2025 (8) TMI 146 - AT - Income Tax

Payments to AEs for Online Ads Not Penalty-Worthy Under Section 271(1)(c) or TDS Section 195

The ITAT Delhi held that payments made by the appellant to its AEs for online advertisements on third-party platforms, deemed as Fees for Technical ... Penalty u/s 271(1)(c) - TDS u/s 195 - payments made by the appellant to its AE(s) for purchase of online advertisement on third party platforms after deeming them Fees for Technical services - HELD THAT:- These 15C as and 15CBs were filed for all transactions, be it from Japan or Singapore. No penal action was taken under TDS sections against the Assessee nor were any steps taken by the department to tax the amounts received by Microad Singapore entity. The fact that online advertisements brought from abroad are not taxable under the provisions of the Income Tax act read with the relevant Double Taxation Avoidance Agreements is corroborated by introduction of Equalization Levy (popularly known as Google Tax) from April 1, 2016 as laid u/s 165 of the Finance Act 2016 (and not Income Tax Act) to tax such transactions explicitly. Thus we find that the addition pertains to an amount on which there was a difference of opinion, and attributing concealment or inaccurate furnishing of facts, is not justified. The fact that the CIT(A) allowed a quantum of transactions itself proves that there is a difference of opinion between the AO, Assessee and the CIT(A) towards how to the aforesaid transactions ought to be treated from TDS perspective. The grounds are sustained and appeals is allowed. ISSUES: Whether mere rejection of the assessee's explanation or contentions can lead to the conclusion of concealment of material facts under section 271(1)(c) of the Income Tax Act, 1961.Whether a difference of opinion regarding non-deduction of TDS amounts to concealment of income or furnishing of inaccurate particulars under section 271(1)(c).Whether acceptance of the CIT(A)'s order by the department without further appeal negates the element of concealment necessary for levy of penalty under section 271(1)(c).Whether the element of mens rea (guilty mind) is essential for imposing penalty under section 271(1)(c).Whether addition to income or disallowance of a debatable claim necessarily implies concealment or furnishing of inaccurate particulars of income.Whether non-filing of appeal by the assessee against the orders of AO/CIT(A) renders section 271(1)(c) applicable.Whether the Assessing Officer can proceed with recovery proceedings pending disposal of the appeal against penalty under section 271(1)(c). RULINGS / HOLDINGS: The Court held that 'mere Rejection of the explanation/contention raised by the assessee company cannot lead to the conclusion that there has been any concealment of material facts.'The Court ruled that 'the addition pertains to an amount on which there is a difference of opinion, not concealment,' and 'mere difference of opinion/taking a position contrary to the view taken by the AO cannot amount to the assessee company concealing facts material to the computation of income.'The Court observed that since the department accepted the CIT(A)'s order and did not appeal further, 'there was no concealment of income' and the department 'accepted the technical nature of the transactions.'The Court emphasized that 'the element of mens rea (guilty mind) that is a must to levy penalty did not exist' in the present case.The Court held that 'an Addition to income/rejection of claim for certain expenditure/disallowance of a debatable claim itself does not lead to an inference of concealment or furnishing of inaccurate particulars of income.'The Court stated that 'the mere fact that the assessee firm has not filed appeal with the Tribunal against the orders of the AO/CIT(A) will not render the provisions of section 271(1)(c) of the Act applicable to the case.'The Court directed that the Assessing Officer be directed to stay the demand and 'immediately stop recovery proceedings till disposal of this appeal.' RATIONALE: The Court applied the provisions of section 271(1)(c) of the Income Tax Act, 1961, which imposes penalty for concealment of income or furnishing inaccurate particulars.The Court relied on the fact that Form 15CAs and Form 15CBs were duly filed, explicitly mentioning relevant provisions of the Income Tax Act and Double Taxation Avoidance Agreements (DTAAs), indicating transparency in the transactions.The Court noted that the transactions were technical and debatable in nature, as evidenced by the CIT(A)'s partial allowance and the absence of departmental appeal, demonstrating a genuine difference of opinion rather than concealment.The Court highlighted the introduction of the Equalization Levy under the Finance Act, 2016, as a legislative recognition that such online advertisement transactions fall outside the scope of Income Tax Act provisions for TDS, supporting the assessee's position.The Court underscored the necessity of mens rea (guilty mind) for penalty imposition, which was absent here, marking a doctrinal adherence to established penalty jurisprudence.