DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), PUNE, PUNE vs. HONEYWELL AUTOMATION INDIA LIMITED , PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH PUNE BEFORE DR. MANISH BORAD, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No.2529/PUN/2025 (A.Y. 2013-14) D.C.I.T.Circle-1(1), Honeywell Automation India PMT Bldg. Limited, Shankarsheth Road., Vs. 56 &57, Hadapsar Industrial Swargate, Pune-411037, Area, Hadaspar, Pune-411013, Maharashtra. Maharashtra PAN : AAACT3904F (अपीलार्/Appellant) (प् र्/Respondent) CO No.28/PUN/2026 (Arising out of ITA No.2529/PUN/2025) Honeywell Automation India D.C.I.T.Circle-1(1), Limited, PMT Bldg. 56 &57, Hadapsar Industrial Vs. Shankarsheth Road., Area, Hadaspar, Pune-411013, Swargate, Pune-411037, Maharashtra Maharashtra. PAN : AAACT3904F Cross Objector Appellant in the Appeal Assessee by Shri Siddhesh chaugule (Virtual).AR Revenue by Shri.Prakash L Pathade, CIT-DR & Smt.Chandrika .R,. Addl. CIT सुनवाईकीतारीख/Date of Hearing 22.04.2026 घोषणाकीतारीख/Date of Pronouncement 28.04.2026 ORDER PER PAVAN KUMAR GADALE, JM: The appeal is filed by the revenue against the order of the NFAC Delhi/CIT(A) passed u/sec 271(1(C) and u/sec 250 of the Act. The revenue has raised the grounds of appeal challenging the order of the CIT(A) deleting the penalty levied u/sec 271(1)(C)of the Act by the Assessing Officer. And the assessee has filed Cross Objection challenging the validity of initiation of penalty u/ sec 271(1) ( C) of the Act.

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited.

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. managerial services in line with the APA terms and passed the order u/sec144C(5) of the Act dated 18.09.2017. Subsequently, the final assessment order was passed u/ sec 143(3) rws 144C(13) on 13.11.2017 assessing the total income of Rs. 1,61,87,60,850/- with the additions as under: (I) Adjustment on international transactions: Rs. 11,44,09,359 (20% disallowance as per APA). (II) Disallowance u/sec 10AA of the Act: Rs. 2,36,66,788/- (III) Reconciliation as per Form 26AS: Rs. 36,13,632/- (IV) Interest on refund not offered to tax: Rs. 1,94,35,882/- 4. Aggrieved by the final assessment order passed by the AO, the assessee has filed the appeal before the Hon’ble Tribunal. The Hon’ble Tribunal in ITA No. 2529/PUN/2025 dated 24.07.2019 has deleted the disallowance u/sec10AA of the Act and remitted (i) the issue of non-consideration of the modified return (disallowance under APA offered as additional income) to the AO for verification of taxes paid (ii) remanded the matter of reconciliation as per Form. no. 26AS and interest on income tax refund to the file of the A.O 5. Further, the AO has passed Order Giving Effect (OGE) on 19.01.2021. The AO has accepted the modified return of income(MTR) filed post-signing of the APA with a revised income of Rs. 1,57,20,22,549/- but the AO has sustained the additions(i) in respect of reconciliation as per From 26AS of Rs. 36,13,632/-

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. and (ii) interest on refund not offered to tax Rs. 1,94,35,882/- and determined the taxable income of Rs. 1,59,50,94,063/-. 6. Subsequently, the Assessing Officer issued show notices u/sec 271(1)( C) of the Act dated 17.03.2020 and 22.05.2021 and the assessee has filed the submissions in the course of penalty proceedings on 20.03.2020and 24.08.2021.Whereas the Assessing Officer was not satisfied with the explanations made by the assessee and levied a penalty of Rs.4,45,98,530/- for furnishing inaccurate particulars of income vide order u/sec 271(1)( C) of the Act dated 25.03.2022. 7. Aggrieved by the penalty appeal order, the assessee has filed the appeal with the CIT(A) challenging the penalty order raising the grounds of appeal pertains to that (i) the A.O has erred in not passing the speaking order and penalty was not properly initiated in the OGE (ii) the A.O has erred in levying penalty with respect to addition on account of APA i.e managerial and administrative services, which is already part of taxation offered by the assessee in the Modified Tax Return(MTA) pursuant to entering in to Advance Pricing Agreement(APA).(iii) the A.O erred in not considering the facts, that the addition of difference of income accrued in Form.No.26AS and books of accounts is only timing difference and was offered in subsequent years and (iv) the A.O erred in not appreciating the facts that addition of interest on income tax refunds was without any intimation of release of refund along with interest. Whereas the CIT(A) has considered the grounds of appeal, statement of facts,

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. findings of the AO and submissions of the assesse on the four grounds of appeal and has deleted the penalty and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the revenue has filed an appeal and the assessee has filed the cross objections before the Hon'ble Tribunal. 8. At the time of hearing, the Ld.DR submitted that the CIT(A) has erred in deleting the penalty, ignoring the facts that assessee has failed to submit the reconciliation statement of customers in respect of difference of income accrued in Form.No.26AS and books of accounts in spite of the assessee was provided the adequate opportunity and the A.O made addition of differential amount. Further the CIT(A) erred in overlooking facts that refund amount was adjusted against the outstanding demand for AY 2006-07 and A.Y.2008-09 and reducing the liability of tax arrears to the extent of interest granted which ultimately is the income of the assessee A.Y. 2013-14 and was added by the A.O in the OGE. Hence the assessee has concealed the income and liable for penalty and prayed for allowing the revenue appeal. Per Contra, the Ld.AR supported the observations and findings of the CIT(A) and also the Ld.AR submitted that the Cross Objections are filed by the assessee challenging the initiation of penalty proceedings and relied on the factual paper book and judicial decisions. We heard the rival submissions and perused the 9. material on record. The Ld. DR submitted that the CIT(A)

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. has erred in overlooking the various facts and information and relied on the information submitted by the assessee and overlooked the findings of the Assessing. At this juncture, we consider it appropriate to refer to the findings of the CIT(A) in deleting the penalty on two aspects were the revenue is in appeal (i) relating to Form.No.26AS and (ii) relating to interest on income tax refund dealt at Para 35 & 36 and Para 41& 42 of the order as under: “35. The appellant’s assertion that Form 26AS is not an income accrual tool holds significant merit. Form 26AS primarily reflects tax deducted at source (TCS) and collected at source (TCS) transactions, which may not always align with the revenue recognition principles followed by an assessee, especially for complex, multi-year contracts where revenue is recognized based on the percentage completion method (AS 7). The timing of TDS deduction by customers is beyond the appellant’s control. The appellant’s accounts are duly audited without qualification, and substantial reconciliation efforts were made, explaining a significant portion of the variance. The difficulty in reconciling a vast number of transactions and the negligible percentage of variance also support the appellant’s bone fide position. Crucially, judicial pronouncements, including the Delhi ITAT in LIoyd Insulation (India) Ltd and others cited, have consistently held that additions should not be made solely on the basis of From 26AS without pointing out specific defects in the assessee’s regularly maintained and audited books of account. Therefore the Appellant s argument on ground .No.1.9 is allowed.

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. 36.The appellant’s argument regarding the potential for double taxation due to additions based on Form 26AS, particularly when such differences are timing-related , is a valid. If the income, which is merely deferred in recognition due to differing accounting methods or reporting mechanisms (between the assessee’s accrual basis and the TDS reporting), is taxed in the current year without corresponding adjustments in future years, it would indeed lead to the same income being taxed twice. This would impose undue hardship on the appellant and is contrary to the fundamental principles of taxation. The appellant has demonstrated that these are timing difference and that there is no deliberate attempt to conceal income, thus negating the element of mens rea. The strong judicial support, including the Supreme Court’s view on academic litigation for timing differences and ITAT decisions confirming no penalty for such differences, further reinforces this position. Moreover, the fact that a similar addition was deleted in the appellant’s own case for AY 2014-15 establishes a crucial precedent, highlighting the unsuitability of such additions and penalties. Therefore the Appellant argument in Ground.No.1.10 is allowed.” -----“41. The Appellant's arguments on the addition related is interest on IT refunds are strongly ITAT explicitly ruled against taxing interest on refund under section 143(1) if that interest is subsequently recovered by the Revenue due to a regular assessment under section 143(3), to avoid double taxation. The facts of AY 2013-14 are stated to be identical, where the interest was adjusted against an outstanding demand and subsequently

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. reversed or recovered. Furthermore, the lack of intimation to the Appellant about the refund and its adjustment meant that the Appellant was genuinely unaware, thus negating any intent to conceal or furnish inaccurate particulars, The principle of heal income theory and the judicial view that penalty should not be levied for national income or when primary facts are disclosed and there is a boña de belief further support the Appellant's position. Therefore, The Appellant's argument on Ground No. 1.11 is allowed. 42. The final ground serves as an overarching argument, emphasizing the fundamental principle that penalty proceedings are distinct from assessment proceedings, and a mere addition or disallowance of income in assessment does not automatically lead to the imposition of a penalty under section 271(1)(c). The core requirement for such a penalty is a finding that the assessee has either concealed particulars of income or furnished inaccurate particulars thereof, coupled with an element of mens rea (a guilty mind or conscious act), as repeatedly affirmed by the Hon'ble Supreme Court in cases like K.C. Builders and Anwar Ali. For the specific additions relating to APA adjustments (Grounds 1.5-1.8), 26AS reconciliation (Grounds 1.9-1.10), and interest on IT refund (Ground 1.11), it has been found that the Appellant's explanations, including the filing of MTRs, adherence to accounting standards. existence of timing differences, lack of intimation, and judicial precedents (including those in the Appellant's own case), demonstrate a bona fide belief and absence of any deliberate intention to conceal or furnishing accurate particulars. Therefore,

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. for these specific items, the prerequisite of mens rea or a finding of actual concealment/inaccurate particulars has not been established. Therefore the Appellants argument on Ground.No.1.2 is allowed.” 10. The Ld.AR relied on the submissions filed before the CIT(A) on these aspects i.e relating to Form.No.26AS referred at page 11 Para 32 to 34 of the CIT(A)order as under: “32.The appellant submitted that it is engaged in the business of industrial and Building Automation and Controls, with contracts typically spreading over multiple years. It follows the percentage completion method for revenue recognition in accordance with Accounting Standard 7, and its accounts are duly audited. The receipts from Indian customers are subject to withholding tax. The appellant argued that Form 26AS is not an income accrual tool; it is based on TDS returns filed by customers, and the Appellant has no control over the timing of tax deduction and reporting. Therefore, Form 26AS cannot be the basis for computing taxable income. The Hon’ble Delhi ITAT in Lioyd Insulation (India) Lid upheld that where no specific defect in audited books is pointed out the AD cannot make additions solely based on TDS certificates/Form 26AS Such differences are timing differences that square off over time. The Appellant made reconciliation efforts, explaining 92.66% of the variance, and highlighted the genuine difficulty in reconciling large volumes of data. It also noted that its total income offered to lax far-exceeds the receipts reported in Form 26AS, with the variance being

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. negligible (0.024%). Judicial precedents like S Ganesh vs ACIT and A.F Ferguson & Co. support that additions solely based on AIR/Form 26AS without other evidence are not sustainable. 33. The Appellant submitted that for AY 2013-14, the refund along with interest was adjusted against an outstanding demand for AY 2010-11, and no cash refund or interest was received by the Appellant. More critically, the Appellant did not receive any intimation regarding the release of refund along with interest processed under section 143(1). The Appellant only came to know about this adjustment when the draft assessment order for AY 2013-14 was passed. The Appellant emphasized that in its own case for AY 2014-15, with regard to the same addition, the Ld. CIT(A) allowed the Appellant's ground, and the Hon'ble ITAT dismissed the department's appeal. The Hon'ble ITAT specifically held that if the interest on refund, initially taxed, is later recovered due to a regular assessment, then charging it to tax twice is impermissible. The facts of the present case are identical. The Appellant also relied on the real income theory and judicial rulings like Bokaro Steel Ltd.FAG Beaning Vs OCIT, Avada Trading Co. P. Ltd. v. Asst. CIT, and LM Patel & B.M Patel HUF which support that where income is notional or subject to reversal, or primary facts are disclosed, penalty is not exigible. 34. The Appellant also submitted that if an addition is made based on Form 26AS without a consequential reduction of income in subsequent years, it leads to double taxation, as the same income would be taxed twice (on accrual and on receipt). Such variance is

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. merely a timing difference. A further levy of penalty on this would be unwarranted and cause undue hardship. The Appellant contended there was no mens rea, as the explanations for differences were bona fide timing differences. The Supreme Court in M/s Excel Industries Ltd noted that for timing differences with no significant tax effect, litigation might be academic. The Hon'ble Delhi High Court in Granite Gate Properties (P) Ltd. held that bona fide action, even if resulting in additions, should not lead to penalty for concealment. The Hon'ble Mumbai ITAT in Parinee Developers (P.) Ltd. and Indore ITAT in Shri Praveen Kumar Jain have explicitly held that penalty cannot be levied for mere timing differences or on declared Income, irrespective of the year of disclosure. In its own case for AY 2014-15, the CIT(A) allowed the same addition, which was subsequently deleted by the AO in the OGE. 11. Similarly the Ld.AR relied on the submissions filed before the CIT(A) on the aspect i.e relating to interest on income tax refund referred at page 13 Para 39 & 40 of the order as under: “39.The Appellant submitted that for AY 2013-14, the refund along with interest was adjusted against an outstanding demand for AY 2010-11, and no cash refund or interest was received by the Appellant. More critically, the Appellant did not receive any intimation regarding the release of refund along with interest processed under section 143(1). The Appellant only came to know about this adjustment when the draft assessment order for AY 2013-14 was passed. The Appellant emphasized that in its own

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. case for AY 2014-15, with regard to the same addition, the Ld. CIT(A) allowed the Appellant's ground, and the Hon'ble ITAT dismissed the department's appeal. The Hon'ble ITAT specifically held that if the interest on refund, initially taxed, is later recovered due to a regular assessment, then charging it to tax twice is impermissible. The facts of the present case are identical. The Appellant also relied on the 'real income theory and judicial rulings like Bokaro Steel Ltd. FAG Bearing Vs DCIT, Avada Trading Co. P. Ltd. v. Asst. CIT, and L.M Patel & B.M Patel HUF, which support that where income is notional or subject to reversal, or primary facts are disclosed, penalty is not exigible. 40.The Appellant also submitted that assessment proceedings and penalty proceedings are independent, and mere addition to income does not automatically attract penalty. Section 271(1)(c) explicitly states the conditions for penalty concealment of income or furnishing inaccurate particulars. The Appellant neither concealed facts nor furnished inaccurate particulars. All details for Form 26AS and IT interest were submitted. There should be positive evidence of concealment for levying penalty, and if adequate disclosures are made, there is no case for concealment. Penalty cannot be levied merely on account of disallowance, as this does not amount to concealing facts or offering no explanation. The Appellant reiterated the judicial precedents from Shadilal Sugar & General Mills Ltd. v CIT, CIT vs. Stoll India (P) India, K.C. Builders & Anr. v. ACIT, and CIT v. Anwar All, all emphasizing that mens rea (conscious concealment or deliberate furnishing of inaccurate particulars) is essential, and mere acceptance of adjustment or

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. non-sustainable claims do not automatically trigger penalty. The Appellant maintained that it had bona fide reasons for its positions, and thus, mens rea was absent.” 12. The Ld.AR emphasized on the above factual submissions made before the appellate authorities and reiterated that the difference in the income as per Form no 26AS and books of account is because of timing difference and was offered in the subsequent years and the assessee has made reconciliation to the extent of 92.66% of the variation of difference. Further interest on income tax refund was adjusted without intimation and the assessee has disclosed the facts and the refund was adjusted against the outstanding demands which is not disputed by the revenue authorities. 13. We find the CIT(A) has dealt on the facts, provisions of law and judicial decisions. The Ld. DR could not controvert the findings of the CIT(A) with any new cogent material or information to take different view. We considered the facts, circumstances, submissions as discussed above are of the view that the CIT(A) has passed a reasoned and conclusive order. Accordingly, we do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue. 14. In the result, the appeal filed by the revenue is dismissed.

ITA No.2529/PUN/2025 & CO 28/PUN/2026 Honeywell Automation India Limited. CO 28/PUN/2026 (Assessee) 15. Since the appeal filed by the revenue is dismissed as discussed in the above paragraphs and consequently, the assessee’s cross objections becomes infructuous and is dismissed. 16. In the result, the appeal filed by the Revenue and Cross objections filed by the Assessee are dismissed Order pronounced in the open court on 28.04.2026. Sd/- Sd/- (MANISH BORAD) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated: 28/04/2026 Abhishek

Copy of the Order forwarded to: 1. The Appellant, 2. The Respondent 3. The CIT(A)- 4. CIT 5. DR, ITAT, “C” Bench 6. Guard file. //True Copy// BY ORDER, (Asstt. Registrar)ITAT, Pune.