IN HIGH COURT OF DELHI AT NEW DELHI 66-75 ITA 371/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. With ITA 372/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. With ITA 373/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. ITA 371/2005 & connected matters Page 1 of 15 With ITA 374/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. With ITA 375/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. With ITA 376/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. With + ITA 377/2005 ITA 371/2005 & connected matters Page 2 of 15 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. With + ITA 379/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocae. With + ITA 380/2005 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. And + ITA 381/2005 ITA 371/2005 & connected matters Page 3 of 15 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra Singh with Mr. Ashok Manchanda, Advocates. versus DENSO INDIA LIMITED ..... Respondent Through: Mr. Prakash Kumar, Advocate. CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER % 31.08.2017 Dr. S. Muralidhar, J. 1. These are ten appeals by Income Tax Department ( Department ) under Section 260A of Income Tax Act, 1961 ( Act ) directed against common order dated 2nd September 2004 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA Nos. 3233 to 3242/Del/2003 for Financial Years ( FYs ) 1988-89 to 1997-98. 2. While admitting these appeals on 23rd August, 2006 this Court framed following question of law for consideration: Whether Income Tax Appellate Tribunal was correct in law in holding that Commissioner of Income Tax (Appeals) had in fact reviewed its earlier order dated 29th January 2003 while exercising jurisdiction under Section 154 of Income Tax Act, 1961, which only permits rectification of error apparent on fact of record? 3. background facts are that Respondent-Assessee was incorporated under Companies Act, 1956. It has manufacturing unit at Greater Noida (Uttar Pradesh). It is admitted position that M/s. Denso ITA 371/2005 & connected matters Page 4 of 15 Corporation, Japan had, during period under consideration, deputed technicians to work for Assessee at its manufacturing unit. These, expatriate technicians are paid salary in rupees by Assessee apart from rent free accommodation. salary paid was debited in books of Assessee after deducting tax. 4. survey was conducted in premises of Assessee on 14th November 1998. According to Department, Assessee had paid substantial part of salary and allowances etc. to its expatriate employees in Japan and had kept this amount out of pale of taxation in India. It was therefore alleged that Assessee did not comply with Section 192 of Act under which there was obligation to deduct tax at source. According to Department, sum of Rs. 5,74,10,405 had been failed to be deducted by Assessee for aforementioned AYs. 5. show-cause notice ( SCN ) dated 28th January 2000 was issued to Assessee. In response thereto, Assessee by its letters dated 2nd February and 8th February 2000 stated that after discussion with Japanese Chamber of Commerce and Industry, CBDT, CCIT and CIT-VI, Assessee had paid revised tax and interest under Section 201 (1) (a) of Act. Assessee stated that it had no intention of concealing any income or TDS. Assessee stated that it had been advised that salary paid outside India was not liable to tax in India. Assessee accordingly submitted that it was prevented by reasonable cause for not deducting tax at source on sum paid outside India. ITA 371/2005 & connected matters Page 5 of 15 6. Assessing Officer ( AO ) passed order dated 19 th July 2000 under Section 271 C of Act holding that Assessee had not been prevented by any reasonable cause to comply with Section 192 of Act and was, therefore, liable to penalty in sum of Rs. 5,74,10,405. 7. Aggrieved by above order, Assessee filed appeal before Commissioner of Income Tax (Appeals) [ CIT (A) ]. By order dated 29 th January 2003, CIT (A), after referring to decisions in cases of M/s. Subros Limited and M/s. Hyundai Engineering & Construction Co. Ltd., held that there is reason to hold existence of reasonable cause in this case. CIT (A) further held that quantum of short deduction has also undergone substantive change involving variation of more than Rs. 2 crores which would indicate that quantum of default itself was not known to JCIT when penalty was imposed. It was accordingly held that no penalty under Section 271 C was warranted. 8. About three months thereafter, on 1st May 2003, CIT (A) suo motu passed order under Section 154 of Act. opening lines of said order stated: in this case action for rectification of mistakes in appeal order passed on 29th January 2003 was initiated under Section 154 of Act. CIT (A) proceeded to observe that subsequent to order passed on 29th January 2003, eight appeals of Assessee relating to FYs 1989-90 to 1992-93 and 1994-95 to 1997-98 were taken up for hearing on 8th April 2003. Assessee did not attend hearing but AO who attended hearing was asked to bring all files relating to case. CIT (A) proceeded to list out facts revealed from files inter alia to effect ITA 371/2005 & connected matters Page 6 of 15 that Assessee had not disclosed its tax liability under VDIS fully and correctly; grossing up of tax was not correctly done and statement of Managing Director recorded on 10th December 1998 was totally evasive . In para 12 of its order, CIT (A) set out in tabular form obvious mistakes that had occurred when earlier order dated 29th January 2003 was passed by CIT (A). Inter alia it was noted that case of Assessee was not similar to Marubeni Corporation or Mitusi & Co. CIT (A) therefore, felt it necessary to rectify mistakes apparent from record. It was observed by CIT (A) as under: 16. findings given earlier would undergo complete change because facts mentioned above show that this case did not qualify first three tests laid down by Delhi High Court in case of Azadi Bachao Andolan (mentioned in para 5 above) and facts of this case are not similar to facts of cases cited by Appellant. These are two important points on which I had decided that Appellant had reasonable cause and imposition of penalty was not justified. Another important point in favour of Appellant was that shortfall in tax deduction had been varied by Rs. 2 crores approximately and now this also has been proved to be mistake. Further, it is obvious that penalty amount was quantified correctly on basis of figures of short deduction of tax calculated by company. These mistakes go to root of order and will change entire basis for cancellation of penalty. effect of rectifying mistakes will be to uphold order imposing penalty by JCIT and after incorporating facts mentioned above I rectify my order of 29th January 2003 and confirm penalty of Rs. 5,74,10,405 levied. 17. After noticing mistakes from records, I cannot restrain myself from commenting that case was presented earlier in such way as to show that facts were entirely similar to facts of Munjal Showa Limited, Fuji Bank Limited, Mitsui & Co., Subros Limited and Marubeni Corporation. It was only because of later appeals filed in this case that I had occasion to see survey file ITA 371/2005 & connected matters Page 7 of 15 of AO which revealed mistakes that had cropped up earlier. 9. Accordingly, CIT (A) confirmed penalty of Rs. 5,74,10,405 levied by AO. 10. Assessee filed appeals being ITA Nos. 3233 to 3242/Del/2003 against order passed by CIT (A) on 1 st May 2003. Thereafter, Department filed appeals before ITAT against earlier order dated 29th January 2003 of CIT (A). These appeals were numbered as TDSA Nos. 4151 to 4159/Del/2004 for Assessment Years ( AYs ) 1989-90 to 1997- 98. 11. ITAT, by impugned order dated 2nd September 2004, allowed Assessee s appeals against order dated 1st May 2003 of CIT (A). ITAT held that order of CIT (A) was without jurisdiction. Since CIT (A) did not have power to review its own orders, it cannot do so indirectly. If aggrieved by order dated 29th January 2003 of CIT (A), right course was for Department to adopt was to challenge it before ITAT. CIT (A) could not possibly rehear same appeal over and over again. 12. ITAT has in its impugned order dated 2nd September 2004 specifically noted that Department as informed by learned DR during course of hearing of appeal, has already filed appeal against original order of CIT (A). 13. Against said order dated 2nd September 2004 of ITAT, ITA 371/2005 & connected matters Page 8 of 15 Revenue filed these appeals which came up for hearing first on 8th July 2005. Interestingly, on 20th October 2005 Mr. C.S. Aggarwal, learned Senior counsel appearing for Assessee/Respondent in these appeals and informed Court that: Revenue has preferred appeal against original order passed by Commissioner deleting penalty levied upon Assessee. said appeal, according to Mr. Aggarwal, was coming up for hearing before ITAT on 3rd January 2006. In those circumstances, Court considered it appropriate to adjourn hearing of these appeals till such time said appeal was disposed of by ITAT. 14. What was perhaps not informed to this Court was that those appeals were in fact disposed of by ITAT on 13th May 2005 itself. By said order, ITAT noted that after survey was conducted, Assessee voluntarily filed revised its computation of tax and interest on 13th January 1999 without raising any dispute and without waiting for any demand or penalty notice. ITAT held that in view of decisions of this Court in Azadi Bachao Andolan (2001) 252 ITR 471 (Del)), and decisions of ITAT in Mitsui & Co. 65 TTJ 1 and Fuji Bank Limited 121 Taxman 25 in which penalty under Section 271C had been deleted in similar circumstances, there was no legal infirmity in order of CIT (A). Consequently, appeals of Department dismissed. 15. Department filed appeals being ITA Nos. 357 to 359 of 2006, 361 of 206, 364 to 366 of 2006, 368, 369 and 2006 in this Court against order dated 13th May 2005 of ITAT. This Court by its order dated 24 th March 2006 referred to its orders in case of Mitsui & Co. and observed in para 2 ITA 371/2005 & connected matters Page 9 of 15 of order, as under: In circumstances, therefore, and keeping in view fact that Tribunal and this Court have in similar other cases involving non- deduction of tax from salaries paid to expatriate employees in countries outside India held that failure to make deduction at source was for reasonable cause, we see no reason to interfere. Following view taken by this Court in cases mentioned above and orders passed in ITA No. 355/2006 and connected matters decided on 22nd March 2006, these appeals fail and are accordingly dismissed. 16. For some reason, when said appeals of Department were heard by this Court on 24th March 2006, Court was not informed of pendency of present appeals against ITAT s order dated 2nd September 2004 although, as already noticed hereinabove, vice-versa happened, viz., Court hearing these appeals was informed on 20 th October 2005 of appellate proceedings emanating of order dated 29 th January 2003 of CIT (A). 17. When these appeals were thereafter heard on 23rd August 2006, this Court too was not informed that Department s appeals against order dated 13th May 2005 of ITAT [which affirmed order dated 29th January 2003 of CIT (A)] stood dismissed by this Court on 24th March 2006. Why Department failed to do so is indeed mystery. 18. Department then carried order dated 24th March 2006 passed by this Court in appeal to Supreme Court. said appeals of Department were heard along with batch of other appeals and were decided by common judgment in Commissioner of Income Tax v. Eli Lilly and Co. (India) P. Ltd. (2009) 312 ITR 225 (SC). Learned counsel for ITA 371/2005 & connected matters Page 10 of 15 Assessee has placed before Court copy of aforementioned judgment which shows that appeal concerning present Assessee was CA No. 1634 of 2006. case status available on website of Supreme Court shows that said appeal was disposed of on 25th March 2009. 19. Supreme Court noted issue involved in para 8 of its judgment as under: 8. To complete chronology of events, we may state that in some of cases herein Department has levied penalty under Section 271C of 1961 Act for failure to deduct tax under Section 192(1) from out of Home Salary paid outside India by Head Office ("HO") to expatriates deputed to Branch Office(s) in India which penalty was set aside on ground that expatriates exercised dual employment and that there was no obligation on Branch Office to deduct tax under Section 192(1) on Home Salary paid by HO outside India. It was further held that said Home Salary paid by HO was not on account of or on behalf of Branch Office since no deduction was claimed for salaries paid outside India in computing income of Employer and accordingly it was held that no penalty was leviable under Section 271C of 1961 Act. Against deletion of penalty under Section 271C, Department has come to this Court by way of these Civil Appeals. 20. While issues concerning Section 201 (1) and Section 201 (1A) were decided in favour of Department, specific to issue concerning penalty under Section 271C of Act, Supreme Court held as under: 36. Section 271C inter alia states that if any person fails to deduct whole or any part of tax as required by provisions of Chapter XVII-B then such person shall be liable to pay, by way of penalty, sum equal to amount of tax which such person failed to deduct. In these cases we are concerned with Section 271C(1)(a). ITA 371/2005 & connected matters Page 11 of 15 Thus Section 271C (1)(a) makes it clear that penalty leviable shall be equal to amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under Section 273B Parliament has enacted that penalty shall not be imposed in cases falling thereunder. Section 271C falls in category of such cases. Section 273B states that notwithstanding anything contained in Section 271C, no penalty shall be imposed on person or Assessee for failure to deduct tax at source if such person or Assessee proves that there was reasonable cause for said failure. Therefore, liability to levy of penalty can be fastened only on person who do not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting tax. burden, of course, is on person to prove such good and sufficient reason. In each of 104 cases before us, we find that non-deduction of tax at source took place on account of controversial addition. concept of aggregation or consolidation of entire income chargeable under head "Salaries" being exigible to deduction of tax at source under Section 192 was nascent issue. It has not be considered by this Court before. Further, in most of these cases, tax- deductor-Assessee has not claimed deduction under Section 40(a)(iii) in computation of its business income. This is one more reason for not imposing penalty under Section 271C because by not claiming deduction under Section 40(a)(iii), in some cases, higher corporate tax has been paid to extent of Rs. 906.52 lacs (see Civil Appeal No. 1778/06 entitled CIT v. Bank of Tokyo- Mitsubishi Ltd). In some of cases, it is undisputed that each of expatriate employees have paid directly taxes due on foreign salary by way of advance tax/self-assessment tax. tax-deductor- Assessee was under genuine and bona fide belief that it was not under any obligation to deduct tax at source from home salary paid by foreign company/HO and, consequently, we are of view that in none of 104 cases penalty was leviable under Section 271C as respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source. 21. conclusions reached by Supreme Court as regards above issue is to be found in para 39 of said judgment, which reads as under: ITA 371/2005 & connected matters Page 12 of 15 39. For reasons mentioned hereinabove, however, no penalty proceedings under Section 271C shall be taken in any of these cases as issue involved was nascent issue. Accordingly, we quash penalty proceedings under Section 271C. 22. Specific to 104 cases which were before it, including that of Respondent-Assessee, Supreme Court was of view that in none of 104 cases penalty was leviable under Section 271C as Respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source. resultant position as far as order dated 29th January 2003 of CIT (A) reversing penalty order of AO is concerned, it stood affirmed by ITAT by its order dated 13 th May 2005, then this Court by order dated 24th March 2006 and finally by Supreme Court by judgment dated 25th March 2009. 23. This Court is unable to understand what prevented Department from bringing above developments, specific to case of present Assessee, to notice of Supreme Court before it delivered above judgement dated 25th March 2009. It will be recalled that Department did not point out to this Court additional facts taken note of by CIT (A) (while exercising suo motu powers of review) when it dismissed Department s appeals on 24th March 2006. 24. Mr. Raghvendra Singh, learned counsel for Department, suggested that proceedings emanating from order dated 1st May 2003 of CIT (A) was separate. Those facts, according to him, were not present before ITAT which heard Department s appeals against order dated 29th January 2003 of CIT (A). He submitted that in any event since ITA 371/2005 & connected matters Page 13 of 15 these appeals have been admitted and question framed, they have to be heard and disposed of on merits. 25. Court fails to understand how, after Supreme Court has by its judgment dated 25th March 2009 categorically held on facts that Respondent-Assessee had discharged burden of showing reasonable cause for failure to deduct TDS, this Court can possibly pass order in present appeals which might have effect of contradicting aforementioned judgment of Supreme Court. 26. It is strange that Department allowed proceedings to continue on two parallel tracks without making effort, even before ITAT, to have two appeals i.e. Department s appeals against CIT (A) s order dated 29th January 2003 and Assessee s appeals against CIT (A) s order dated 1st May 2003 - heard together. This has to be understood in context of fact that by time ITAT heard Assessee s appeals against CIT (A) s order dated 1st May 2003, it had already before it Department s appeals against order dated 29th January 2003. When Assessee s appeals were taken up for hearing, Department should have pointed out to ITAT that its appeals against order dated 29th January 2003 were pending. 27. Again, when this Court was on 24th March 2006 hearing Department s appeals against order dated 13th May 2005 of ITAT, it was not informed that present appeals against ITAT s order dated 2nd September 2004 which had been filed by Department on 31st January ITA 371/2005 & connected matters Page 14 of 15 2005 itself. Department ought to have requested this Court to hear both sets of appeals together. 28. In light of fact that Supreme Court has by its judgment dated 25 th March 2009 held on merits that Respondent-Assessee had discharged burden of showing reasonable cause for failure to deduct TDS, Court is not persuaded to entertain present appeals. question that has been framed does not require to be answered for simple reason that decision of this Court cannot possibly be contrary to what has been held by Supreme Court on merits on question of liability of Assessee to pay penalty under Section 271C of Act. 29. For aforesaid reasons, Court declines to answer question framed. appeals are dismissed with no order as to costs. S. MURALIDHAR, J. PRATHIBA M. SINGH, J. AUGUST 31, 2017 Rm ITA 371/2005 & connected matters Page 15 of 15 Commissioner of Income-tax v. Denso India Limited