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Income Tax Appellate Tribunal, DELHI BENCHES: BENCH “C” NEW DELHI
Before: SRI R.S.SYAL & SMT. BEENA A PILLAI
ORDER PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 30/06/16 passed by Ld.CIT (A)-43 for assessment year 2010-11 on the following grounds of appeal:
1. Deletion of penalty under section 271(1)(c ) of the Act. 1.1 That on the facts and in the circumstances of the case, the Learned CIT(Appeals) erred in not quashing the penalty levied by the Ld. Assistant Director of Income Tax (Ld. ADIT), the same being grossly erroneous, unjustified and bad in law.
Inspectorate (Shanghai) Ltd. vs. ADIT 1.2 That on the facts and in the circumstances of the case, the penalty under section 271(1)(c) cannot be levied where the appellant has neither concealed particulars of income nor furnished inaccurate particulars of such income. 1.3 That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in holding that bona fides of the appellant have not been established, even though accepting that: (a) mere addition to income, ipso facto, cannot lead to imposition of penalty, b) not challenging the addition during assessments does not tantamount to acceptance of wrong doing. 1 .4 That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in acknowledging that the services in question were not technical services under the India-China Double taxation avoidance agreement and accordingly cannot infer levy of penalty. 1.5. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) grossly erred in confirming the penalty by failing to acknowledge that the appellant had approached the Authority for Advance Rulings with respect to taxability of underlying income in India prior to filing of return of income for the subject A.Y. 1.6 That on the facts and in the circumstances of the case, the penalty levied by Ld. DCIT under section 271(1)(c) ought to be quashed. The Appellant craves leave to add, alter, amend, amplify or modify any or all of the above grounds of appeal at or before the time of hearing of the appeal.”
Inspectorate (Shanghai) Ltd. vs. ADIT 2. Brief facts of the case are as under: Assessee is a company incorporated under the laws of China and is a tax resident of China within the meaning of India China DTAA. The principal activity of assessee is providing import and export commodity inspection, testing analysis, evaluations and consultation services in respect of petroleum products, mineral products, metal minerals and other import and export commodities. Customers of assessee in India appoint assessee on a principal to principal basis to provide certain inspection and testing services in China for which Indian customers place work order with assessee specifying the scope of work to be discharged in China. 2.1. In order to attain clarity on taxability of receipts by assessee for inspection and testing services under Indo- China DTAA, assessee filed application before Authority for Advance Ruling (AAR) under section 245Q (1) of the Income Tax Act, 1961 (the Act), on 08/11/10 (a copy of the application has been placed at page 63-67 of paper book). Assessee thereafter filed its return of income on 20/10/11, showing ‘nil’ income and claiming a refund of Rs.37,62,601/- (a copy of which is placed at page 68 of paper book). It has been submitted that at the time of filing return of income for Year under consideration, application before AAR was pending for disposal and status continued at the time of assessment proceedings. 2.2. The case was selected for scrutiny and notice under section 143(2) along with a detailed questionnaire and notice under 142(1) of the Act was issued to assessee. In response to the Inspectorate (Shanghai) Ltd. vs. ADIT statutory notices, Representatives of the assessee appeared before the Ld.AO and filed requisite details as called for. 2.3. Ld.AO observed that assessee provided import and export commodity inspection, testing analysis, evaluation and consultation services to customers of assessee in India. Ld.AO passed an order under section 144C read with 143(3) of the Act on 17/05/13, determining income at Rs.3,64,65,479/-. It has been submitted that Authority for Advance Ruling order holding assessee liable to tax under Article 12 (4) of Indo-China DTAA was passed on 02/05/2014. 2.4. Ld.AO subsequently initiated penalty proceedings under section 271 (1) ( c) of the Act for concealment of particulars of income and/or furnishing of inaccurate particulars of such income. He accordingly levied penalty of Rs.36,46,548/-, in the hands of assessee.
Aggrieved by penalty order passed by Ld.AO assessee preferred appeal before Ld.CIT(A) who confirmed the penalty in the hands of assessee.
Aggrieved by order of Ld. CIT (A) assessee is in appeal before us now.
Ld.AR submitted that assessee made complete disclosure and entire income under consideration was duly disclosed thereby submitting that no act of concealment/inaccurate particulars has been made out by Ld.AO. He submitted that claim made by assessee was based on bona fide belief that income received from Indian customers were not taxable under Article 12 of India China Double Taxation Avoidance Agreement He submitted that assessee had not hidden any income relating Inspectorate (Shanghai) Ltd. vs. ADIT to its receipts and therefore it cannot be said to have concealed the income for the year under consideration. Ld.AR submitted that neither assessee failed to offer explanation, nor explanation offered by assessee has been found to be malafide or false by Ld.AO. He placed reliance upon the decision of Hon’ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt.Ltd reported in 322 ITR 158.
We have perused the submissions advanced by both the sides in the light of the records placed before us.
Admittedly, assessee has not challenged the addition made by Ld.AO in quantum proceedings. But in our considered opinion it does not ipso facto follow that penalty for concealment or furnishing of inaccurate particulars could be imposed. In the facts of the present case assessee was under the belief that the services provided by assessee to its Indian customers do not constitute FTS within the meaning of Article 12 (4) of India China DTAA. The fact that assessee approached AAR, clearly indicates that the matter of taxability of receipts by assessee was questionable and a subject matter of debate. It is also observed that assessee filed application before the Authority for Advance Ruling for taxability of the subject receipts prior to filing of return of income. It is apparent from language of Explanation 1 to section 271 (1)(c) of the Act, that the word ‘conceal’ inherently and per se refers to element of mens rea, albeit the expression ‘furnishing of inaccurate particulars’ which is much wider in scope. In the present case, Ld.AO levied penalty for concealment. The issue that arises for consideration is whether the conduct of assessee Inspectorate (Shanghai) Ltd. vs. ADIT was bona fide. The test of bona fide has to be applied keeping in mind the position as it existed, when the return of income was filed.
Thus in our considered view keeping the entirety of the facts, and in view of explanation offered by assessee, penalty for concealment of income under section 271(1)( c ) of the Act should not be imposed.
Accordingly the grounds raised
by assessee stand allowed.
10. In the result appeal filed by assessee stands allowed. Order pronounced in the Open Court on 06th June, 2018.