ASSISTANT COMMISSIONER OF INCOME TAX, NEW DELHI vs. FLOUR TRANSWORLD SERVICES INC., UNITED STATES

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, D: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER IT(IT)A No.- 36/Del/2025 [Assessment Year: 2012-13] ACIT, Circle (IT)-1(3)(1) Flour Transworld Services Inc. Room No. 501, D Block Civic Cybercitylas Colinas, Boulevard Centre, New Delhi- 110002 Vs Irving, Texas, U.S. PAN-AABCF5074F Revenue Assessee

Assessee by Sh. Ankit Sahni, Adv. Revenue by Sh. Vikram Singh Sharma, Sr (DR) Date of Hearing 13.04.2026 Date of Pronouncement 13.04.2026 ORDER PER BRAJESH KUMAR SINGH, AM,

This appeal by the Revenue is directed against the order dated 06.10.2025 of ld. Commissioner of Income Tax, Appeal, Delhi-42 [hereinafter referred to as the Ld. CIT(A)] arising out of the penalty order dated 18.02.2022 passed under

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section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) passed by the ACIT Circle(IT)-1(3)(1), New Delhi (hereinafter referred to as the ‘AO’), pertaining to Assessment Year (AY) 2012-13. 2. Brief facts of the case:-In this case, for the AY 2012-13, the AO noticed from the Form 26ASthat the assessee had received an amount of Rs 10,16,62,788/- from an Indian entity, M/s Fluor Daniel India Pvt. Ltd., on account of royalty and fees for technical services. Further, the AO noted that the assessee did not file its return of income u/s 139(1) of the Act for AY 2012-13. Consequently, a notice u/s 148 was issued and, in response, the assessee filed its return of income on 25.04.2019 declaring income of Rs. 10,16,62,788/-, which was offered to tax at the rate of 10.506% u/s 9(1)(vii) r.w.s. 115A of the Act. The assessment was completed u/s 147 r.w.s. 143(3) on 21.11.2019, accepting the returned income. 2.1 Subsequently, penalty proceedings u/s 271(1)(c) were initiated on the ground that the assessee had concealed particulars of its income by not filing the return voluntarily within the time prescribed u/s 139(1). After considering the submissions of the assessee, the AO held that the explanation offered was not

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satisfactory and levied a penalty of Rs.1.04,71,267/-, being 100% of the tax sought to be evaded, vide order dated 18.02.2022.

2.2 Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) observed that although the case falls under Explanation 3 to section 271(1)(c) as a deemed concealment case, the quantification of penalty has to be done in accordance with Explanation 4 to the said section. The CIT(A) found that the entire tax liability of Rs.1,06,80,698/- on the assessed income had been fully discharged through tax deducted at source (TDS) by the payer company, as reflected in the Form 26AS. Accordingly, the ld CIT(A) held that there was no tax sought to be evaded as per the computation mechanism provided in Explanation 4 to section 271(1)(c) of the Act. The Ld CIT(A) held that when the tax sought to be evaded is NIL, no penalty can be sustained. Accordingly, the penalty of Rs. 1,04,71,267/- levied by the AO was deleted by the ld CIT(A) vide appellate order dated 06.10.2025. The relevant extracts of the order of the ld CIT(A)are reproduced as under:- 9. Ground of appeal no. 3 & 4. 9.1 Vide these grounds the appellant has challenged the merits of the impugned penalty imposed by the AO u/s 271(1)(c) for concealment of particulars of income. The appellant has submitted that, the penalty under Section 271(1)(c) of the Act is leviable

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only with respect to the amount of tax sought to be evaded by reason of the concealment. Further, in accordance with explanation 4 to Section 271(1)(c) of the Act, for computation of amount of tax sought to be evaded, advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under Section 148 shall be reduced from the tax liability on the income assessed. In response to the notice u/s 148 of the Income Tax Act, 1961 the appellant filed its return of income of Rs. 10,16,62,788/- on 25.04.2019 declaring income from FTS. In this case, assessment was completed u/s 147 r.w.s. 144C of the Income Tax Act, 1961 on 21.11.2019 accepting the return of income filed by the appellant in response to notice u/s 148. The appellant has submitted that the entire tax liability of Rs. 1,06,80,699 on the assessed income stood already discharged fully by way of Tax deducted at source (TDS) of the equivalent amount as reflected in the 26AS statement. Thus, the appellant has contended that as there was NIL tax sought to be evaded in this case, no penalty becomes leviable in terms of explanation 4 to section 271(1)(c). 9.2 It is noted that Explanation 3 & 4 to section 271(1)(c) are relevant in this case as extracted below. 271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person- (a) ………. (b) ………. (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) ……… he may direct that such person shall pay by way of penalty.- (i) ………. (ii) ……… (iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. ……… ………

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Explanation 3-Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section be deemed to have concealed the particulars of his of such assessment year, income respect notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148. in Explanation 4. -For the purposes of clause (iii) of this sub-section, (a) the amount of tax sought to be evaded shall be determined in accordance with the following formula- (A-B)+(C-D) where, A = amount of tax on the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B=amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. C= amount of tax on the total income assessed as per the provisions contained in section 115JB or section 115JC D= amount of tax that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished: (b)

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(c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self- assessment tax paid before the issue of notice under section 148. [Emphasis Supplied] 9.3 As per the Explanation 3 to section 271(1)(c), in the instant case the appellant is deemed to have concealed particulars of its income as it did not voluntarily file return u/s 139 despite having undisputed taxable income of Rs. 10,16.62,788 in India, thus it is very much liable for penalty u/s 271(1)(c). However, in such a case the quantum of the penalty leviable is to be determined in accordance with Explanation 4 which clearly provides, inter alia, that any Tax deducted at Source (TDS) before issue of notice u/s 148 is to be reduced while computing the 'tax sought to be evaded'. In the instant case, the entire tax liability of Rs. 1,06.80,699 on the assessed income of Rs. 10,16,62,788 is found fully discharged by way of TDS, as reflected in the 26AS statement. However, it is noted that the AO, somehow, has granted only partial credit of this TDS, to the extent of Rs. 96,85,885 instead of claim of Rs. 1,06.80,698, in the computation sheet attached to the relevant assessment order, which is reproduced below for ready reference: 9.3On perusal from the above calculation sheet, it is noticed that a net demand of Rs 21,52,370 was raised in the assessment order solely due to non-grant of full TDS credit as claimed by the appellant in its ITR and as fully reflected in the 26AS statement and the consequential interest levied u/s 234A/2348/234C The appellant has filed a rectification application dated 20.12.2019, vide ASK acknowledgment no. 526031910080, before the AO requesting to grant full credit of the TDS claimed in the ITR and also reflected in the 26AS. The rectification application is statedly yet pending before the AO. However, since the entire gross receipts of Rs. 10,16,62,788 from Flour Daniel India Private Limited reflected in the 26AS statement are already offered to tax, with claim of corresponding TDS credit of Rs. 1,06,80,698, in the return of income field u/s 148 which has also been duly accepted by the AO in the assessment order dated 21.11.2019 passed under Section 147 r.w.s. Section 143(3) of the Act, there is prima facie no reason not to grant full TDS credit u/s 199 of the Act and Rule 37BA of the income Tax rules, 1962. Therefore, in view of the full TDS credit reflected in the 26AS statement and due claim thereof made in the return of income, I am of the considered opinion that the entire tax liability determined vide the assessment order u/s 147 stood fully discharged by way of prepaid taxes (TDS) before issue of notice u/s 148 and there is no effective truly payable outstanding demand in this case. Consequentially, applying the formula prescribed in explanation 4 of 271(1)(c), the amount of tax sought to be evaded and the consequential quantum of penalty leviable in this case works out to NIL.

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9.4 On perusal of the impugned penalty order it is noted that the AO has emphasized on Explanation 1 to section 271(1)(c) as being a deemed case of concealment as well as on no requirement of 'mens rea' or intentional default to attract provisions of section 271(1)(c). There is no doubt that the instant case is a clear-cut case of deemed concealment of income under Explanation 3. However, the AO has not taken into account the formula for quantification of the leviable penalty as prescribed in Explanation 4 to section 271(1)(c). The entire edifice of penalty u/s 271(1)(c) hinges on the amount of tax sought to be evaded which happens to be NIL in this case under the Explanation 4. Thus, the amount of penalty u/s 271(1)(c) leviable in this case works out to NIL. Therefore, the impugned penalty of Rs. 1,06,80,698 levied by AO is found not sustainable. Accordingly, the same is hereby deleted. Ground no. 3 & 4 are, thus, allowed.” 3. Aggrieved with the said order, the revenue has filed an appeal before us on the following grounds: “1. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the penalty of Rs.1,04,71,267/- levied u/s 271(1)(c) of the Income-tax Act, 1961, without appreciating that the assessee had failed to file its return of income voluntarily within the prescribed time u/s 139(1), despite having taxable income in India. 2. That the CIT(A) erred in holding that no penalty was leviable u/s 271(1)(c) merely because the tax on the income was fully deducted at source by the payer company, ignoring the deeming provisions of Explanation 3 to section 271(1)(c), which squarely apply in the case of non-filing of return within the due date where taxable income is subsequently detected. 3. That the CIT(A) failed to appreciate that the levy of penalty u/s 271(1)(c) is independent of the quantum of tax paid or deducted and is intended to penalize non-compliance and concealment of income as per the deeming provisions of the statute. 4. That the CIT(A) erred in interpreting Explanation 4 to section 271(1)(c) in isolation and in holding that the "tax sought to be evaded" was NIL, without considering that Explanation 3 deems concealment even where tax is otherwise paid. 5. That the CIT(A) erred in ignoring the legislative intent behind Explanation 3 to section 271(1)(c), which clearly deems concealment where an assessee, having taxable income, fails to file a return within the prescribed time and such income is later brought to tax. 6. That the appellant craves leave to add, alter, amend, or withdraw any ground of appeal at the time of hearing.”

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above reasoning is justified and the same is upheld. The grounds of appeal filed by the revenue are dismissed.

Order pronounced in the open court on 13.04.2026.

Sd/- Sd/ [VIKAS AWASTHY] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated- 15.06.2026. Aamir, PS. Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi,