JCIT, BANGALORE vs. M/S ABB INDIA PVT. LTD.,, BANGALORE

PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER This appeal by the assessee is directed against the order of Commissioner of Income-tax (Appeals) - LTU, Bengaluru dated 23/1/2014 and it pertains to the assessment year 1998-99.

ITA No.441/B/14

2 2. The company had claimed deduction u/s 80 IA in respect

of 12 units. The AO had granted relief u/s 80IA in respect of

only 3 units. On appeal the CIT(A) granted relief in respect of

the balance 9 units, which was confirmed by ITAT.

Consequently the Assessment order levying penalty to the extent

on disallowance of disallowance of deduction u/s 80IA in

respect of 9 units was rectified and deleted. The only surviving

penalty under disallowance under sec 80IA is on account of

reduction of relief of deduction on account of non-allocation of

common corporate expenses among the 12 units in computing

deduction u/s 80IA.

direct and indirect expenses referable to the 12 units have

allocated in computing the relief u/s 80IA. Only the common

corporate expenses were not allocated as required by AO.As the

CIT(A) has pointed out, there is divergence of opinion whether

common corporate expenditure, most of which was being

incurred even before the starting of the new undertakings should

ITA No.441/B/14

3 be allocated among the new units as being necessary for their

manufacture.

Lever Ltd., in Tax Case (Appeal) No.219 of 2006, 267, 269, 270,

273 and 274 of 2008 and TC(A) No.219 of 2006, wherein the

question of law is as follows:-

“Whether in the facts and circumstances of the case the Tribunal was right in holding that the common head office expenses cannot be apportioned to the various units on the basis of therir respective turnover for the purpose of calculation of deduction u/s 10B, 80I and 80HH?

common corporate expenditure resulting in reduction of deduction

u/s 80IA, in our opinion, cannot be the basis for levying penalty on

account of a wrong claim for deduction. A long as the Assessee had

ITA No.441/B/14

4 explained the reason for claiming deduction of a particular amount,

the fact that his claim for expenditure has been disallowed cannot

be a reason for levying penalty u/s 271(1)(c). We derive support

from the decision of the Apex Court in the case of CIT v M/s.

Reliance Petro products P Ltd 322 ITR 158 where in it has been

held that in order to attract the provisions of s. 271(1)(c), there has

to be concealment of income or furnishing of inaccurate particulars

of his income by the assessee. In the instant case, admittedly, no

information given in the return was found to be incorrect or

inaccurate. Hence, the assessee cannot be held guilty of furnishing

inaccurate particulars. Making an incorrect claim in law cannot

tantamount to furnishing of inaccurate particulars. Merely because

the assessee claimed deduction which has not been accepted by the

Revenue, penalty under s. 271(1)(c) is not attracted.

Arsspl, 37 taxmann.com 347 (Delhi).

ITA No.441/B/14

5 The Tribunal had pointed out that the Head office monitored the recruitment of finance and other action which were necessary for running all the units. Consequently, the administrative expenses though relatable to the various units, are expenses incurred in general, towards the well being of the business. Thus, the Tribunal granted the relief to the assessee holding that the head office expense could not be proportionately distributed among the various units or allotted to any particular unit independently.

Penalty u/s 271(1)(c) in respect of reduction deduction u/s 80 IA on

account of allocation of Common Corporate expenditure.

deleting the penalty, on account of disallowance fees paid to Non

resident for non deduction of tax at source. The Assessee has paid Rs. 96,17,000/- as fees for services. The amount was disallowed on

the ground that tax was not deducted. In the assessment the entire

expenditure was disallowed and the disallowance was confirmed by

ITA No.441/B/14

6 CIT(A) and ITAT. The AO had levied penalty of Rs. 33,65,975/-

being 100% of the tax sought to be evaded.

“In the above matter, the issue hinges around payment for services in strategic planning, defining project mix, export co-ordination, advice on purchase of license and technical know-how etc., which the assessee, as per the DTAA between India and Switzerland had considered as failing within the meaning of ‘Business Profit’. The AO head them to be in the nature o ‘fees for technical services.’ Since the interpretation of legal provisions and a dispute around nature of services performed is at the heart of this matter, I am inclined to hold that the requirement of sec. 271(1)(c) for concealment of income or furnishing of inaccurate particulars are not attracted here. Accordingly, the levy of penalty related to this matter cannot be sustained.

considered as Fees for technical services or Business Profits under

the DTAA between India and Switzerland. The present appeal is for

the AY 1998-99. As held by the Jurisdictional High Court in the

ITA No.441/B/14

7 case of Jindal thermal Power Co Ltd v DCIT 321 ITR 31 has held

that the Explanation incorporated in s. 9(2) by Finance Act 2007,

declares that "where the income is deemed to accrue or arise in

India under cls. (v),(vi) and (vii) of sub-s. (1), such income shall be

included in the total income of the non-resident, whether or not the

resident has a residence or place of business or business connection

in India". The plain reading of the said provision suggests that

criterion of residence, place of business or business connection of a

non-resident in India has been done away with for fastening the tax

liability. However, the criteria of rendering service in India and the

utilisation of the service in India laid down by the Supreme Court in

Ishikawajma-Harima Heavy Industries Ltd. vs. Director of IT

(2007) 207 CTR (SC) 361, to attract tax liability under s. 9(1)(vii)

remains untouched and unaffected by the Explanation to s. 9(2).

Hence till a further explanation was introduced to sec 9(2) by the

finance Act 2010, Fees for technical services rendered outside India

was not taxable in India.

vs. Addl CIT (158 TTJ 308), it is only as a result of

ITA No.441/B/14

8 amendment in Section 9(1), by virtue of Finance Act 2010, that

Fees for technical services paid can be said to be taxable in

India. In case of Channel Guide vs. ACIT (139 ITD 49), it was

held that amount paid to the foreign enterprise was not taxable in

India in light of legal position as it prevailed at that point of

time, and it became taxable in India only as a result of

retrospective amendment in Section 9(1), said payment cannot

be disallowed by invoking section 40(a) (i). As for earlier period,

even though amendment is said to be merely clarificatory in

nature, in view of fact that services were rendered outside India,

even if utilized in India, the tribunal held that impugned fees for

technical services was not taxable in India. Following decision

of co-ordinate bench in case of Channel Guide, the tribunal in

that case held that disallowance u/s 40(a)(i) cannot be invoked

on facts of this case.

(A) deleting the penalty in respect of non-deduction of tax from

fees paid to Non-residents for services rendered abroad. The

revenue’s appeal on this issue is dismissed.

ITA No.441/B/14

441/Bang/2014 for AY 1998-99 is dismissed.

Order pronounced in the open court on 21st September, 2016.

Sd/- Sd/- (INTURI RAMA RAO) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER

Bangalore Dated : 21/09/2016

Vms

Copy to :1. The Assessee 2. The Revenue 3.The CIT concerned 4.The CIT(A) concerned 5.DR 6.GF By order

Asst. Registrar, ITAT, Bangalore