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Income Tax Appellate Tribunal, E Bench, Mumbai
Before: Shri P K Bansal & Shri Pawan Singh
This appeal by the Revenue under Section 253 of the Income Tax Act is directed against the order of the CIT(A)-57, Mumbai dated 11.04.2016 for A.Y. 2000-01.
The Revenue has raised the following grounds of appeal: - "1. On the facts in the circumstances of the case and in Law, the Ld. CIT(A) has erred in cancelling the Penalty levied u/s 271)c) on the ground that the assessee is part of the Enron Group which filed for bankruptcy and holding that the assessee and its auditors were Arthur Anderson which also was shut down and the assessee had reasonable cause for not producing vouchers/ supporting evidences and hence penalty was not leviable in the case/.
2. On the facts and in circumstances of the case and in Law the Ld. CIT(A) has erred in cancelling the Penalty levied u/s 271(1)(c) relying on the decision of Hon’ble Apex court in the case of Reliance Petro products ignoring the facts that the AO in his penalty order has distinguished the judgment.
ITA No.4835 /Mum/2018 2 M/s. Lingtec Construction L.P.
On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in cancelling the penalty levied u/s 271(1)(c) ignoring the various judicial pronouncements relied upon by the AO in favour of the revenue and without dealing with the same in his appellate order.
4. The Appellant prays that the order of the Ld CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.”
3. The brief facts of the case are that the assessee is a Limited Liability Partnership Firm having registered office in State of Delaware, USA (under liquidation), filed return of income for the relevant assessment year on 28.03.2012 declaring total income of `9,99,54,090/-. The assessment was completed on 26.03.2003 under Section 143(3) determining the total income at `31,93,99,830/-. The AO made additions on account of difference in billed and accounted income of `11,01,94,324/-, indirect payroll overheads of `9,35,90,110/-, legal and professional charges of `1,56,61,303/- and under Section 40A(3) r.w. Rule 6DD of `8,95,350/-. On appeal before the CIT(A) the addition/ disallowance were sustained. However, on further appeal before the Tribunal the addition on account of difference in billed and accounted income was deleted in dated 05.04.2013. The AO levied penalty on the remaining additions/disallowances, i.e., indirect payroll overheads of `9,35,90,110/-, legal and professional charges of `1,56,61,303/- and under Section 40A(3) r.w. Rule 6DD of `8,95,350/-. The AO levied penalty under section 271(1)(c) at 100% of tax sought to be evaded. He worked out the penalty at `3,85,51,367/- vide order dated 30.12.2013. On appeal before the CIT(A) the entire penalty was deleted. Thus, aggrieved by the order of the CIT(A) Revenue is in appeal before us.
The appeal was listed for out or turn hearing being small/covered matter. The learned D.R. filed an application for transfer of the case of “L” Bench vide application dated 30.10.2017. The application of the learned D.R. was rejected as the issue involved in the present appeal relates to the penalty levied under Section 271(1)(c). The learned D.R., after rising of the court, again moved a detailed application for transfer of the case to “L” /Mum/2018 3 M/s. Lingtec Construction L.P. Bench (International Taxation Bench). The application filed by the learned D.R. is misconceived. Penalty levied under Section 271(1)(c) is not related to the specialised issue(s) which are assigned to “L” Bench. This application filed by the learned D.R. is rejected.
We have perused the orders of the Authorities below carefully. The AO levied penalty on three additions/disallowances consisting of disallowances of indirect payroll overheads of `9,35,90,110/-, legal and professional charges of `1,56,61,303/- and under Section 40A(3) r.w. Rule 6DD of `8,95,350/-. Further, perusal of the orders of the Authorities below reveals that `9,35,90,110/- represents overhead payroll reimbursement to Enron Power Services B.V. relates to employees’ salaries which have been debited by the assessee. The assessee claimed the expenditure on the ground that the amount is not chargeable to tax in India as the same is in the nature of reimbursement of cost, hence no tax can be deducted at source under Section 195. The AO disallowed the entire amount. The disallowance was upheld by the CIT(A) and subsequently by the Tribunal. The second disallowance relates to legal and professional charges of `1,56,61,303/-. During the assessment proceedings the assessee furnished details of legal and professional fees of `50,000/- and above against which TDS has been made. The assessee also filed details of services rendered by M/s. Arthur Anderson and Price Waterhouse before the AO. The AO disallowed the charges holding that no bills or supporting documents have been furnished by the assessee substantiating the expenditure and no TDS is made. The addition was subsequently upheld by the CIT(A) and by the Tribunal as well. The third disallowance relate to disallowance under Section 40A(3) r.w. Rule 6DD. During the assessment proceedings the AO asked the assessee to furnish details of cash payments of more than `20,000/-. The assessee contended that the payments were made in cash to the staff. The staff members were foreigners and were visiting the remote site of Guhaghar for a short period. The AO disallowed 20% of the amount. The disallowance was confirmed by the ld CIT(A) and further by the Tribunal. /Mum/2018 4 M/s. Lingtec Construction L.P.
Before the CIT(A) the assessee urged that all the three items/expenses were shown by the assessee in its financial statements as well as in the return of income, all the details were furnished and explained before the AO. The facts were also brought in Note-3 to the statement of account and to liability attached to the return of income filed. There was no conscious attempt on the part of the assessee to conceal particulars to evade payment of lawful tax. In fact, there was complete disclosure of facts by the assessee in the return filed. The assessee has neither deliberately nor otherwise given any inaccurate details of any amount of expenditure claimed. All data and information were provided to the Revenue officers. The expenses incurred were real and not bogus, though there might be a contrary explanation or point of view taken by the AO. The learned CIT(A), after considering the factual matrix and submissions of the assessee allowed the appeal on all the three disallowance and passed the following order: -
“I have gone through the facts of the case up and the findings of the assessing officer and the very detailed submissions of the appellant. The issue that is present in this appeal is that whether if the disallowances representing overheads of Enron powers-BV pertaining to employees whose salaries has been debited by the appellant, the legal and professional charges paid and payments in contravention of section 40A (3) which have been disallowed in quantum and upheld by the appeal authorities including the Hon'ble Tribunal, then the penalty for concealment should also be upheld or not. The facts of the case are that the appellant is a non-resident firm having its registered office in the state of Delaware, USA and the place of business is Enron Corporation, Houston, Texas. The assessee had entered into a contract with Dabhol Power Corporation in connection with the responsibility for onshore construction work and onshore service in connection with Phase II of DPC. It has a project office in India in connection with such project. During the year the assessee debited an amount of Rs. 9, 35,901,102 it's profit and loss account on account of indirect payroll overheads payable to Enron Power Services BV. The said amount was disallowed by the AO on the grounds that the assessee has not been able to provide evidence of actual payment. Similarly with respect to the legal and professional charges also it is contended that evidence for the payment of the same has not been filed. With respect to the 3rd disallowance, the same has been made with respect to the payments made in cash. To understand the crux of the issue as to whether penalty should be /Mum/2018 5 M/s. Lingtec Construction L.P. upheld or not in the present case it is important to understand the circumstances of the case. A already stated above the assessee was a part of the erstwhile Enron Corporation which through its subsidiary was providing specialised staff to its various group entities globally. The charge was as reimbursement, on a no profit basis. In late 2001 the entire Enron group filed for bankruptcy and was liquidated. The appellant also subsequently filed for bankruptcy protection. It is a peculiar circumstance of this case that the tax representatives of the assessee, M/s Arthur Andersen also collapsed around the same time and the operations in India as well as globally were shut down. It is also a fact in the case that Messer's EPS BV had filed for claim against Enron Corporation and against the appellant with the Netherlands bankruptcy court. It is a fact that in the judgement passed by the said court a claim of $ 31,13,683.51 which translates to about INK 140115757.95 was awarded to Messer's EPS BV. It is also a matter of record and was available as part of the accounts of the assessee that salary payments to various persons deputed to the project in India have been made and there is also tax deduction under form number 16 available. The same facts are not in dispute, also not in dispute are the various other expenses claimed by the appellant, the email exchanges between EPS, the appellant as well as the auditors are also very much a part of record which also .point the existence of a setup in India and the fact that the consultants were deployed in the project office in India. It also remains a matter of record that while having claimed expenses the appellant was not able to adduce vouchers for the same. However, given the circumstances of the case where Messers Enron had filed for bankruptcy and the auditors also collapsed and shutdown, the issue of whether the appellant is liable for penalty or not would need to be adjudicated in the entirety of the facts. As already stated above it is a matter of record that the appellant had a project office in India and that it was a part of the global operations of Enron and that taxes have been deducted for the expatriates deputed to this project office and in terms of the legal and professional charges payments have been made by account payee cheques. While no doubt it is the prerogative of the assessing authority and the responsibility of the taxpayer to substantiate with credible evidence the various expenses claimed by the taxpayer and the appellant in the present facts and circumstances has riot discharged its entire onus of producing the same, however in the peculiar facts and circumstances of the case the other evidence available certainly points to the fact that reimbursement were due from the appellant to EPS BV and that legal and professional charges have also been incurred. And so therefore while the disallowance in quantum may be made and held to be valid considering the lack of sufficient evidence, however, in my considered opinion, in the background of the facts and in the background of the various legal decisions which have been cited above, imposition of penalty would not be merited in the present case. The judgement of the Netherlands Bankruptcy Court is a significant third-party /Mum/2018 6 M/s. Lingtec Construction L.P. evidence wherein the assessee has made payment to Enron Power services BV it may also be noticed that the appellant has not debited expenses in any other year and therefore the award to EPS BV would be attributable to the expenses claimed by the appellant. Similarly the TDS certificates also assumes significance in the absence of direct evidence for the claim. The reference made by the appellant to the decision of the honorable Mumbai ITAT in the case of ACIT versus VIP industries Ltd, referred supra wherein it was held that mere fact that an addition is confirmed cannot per se lead to the confirmation of the penalty is found to be valid in the present case. The decision of the honorable apex court in the case of Reliance Petroproducts, referred supra, also would be applicable in the present facts and circumstances of the case considering that it is not in dispute that the assessee did have a project office in India, that the expatriates staff was hired, there are emails available for the calculation of the overhead expenses, the expatriates payroll, reimbursement and calculations tallied with the accounting records, Form 16 have been issued to the expatriates staff, payments for legal and professional charges have been made through account payee cheques all provide a scenario where the appellant has definitely had a setup in India and that this setup has run into legal issues all remains a part of the facts of the present case. In the said judgement the Honorable Apex court has held that mere making of the claim which is not sustainable in law by itself would not amount to furnishing of inaccurate particulars. In the present case also while the assessing authority has the prerogative of disallowing a claim where some evidence could be adduced by the appellant, but not to the entire satisfaction of the assessing authority, the claim itself may be disallowed but it would still not necessarily imply the attraction of penalty proceedings and imposition thereof under section 271 (1)(c) of the income tax act 1961. Therefore in my considered view keeping in perspective the facts and circumstances of the present case wherein the parent company and the group itself filed for bankruptcy and was liquidated and wherein incidentally the auditors to the appellant also collapsed and shut their offices in India as well as globally at the same time, it would be a significant factor in understanding that the appellant has not been able to present all the primary data and hence the disallowance. Therefore, in this background the penalty imposed on all the 3 disallowances is hereby deleted. The grounds of appeal are allowed.”
7. We are of the view that mere confirmation of addition in appeal in the quantum assessment cannot per se lead to confirmation of penalty as the quantum and penalty proceedings and assessment are independent of each other. For application of provisions of Explanation (1) to section 271(1)(c), it must be shown either; (i) the assessee failed to offer an explanation or (ii) he offers an explanation which is found to be false or (iii) /Mum/2018 7 M/s. Lingtec Construction L.P. he offers and explanation which cannot be substantiated or shown to be bona fide explanation. We noted that the additions/disallowances are made on difference of opinion. There is no specific finding of AO that the disclosure made by the assessee was wilful concealment of income. The Hon'ble Apex Court in the case of CIT Vs Reliance Petroproducts 322 ITR 158(SC) held that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars. In view of the above factual and legal discussion, we do not find any illegality or infirmity in the order passed by the learned CIT(A). The grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.