Commissioner Of Income Tax (Internationaltaxation)-1, New Delhi v. Genpact Services Llc

$~62*IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 07.05.2025 +ITA 133/2025 & CM APPL. 27602/2025(Exemption) COMMISSIONER OF INCOME TAX (INTERNATIONALTAXATION)-1, NEW DELHI.....AppellantThrough:Mr Puneet Rai, SSC, Mr AshviniKumar and Mr Rishabh Nangia, SCsand Mr Nikhil Jain, Advocate. versus GENPACT SERVICES LLC Through: .....Respondent CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) -CM APPL. 27603/2025(for condonation of delay of 196 days in refilingthe appeal) 1.For the reasons stated in the application, the delay in re-filing theabove captioned appeal is condoned. 2.The application stands disposed of. ITA 133/2025 3.The Revenue has filed the present appeal, impugning an order dated06.06.2024 passed by the learned Income Tax Appellate Tribunal inITA No. 899/Del/2018 in respect of Assessment Year 2010-11,whereby the Revenue’s appeal against an order dated 01.11.2017 passed by the Commissioner of Income Tax (Appeals)-42, New Delhi [CIT(A)], wasrejected. 4.The Assessee had appealed before the CIT(A) against the penaltyorder dated 27.03.2017 passed by the Assessing Officer , imposing apenalty under Section 271(1)(c) of the Income Tax Act, 1961 [the Act]holding that the Respondent (Assessee) had wilfully attempted to reduce hisincome and, therefore, it was a fit case for imposition of penalty. 5.The Assessee had filed its return of income for AY 2010-11, declaringa loss of ₹3,89,17,092/- and subsequently revised the return on 27.12.2011, declaring a total loss of ₹6,78,78,188/-. The return was picked up for scrutiny, and the assessment proceedings culminated in an assessment orderwhereby the AO made an addition of ₹16,62,00,207/- on account of disallowance of revenue expenditure, which was treated as capitalexpenditure. The Assessee had acquired a business from a third party,related to debt collection services, as well as a part of the business ofanalytics from Genpact India for a total consideration of ₹62,12,70,648/-. Out of the aforesaid amount, a sum of ₹22,16,00,276/- was claimed as allowable expenditure. The Assessee claimed that the same was revenueexpenditure as it was for certain intangible assets, which did not have anyenduring value. However, the AO did not accept the said contention. Thus,the AO allowed twenty-five percent of the said expenditure as depreciationallowance and made an addition of the balance seventy-five percent of thesaid amount being ₹16,62,00,207/-. 6.The CIT(A) found that the issue involved was debatable and,therefore, no penalty proceedings under Section 271(1)(c) could be imposed.The relevant extract from the CIT(A)’s order dated 01.11.2017 is set out below: “6.13 From the various judicial precedents, it is seen that thefacts and circumstances in each case has to be seen in the contextand then penalty provision should be applied to see whether therewas the concealment of particulars of income or the appellant hasfurnished inaccurate particulars so as to call for the penal actionunder Section 271(1)(c). 6.14In the appellant's case, the AO has held that the appellanthas furnished inaccurate particulars of income and for concealingits income. However, I find that as regards the penalty on the issueof nature of expenditure, it is noted that such expenditure wastowardsacquisitionofcustomercontractsandassembledworkforce. It is a fact that such data of customer contracts andassembled work force is an intangible asset and the acquirerbenefits from the same in the long term. 6.14In the appellant's case, the AO has held that the appellanthas furnished inaccurate particulars of income and for concealingits income. However, I find that as regards the penalty on the issueof nature of expenditure, it is noted that such expenditure wastowardsacquisitionofcustomercontractsandassembledworkforce. It is a fact that such data of customer contracts andassembled work force is an intangible asset and the acquirerbenefits from the same in the long term. 6.15Therefore, claiming deduction as revenue in nature isprincipally wrong because the benefit is enduring in nature.However, the Supreme Court in the case of Empire Jute Co Ltdvs. CIT (1980) 124 ITR 1 ruled that there may be cases where theexpenditure can be such that there could be an enduring benefitbut the expenditure can still be classified as revenue expenditure.The test of enduring benefit in therefore is not certain orconclusive test and it cannot be applied blindly and mechanicallywithout regard to the particular facts and circumstances of a givencase. In case of Empire Jute, Apex Court held that the expenditureincurred for this purpose was primarily and essentially related tothe operation or working of the looms which constituted the profitearning apparatus of the assesses. It was expenditure for operatingor working the looms for longer working hours with a view toproducing a larger quantity of goods and earning more incomeand was therefore in the nature of revenue expenditure. 6.16The Court held that if the incurring of the expendituremerely facilitates the assessee's trading operations or enables themanagement and conduct of the assessee's business to be carriedon more efficiently or more profitably whilst leaving the fixedcapital untouched, the expenditure would be on revenue accounteven though the advantage may endure for an indefinite future. In this case, by incurring the expenditure under reference, theassessee has claimed to have expansion of business already beingcarried on by the company, based on information about customercontacts etc. Hence, the appellant claimed that the expendituremust be regarded on revenue field. 6.17Such decisions highlight that two views are possible onthis issue regarding claiming the expenditure as capital orrevenue.Allowabilityofpaymentstowardsacquisitionofcustomer contracts and assembled work force as an eligiblerevenue expenditure is a subject matter of debate and there aretwo possible views in this regard. If two views are possible on aparticular matter and if an assessee has adopted a view mostfavorable to it, penalty proceedings are not warranted as held byCourts from time to time.The issue in the quantum appeal isdebatable one as is evident from the above narration of facts.Moreover, the assessee has stated his position clearly in the TaxAudit Report in Form 3CD filed for the subject year. In thisregard, it may be relevant to refer to the decision of Hon'bleSupreme Court in Reliance Petro products wherein it is held asunder: ****** 6.18It is clear from the above extracts that the legislature doesnot intend to impose penalty on every assessee whose claim isrejected by the assessing officer. What is sought to be coveredunder Section 271(l)(c) is concealment of "particulars of income"or furnishing of" inaccurate particulars of income" and not makingof an untenable claim.The claim made by the assessee has notbeen demonstrated to be false by the assessing officer. Even inMAK Data (supra), the Supreme Court held on facts that theassessee in the said case had no intention to declare its trueincome and no explanation was offered by it for the concealmentof income. In the facts of the present case, there is no categoricalfinding to hold that Explanation 1 to Section 271(l)(c) of the Actwas attracted. ****** 6.20Keeping in view the above, in my considered view, theappellant's explanation in the matter is held to be bonafide andacceptable. Accordingly the order of penalty is cancelled. It is ****** 6.20Keeping in view the above, in my considered view, theappellant's explanation in the matter is held to be bonafide andacceptable. Accordingly the order of penalty is cancelled. It is worth mentioning that penalty and assessment order are twoseparate proceedings. Hence, the ground of appeal is allowed” [emphasis added] 7.We have also perused the decision of the CIT(A) and we find noinfirmity with the decision of the CIT(A) holding that the question involvedwas a debatable one and, therefore, a penalty under Section 271(1)(c) couldnot be imposed. 8.However, we note that the learned ITAT did not express any opinionas to the CIT(A)’s view; it rejected the Revenue’s appeal solely on theground that the notice issued by the AO under Section 274 of the Act readwith Section 271 of the Act did not specifically state as to under which limbof Section 271(1)(c) of the Act, penalty proceedings were intended to beproceeded. Section 271(1)(c) of the Act has two limbs: the first is where theallegation is that the assessee has concealed income; and the second is, thatthe assessee has furnished incorrect particulars of income. 9.This court has, in a number of decisions, held that the notice, whichdoes not specifically indicate the particular limb of Section 271(1)(c) that issought to be invoked, would be invalid as being vague. 10.Mr. Rai, the learned counsel for the Revenue, also does not disputethat the issue involved is covered by several decisions of this court includingPrincipal Commissioner of Income Tax v. Gragerious Projects Pvt. Ltd:Neutral Citation; 2024:DHC:9019-DB, Pr. Commissioner of Income Tax,Delhi 1 v. M/S Blackroak Securities Pvt. Ltd.: Neutral Citation;2023:DHC: 8841-DB and Pr. Commissioner of Income Tax, Delhi 7 v.Unitech Reliable Projects Pvt. Ltd.: Neutral Citation; 2023:DHC: 4258- DB. 11.In view of the above, no substantial question of law arises forconsideration of this court in the present appeal. 12.The appeal is dismissed. The pending applications also stand disposedof. VIBHU BAKHRU, J MAY 07, 2025/sms TEJAS KARIA, J Click here to check corrigendum, if any