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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of the CIT (A)-10, Mumbai passed in appeal No.CIT (A)-10/ADIT (IT) 3(1)/IT-20/06- 07 dated 23-09-2010. Assessment was framed by the ADIT(IT), Circle 3 (2), Mumbai for assessment year 2001-02 vide his order dated 18-03- 2006 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). Penalty under dispute was levied by the ADIT (IT), Circle 3 (1), Mumbai u/s 271 (1) (c) of the Act vide order dated 21-03-2006.
The only issue in this appeal of the assessee is against the order of CIT (A) confirming the levy of penalty by the AO u/s 271(1) (c) of the Act for furnishing of inaccurate particulars of income in respect of claim of deduction for expenditure incurred in respect of seconded employees under the Management Provision Agreement (MPA).
Briefly stated, the facts of the case are that the assessee is a Foreign Company incorporated in the USA. General Motors India Ltd. (GMIL) entered into Management Provision Agreement (MPA) with the assessee Company. The assessee Company raised invoices on GMIL on case to case basis, with no mark up and as per Clause 4 of the MPA; GMIL would reimburse the cost of remuneration of the seconded employees to the assessee. In terms of the MPA, the assessee makes available to GMIL executive personnel in the areas relating to development of general management, finance and purchasing, sales, marketing and assembling/manufacturing activities etc. During the course of assessment proceedings, the assessee was asked to furnish details of invoices raised for management fees, which shows total invoices at US $ 622117.58. The assessee vide letter darted 13-03-2004 furnished the details in respect of the expenses incurred for an amount of US $ 471497.93. In regard to the balance expenses, the assessee’s representative vide order sheet noting dated 15-03-2004 was requested for the details. But, no details/confirmation in respect to other expenses was filed. Accordingly, the AO treated the equivalent amount of US $ 150619.75 as business profit and worked out the addition at Rs.69,93,275/-. The AO initiated penalty proceedings u/s 271 (1) (c) of the Act. Against the addition, the assessee preferred appeal before CIT (A), who confirmed the action of the AO. The AO started penalty proceedings u/s 271 (1) (c) of the Act and required the assessee to explain as to why the profit added at Rs.69,93,275/- equivalent to US $ 150690 be not treated as concealed income of the assessee for furnishing of inaccurate particulars of income.
During the penalty proceedings the assessee further submitted some details and the AO has not considered the same by observing as under:-
“Assessee vide its representative’s letter dt. 14.03.2006 has “submitted certain details of expenses. But it is difficult to consider the same at this stage”.
Accordingly, the AO levied penalty u/s 271(1) (c) of the Act, amounting to Rs.33,56,773/-. Aggrieved, the assessee preferred appeal before CIT (A).
Before CIT (A) also the assessee filed details of expenses to the extent of US $ 122306, which were forwarded by him being additional evidences to the AO for his comments. The AO submitted his remand report negating the claim of the assessee. The CIT (A) confirmed the levy of penalty by observing as under:-
“1.4 I have considered the facts and gone through the penalty order passed by the AO and also the submissions made by the Appellant before me. The Assessment order was passed on 18.03.2004. A perusal of the assessment order reveals that the AO had found that appellant has raised management fee invoices of USD 622,117.58 as against which it has furnished details of expenses of USD 471497.93 vide letter dated 13.3.2004. As per order sheet notings dated 15-3-2004, the AO specifically asked the AR of the assessee to state whether there are any other expenses have been incurred other than that the details furnished as per letter dated 13-3-2004. The AR of the assessee attended on 18-3- 2004 and confirmed that no more bill for expenses are to be submitted. In such circumstances, the AO computed the profit attributable to activities conducted in India at USD 150619.75 being difference between invoices raised and expenditure incurred with supporting evidence (622,117.58 – 471,497.93) as per details before the AO. This clearly shows that the assessee has not declared the income to that extent of USD 150,619.75 in the return of income. The AR of the appellant clearly8 stated that there were no more invoices of expenditure to be submitted at the time of assessment. Therefore, the claim made during appellate proceedings is after thought. The appeal order was passed on 7-12-2004, even there the appellant failed to furnish the required supporting evidence. Accordingly, the profit computed was held to be right and justified. Thus, it appears that the claim which is made after the assessment is not correct and lacks supporting evidence. It is also difficult to believe that the assessee has not earned any profit from its Indian operations.
1.4.1 A perusal of the penalty order reveals that the AO has rejected the contentions on the basis that the assessee had admitted in the assessment proceedings that no more invoices were to be submitted. Further, CIT (A) has agreed with the AO that in absence of the documentary evidence it is difficult to accept the claim of the Appellant. The so called invoices purported to have been filed during penal proceedings before the AO were also examined. I find that the said invoice was raised on 03-09-2001 whereas accounting period of the appellant has closed on 31-03-2001. Then how could it be related to previous year relevant to Assessment Year under consideration. It is mentioned on the invoice that it pertains to month of February 2001; whereas the payment was made in cash and that too in the month of January 2001. Therefore, this evidence could not be considered as reliable evidence unless it is supported by independent evidence being third party. Similarly invoices of USD 80381 is also pertains to advance paid, therefore it could not be considered as expenditure for earning income. This view is also supported from the fact that notice issued under section 133 (6) of the Act on the address given in the invoices have returned UN- served. This also leads to infer that explanation is not bonafide and claim is not genuine. The claim of the AR that it was sent on wrong address cannot absolve the responsibility of the appellant. The AR was well aware that a Remand Report has been called for from the AO, therefore he could have assisted the AO in this regard but no efforts on this direction appears to have been made. I find that the appellant has approached to AAR in the past years for the ruling that it had not PE in India hence its income is not taxable in India. However the Hon’ble AAR held that the appellant had PE in India and income attributable to Indian operation is taxable in India. Therefore, it could not be believed that the appellant does not have any income in India. The appellant has shown NIL income in India on the ground that expenditure incurred is cost to cost basis.
However, such claim cannot be accepted in absence of any transfer pricing study report. No Transfer Pricing Report been brought to my furnished to support the claim. It is further seen from the past history that the appellant has never been able to furnish documentary evidence in supports of expenditure incurred therefore such disallowance were also made in earlier years. It is also unbelievable that the appellant would not keep its evidence of 96 lakhs of expenditure claimed to have been incurred. Under these circumstances, I am of considered opinion that the appellant has furnished inaccurate particulars of income and hide the fact from the AO Therefore, the claim made is false and amounts to furnishing of inaccurate particulars of income liable to attract penalty provisions under section 271 (1) (c) of the Act”.
Aggrieved against the action of CIT(A), for confirming levy of penalty, the assessee came in second appeal before the Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel Ms Priyanka Gada for the assessee stated the facts of the case that the assessee almost all invoices (99.5%) raised to GMIL, being reimbursement cost incurred by the assessee were filed either during penalty proceedings or before CIT (A) during appellate proceedings, which in turn was referred to the AO for remand report. It was explained that out of total invoices raised of US $ 622117, the assessee submitted the details of US $ 471497 (approx. 76%) before the AO during the course of assessment proceedings vide submissions dated 13-03-2004 (there is no dispute on the same). The learned Counsel for the assessee explained that the AO disallowed expenses of US $ 150690 equal to amount of Rs.69,93,275/- for the reason that to this extent the documentary evidences in respect of invoices raised and details of expenses incurred was not produced. Thus, income was assessed including this as business profit at Rs.69,93,275/- and the CIT (A) also confirmed the action of the AO. During the penalty proceedings, according to the learned Counsel for the assessee, the assessee further submitted the details of invoices of expenditure incurred to the extent of US $ 26500 vide submissions dated 14-03-2004. But the AO refused to entertain the same by stating that it is difficult to consider the invoices at this stage. Before CIT(A) the assessee produced the details of invoices raised on GMIL and expenses incurred to the extent of US $ 122306 (now total aggregating to 99.7% of the claim was produced).
The CIT (A) forwarded the additional evidences to the AO for his comments vide letter dated 15-01-2009 bearing No.CITA.XXXIII/Int.
Tax/IT/30-G/06-07. Relevant part of the above letter i.e. Para 6 and 7, which is given at assessee’s paper book at page 53, reads as under:-
6. The appellant has also submitted that it filed supporting evidences for expenses to the extent of US $ 26500 before the A. O. during the penalty proceedings. This fact is also mentioned on Page No.2 of the penalty order. The appellant has furnished supporting evidences before me to the extent of US $122306. Subsequent to the assessment proceedings, the appellant has filed supporting documents to the extent of US $ 148806 against the disallowance of US $ 150619.75. The appellant submitted that since assessment proceedings and penalty proceedings are different, the evidences submitted during the penalty proceedings should have been examined in the penalty proceedings. The appellant also submitted that the required documents could not be filed in time with the A. O. during the assessment proceedings because of constraint of time and difficulty in locating the documents in U. S. The appellant submitted that now with lot of efforts, it could trace out the documents and it has submitted during the penalty proceedings. I also feel that since it is a penalty proceedings which is of penal in nature, the appellant’s additional evidences should be examined in the interest of justice.
7. In view of the above, I request you to kindly go through the evidences filed and examine about the genuinenity of the evidences filed and to report whether the appellant could substantiate the expenses to the extent of US $ 148806. You may also make necessary enquiries (if needed) before submitting the report. You may also provide sufficient opportunity of being heard to the appellant before sending the report. You are requested to submit the report on or before 16- 02-2009.
She also referred to the remand report of the AO given vide No. ADIT (IT)-3(1)/Remand Report/2010-11 dated 03-09-2010, wherein it is stated that the notice issued u/s 133(6) of the Act was returned un-served.
The relevant part of the remand report reads as under, which is given at page 54-55 of the paper book filed by the assessee,:-
“Please find enclosed herewith, a letter No.DDIT (IT)- 3(1)/Remand Report/2010-11 dated 30.04.2010 which was addressed to your office. As per the letter, a notice u/s 133(6) was issued to the concerned party and the reply was yet to be received, hence the remand report could not be submitted.
It may be submitted that, a notice u/s 133 (6) was issued to The Principal Officer, North American Operations, General Motors Corporation Disbursement (2613), 16E Judson, Pontiac, MI. Along with the notice document relating to claim of expenses made by General Motors Overseas Corporation to tune of USD 122306 was also sent (copy of notice u/s 133(6) dated 30.04.2010 enclosed as Annexure ‘B’). However, the closed cover with the notice u/s 133(6) and related documents was returned unserved with the following markings “Mail piece being returned because: BUILDING/SITE HAS CLOSED’ . (front page copy of closed cover is enclosed as Annexure ‘C’).
In view of the above mentioned facts, conscious efforts have been made to verify the genuineness of the claim of the assessee, but the same is not available for the aforementioned reasons. Thus, it is clear that additional evidences filed by the assessee cannot be relied upon to allow the said claim of the assessee and needs to be rejected”.
In view of the above learned Counsel for the assessee explained that in the remand report, the AO took a plea for rejecting the evidences that notice issued u/s 133(6) of the Act to USA office was returned un- served. The assessee explained that the AO failed to appreciate that the office of the assessee was at the given address-
“General Motors Overseas Corporation 300 Reliance Center Detroit Michigan USA” and not, what is mentioned by the AO in his remand report. She explained that had the AO sent the letter at the address mentioned in all the correspondence with Income Tax Department, the same would have reached in the right hand and even no opportunity to rebut this notice, returned un-served, has been given to the assessee. She also assails the order of CIT (A) and the reasoning given therein that CIT (A) confirmed levy of penalty only on the ground that the invoice raised are dated 03.09.2001, whereas accounting period of the assessee closes on 31-03- 2001. She explained that CIT (A) failed to appreciate that the invoice was in American Format i.e. MM/DD/YY. According to her, the invoice was raised on 9th March 2001 and not on 03rd September 2001. For this, she took us through the invoice in respect of international service personnel issued by General Motors Overseas Corporation is only on dated 03/09/2001 in American Format which is enclosed at page 2 of the assessee’s paper book. In respect to the allegation of the AO that the notice u/s 133(6) of the Act was not served on the assessee, she took us through page 4 of assessee’s paper book and explained the factum of the case as argued by her. The learned Counsel for the assessee also referred to the details of payment and tax paid by the concerned employees in US, as given at page 3 of the assessee’s paper book wherein “paid amount” in the last column of the Table is shown as $26,500.00.
In view of the above facts, the learned Counsel for the assessee stated that the entire episode happened because the assessee could not lay its hands on the evidences at the right time, while the entire evidences were available with the assessee for claim of deduction of expenses.
According to her, it is unfortunate that the assessee’s claim in quantum is not contested further. In view of this, the learned Counsel for the assessee stated that there is no iota of concealment or furnishing of inaccurate particulars of income qua this claim of deduction.
When these facts were confronted to the learned Sr. DR, he fairly conceded to the position and has not pointed out anything that the facts are wrong.
We have heard the rival submission and gone through the facts and circumstances of the case. We find that the learned Counsel for the assessee has explained the case with facts and figures as narrated above and in such circumstances; it is not at all a case for levy of penalty for furnishing of inaccurate particulars of income for the reason that the assessee has filed all the details before the CIT(A) and before the Assessing Officer during the course of penalty proceedings or during the course of appellate proceedings. We find that the assessee has filed details to the extent of 99.97 percent, which means the assessee on merits is eligible for deduction of these expenses from its income, what to talk of penalty under section 271(1)(c) of the Act. This case is not covered under any of the penalty provisions provided under section 271(1)(c) of the Act, it is very clear from the facts of the case itself. From the above facts, it is clear that it is not a case of concealment of income or furnishing of inaccurate particulars of income as the case may be because neither the AO nor CIT (A) has appreciated the facts of the case during penalty proceedings or during appellate proceedings. The meaning of the term “particulars” used in section 271 (1) (c) of the Act would embrace the details of the clam made. Where no information is given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing of inaccurate “particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provisions of section 271 (1) (c) of the Act, the penalty provisions cannot be invoked. The Revenue has wrongly invoked the provisions in the present case. The CIT (A) has misconstrued the facts of the case for the reason that he has not understood the American system of dates and for that purpose the entire matter went for a toss. In the given facts of the case, we are of the view that the penalty levied by AO and sustained by CIT (A) cannot be upheld and hence, the same is deleted.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15 /06/2016.