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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
ORDER
Per N. K. Saini, AM:
This is an appeal by the department against the order dated 20.10.2014 of ld. CIT(A)-XXIX, New Delhi.
The only grievance of the department in this appeal relates to the deletion of penalty levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
Facts of the case in brief are that the assessee is the Branch Office of a foreign company established in United States of America (USA), namely Pioneer Overseas Corporation (“POC US”) and is engaged in cultivation of parent seeds. It has two units i.e. Research and 2 Pioneer Overseas Corporation Development Unite and Production Unit, through which it is engaged in cultivation of seeds of the crops such as Corn, Sorghum, Sunflower, Pearl Millet, Rice and Mustard. The assessee filed its return of income on 31.10.2007 declaring total taxable income at Rs.22,91,000/-, after claiming exemption u/s 10(1) of the Act in respect of income arising from sale of seeds, claiming it to be in the nature of agricultural income. The AO, however, framed the assessment u/s 143(3) of the Act at an income of Rs.26,23,30,300/-. The assessment order dated 27.01.2011 was passed in line with MAP proceedings concluded for earlier years thereby treating 90% of the total income of the assessee company as business income and further making a TP adjustment on account of mark-up on cost to cost reimbursement of research expenses by head office to branch office at cost plus 34.61%.
The assessee filed an appeal against the assessment order with the ld. CIT(A) who vide his order dated 14.03.2013 confirmed the additions on account of agricultural issue. However, reduced the adjustment made on account of transfer pricing issue and determined the arm’s length price of research activities at cost plus 12.08% as against cost plus 34.61% determined by the TPO. Since the order of the ld. CIT(A) was in the line with ITAT and also MAP concluded between the Government of India and USA for the assessment years 1997-98 to 2006-07. The assessee did not file any appeal against the said order before the ITAT. The assessee had also submitted its request for MAP before US 3 Pioneer Overseas Corporation competent authorities for the year under consideration. Thereafter, the AO levied the penalty u/s 271(1)(c) of the Act.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that it was not liable to any penalty because it had neither concealed the particulars of income nor had furnished inaccurate particulars of such income. The reliance was placed on the judgment of the Hon’ble Supreme Court in the case of E.I.D. Parry (I) Ltd. Vs ACIT reported at 117 STC 473. It was further submitted that the claim of the assessee that income from the sale of parent seeds was agricultural income and hence was eligible for exemption u/s 10(1) r.w.s. 2(1A) of the Act was based on facts, statutory provisions and the rulings of the Hon’ble Supreme Court including that of CIT Vs Raja Benoy Kumar Sahas Roy reported at 32 ITR 460. It was contended that there was no concealment of the said fact from the tax authorities as the amount of income claimed to be exempt had been specifically mentioned in the return of income and merely because the claim was disallowed, it did not amount to concealment of income or furnishing of inaccurate particulars of income. It was further stated that the AO while making the addition relied on the judgment of the ITAT Delhi Bench in the case of Pro Agro Seeds wherein the penalty was levied by the AO. However, in the said case of Pro Agro Seeds the penalty levied by the AO was deleted by the ITAT and subsequently order of the ITAT was confirmed by the Hon’ble Delhi High Court in its ruling dated March 27, 2006 reported at 4 Pioneer Overseas Corporation 296 ITR 235. It was further submitted that for the assessment years 1997-98 to 2001-02 in assessee’s case, the ITAT held 10% of the income to be agricultural in nature. Against the said order, the assessee had filed an appeal before the Hon’ble High Court and the question of law raised by the assessee had been admitted. It was further stated that facts for the year under consideration are identical to the facts of the aforesaid assessment years for which question of law was admitted which shows that the issue is a debatable one and hence in such cases penalty cannot be levied. It was further stated that the penalty proceedings for the assessment years 1997-98 to 2001-02 had been deleted by the ld. CIT(A) and the ITAT. It was further stated that on similar basis, the AO had dropped the penalty proceedings for the assessment years 2002-03 to 2006-07 vide order dated 28.03.2013. Therefore, by following the principles of consistency, the penalty proceeding needs to be dropped for the assessment year under consideration.
The ld. CIT(A) after considering the submissions of the assessee deleted the penalty by observing in paras 6.1 to 6.4 of the impugned order as under: “6.1 I have duly considered various submissions of the appellant and other material placed on record. The relevant facts are that the appellant has been developing seeds in its R&D unit and production Unit and thereafter selling those parent seeds for price consideration. The appellant took the position relying on CIT. vs. Raja Benoy Kumar Sahas Roy 32 ITR 460 (SC) that such 5 Pioneer Overseas Corporation sale consideration is in nature of agricultural income and hence exempt u/s 10(1) of the Act. For AY 1993-94 which was first year of operation, the AO in assessment order u/s 143(3) accepted this position of the appellant. This position continued upto AY 1996- 97. From AY 1997-98 onwards, the AO took the position that income of the appellant is in nature of business income. Hon'ble ITAT Delhi held for AY 1997-98 to 2001-02 that only 10% of income of the appellant from sale of hybrid seeds is in nature of agricultural income and 90% is in nature of business income. In MAP order dated 10.09.2012 for AY 1997-98 to 2006-07, it was held that 90% of income shall be treated as business income and only 10% shall be in nature of agricultural income. The assessment order for AY 2009-10 has been passed by the AO in line with above referred ITAT and MAP orders. The AO also made TP adjustment on account of mark-up on reimbursement of research expenses by head office USA to branch office in India at Cost Plus 19.65%. The appellant did not file any appeal against the said assessment order. The AO subsequently levied penalty u/s 271(1)(c) @ 100% of tax sought to be evaded vide order dated 25.10.2013. 6.2 I find force in contention of the appellant that it has neither concealed nor furnished any inaccurate particulars of its income. All the material facts regarding earning of income from sale of hybrid seeds were disclosed in the return of income. Disallowance of claim made by the assessee does not always lead to penalty proceedings. Strength is derived from Hon'ble Supreme Court' decision in case of CIT vs Reliance Petroproducts Pvt. Limited [322 ITR 158]. 6.3 It has also been noted that facts of the case under consideration are identical to those in preceding years. In all the earlier years upto AY 2006-07, either the penalty has been deleted by CIT(A)/ITAT or dropped by the AO himself. Also, question of law has been admitted by Hon'ble Delhi High Court on appeal by the appellant against the order of Hon'ble IT AT for AY 1997-98 to 2001-02 which shows that the matter is debatable.
6 Pioneer Overseas Corporation It is also relevant to mention that the appellant has also filed application for MAP for AY under consideration. 6.4 In view of above discussion, I hold that this is not a fit case for levying of penalty u/s 271(1)(c) of the Act as there is neither concealment of income nor furnishing of inaccurate particulars of income and also the conditions mentioned in Explanation 1 to section 271(1)(c) are not satisfied. The AO is therefore directed to delete the penalty levied u/s 271(1)(c). The grounds of appeal are accordingly allowed.”
7. Now the department is in appeal. The ld. DR strongly supported the penalty order dated 25.10.2013 passed by the AO and reiterated the observations made therein.
8. In his rival submissions, the ld. Counsel for the assessee strongly supported the impugned order passed by the ld. CIT(A) and reiterated the observation made therein.
9. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the ld. CIT(A) has given categorical findings that all the material fact regarding earning of income from sale of high breed seeds were disclosed in the return of income and that the assessee has neither concealed nor furnished inaccurate particulars of its income and that in all the earlier years upto assessment year 2006-07, either the penalty had been deleted by the CIT(A)/ITAT or dropped by the AO himself had not been controverted. In the present case, the claim made by the assessee 7 Pioneer Overseas Corporation was not accepted and only on the basis of the said addition, the penalty u/s 271(1)(c) of the Act was levied by the AO. 10. On a similar issue the Hon’ble Supreme Court in the case of CIT Vs Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 held as under: “A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, 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. The meaning of the word "particulars" used in section 27l(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, 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. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the 8 Pioneer Overseas Corporation return cannot amount to furnishing inaccurate particulars.”
11. In the present case also, it was not brought on record to substantiate that any details supplied by the assessee in its return of income was found to be incorrect or erroneous or false. Therefore, there was no question of inviting the penalty u/s 271(1)(c) of the Act because a mere making of claim, which is not sustainable in law by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. We, therefore, by keeping in view, the ratio laid down by the Hon’ble Supreme Court and also this fact that the assessee had filed application for MAP for the assessment year under consideration and that the issue relating to the agricultural income of the assessee is highly debatable are of considered view that the penalty levied by the AO u/s 271(1)(c) of the Act was rightly deleted by the ld. CIT(A). We, therefore, do not see any merit in this appeal of the department.
In the result, the appeal of the department is dismissed. (Order Pronounced in the Court on 24/10/2017)