TORAY INTERNATIONAL (SINGAPORE) PTE LTD,MUMBAI vs. ADIT (IT) 1(2), MUMBAI

The above titled appeal has been preferred by the assessee against the order dated 31.01.2014 of the Commissioner of Income Tax (Appeals) 10, Mumbai [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09. The only ground in this appeal is regarding levying penalty u/s.271B[hereinafter referred as “the Act”].

The short facts of the case is that assessee company submitted the return of income on 24.09.2008 declaring the value of fringe benefits and taxes paid thereon. As per the RBI approval, the LO was not permitted to conduct any commercial transaction in India and hence, declared nil taxable income in the return of income. During the course of assessment Assessing Officer asked for the details of the sales made by the HO to the Indian customers during the relevant A.Y. Assessee company provided the information and also submitted that LO did play any role in such transaction. The penalty proceeding 2 A.Y.2008-09 u/s.271B of the Act was initiated by issuing the notice. Assessee submitted that assessee company did not carry any activity of trading or commercial in nature. There was no sales of income or gross receipt in the relevant year under consideration hence there is no requirement of tax audit in case of assessee company as provision of section 44AB of the Act. Even if the amount of Rs.29,43,030/- is assessed as income in hands of assessee. The tax audited report provision u/s.44AB is not applicable since it is limit of Rs.40 lacs, however, the Assessing Officer has levied the penalty.

The matter carried to CIT(A) and CIT(A) has dismissed the appeal.

During the course of hearing the learned AR submitted that assessee was carrying out only liaisoning work as per the RBI permission in India vide letter dated 26.03.2007 which is on 4-5 of the paper book and RBI letter dated 30.03.2007 extended the permission for further period of three years which is on page 6-7 of the paper book. Audited statement of accounts of liaison office is at page 8 -15 of the paper book. The learned AR submitted that the assessee has established a liaison office as per the permission of the RBI and assessee was carrying out liaison work since inception of the company. The assessee was carrying liaison work in A.Y.2006-07 and 2007-08 and no penalty was imposed u/s.271B of the Act. In this year the Assessing Officer has levied the penalty without considering the submission of the assessee. Learned AR fairly submitted that in the A.Y. under consideration the assessee’s income was taxed as business income and the total income was assessed at Rs.29,43,030/-. The learned AR submitted that under the RBI guidelines liaison officer who carry out any business activity. Therefore, no business activity was actually carried out by the Liaison office. Therefore, simply treating the Liaison Office as PE, turnover of Parent Company cannot be considered turnover of PE in India for the purpose of section 44AB. The learned DR submitted that the assessee company’s turnover is Rs.73 crores which is find place of mention in para 6 of 3 A.Y.2008-09 the assessment order. Therefore, it is compulsory to get is books of accounts audited as per section 44AB of the Act.

We have heard the rival contention. We find that the assessee company has a established liaison office in India after taking approval from RBI. Under the RBI guidelines /circulars/notification, liaison office are not suppose to carry out any business activity. Therefore, no business activity was actually carried out by liaison office. We find that the assessee company was established as per the RBI guidelines, therefore, assessee assessee is contesting that assessee is not carrying out any business activities only liaisoning activities, therefore assessee has not audited his books of accounts. Moreover, we find that in similar said of facts in A.Y.2006-07 and 2007-08 on identical facts no penalty under 271B of the Act has been levied by the department. Therefore, we are of the view that assessee has reasonable cause for not got his accounts audited u/s.44AB of the Act. Moreover, assessee has also gave the details of sales made by the HO to the Indian customers and company did not provide information and submission that liaison officer did not play any role in such transaction. The Assessing Officer has held that the assessee is carrying out business activities from liaison office that constitute Head Office in India, that constitute permanent establishment of Head Office in India, hence there is a business connection in India as per the Section 9 of the Act. The assessee is contending that assessee did not carry out any activities of trading or commercial in nature. We find that the assessee’s contention is that he is doing only liaison work, therefore, assessee had reasonable cause for got his accounts audited u/s.44AB of the Act. The assessee’s second contention the amount of Rs.29,43,030/- is assessed as income in the hands of liaison office. The tax audit provision is not applicable, since it is below threshold limit of Rs.40 lacs. In these circumstances, we are of the view that assessee had reasonable cause for not carry out his books of accounts audited u/s.44AB of the Act. Therefore, we delete the penalty.