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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRIR.K.PANDA & SHRI N. K. CHOUDHRY
O R D E R PER N.K. CHOUDHRY, J. M.: 1. These appeals have been preferred by the Assessee against the consolidated order dated 25.06.2013 impugned herein passed by the ld. Commissioner of Income Tax (Appeals)–XXIX, New Delhi {hereinafter called in short as the “ld. Commissioner”} for the assessment years 2004-05 and 2005-06, whereby the Ld. Commissioner upheld the levy of penalty u/s 271(1)(c) of the Income Tax Act 1961 (in short „the Act‟) by the Assessing Officer. Page | 1
As the issue involved in the instant appeals is exactly similar, and therefore for the sake of brevity, we are taking into consideration the facts of (AY 2004- 05)for adjudication and result of same shall apply mutatis mutandis to (AY 2005-06) as well .
In this case the Assessee had filed its return of income by declaring income of Rs. 11,72,87,910/- on dated 30.03.2006, which was processed and vide assessment order dated 22.12.2006, income declared by the Assessee was determined at the same amount while charging tax @20% on receipts from all the contracts.
The said charging of income tax @ 20% by the AO, was challenged by the Assessee before the ld.CIT(A), who vide order dated 10.01.2009 affirmed the same.
Thereafter, the said order in quantum appeal, was challenged before the ITAT (in short the Hon‟ble Tribunal) and the Hon‟ble Tribunal vide order dated 09.08.2021 passed in dismissed the appeal of the Assessee and affirmed the charging of tax @20% on receipts from all the contracts.
The AO also imposed penalty u/s 271(1)(c) read with explanation 7 appended thereto of the Act to the tune of Rs. 39,00,519/- being 100% of Tax sought to be evaded. The Assessee challenged the levy of penalty before the Ld. Commissioner, who videimpugned order, upheld the same.
The Assessee being aggrieved by the impugned order preferred the instant appeal and before us raised two foldarguments. Firstly, that in the instant case return of income Page | 2 and assessed income is the same. Secondly, the explanation 7 of section 271(1)(c) deals with the case where the Assessee(s) has entered into an international transaction(s), which is not the case here and therefore, penalty under challenge cannot survive.
7.1 The ld. Counsel also drew our attention to a certificate dated 19.05.2004 issued qua revenues received from JIL, by the revenue department (Assistant Director of Income-tax, Circle- 2(1), International Taxation, New Delhi)u/s 197 of the Act to the Assessee, contents of the same are reproduced below: “The appellant has said that TDS rate should be determined in accordance with provisions of section 44BBB of the Act. As such the net profits for this financial year are taken at 10% u/s 44BBB of the Act. You are hereby authorized to make payment of the above nature to Lahmeyer International for the above mentioned amount after deducting tax at 4.1% of the gross amount payable to the payee.”
7.2 The ld. Counsel Sh. SalilKapoorfurther submitted that the Assessee in good faith and belief, had offered its income for tax on presumptive basis u/s 44BBB of the Act, whereas the AO taxed the income of the Assessee @20% and therefore, only on the basis of question of tax rates and/or tax difference, the penalty cannot be made. 7.3 The Ld. Counsel further referred to various judgments inter-alia passed by the Hon‟ble Tribunal in the case of ADIT, Circle-2(1), New Delhi Vs. Nortel Network Ltd in decided on July 31 2013 (2013) 37 Taxman.com 453 wherein, it was held: Page | 3
“Income of the Assessee during re- assessment proceedings was not enhanced as is apparent from the assessment order and it was only the rate of tax which has been increased from 15% TO 20%. Since there is no change in the income declared and income assessed by the Assessing Officer, it cannot be said that there were any concealment of income.”
ON the contrary, the Ld. DR supported the orders passed by the authorities below and submitted that the order under challenge does not suffer from any illegality, perversity and/or impropriety and therefore the same is labile to be affirmed.
Heard the parties and perused the material available on record. It was claimed by the Assessee before the authorities below that period of presence of employees of the Assessee in India qua projects with MPCPL, VIWSCL and APTC was lesser than the threshold period of 183 days and in fact no supervisory services have been rendered from the contracting state (i.e. India) for a period exceeding 6 months and the services rendered by the Assessee were in nature of technical and consultancy services and therefore, falls outside the purview of supervisory activities . Accordingly, the Assessee was under genuine belief that no supervisory/ installation of PE has been constituted as per Article 5 of the Tax Treaty by the Assessee, under the above contracts with MPCPL, VIWSCL and APTC. It was also claimed by the Assessee that in the absence of PE in India and considering the nature of services rendered by the Assessee i.e. technological/consultancy services, the Assessee has rightfully offered the revenues earned from the said contracts to tax @10% as FTS as per Article 12 of the India-Germany Tax Treaty.
9.1 The Assessee had also claimed that the intention of the legislature to impose penalty is to cover cases where an Assessee deliberately attempts to contravene the provisions of the Act and to evade the payment of the tax levied thereunder and thus penalty need not be imposed in all cases merely because it is at the discretion of the AO to do so. The Assessee in the instant case has neither deliberately attempted to contravene the provisions of the Act nor to evade payment of the tax levied there under. Also, there was no failure to offer any explanation during the course of the assessment proceedings for the subject year. Each and every explanation offered by the Assessee has been substantiated and no allegations as to either the bona fide of such explanation or as to disclosure to all material facts relatable to such explanations have been made in the course of assessment proceedings.The Assessee had filed its return of income in good faith and exercised due diligence and bonafide.
9.2 We have given thoughtful consideration to the facts and circumstances of the case and observe that more or less the claim of the Assessee is that the Assessee on the basis of bonafide belief to the effect, as the Assessee do not have PE in India qua projects on the basis of which income has been earned, therefore offered its income for tax on presumptive basis u/s 44BBB of the Act which prescribe the tax payable @ 10%. The said claim of the Assessee was declined by the Assessing officer and income of the Assessee was taxed @ 20%, and subsequently penalty under consideration was imposed which stands sustained by the Ld. Commissioner in appeal.
9.3 The Hon‟ble Apex Court in the case of Reliance Petro Products Pvt. Ltd 322 ITR 158 while dealing with the penalty imposed for claiming expenditure which was declined to be allowed u/s 14A of the Act, held“that mere making of a claim, which is not sustainable in law, would not, ipso facto, amount to furnishing of inaccurate particulars regarding the income of the Assessee and would, therefore, not automatically result in a penalty order against the Assessee.”
9.4 Even the Hon‟ble Tribunal in the case of ACIT, Circle-(1) Vs. M/s Nortel Networks Ltd (supra) dealt with identical issue wherein there was difference between the computation of tax by the Assessee and the Assessing Officer, and deleted the penalty imposed in the similar circumstances as involved in the instant case.
9.5 Hence, considering the peculiar facts and circumstances as narrated above and specifically to the effects that in the instant case, the retuned income and assessed income is the same, which in our considered view favors the Assessee‟s case and respectively following the judgmentsreferred above, we are of the considered view that simply because the Assessee may be on bonafide belief or misconceptionthat the Assessee do not have „PE‟ in India and/or on the basis of certificate dated 19.05.2004 issued u/s 197 of the Act by the revenue department, chosen to compute the tax payable on its income u/s 44BBB of the Ac, that itself cannot entail imposition of penalty. Hence, we are inclined to delete the penalty imposed by the ld. AO and affirmed by the ld. Commissioner vide impugned order. Consequently the appealfiled by the Assessee is allowed.
In view of the result in also stands allowed.