GENERAL ELECTRIC INTERNATIONAL INC.,GURGAON vs. DCIT, INTERNATIONAL TAXATION CIRCLE 2(3)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER General Electric International Inc., Building No. 7A, 1st Floor, DLF Cyber City, DLF Phase III, Sector 25A, Gurgaon, DLF QE S.O, Gurgaon, Haryana - 122002 [PAN: AAACG1705D] …………… Appellant Deputy Commissioner of Income-Tax Vs International Tax Circle 2(3)(2), Mumbai, Room No. 1711, 17th Floor, ……………. Air India Building, Nariman Point, Respondent Mumbai, - 400021 Appearance For the Appellant/Appellant : Shri Dhanesh Bafna Ms. Riddhi Maru, Ms. Hinal Shah For the Respondent/Department : Shri Veerbhandra Mahajan Date Conclusion of hearing : 02.05.2024 Pronouncement of order : 16.05.2024 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 07/08/2023, passed by the Ld. Commissioner of Income Tax (Appeals) – 56, Mumbai, [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2016-17, whereby the Ld. CIT(A) had dismissed the appeal of the Appellant against the Penalty Order, dated 26/03/2022, passed under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The Appellant has raised the following grounds of appeal:

“1. On the facts and in the circumstances of the case, and in law, the order of the Ld. CIT(A) passed under section 250 of the Act is erroneous, devoid of facts and contrary to the provisions of the law and accordingly, liable to be quashed.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Learned Assessing Officer ('Ld. AO') in levying a penalty of INR 30,57,730 under section 271(1)(c) of the Act.

The Appellant craves leave to add, alter, amend, modify or withdraw all or any grounds herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers either before or during the hearing of these grounds.”

(a) Branch Profits of INR 11,16,10,320/-, on net basis, (b) Technical Service Fee of INR 2,59,01,40,336/- as Fee For Included Services at the rate of 15%, on, gross basis, as per Article 12 of Double Taxation Avoidance Agreement (DTAA) between India and USA [for short „DTAA‟] and (c) Royalty income of INR 1,61,09,078/- at the rate of 10%, on gross basis, as per the provisions of the Act 3.1. The case of the Appellant was selected for scrutiny under the criteria of compulsory selection and reference was made to the Transfer Pricing Officer (TPO) for determination of the Arm’s Length Price (ALP). Vide order, dated 01/11/2019, the TPO recommended that no transfer pricing adjustments were required. In response to the notices issued, the Appellant has made its submission on 01/10/2018, and 23/10/2018. Thereafter, on account of change of incumbent, fresh notice under Section 142(1) of the Act along with questionnaire was issued to the Appellant on 16/11/2019. Thereafter on the Appellant filed replies dated, 02/12/2019 and on 20/12/2019 on 3 ITBA/E-Assessment portal. By way of the Submission filed on 20/12/2019, the Appellant placed on assessment record revised computation of income offering an additional income of INR 1,95,86,904/- to tax Fee for Included Services (for short ‘FIS’) in terms of Article 12 of the DTAA, in addition to the FIS income of INR 2,59,01,40,336/- already declared by the Appellant in the return of income. The Assessing Officer brought to tax additional income as offered by the Appellant and initiated penalty proceedings for furnishing inaccurate particulars of income under Section 271(1)(c) of the Act. The Assessing Officer also made addition of INR 11,96,947/-, being income for rendering soft skills/non-technical training to employees of group companies held to be liable to tax as Fee for Technical Services at the rate of 10% as per Section 115A of the Act. The Assessing Officer initiated penalty proceedings for furnishing inaccurate particulars of income under Section 271(1)(c) of the Act, in respect of the aforesaid addition of INR 11,96,947/-. The penalty proceedings culminated in passing of the Penalty Order, dated 26/03/2022, whereby penalty of INR 30,57,730/-, being 100% of tax sought to be evaded, was levied under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income.

3.2. The appeal preferred by the Appellant against the Penalty Order, dated 26/03/2022, was dismissed by the CIT(A) on 07/08/2023. 3.3. Being aggrieved, the Appellant has preferred the present appeal before the Tribunal against the order of CIT(A), dated 07/08/2023, on the grounds reproduced in paragraph 2 above. 4. The Learned Authorized for the Appellant submitted as under:

(a) The Assessing Officer erred in concluding that the 4 Appellant has furnished inaccurate particulars of income in respect of suo-moto disclosure of income of INR 1,95,86,904/- made during the assessment proceedings. He submitted that when the case of the Appellant was selected for scrutiny, the Appellant had filed submission on 28/09/2018 placing on assessment record original computation of income along with notes to computation. In the notes to computation, it disclosed that certain receipts (including Soft Skill and Non-Technical Training Charges) were not offered to tax in the return of income as well as basis for the same. The aforesaid reply was filed before the issue of questionnaire along with notice dated 16/11/2019. During the assessment proceedings, the Appellant on its own noticed that receipts of INR 1,95,86,904/- has been inadvertently considered as receipts for Soft-Skill Training and claimed as non-taxable in the return of income. In view of this inadvertent human error, vide letter dated 20/12/2019, the Appellant voluntarily offered the receipts of INR 1,95,86,904/- to tax at 15% as FIS as per Article 12 of the DTAA which resulted in reduction of the refund claimed in the return of income. The additional income voluntary offered to tax, which constituted merely 0.72% of the total taxable income declared by the Appellant in the return of income, was accepted by the Assessing Officer. The Appellant did not have any intention to evade tax. The inadvertent human error was corrected as soon as the same came to the notice of the Assessee. All the facts were placed before the Assessing Officer and the Appellant did not furnish any inaccurate particulars of income. Even if it is assumed that there was inaccurate furnishing of particulars of income, it 5 was on account of inadvertent human error.

(b) The Assessing Officer had erred in concluding that the Appellant had furnished inaccurate particulars of income in respect of addition of receipts from Soft-Skills/Non- Technical Training of INR 11,96,947/- brought to tax in hands of the Appellant as all the material facts were correctly disclosed in the return of income as well as during the assessment proceedings. During the assessment proceedings, the Appellant had furnished detailed explanation why the receipts from Soft Skills/Non- Technical Training were not taxable in India as per the Act and DTAA. It was vehemently contended that penalty provisions contained in Section 271(1)(c) of the Act would not be attracted automatically merely because the legal contentions and arguments on non-taxability of receipts from Soft Skills/Non-Technical Training were not accepted by the Assessing Officer.

(c) The Ld. Authorised Representative for the Appellant placed reliance upon the judgment of the Hon’ble Bombay High Court in the case of Vijay Bhagwandas Raheja Vs. Deputy Commissioner of Income-tax: [2024] 160 taxmann.com 684 (Bombay)[07-02-2024], and Commissioner of Income Tax – I, Mumbai Vs. Bennett Coleman & Co. Ltd: [2013] 215 Taxman 93 (Bombay) (Mag.)/[2013] 259 CTR 383 (Bombay)[26-02-2013], in support of the above contentions.

9. As regards penalty levied by the Assessing Officer under Section 271(1)(c) of the Act in respect of addition of Soft-Skills/Non- Technical Training Fee of INR 11,96,947/- is concerned, we note that none of the facts/details furnished by the Appellant were found to be factually incorrect by the Assessing Officer. The contention of the Appellant was that the receipts from Soft- Skills/Non-Technical Training were not liable to tax in India as FIS under Article 12 of DTAA as no technical consultancy, skill, experience etc was made available was rejected by the Assessing Officer. It has not been disputed by the Revenue that in the original computation of income the Appellant had disclosed the receipts from Soft-Skills/Non-Technical Training were not being offered to tax. It is settled legal position that mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing incorrect particulars regarding the income of assessee. In the case of Vijay Bhagwandas Raheja Vs. Deputy Commissioner of Income-tax: [2024] 160 taxmann.com 684 (Bombay)[07-02-2024], the Hon’ble Bombay High Court has, following the judgment of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. : 322 ITR 158 (SC) held as under: “8. As held by the Hon'ble Apex Court in Reliance Petroproducts (P.) Ltd. (supra), in order to be covered under this provision, there has to be concealment of the particulars of income of assessee or assessee must have furnished inaccurate particulars of his income. It is not Revenue's case that there was any concealment of income. The entire basis is that by initially filing the return of income showing gain 9 made from the sale of the property at Bangalore as long term capital gain, assessee has furnished inaccurate particulars of income. Admittedly, no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Submitting an incorrect claim in law of long term capital gain would not tantamount to furnishing inaccurate particulars. We should also note that the assessment order itself was passed after assessee furnished its revised computation of income. A mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of assessee. Such claim made in the returns cannot amount to inaccurate particulars. We find support for this view in Reliance Petroproducts (P.) Ltd. (supra) where Paragraph Nos. 8 to 12 read as under: ** ** ** "8. A glance at this provision would suggest that in order to be covered, 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 present is not a case of concealment of the income. That is not the case of the Revenue either. However, the learned counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on 10 interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal [2009] 9 SCC 589, where this court was considering the same provision, the court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v. Dharamendra Textile Processors [2008] 13 SCC 369 as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that:- "13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist."

11. We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.

9. The sum and substance of assessee's case is that assessee had neither concealed any income nor furnished any incorrect particulars of such income. Admittedly, assessee had shown correct sale consideration of the property and also shown correct cause of depreciation in the return of income, so no income as such has been concealed. The only thing that assessee did was claiming a particular income (Capital Gain) under different head namely under long term capital gains as against short term capital gains. Assessee claims that it was done under bona fide belief that the asset was a long term asset as it was held for more than three years. Just because assessee was a director in some companies cannot be a reason to state that claiming this short term capital gain as long term capital gain was to avoid payment of any tax. In any event as noted earlier the entire short term capital gain was paid even before the assessment order was passed. A mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing incorrect particulars regarding the income of assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars as held by the Hon'ble Apex Court in Reliance Petroproducts (P.) Ltd. (supra).

10. In the circumstances, in our view, the tribunal was not correct in interfering with the order passed by the CIT(A). All questions are answered accordingly in the facts and circumstances of the present case” (Emphasis Supplied)

14 9.1. In the present case also while the legal claim of the Appellant has been rejected by the Assessing Officer, the Appellant has made disclosure of all material facts and none of the details have been found to be factually incorrect. Therefore, in view of the above judgment of the Hon’ble Jurisdictional High Court, given the facts and circumstances of the present case, it cannot be said that Appellant has furnished inaccurate particulars of income in relation to receipts of Soft-Skills/Non-Technical Training Fee of INR 11,96,947/-. Accordingly, penalty levied by the Assessing Officer under Section 271(1)(c) of the Act in respect of receipt of Soft-Skills/Non-Technical Training Fee of INR 11,96,947/- is deleted.

10. As regards penalty levied by the Assessing Officer under Section 271(1)(c) of the Act in respect of additional income of INR 1,95,86,904/- offered to tax by the Appellant is concerned, we find that the Appellant has provided explanation for the same. It has been explained that on account of incorrect grouping of accounts, the income of INR 1,95,86,904/- could not be offered to tax in the return of income. During the assessment proceedings, when the aforesaid inadvertent mistake came to the knowledge of the Appellant, corrective action was taken by the Appellant and revised computation of income was filed by the Appellant voluntarily offering additional income to tax FIS. It has been contended by the Revenue that the Appellant offered additional income to tax only after notice was issued to the Appellant and therefore, the contention of the Appellant that additional income was offered to tax voluntarily is not correct. Reliance was also placed on the decision of the Hon’ble Supreme Court in the case of MAK Data (P.) Ltd. Vs. CIT [2013]: 358 ITR 593 (SC) to contend that even in case of voluntary disclosure, penalty can be levied. However, in our view, the aforesaid 15 judgment of the Hon’ble Supreme Court is not applicable to the facts of the present case. In that case no explanation was offered by the assessee and in absence of any explanation in respect of the surrendered income, the Hon’ble Supreme Court held that the law did not provide that when an assessee makes a voluntary disclosure of his concealed income, such assessee had to be absolved from penalty. In that case, dismissing the appeal of the assessee, the Hon’ble Supreme Court held that voluntary disclosure does not release the assessee from the mischief of penal proceedings. In the present case the Appellant has offered explanation which, in our view, is bonafide and reasonable. We note that in the present case the Appellant had offered income of INR 2,59,01,40,336/- to tax as FIS in the return of income. Income of INR 1,95,86,904/- was not offered to tax on account of incorrect grouping of accounts. This additional income, offered by way of revised computation, was merely around 0.70% of FIS income already offered to tax. In the similar facts and circumstances, in the case of Commissioner of Income Tax – I, Mumbai Vs Bennett Coleman & Co. Ltd: [2013] 215 Taxman 93 (Bombay) (Mag.)/[2013] 259 CTR 383 (Bombay)[26-02-2013], the Hon’ble Bombay High Court had declined to interfere with the order passed by the Tribunal deleting the penalty levied under Section 271(1)(c) of the Act on the ground that there was inadvertent mistake on the part of the assessee in that case. The relevant extract of the aforesaid judgment reads as under:

2. So far as question (i) is concerned, the respondent-assessee has claimed deduction of interest on tax free bonds of Rs.5,60,11,644/-. During the course of the assessment proceedings, the assessee was asked to give details of interest on tax free bonds. While preparing the said details, it was noticed that 6% Government of India Capital Index 16 Bonds purchased during the year had inadvertently been categorized as tax free bonds and, therefore, interest of Rs.75,00,000/- earned on such bonds had also inadvertently escaped tax. The assessing officer levied penalty under Section 271(1)(c) of the Income Tax Act, 1961 (the Act). The CIT(A) upheld the order of the Assessing Officer. On further appeal, the Tribunal in the impugned order records a finding of fact that by inadvertent mistake interest @ 6% on the Government of India Capital Index Bonds was shown as tax free bonds. The Tribunal concluded that there was no desire on the part of the respondent-assessee to hide or conceal the income so as to avoid payment of tax on interest from the bonds. In that view of the matter, the Tribunal deleted the penalty imposed upon the respondent- assessee under Section 271(1)(c) of the Act. In view of the fact that the decision of the Tribunal is based on finding of fact that there was an inadvertent mistake on the part of the assessee in including the interest received of 6% on the Government of India Capital Index Bonds as interest received on tax free bonds. It is not contended by the Revenue that above finding of fact by the Tribunal is perverse. In these circumstances, we see no reason to entertain the proposed question (i).

10.1. In view of the above, we accept the contention of the Appellant that there was inadvertent error on behalf of the Appellant on account of which income of INR 1,95,86,904/- could not be offered to tax. We hold that the above said facts, relevant to the addition of INR 1,95,86,904/- made by the Assessing Officer, do not warrant levy of penalty under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income. Accordingly, the corresponding penalty levied under Section 271(1)(c) of the Act is deleted.

12. In result, the present appeal preferred by the Appellant is allowed for statistical purposes.