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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI G. D. AGRAWAL & MS SUCHITRA KAMBLE
This appeal is filed by the Revenue against the order dated 2/3/2016 passed by CIT(A)-42, New Delhi for Assessment Year 2011-12.
2. The grounds of appeal are as under:-
“1. On the facts and in the circumstances of the case, whether Ld.CIT(A) was not justified in deleting the penalty levied u/s 271(1)(c) of the Act?
2. On the facts and in the circumstances of the case, whether Ld.CIT(A) was not justified in holding that the assessee has not concealed income nor has filed inaccurate particulars of income which should call for levy of penalty u/s 271(1)(c).”
3. The assessee is a venture company system of Tokyo Electric Power Company in Japan, which is engaged in sales of energy saving air-conditioning and control equipments and system, consultancy of Energy conservation and Assistance of Air- Conditioner Development. Blue star (hereinafter referred to as "BSL") is a leading Air conditioning & Refrigeration company in India, engaged in the design, manufacturing, sales installation service and contracting activities. One of the products developed by the appellant is R & D VRF, which is one of the products based on Digital Scroll Technology. The BSL entered into an agreement with the appellant on 20.03.2010, by which the appellant was to provide the following services:
To develop side discharge outdoor Unit Design VRF systems from 6 to 14 HP with R-410 a Refrigerant.
To develop digital compressor based on to one deducted packaged systems up to HP.
To develop Top Discharge Outdoor Unit Design VRF system 12 HP to 63 HP (up to 2 modules of outdoor units) with R-4 10a Refrigerant.
4. To develop inverter based multi-pipe systems (10 Outdoor; up to 4 indoor) for residential applications.
To advise Blue Star on Refrigeration System Design for cooling only and Heat Pump applications, New Controller, Architecture, Controller Logic, and add Protective Systems for typical operation conditions in India related to ambient temperatures, power outages and quality of power, in all the three projects listed above.
To advice Blue Star on manufacturing, testing inspection and installation related activities, to ensure trouble-free running of the system.
7. To carry out component and product reliability testing to ensure trouble- free operation of the system.
8. To train Blue Star engineers on Refrigeration System Design, Components selection and various concepts in VRF.
The assessee undisputedly, did not have any PE in India. As per the assessee such services could not be held as FTS under the Act or the relevant DTAA. Therefore, in the return of income, income at Rs. Nil was shown by the assessee. During the assessment proceeding, the Assessing Officer was informed that out of the various above activities, the assessee had provided only training to the employees of BSL on refrigeration system design, component selection & various concepts in VRF, which are useful in manufacturing of various products, and there was no actual development of any component or equipment. Further, the assessee submitted before the Assessing Officer that these services were in the nature of general advisory services and not technical services, within the meaning of section 9(l)(vii) read with Article 12 of Indo-Japan DTAA. The Assessing Officer was not satisfied with this explanation and relied upon the AAR ruling in the case of Intertek testing Services (2008) 307 ITR 418 and the decision in the case of G.V.K industries 228 ITR 564 wherein it was held that as the services provided by appellant were relating to Engineering & applied sciences, were 'technical' in nature and, therefore, taxable as FTS.
The assessee filed objections before DRP dated 20.03.2014, thereby submitting that the training services provided by the assessee to BSL were not technical in nature, but were consultancy services. It was submitted that the assessee being a non-resident company was not aware with the intricacies of Indian Tax Laws. However, later, vide letter dated 25.04.2014, the assessee withdrew the said objections. The DRP then held such receipts as taxable as FTS, which was followed by the Assessing Officer in the final assessment order u/s 143(3) dated 04.06.2014. Notice u/s 274 was also issued by the Assessing Officer for furnishing inaccurate particulars of income to the Assessee. After considering the reply of the assessee, the penalty u/s 271(1)(c) of the Act was passed on 26.12.2014 whereby the Assessing Officer imposed penalty of Rs.33,83,068/-.
4. Being aggrieved by the penalty order u/s 271(1)(c), the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.
5. The Ld. DR submitted that the CIT (A) was not justified in deleting the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961. The Ld. DR submitted that the fact remains that the assessee would have not paid the taxes if the assessee’s cases was not taken up for scrutiny. Thus, the Ld. DR submitted that the penalty was rightly imposed on the assessee.
6. The Ld. AR relied upon the order of the CIT(A).
We have heard both the parties and perused the material available on record. The CIT(A) held as under:- “ 7.7. It is however evident that the appellant did make due disclosure at the time of the assessment proceeding at the first instance itself. It was also submitted that return, there was no provision for making a foot- note, else the appellant could have made disclosure of its legal position at the time of filing of return. In similar circumstances, the honorable ITAT Pune in the case of Koninkelijke DSM NV vs. DCIT (supra) relying upon the CBDT Circular number 9/2006 dated 10th October 2006, upheld the action of the CIT (Appeal) in deleting the penalty.
In my considered view, the appellant is a non-resident taxpayer, who had no permanent establishment in India and other than the impugned transaction did not have any exposure to the Indian market, though its business affiliates have business interests in India. Therefore, the stand taken by it while filing the return of income with regard the income received on providing technical training services to blue Star as not taxable in India, though faulty and not in accordance with the law, is held to be due to a mistake due to reasonable cause. I also take cognizance of the fact that the appellant made due disclosure before the AO at the first instance and then withdrew the application from dispute resolution panel. In view of this, the appellant's conduct during the assessment proceeding as also during the proceeding before the dispute resolution panel is found to be conducive to proper tax compliance.
It is likely that if the case of the appellant was not picked up for scrutiny, it may have received refund of taxes deducted by Blue Star Ltd. However, it does not appear to be the willful intention of the appellant, who appears to have been (mis-) guided by one of the Multinational tax advisory firms, which may have advised an aggressive tax position to the appellant, though with the obvious potential of a long- run litigation in the matter. The appellant has wisely withdrawn the tax litigation and hence, it won't serve interest of justice to penalize the appellant further for the faulty advice of its tax advisor firm, particularly when the appellant does not have any business presence in India and intends to avoid further litigation having paid due taxes. Keeping in view the above, in my considered view, the appellant's explanation in the matter is held to be bonafide and acceptable. Accordingly the order of penalty is cancelled.
Statistically the appeal is allowed.”
The CIT(A) while deleting the penalty has given a categorical finding that the assessee while filing the return of income with regard to the income received on providing technical training services to Blue Star was under the impression that the same is not taxable in India, is a mistake due to a reasonable cause. The payment received by the assessee company pertaining to the trainings were not offered to tax in the income tax return as there are two possible views on the taxability of the same. The assessee company adopted the view that the same is not in the nature of Fees for Technical Services (FTS) under the provisions of the Income Tax Act, 1961 read with India-Japan DTAA. The Hon’ble Apex Court in case of Reliance Petroproducts Pvt. Ltd. (Supra) held as under: “18. 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 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.”
Thus, in the present case the assessee has not furnished inaccurate particulars of income as the issue was debatable at that time. Thus, the present case is squarely covered by the Hon’ble Apex Court decision and Section 271(1)(c) will not be attracted in the present case. There is no need to interfere with the findings of the CIT(A).
In result, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on 21st December, 2018.