eventually
culminated in the impugned order of 22.06.2015, whereby, the TPO
imposed a penalty of `64,43,03,352/- upon the assessee, for non-
complying with the notice and furnishing requisite documents.
4. Learned Senior Counsel for the assessee contended that the
penalty event, as it emerges in the present case, could not be
postponed or varied. Learned counsel relied upon the rulings of the
Supreme Court in Brij Mohan vs. Commissioner of Income Tax,
(1979) 120 ITR 1 SC and also Varkey Chacko vs. Commissioner of
Income Tax, (1993) 203 ITR 885 (SC), to say that event of default or
at the most the event of recording reasons constitutes the defining
point of jurisdiction. In the present case, so called default, noticed by
the AO, was acted upon on 25.03.2014. The mere circumstance that
the AO did not choose to act upon, it did not mean that the cause for
imposing penalty was postponed within the period when the power
was expanded under amendment to Section 271G of the Act.
5. The revenues contention in these proceedings - in defence of
the penalty imposed is that the first notice was not proceeded with .
The TPO deemed it appropriate to give a second chance and issued
fresh notice to the assessee on 05.12.2014 after the amendment was
brought into force w.e.f 01.10.2014. When he issued the notice, the
TPO possessed the power. The consequent imposition of penalty on
W.P.(C) 7435/2015 Page 3 of 7
21.06.2015 was warranted and within the jurisdiction. Learned
counsel for the Revenue relies upon Securities and Exchange Board
of India vs. Classic Credit Ltd., JT 2017 (9) SC 558, to say that the
amendment to Section 271G merely changed the forum but did not in
any way confer fresh jurisdiction on a new authority.
6. In Brij Mohan (supra), the Supreme Court articulated the
correct position in the case of assessments and the law applicable with
respect to jurisdiction and other substantive proposition on one hand
and the correct position in respect of penalty on the other hand by
holding as follows:
"......In our opinion, the assessment of the total income
and, the computation of tax liability is a proceeding
which, for that purpose, is governed by entirely different
considerations from a proceeding for penalty imposed
for concealment of income. And this is so
notwithstanding that the income concealed is the income
assessed to tax. In the case of the assessment of income
and the determination of the consequent tax liability, the
relevant law is the law which rules during the
assessment year in respect of which the total income is
assessed and the tax liability determined. The rate of tax
is determined by the relevant Finance Act. In the case of
a penalty, however, we must remember that a penalty is
imposed on account of the commission of a wrongful act,
and plainly it is the law operating on the date on which
the wrongful act is committed which determines the
penalty. Where penalty is imposed for concealment of
particulars of income, it is the law ruling on the date
when the act of concealment takes place which is
W.P.(C) 7435/2015 Page 4 of 7
relevant. It is wholly immaterial that the income
concealed was to be assessed in relation to an
assessment year in the past........"
7. In Varkey Chacko (supra), the Supreme Court stated as follows:
"A penalty for concealment of particulars of income or
for furnishing inaccurate particulars of income can be
imposed only when the assessing authority is satisfied
that there has been such concealment or furnishing of
inaccurate particulars. A penalty proceeding, therefore,
can be initiated only after in assessment order has been
made which finds such concealment or furnishing of
inaccurate particulars. Who, at this point of time, has
the authority to impose the penalty is what is relevant.
Whoever this authority may be, he is obliged to impose
such penalty as was permissible under the law in that
behalf on the date on which the offence of concealment
of income was committed, that is to say, on the date of
the offending return. The two aspects must firmly be
borne in mind, namely, who may impose the penalty and
in what measure."
8. In Varkey Chacko (supra), the Supreme Court considered the
formulation of law in Brij Mohan (supra) and reiterated it. The
assessees contention was that the concealment exercise being penal
in nature, committed when the return was filed and cognizance taken
by the authority, by virtue of the subsequent amendment, was not
legal. It was in these circumstances that the Court held that the
penalty for concealment of particulars of income for furnishing
W.P.(C) 7435/2015 Page 5 of 7
inaccurate particulars would be upon the assessing authority for
satisfaction in that regard.
9. The reliance on Securities and Exchange Board of India
(supra) (by Revenue) in the opinion of this Court is insubstantial. The
amendment to the Securities and Exchange Board of India Act
empowers the Sessions Court to entertain, take cognizance and try
offences under that enactment; either of those offences were triable
by the Magistrate. The Supreme Court repelled the submissions made
on behalf of the accused/opposite party of prejudice. The arguments
made on their behalf was that the Magistrates were empowered to try
summarily offences, that was the subject matter of the complaint and
other proceedings before them and that this had led to the approval of
valuable rights under Section 260 of the Code of Criminal Procedure
(Cr.P.C). The Supreme Court repelled this argument, stating that
there was no right to particular procedure and that even otherwise
under Section 260/262 Cr.P.C, a Magistrate had discretion to ignore
the summary proceedings and continue to try the offence in a regular
manner. In the opinion of this Court, that judgment does not help the
revenues answer on the charge of lack of jurisdiction and the law as
enunciated in Brij Mohan and Varkey Chacko (supra) i.e. that the
event of default defines the jurisdiction of the concerned authority,
who may proceed to initiate the penalty proceedings. In the present
case, since "event of default" occurred in March, 2014 i.e. well prior
to the date of coming into force the amendment (i.e. 01.10.2014), the
impugned order was wholly without jurisdiction.
W.P.(C) 7435/2015 Page 6 of 7
10. For the above reasons, it is held that the writ petition has to
succeed; the impugned order is hereby quashed. The writ petition is
allowed in the above terms.
S. RAVINDRA BHAT
(JUDGE)
A.K.CHAWLA
(JUDGE)
SEPTEMBER 25, 2018
ssc
W.P.(C) 7435/2015 Page 7 of 7
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