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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
(Assessment Year: 2014-15) DCIT (IT)-3(2)(2), Murex Southeast Asia Pvt. Ltd., Room No. 614, 6th Floor, 10, Marina Bay Financial Centre, Kautilya Bhavan, BKC, Vs. Tower-2, Marina Boulevard, 19-01, Bandra (East), Mumbai-400051. Singapore, Maharashtra-400051. PAN: AAICM4006F Appellant) : Respondent) Appellant /Assessee by : Shri Ajit Jain / Ms. Shreya Sejpal, AR : Shri Satya Pal Kumar, Sr. DR Revenue / Respondent by : 25.06.2025 Date of Hearing Date of Pronouncement : 30.06.2025 O R D E R
Per Padmavathy S, AM:
This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-57 Mumbai [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 30.12.2024 for Assessment Year (AY) 2014- 15. The assessee raised the following grounds of appeal:
(1) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding the penalty u/s.271(1)(c) of the Act in this case was imposed on debatable issues on which two views are possible without considering the fact that the Department has consistently taking a stand that the Murex Southeast Asia Pvt. Ltd. nature of receipt of the assessee are taxable income and the assessee has furnished inaccurate particulars of income by not declaring such income. (2) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding the assessee had duly disclosed all the relevant facts and taken one of the permissible views based on certain legal decisions, it cannot be said that it is a case of furnishing of inaccurate particulars of income? (3) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that it is necessary for the Assessing Officer to indicate broadly the limb under which penalty proceedings were triggered against the assessee and that the same has not happened in this case?
The assessee is a company incorporated in Singapore and engaged in the business of sub-licensing software to entities in financial sector and providing related maintenance other support and training services with respective such software sub-licensed by its. The assessee holds valid Tax Residency Certificate (TRC) obtained from the authorities in Singapore. During the year under consideration the assessee had receipts to the tune of Rs. 31,33,15,305/- from sub- licensing software and providing maintenance and training services. The assessee claimed the said receipts from sub-licensing software as not taxable since the same does not tantamount to Royalty as per Article 12 of India-Singapore DTAA. The assessee further claimed that the receipts towards maintenance and training services to Indian customers as not taxable as Fees for Technical Services (FTS) as par Article 12 of India-Singapore DTAA as the services does not "make available" any technical knowledge, experience, skill, know-how or process. The assessee also claimed that since there is no Permanent Establishment (PE) in India under Article 5 of India-Singapore DTAA the business profits are not taxable in India. Accordingly the assessee filed the return of income for AY 2014-15 on 30.09.2015 declaring Nil income. The case was selected for scrutiny. The Assessing Officer (AO) passed a draft assessment order holding that the impugned receipts are taxable in India by treating the income from Software Sub-licensing as "Royalty" and income from Murex Southeast Asia Pvt. Ltd. Maintenance and Training Services as FTS. The assessee filed further objections before the DRP who confirmed the addition made by the AO and the AO passed the final assessment order pursuant to the directions of the DRP. In the final assessment order, the AO has stated that penalty proceedings under section 271(1)(c) is initiated for furnishing of incorrect particulars of income. Subsequently, the AO issued a notice under section 271(1)(c) initiating the penalty proceedings stating that the assessee has concealed the particulars of income. The assessee submitted before the AO that the additions made by the AO in the assessment proceedings are not sustainable in view of the various judicial proceedings. With regard to penalty the assessee submitted that during the assessment proceedings full disclosure of the impugned income has been made by the assessee and that mere difference of opinion with regard to taxability cannot be the reason for levy of penalty. The AO however, did not accept the submissions of the assessee and held that the assessee has furnished inaccurate particulars of income and concealed particulars of income in terms of Explanation-(1) to section 271(1)(c) of the Act and levied penalty of Rs. 4,99,97,296/-. On further appeal the CIT(A) deleted the penalty by holding that “6. Decision :- The appellant has disputed the penalty demand u/s.271(1)( c) of the Act of Rs.4,99,97,296/- vide grounds of appeal
nos. 1, 2 and 3. The said grounds are being decided as under- 6.1 The appellant has disputed the penalty imposed on it u/s.271(1)(c) of the Act and the submission filed by the appellant has been quoted above. Firstly, it is noted that the appellant has claimed that the impugned issues are disputed in nature, and in fact, the appellant has got appropriate relief from the appellate authorities/AO in subsequent assessment years on the same issues as involved in the instant assessment year. With respect to the addition on account of royalty income arising out of sub-licensing of software, the appellant has cited the applicability of Hon'ble Supreme Court Ruling in case of Engineering Analysis Centre of Excellence (P.) Ltd. [2021] 125 taxmann.com 42 (SC) to the facts of appellant's case. The appellant has pointed out that the Hon'ble Supreme Court in the said judgment has. inter-alia, held that the payments by Indian end-users Murex Southeast Asia Pvt. Ltd. to non-resident suppliers, as consideration for use of the computer software is not in the nature of Royalty for use of copyright in the computer software and does not give rise to any income taxable in India in the hands of such non- resident recipient under the Tax Treaty (including the India-Singapore Tax Treaty, as applicable in the present case). It has been claimed that the aforesaid ruling is squarely applicable to the facts of the Appellant, since in the present case also, the Appellant has earned income from sub-licensing standardized / 'shrink wrapped software to Indian customers only for their internal use. The appellant has claimed that the sub-licensee / Indian customers are not provided with source code but an installable version of the software for them to deploy, they are also refrained from modifying, re-selling, reverse engineering. modifying, disassembling, decompiling, decoding etc, and commercially exploiting the software in any way. Thus, it has been claimed that the Appellant has not transferred any rights in copyright being software to the sub-licensees / Indian customers and the income earned is not in the nature of Royalty as per the beneficial provisions of India-Singapore Tax Treaty. To substantiate this claim, the Appellant has submitted a brief summary (as quoted above) of the relevant clauses of sample agreement of Murex with Indian customer and correlation with End User License Agreement ('EULA') as per SC ruling in case of Engineering Analysis (supra), and claimed that as per this summary, the clauses as mentioned in the sample agreement submitted by the Appellant before the AO contain the relevant clauses appearing in the EULA analyzed by the Hon. SC. Thus, it has been claimed that the case of the Appellant is squarely covered by the aforesaid ruling. Further, the appellant has submitted that in the subsequent assessment years AY 2018-19, the AO has not made any additions on this issue based on analysis of identical agreements and accepting the applicability of Hon'ble SC's ruling in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [2021] 125 taxmann.com 42 (SC). In view of the above, the appellant has submitted that the matter was always debatable and is now favourably well-settled as per the principles laid by the Hon. SC in the case of Engineering Analysis (supra), and thus, income earned by it from sub-licensing of software of Rs.4,16,68,852/- is actually not in the nature of Royalty, but business income not taxable in absence of PE in India as per Article 5 read with Article 7 of the India-Singapore Tax Treaty. Thus, the Appellant has submitted that since the quantum issue is already settled in favour of the Company by the Hon'ble Supreme Court ruling (even though Company had accepted additions only to buy peace and avoid protracted litigation), the question of penalty in the present case should not arise. Hence, the penalty levied by the AO is erroneous and bad in law. 6.2 Similarly, the appellant has submitted that with respect to Income from rendering maintenance, other support and training services, a similar matter involving identical issues was decided in favor of the appellant by Hon'ble ITAT, 'I' Bench, Mumbai and the Hon'ble ITAT after perusing the relevant clauses of Murex Southeast Asia Pvt. Ltd. the agreement entered into by the appellant with Indian customers has held that maintenance, other support services, and training services do not fall in the ambit of FTS within Article 12(4) of the Tax Treaty as these services do not make available any technical skills, knowledge, or expertise etc., which enable Indian customer to apply the technology contained therein and hence, not liable to tax in India. The appellant has submitted that the facts and agreements considered by the ITAT in delivering the order for AY 2018-19 remain identical / similar to those submitted by the Company for AY.2014-15. The appellant, during the ITAT proceedings, submitted and explained the relevant clauses of sample agreements provided by the appellant as part of the paper book vis-à-vis the nature of maintenance, other support services and training services rendered by the Appellant, based on which the matter was favourably decided by Hon'ble ITAT. The appellant has claimed that the services rendered in the instant AY 2014-15 are based on similar agreement as analysed by Hon'ble ITAT, and in this regard, a brief summary of the nature of services, agreements for both AYs. 2014-15 and 2018-19 and ITAT conclusion has been submitted by the appellant, as quoted above. 6.3 On perusal of the facts of the case, it is noted that the appellant has been granted relief by Hon'ble ITAT in AY 2018-19 on the similar issue of income from rendering maintenance, other support and training services and further, the AO in AY.2018-19 and subsequent years has not made any addition on account of Royalty on sub-licensing of software based on the decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. Further, on similar issues, the appellant has been granted relief by CIT(A) -57 in AY.2015-16 vide Order dated 27.12.2024-DIN-ITBA/APL/S/250/2024- 25/1071619714; in AY.2016-17 vide order dated 27.12.2024 DIN ITBA/APL/S/250/2024-25/1071619025; in AY 2017-18 vide Order dated 27.12.2024 DIN ITBA/APL/S/250/2024-25/1071619391. Therefore, the claim of the appellant that the issue involved is a debatable issue is found correct. In such circumstances, the decisions cited by the appellant in the case of CIT vs. Reliance Petro Products Pvt. Ltd. (2010) 189 taxman 322 (SC), Hon'ble Supreme Court in the case of CIT vs. Gurdaspur Co-op. Sugar Mills Pvt. Ltd. (2024) 159 taxman.com 7 (SC) and other cited decisions are found to be squarely applicable, in which it has been held that where the issue involved was a debatable issue, penalty u/s.271(1)(c) of the Act could not imposed. In view of the above, the claim of the appellant is found correct that since there were divergent views on the issue relating to taxability of income from sub-licensing of software and rendering maintenance, other support and training services, the Appellant cannot be said to have furnished any inaccurate particulars of income, in this regard.
Murex Southeast Asia Pvt. Ltd. 6.4 The appellant has further submitted that mere acceptance of additions made by the AO in final assessment order to avoid protracted litigation does not justify levy of penalty. The appellant has claimed that with a view to avoid protracted litigation and considering the nominal amount of demand, it accepted the additions made by the AO to the total income of the Company with respect to income from sub-licensing of software and rendering maintenance, other support and training services and that the decision was taken by the management of the appellant only for commercial reasons and this was clearly communicated to the AO in the letter dated 31.01.2017. The appellant has submitted that the necessary criteria for imposition or non-imposition of penalty is not the surrender or non- surrender of income; acceptance or non-acceptance of addition; and confirmation or deletion of addition in quantum proceedings but in fact, it is the evaluation of the circumstances leading to the surrender/addition or confirmation of addition, which decide the fate of penalty. It has been claimed that if a surrender or an addition is to avoid litigation, it should not call for imposition of penalty. Further, it has been claimed that an honest difference of opinion between the appellant and the revenue should never be a cause for imposition of penalty. The appellant has, therefore, submitted that merely because it has not challenged the additions made by the AO does not lead to the conclusion that the Company's claim was not bona-fide or that it was incorrect and further, the assessment and penalty proceedings are distinct and the AO should have decided on levy of penalty based on submissions made by the Company in relation to the penalty proceedings, and should not have relied upon the findings of the AO in the assessment proceedings for levying penalty. In this regard, the appellant has placed reliance on various decisions viz. decision of the Hon'ble Apex Court in the case of CIT vs. Suresh Chandra Mittal [2001] 119 Taxman 433 (SC), decision in the case of CIT vs. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka HC), etc. as quoted above, where it was held that even if the assessee has not challenged the order of assessment levying tax and interest and has paid the same, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty. These claims of the appellant have found to be correct, since the AO has not dealt with the explanations filed by the appellant during the penalty proceedings that the appellant had taken a certain view with respect to certain judicial decisions and had duly made adequate disclosure in this regard in its ITR/computation of income /submissions filed before the AO during the assessment proceedings and hence for mere difference of opinion, penalty was not required to be levied. Further, the appellant has claimed that mere addition to total income of the company should not lead to mechanical levy of penalty, whereas it was required to be established that particulars furnished were inaccurate and the addition was not made merely due to difference of opinion of the AO on a debatable issue where two opinions were possible. The appellant has relied upon the above quoted decisions w.r.t. this claim. Further, the appellant has claimed that it had Murex Southeast Asia Pvt. Ltd. made full disclosure of facts while filing Return of income and at the time of assessment proceedings and hence there is not a case of furnishing of inaccurate particulars of income. The appellant reiterated that it is a well settled view that once the assessee has made all the appropriate disclosures in the ROI and at the time of quantum proceedings, acceptance or rejection of the claim is a matter of perception and merely because the contention of the Company is not accepted, it cannot be concluded that the Company has furnished inaccurate particulars, or concealed particulars of his income thereby justifying the levy of penalty. These claims made by the appellant are found correct. As discussed above, the impugned issues on which penalty was imposed are debatable issues on which two views are possible and, further, when the appellant had duly disclosed the relevant facts and taken one of the permissible views based on certain legal decisions, it cannot be said that it is a case of furnishing of inaccurate particulars of income. 6.5 The appellant has claimed that it is necessary for the Assessing Officer to indicate broadly as to the limb under which penalty proceedings are triggered against the assessee in view of the decision of the Hon'ble Bombay High Court in the case of CIT vs. Samson Perinchery [2017] 88 taxmann.com 413 (Bombay HC) and other decisions cited by the appellant, whereas the AO has not followed this legal mandate. In this regard, it is noted that while at the time of initiation of penalty proceedings, the AO had mentioned that the penalty is being initiated on account of furnishing of inaccurate particulars of income as per para 9 of the assessment order, while passing the penalty order, the AO has concluded by holding that the assessee company has furnished inaccurate particulars of income and concealed the particulars of its income both in terms of Explanation 1 to section 271(1)(c) of the Act , and even otherwise i.e. without invoking such deeming provisions, to the extent of escaped income or concealed income of Rs.33,33,15,305/- and accordingly imposed penalty u/s.271(1)(c) of the Act of Rs.4,99,97,296/- at 100% of the tax sought to be evaded. Thus, while imposing the penalty, the AO has mentioned both the limbs of section 271(1)(c) of the Act together. Therefore, the claim of the appellant is correct that it is necessary for the Assessing Officer to indicate broadly as to the limb under which penalty proceedings are triggered against the assessee, which clearly this has not happened in the instant case. 6.6 Based on the above discussion, the penalty u/s.271(1)(c) of the Act of Rs.4,99,97,296/- is directed to be deleted and accordingly grounds of appeal nos. 1 and 2 are considered to be Allowed.”
3. The revenue is in appeal before the Tribunal against the order of the CIT(A).
The ld. DR at the outset submitted that by claiming that the income is not taxable, the assessee has concealed the particulars of income. The ld. DR further submitted that the AO has established that the income from Royalty & FTS in assessee's case is taxable in India. The ld DR also submitted that the assessee has incorrectly claimed the impugned receipts as not taxable by applying the provisions of India-Singapore DTAA, therefore the AO has correctly levied the penalty.
The ld. AR on the other hand submitted that the AO while levying the penalty is not clear as to whether the assessee has concealed income or filed inaccurate particulars which is evidenced from the findings of the AO in the penalty order. The ld. AR further submitted that the income from Sub-licensing and Training and Maintenance whether taxable as Royalty / FTS is a debatable issue which is an accepted position and therefore when the issue is debatable no penalty could be levied. The ld. AR in this regard relied on the order of Hon'ble Supreme Court in the case of CIT vs. Gurdaspur Co-operative Sugar Mills Pvt. Ltd. [2024] 159 taxmann.com 7 (SC). The ld. AR submitted that the CIT(A) while deleting the penalty has considered the merits of the issue with regard Sub-licensing of software which is not taxable in India as per the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. [2021] 125 taxmann.com 42 (SC). The ld. AR further submitted that the CIT(A) has relied on the assessee's own case for AY 2018-19 while considering the issue of Maintenance & Training being not taxable in India to hold that the said decision of the Co- ordinate Bench in assessee's own case would be applicable for AY 2014-15 also. The ld. AR argued that from the finings of the CIT(A) on merits, it is clear that the taxability of the impugned income does not arise in India and therefore when the quantum additions are not sustainable no penalty could be levied under section 271(1)(c) of the Act.
We heard the parties and perused the material on record. The assessee's for the year under consideration had receipts towards Sub-licensing of Software and rendering of Maintenance & Training Services to Indian customers. In the final order of assessment passed under section 143(3) r.w.s. 144(13) of the Act, the above income have been held as taxable in India by the AO. Subsequently the AO levied penalty under section 271(1)(c) of the Act. From the perusal of records, we notice that the assessee had similar receipts during AY 2018-19 which were treated as taxable in India by the AO while passing order under section 143(3) r.w.s. 144C(13) dated 18.07.2022 (page 144 to 187 of PB). We further notice that the AO has passed rectification order dated 01.09.2022 (page 141 to 143 of PB) rectifying the above order wherein he has deleted the addition which was not made in the draft assessment order but erroneously made in the final assessment order towards Sub- licensing receipts holding it as Royalty. We also notice that the Co-ordinate Bench while deciding the surviving issue of Maintenance & Training receipts being treated as FTS, has held that the same do not fall in the ambit and nature of FTS within Article 12(4) of India-Singapore DTAA (ITA No. 2338/Mum/2022 dated 08.05.2023 – page 188 to 203 of PB). Accordingly both the receipts i.e. receipts towards software sub-licensing and receipts towards maintenance and training were held to not taxable for AY 2018-19. It is relevant to mention here that the taxability of the impugned receipts were contented by the assessee in AY 2018-19 based on various judicial precedence and therefore we see merit in the submission that the issues contended on which penalty is now levied are debatable and that the CIT(A) has deleted the penalty for the same reason. We further notice that the CIT(A) has also considered the issue on merits by relying on the decision of the Hon'ble Supreme Court and the decision of the coordinate bench. In view of these facts we are inclined agree with the submission of the assessee that the impugned issue debatable and an adverse view taken by the AO cannot be the core reason for levy Murex Southeast Asia Pvt. Ltd. of penalty. We in this regard notice that the Hon'ble Supreme Court , in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. [2010] 189 Taxman 322 (SC) has considered the issue of levy of penalty in case where claim made by the assessee is not acceptable to the AO and held that – “7. As against this, learned Counsel appearing on behalf of the respondent pointed out that the language of section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return Section 271(1)(c) is as under:- 271. (1) the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income" A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee Secondly, the assessee must have furnished inaccurate particulars of his income Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned Counsel for revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense) the details of a claim, or the separate items of an account. Therefore the word "particulars" used in the section 2711(1)(c) would embrace the meaning of the details of the claim made it is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars The learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income" We do not think that such can be the interpretation of the concerned words. The words are plain and simple In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars, In CIT V Atul Mohan Bindal (2009) 9 SCC 589, where this Court was considering the same Murex Southeast Asia Pvt. Ltd. provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India v. Rajasthan Spg & Wvg Mills [2009] 13 SCC 448 and reiterated in para 13 that- “13. It goes without saying that for applicability of section 271(1) c), conditions stated therein must exist.”
8. Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income When such particulars are found to be inaccurate, the liability would arise In Dilip N. Shroff v. J. CIT (2007)6 SCC 329, this Court explained the terms "concealment of income" and "furnishing inaccurate particulars The Court went on to hold therein that in order to attract the penalty under section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (ii) of section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars' was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and maternal to the computation of his income were not disclosed by him It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential it was only on the point of mens rea that the judgment in Dilip N. Shroff's case (supra) was upset in Dharamendra Textile Processors case (supra), after quoting from section 271 extensively and also considering section 271(1)(c), the Court came to the conclusion that since section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of section 271(1)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of Murex Southeast Asia Pvt. Ltd. prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff's case (supra) was overruled by this Court in Dharamendra Textile Processors' case (supra), was that according to this Court the effect and difference between section 271(1)(c) and section 2760 of the Act was lost sight of in case of Dilip N Shroff (supra) However, it must be pointed out that in Dharamendra Textile Processors' case (supra), no fault was found with the reasoning in the decision in Dilip N Shroff's case (supra), where the Court explained the meaning of the terms "conceal" and "Inaccurate it was only the ultimate inference in Dilip N Shroff's case (supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff's case (supra) was overruled 9. We are not concerned in the present case with the mens rea However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars in Webster's Dictionary, the word "inaccurate" has been defined as- "not accurate, not exact or correct, not according to truth, erroneous, as an inaccurate statement, copy or transcript" We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.
It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect it amounted to concealment of income It was tried to be argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently, (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate Murex Southeast Asia Pvt. Ltd. particulars of income We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not in our opinion, attract the penalty under section 271(1)(c) If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c) That is clearly not the intendment of the Legislature.
In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu (2009) 23 VST 249 as regards the penalty are apposite In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return However, the said transactions were reflected in the accounts of the assessee This Court, therefore observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.”
We further notice that the Hon'ble Supreme Court in the case of Gurdaspur Co-operative Sugar Mills Pvt. Ltd. (supra) has upheld the view that penalty cannot be levied when the issue is debatable. In assessee's case it is an undisputed fact that the taxability of the impugned receipts in the hands of the assessee is a debatable issue which is clear from the facts stated hereinabove. Further the assessee has disclosed all the relevant details while filing the return of income pertaining to the impugned receipts along with the detailed note on reasons for declaring the same as not taxable in India. The said claim has not been accepted by the AO and in that Murex Southeast Asia Pvt. Ltd. regard various judicial precedences have been applied. Therefore, in our considered view the ratio laid down by the Hon'ble Supreme Court is applicable to assessee's case. Accordingly, we hold that the AO is not correct in levying penalty in assessee's case when the taxability of the quantum issue is debatable and for the reason that a claim made by the assessee in AO's opinion is not allowable. Therefore, we see no infirmity in the order of the CIT(A) in deleting the penalty on this ground.
In result, the appeal of the Revenue is dismissed.