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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI PAVAN KUMAR GADALE
आदेश / O R D E R
PER PAVAN KUMAR GADALE - JM:
The assessee has filed an appeal against the order of CIT(A)-57, Mumbai passed u/s 271(1)(c) and 250 of the Income Tax Act, 1961. The assessee has raised the following grounds of appeal:
M/s. Nabors Drilling International ltd., Mumbai - 2 - “On the facts and circumstances of the case, the case, the Ld. CIT(A) has erred in confirming the penalty imposed by A.O u/s 271(1)(c) of the Act. Your appellant craves leave to add to, alter, amend, vary, omit, substitute or delete any of the aforementioned grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing”.
2. The Brief facts of the case are that, the assessee company is engaged in the business of drilling, dredging and associate activities. The assessee has filed the return of income on 29.09.2012 with total income of Rs. 17,93,240/-.Subsequently, the case was selected for scrutiny and notice u/s 143(2) was issued. In compliance, the Ld. AR of the assessee appeared from time to time. The A.O find that the assessee is a non-resident company and has received revenue from contracts with Gujarat State Petroleum Corporation Ltd., (GSPCL) along with other co ventures of GSPC for the purpose of carrying out of drilling, testing, completion and associated activities. Since the assessee is engaged in the business of providing services and facilities in connection with prospective extraction of production of mineral oils. Therefore, the assessee has offered the income as per M/s. Nabors Drilling International ltd., Mumbai - 3 - provisions of Sec. 44BB(1) of the Act. The A.O on perusal of the return of income found that an amount of Rs. 9,22,31,917/- on account of reimbursement of service tax and Rs. 87,42,04,011/- on account of account of mobilization / demobilization were not offered to tax under provisions of Sec.44BB of the Act. In the course of the assessment proceedings the assessee has made submissions referred at page 2 para 5 of the order and the A.O find that the case is squarely covered by the decision of Hon’ble High Court of Uttarakhand in the case of CIT Vs. Sedco Forex International Drilling Inc. (299 ITR 238), where it was held that the provisions of Sec. 44BB(1) of the Act is a code itself. Further, the amounts referred u/s 44BB(2) of the Act are four types of amounts which are mutually inclusive has to be taken into account either of them or any of them, whether the payment is made inside India or outside the country. The A.O. considered the judgment of Authority for Advance Ruling(ARR) in the case of Western Geco International Ltd., in AAR No. 938 of 2010 on similar facts. Finally the A.O was not satisfied with the explanations of the assessee and relied on the M/s. Nabors Drilling International ltd., Mumbai - 4 - decisions for the taxation of service tax receipts and mobilization of charges. Further, the A.O. has observed that the service tax is forming part of gross receipts for the purpose of Sec. 44BB of the Act and similarly mobilization charges and assessed the total income @ 10% as deemed income which worked out to Rs. 9,84,36,832/-.Further, it was mentioned that earlier draft assessment order was passed on 27.03.2015 and assessee has filed a letter on 15.04.2015, intimating within the period specified time under Sec 144C(2) of the Act that the assessee is not perusing before the Hon’ble DRP against the proposed variation. Hence the A.O. has passed the final assessment order u/s 143(3) r.w.s 144C(3) of the Act dated 19.05.2015.
3. Subsequently, the A.O. has initiated penalty proceedings u/s 271(1)(c) of the Act. The A.O dealt on additions made in the assessment proceedings and assesses submissions. Further, it was mentioned that against the assessment order passed on 19.05.2015 the assessee has filed an appeal with the CIT(A), whereas, the CIT(A) has upheld the action of the A.O on the aspect of making addition of receipts of M/s. Nabors Drilling International ltd., Mumbai - 5 - mobilization charges and deleted the addition of receipts account of service tax. The assessee has filed the reply against the show cause notice issued. The A.O observed that the addition made in respect of mobilization charges is correct and the same was upheld by the CIT(A).Further, the assessee has not submitted proper explanations to substantiate that the penalty is not leviable. Finally the A.O taking into consideration of the facts of addition confirmed by the CIT(A) has levied the penalty u/s 271(1)(c) of the Act of Rs. 37,99,954/- and passed order dated 31.08.2017.
Aggrieved by the order, the assessee company has filed an appeal with the CIT(A), whereas the CIT(A) considered the grounds of appeal and the findings of the A.O and written submissions filed in the course of hearing. Whereas, the CIT(A) has referred to the submissions in his order and the judicial decisions relied. But, finally observed that the assessee once opted the ambit of the scheme as per Sec.44BB(1) of the Act and the assessee has to declare the income and pay taxes @ 10% of the entire amount.
M/s. Nabors Drilling International ltd., Mumbai - 6 - Accordingly, the CIT(A) has concord with the action of the A.O. in levying the penalty and dismissed the assesses appeal. Aggrieved by the CIT(A)order, the assessee has filed an appeal with the Hon’ble tribunal.
At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the levy of penalty irrespective of the fact that the assessee has filed the detailed explanations and the judicial decisions and the issue has not been settled and is debatable, therefore, the levy of penalty based on the issue which is debatable is bad in law. The Ld.AR supported his arguments relying on the judicial decisions and emphasized that the assessee has made the claim as per the law available at the time of filing of the return of income. The A.O has rejected the assessee’s claim and initiated penalty proceedings u/s 271(1)(c) of the Act. The Ld. AR mentioned that the judicial decisions and the AAR decision relied by the A.O on making addition is not binding, as the issue is debatable. Therefore, the levy of penalty is bad in law and assessee has accepted the law which is make M/s. Nabors Drilling International ltd., Mumbai - 7 - available at the time of filing of the return of income and substantiated his arguments with the detailed paper book and prayed for allowing the appeal.
Contra, Ld. DR, supported the orders of the CIT(A).
We have heard the rival submissions and perused the material on record. The sole matrix of the disputed issue is with respect to levy of penalty u/s 271(1)(c) of the Act. The Ld. AR contended that in the assessment order the A.O has made addition in respect of reimbursement of service tax and mobilization/ demobilization charges total aggregating to Rs.96,64,35,928/-.The assessee against the additions has filed an appeal. whereas the CIT(A) has granted relief to the assessee by deleting the addition on account of service tax for calculation of revenue taxable under Sec. 44BB of the Act. In respect of inclusion of mobilization charges or receipts the issue has become debatable and was pending before higher forums. The Ld. AR submitted that the assessee has filed all the details before the A.O and the particulars submitted by the assessee cannot be termed as M/s. Nabors Drilling International ltd., Mumbai - 8 - incorrect or inaccurate.We are of the view that penalty cannot be automatic and every addition in the assessment proceedings cannot be gate way for levy of penalty. We find Hon’ble Karnataka High Court in the case of the CIT Vs. Manjunatha Cotton and Ginning factory, [2013] 359 ITR 564 (Kar), dealt on the principles for levy of penalty as under:
“In the case of CIT Vs. Manjunatha Cotton and Ginning Factory, Karnataka High Court has laid down the following Principles for levy of penalty Under section 271(1)(c) of the Income Tax Act, 1961 :- (a) Penalty under Section 271(l)(c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Wilful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in Section 271(l)(c) is a sine qua non for initiation of penalty proceedings under Section 271. (e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. (f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(l)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).
M/s. Nabors Drilling International ltd., Mumbai - 9 - (h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. (i) The imposition of penalty is not automatic. (j) Imposition of penalty even if the tax liability is admitted is not automatic. (k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order. (l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. (m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. (n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. (o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. (p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.
M/s. Nabors Drilling International ltd., Mumbai - 10 - (r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. (s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. (t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. (u) The findings recorded in the assessment proceedings insofar as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.
We also rely on the decision of the Hon’ble 7. Supreme Court in the case of CIT Vs. Reliance Petroleum Products Ltd., 322 ITR 158 (SC) and the observations are read as under:
“271(1) If the A.O or the commissioner (Appeals) or the commissioner in the course of any proceedings under the Act, is satisfied that any person (c) has concealed the particular of his income or furnished inaccurate particulars of such income.
M/s. Nabors Drilling International ltd., Mumbai - 11 - A glance at his provision would suggest that in order to be covered there has to be concealment of the particular of the income of the assessee. Secondly, the assessee must have furnished inaccurate particular of his income. The present is not a case of concealment of the income. That is not the case of the revenue either. However, the Ld. Counsel for revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particular of the income. As per law lexicon, the meaning of the word “particulars” is a details or details (in plural sence); the details of the claim, or the separate item of an account. Therefore, the word “particular used in the section 271(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 on 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 ld. 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 provisions, the penalty provisions M/s. Nabors Drilling International ltd., Mumbai - 12 - cannot be invoked. By an stretch of imagination, making in incorrect claim in law cannot be tantamount to furnishing in accurate particulars”.
Considering the facts, circumstances, and the issue is debatable. We are of the view that the penalty is not sustainable. Accordingly, we follow the ratio of the judicial decisions and set aside the order of the CIT(A) and direct the A.O to delete the penalty and allow the grounds of appeal of the assessee.
In the result the appeal filed by the assessee is allowed.
Order pronounced in the open court on 11.02.2021.