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Facts
The assessee, a French foreign company with no Permanent Establishment (PE) in India, earned 'fees for technical services' of Rs.2.42 Crores from an Indian Associate Enterprise (AE), on which TDS @10% was deducted. The assessee initially did not file an income tax return or Form 3CEB (Transfer Pricing Report) for the international transaction, believing tax liability was complete due to TDS. After receiving a notice under section 148, the return was filed, and Form 3CEB was subsequently filed during the assessment proceedings, leading the AO to levy a penalty of Rs.1 lakh under section 271BA, which was upheld by the CIT(A).
Held
The Tribunal held that the assessee had a reasonable and bona fide belief that no return was required due to TDS deduction and absence of PE. It noted that the Form 3CEB, though delayed, was filed during the assessment proceedings. Citing Section 273B, the Tribunal ruled that the penalty under Section 271BA is not mandatory if a reasonable cause for the failure is provided, thereby deleting the penalty.
Key Issues
Whether penalty under Section 271BA for non-furnishing/delayed furnishing of the Transfer Pricing Report (Form 3CEB) is leviable when the assessee had a reasonable and bona fide belief for the delay, and the report was eventually filed during assessment proceedings.
Sections Cited
Section 250 of the Income-tax Act, 1961, Section 271BA of the Income-tax Act, 1961, Section 139 of the Income-tax Act, 1961, Section 148 of the Income-tax Act, 1961, Section 92E of the Income-tax Act, 1961, Section 274 of the Income-tax Act, 1961, Section 273B of the Income-tax Act, 1961, Section 143(3) of the Income-tax Act, 1961, Section 147 of the Income-tax Act, 1961, Section 92B of the Income-tax Act, 1961
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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI ANIKESH BANERJEE
Instant appeal of the Revenue is filed against the order of the Learned Commissioner of Income-tax (Appeals)-58, Mumbai [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), date of order 28.09.2023 for Assessment Year 2011-12.The impugned order was emanated from the order of the Ld Assistant Commissioner of Income-tax (International Taxation) Circle-4(2)(1), Mumbai (in short, ‘the A.O.’) passed under section271BA of the Act, date of order30/04/2019.
“1. Both the lower authorities erred in levying a penalty under Section 271BA amounting to Rs.1,00,000/-
Both the lower authorities failed to appreciate that there was a ‘reasonable cause’ for non-furnishing of Transfer Pricing Report as required under section 92E.”
Brief facts of the case is that the assessee is a foreign company, tax resident of France, not having permanent establishment in India. Copy of the tax residency certificate is enclosed in assessee’s paper book (in short ‘APB’) pages 1 & 2. The assessee earned income from “fees for technical services” Rs.2,42,48,405/- during the impugned assessment year from Indian Associate Enterprise, Saint Gobain Gyproc India Ltd on which tax was duly deducted by the Indian-AE @10%. This was the only income of the assessee and only the international transaction is entered this impugned assessment year. The assessee did not file the return of income in India U/s 139 of the Act. The notice under section 148 was issued and the return was filed. But the report in respect of international transaction in Form 3CEB was required to be filed as per section 92E of the Act for the impugned assessment year. But no form was filed with the ROI. The assessment was completed. Ld. AO issued penalty proceedings under section 271BA / 274 and penalty is levied at Rs.1 Lakh. Aggrieved assessee filed an appeal before the CIT(A). Ld. CIT(A) upheld the penalty order. Being aggrieved, the assessee filed an appeal before us.
The Ld.AR for the assessee filed a written submission which is kept in the record (in short ‘APB’). The Ld.AR explained that the assessee has a reasonable
3 /Mum/2023 Saint GobainMateriaux De Construction SAS belief that the TDS was deducted by the Indian counterpart i.e. the Indian AE @10%; so the tax liability was completed and not required to file the return. The notice under section 148 was issued and the return was filed duly enclosed in APB page 5 with a computation in APB page 6. But during the course of assessment proceedings, by a letter dated 23/10/2018 alongwith report U/s 92E in Form 3CEB is submitted before the ld. AO, which is enclosed in APB in pages 11 to 22. So, the assessee is not purely defaulter of requisite form but delayed in filing 4.1 The Ld.AR further argued and placed that the issue is squarely covered with the order of assessee’s own case in date of pronouncement 30/04/2024. The relevant paragraphs 5 to 7 are reproduced below:-
“5. Representatives of both the sides were heard at length. Case records carefully perused. The undisputed fact is that the assessee is a resident of USA and being a foreign national was under a bonafide belief that it is not required to file return of income in India. It is also true that pursuant to the notice under section 148 of the Act the assessee filed its return of income declaring income of Rs.3,55,37,509/-. This income was received by the assessee as Royalty which was subjected to TDS @15% as per the Article 12 of India - USA DTAA. We find that the assessment has been framed under section 143(3) r.w.s. 147 of the Act at the returned income of the assessee. This shows that no Transfer Pricing adjustment has been made by the Assessing Officer in framing the assessment.
6. We are of the considered view that the assessee was under a bonafide belief that it was not required to file any return of income as its income has been subjected to tax deducted at source. We find that the assessee did furnish report under section 92E of the Act during the course of the scrutiny assessment proceedings itself. Considering the facts of the case in totality, we do not find this 4 /Mum/2023 Saint GobainMateriaux De Construction SAS to be a fit case for the levy of penalty under section 271BA of the Act. We therefore direct the Assessing Officer to delete the impugned Penalty of Rs.1,00,000/-.
7. The assessee has also raised grounds challenging the validity of the assessment. Since the legal issue has not been contested seriously, we do not find any reason to adjudicate on this issue. Penalty is deleted.”
4.2 The ld. AR further relied on the order Coordinate Bench-I of ITAT Mumbai in the case of IL& FS Maritime Infrastructure Co. Ltd.v.Assistant Commissioner of Income-tax - 10(1), Mumbai [2013] 37taxmann.com297 (Mumbai - Trib.). The relevant paragraphs are as below: -
Now, coming to the case in hand, it may be observed that as per the wording of section 271BA, the AO may direct the concerned person to pay the penalty. The word 'may' used in the section denotes that it is the discretion of the AO to impose or not to impose the penalty. This discretion is subject to the restrictions as imposed by Section 273B of the Act. The word 'may' also includes the word 'may not'. Reliance can be placed on an authority of the Hon'ble Supreme Court of India in "Malik Ram v. State of Rajasthan" AIR 1961 SC 1575, wherein, the Hon'ble Supreme Court while interpreting the Section 68-D(2) of the Motor Vehicles Act, 1939 has held that the words "may approve" in the section, properly construed, must also include "may not approve". The word 'shall' has not been used in the section 271BA of the Act, which otherwise, would have made the imposition of penalty mandatory. Our interpretation of word 'may' finds justification from the provisions of Section 273B of the Act, wherein it has been specifically provided that "…..no penalty 'shall be' imposable …………..if he proves that there was reasonable cause for the said failure". So, the relevant provisions under consideration reveals that though the imposition of penalty is discretionary, however, the word 'shall' used in Section 273B provides that it is mandatory not to impose penalty, if the assessee gives a reasonable cause for his failure in furnishing the particulars as required by the provisions of the Section 271BA.
5 /Mum/2023 Saint GobainMateriaux De Construction SAS It may be further observed that in the case in hand, the AO did not consider the explanation of reasonable cause of bonafide belief given by the assessee in its failure to furnish the report under Section 92E in time. Even, the learned CIT(A) did not bother to look into or consider the said explanation given by the assessee. The authorities below have imposed the penalty holding that the same is mandatorily imposable under the provisions of Section 271BA of the Act. The authorities below failed to take note of provisions of Section 273B as well as the use of word 'may' in Section 271BA.
We are satisfied with the explanation given by the representative of the assessee to the effect that the delay in furnishing the report under Section 92E was not intentional, rather due to mistaken bonafide belief that the transaction involving the investment of money in equity shares of its subsidiary company by the assessee-company was not within the scope of International transactions as defined under Section 92B of the Act. As soon as, the assessee-company came to know that it was required to furnish the report under Section 92E, it filed the same before the AO. The explanation put forth by the assessee-company, in our view, falls within the scope of phrase "reasonable cause" as provided under Section 273B of the Income Tax Act, 1961. So, in view of our observations made above, the penalty imposed upon the assessee by the AO and further confirmed by the CIT(A) is hereby ordered to be deleted.
The Ld.DR argued vehemently and fully relied on the order of revenue authorities. But unable to submit any contrary judgment against the submission of the ld. AR.
We heard the rival submission and considered the documents available on the record. Though the assessee was not able to file the report in Form 3CEB with ROI, the form was duly filed during the course of assessment proceedings. The assessee had a reasonable belief that the tax liability is not in its account, but was in the hands of Indian AE. The issue is squarely covered by the assessee’s own case in (supra)&IL & FS Maritime Infrastructure Co. Ltd (supra). The assessee did not submit the form in time as specific is Act. The 6 /Mum/2023 Saint GobainMateriaux De Construction SAS revenue has granted the penalty. But section 273B of the Act, wherein it has been specifically provided that "…..no penalty 'shall be' imposable …………..” if he proves that there was reasonable cause for the said failure". So, the relevant provision under consideration reveals that though the imposition of penalty is discretionary, however, the word 'shall' used in Section 273B provides that it is mandatory not to impose penalty. We cannot circumvent the orders of coordinate bench of ITAT Mumbai. Accordingly, the ground of assessee is succeeded and the penalty U/s 271BA amount to Rs.1 lakh is deleted.