JDIT, NEW DELHI vs. M/S. VOITH SIEMENS HYDRO KRAFTWERSKETECHNIK GMBH & CO., KG, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “H”: NEW DELHI BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA Nos. 5075/Del/2011 (Assessment Year: 2004-05)

JDIT, Voith Siemens Hydro Intl Kraftwersketchnik Vs. Taxation, GombH & Co. KG, C/0. Circle-2(2), Mohinder Puri & Co., New Delhi 1A-D, Vandhana, 11 Tolstoy Marg, New Delhi PAN:AABCV9155B (Appellant) (Respondent)

Assessee by : Sh. Gaurav Dudeja, Sr. DR Respondent by : Sh.Rajan Bhatia, CA Sh. Ashok Khanna, CA

O R D E R PER PRASHANT MAHARISHI, A. M. This appeal preferred by the revenue against the order of the ld. 1. CIT (A)-XXIX, New Delhi dated 29.07.2011 for the Assessment Year 2004-05 deleting the penalty of Rs.36,07,868/- levied u/s 271(1)(c) of the Income Tax Act, 1961. The brief fact of the case is that the appellant company is 2. resident of Germany and is engaged in the business of supply of plant, equipment and related services for hydro power plant. JDIT V Voith Siemens Hydro Kraft Wersketechnik GmbH & co KG ITA no 5075/Dekl/2011 A Y 2004-05

Page 2 of 8 Appellant along with others was awarded contract for renovation and modernization of Hirakund Power House at Orissa. This contract was entered into vide 4th March 2002 and according to that contractor was required to supply material and rendered supervision services & training services. The appellant filed its return of income offering 10% of total amount of supply of material and equipment of Rs. 2,37,55,936/- i.e. Rs.23,75,590/- u/s 44BBB of the Act . Since According to AO the contract of the assessee did not satisfied conditions of contract mentioned u/s 44BBB of the ACT but only service contract, the benefit of section 44BBB was denied to the assessee. The AO further held that consideration received by the appellant on account of supervision and training charges is taxable @20 as per the provision of section 115A of the Act and Article 7 of DTAA between India and Germany. On appeal the learned Commissioner of Income-tax (Appeals) confirmed with respect to 20% income deduction u/s 115A of the Act received on account of supervision charges but the consideration received for training was held to be taxable at 10% as per Article 12(2) of Indo Germany DTAA. On Appeal ITAT also dismissed the appeal of the assessee preferred against the order of CIT (A). Therefore the view of the ld AO was concurrently accepted with respect to section 44BBB of the Act and partly on applicability of rate of tax on service contracts. In these background the penalty u/s 271(1)(c) was levied by order dated 25.03.2010. While levying the penalty ld AO disregard the contention of the assessee that there is no concealment of income and no inaccurate particulars of income were filed. Against the order of AO, assessee preferred an appeal before the learned Commissioner of Income-tax

Page 3 of 8 (Appeals), who deleted the penalty by holding that appellant has not concealed particulars of its income as well as not furnished any inaccurate particulars. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals) revenue is in appeal before us.

Before us the ld DR contended that addition has been confirmed 3. by the learned Commissioner of Income-tax (Appeals) and as well as ITAT where the finding of the AO has been confirmed therefore penalty is rightly levied.

Against this the ld AR submitted that merely because the addition 4. has been confirmed, the assessee cannot be subjected to penalty u/s 271(1)(c). For this he has relied upon the order of the learned Commissioner of Income-tax (Appeals) who has deleted the penalty after considering the decision of Hon’ble Supreme Court in the case of the CIT Vs. Reliance Petro Products (P) Ltd. 189 Taxmann 322(SC). Therefore he submitted that penalty cannot be levied in this case.

We have carefully considered the rival submission and perused 5. the order of assessment u/s 143(3) and subsequent orders of CIT (A) and ITAT where the quantum of addition has been discussed. We also perused the order of AO levying penalty u/s 271(1)(c) of Rs.36,07,868/-. The main reason given by the AO is that contract awarded to the assessee was not for civil construction, erection and plant and machinery and therefore the claim u/s 44BBB of the Act was incorrect. He was of the further view that the fees for supervision of erection, testing and commissioning of material

Page 4 of 8 were taxable u/s 44D on gross basis @20% u/s 115A of the Act. Therefore the assessee has furnished inaccurate particulars of income and penalty is leviable. Against this the learned Commissioner of Income-tax (Appeals) has held that the claim of the assessee has not been accepted because of legal interpretation of provision of statute and resulted into confirmation of additions. Admittedly assessee has placed on record the contract awarded to it of Orissa Hydro Power Corporation Ltd which was also for engineering, designing, supervision, commissioning etc. Therefore it cannot be said that claim of the assessee u/s 44BBB is false or malafide. Merely the claim of the assessee was rejected holding that this contract entered in to by the assessee does not satisfy the conditions u/s 44BBB of the Act, assessee cannot be said to have furnished inaccurate particulars of income. It is simply a matter of interpretation of that contract. It is established principle that merely because of the claim of the assessee did not find favour of the assessing authority , it cannot attract a provision of penalty u/s 271(1)(c) of the Act. Furthermore at the time of filing of return the assessee has put a note along with computation of income which fully disclosed the content of the agreement as well the contention of the assessee. In the note it is contended that the assessee satisfied the conditions laid down u/s 44BBB of the Act. Therefore there is adequate disclosure made by the assessee putting forth its contention. Therefore at the most claim of the assessee can be said to be incorrect but not false. Honourable supreme court in case of CIT V Reliance Petro products Private Limited 322 ITR 158 deleting the penalty u/s 271(1) (c) on incorrect claim has held that

Page 5 of 8 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 interest would amount to giving inaccurate Page No : 0164 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 paragraph 13 that (page 13 of 317 ITR) : "13. It goes without saying that for applicability of section 271(1)(c), conditions stated therein must exist." 9. Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff v. Joint CIT [2007] 6 SCC 329****, this court explained the terms "concealment of income" and "furnishing inaccurate particulars". The court went on to hold therein that in order to attract the penalty under section 271(1)(c), mens rea was necessary, as according to the court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that clause (iii) of section 271(1)(c) provided for a discretionary jurisdiction upon the assessing authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may

Page 6 of 8 not by itself be furnishing inaccurate particulars. It was further held that the Assessing Officer must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff v. Joint CIT* was upset. In Union of India v. Dharamendra Textile Processors**, after quoting from section 271 extensively and also considering section 271(1)(c), the court came to the conclusion that since section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The court went on to hold that the objective behind the enactment of section 271(1)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff v. Joint CIT was overruled by this court in Union of India v. Dharamendra Textile Processors2, was that according to this court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight of in the case of Dilip N. Shroff v. Joint CIT1. However, it must be pointed out that in Union of India v. Dharamendra Textile Processors**, no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint CIT*, where the court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Joint CIT1 to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff v. Joint CIT* was overruled. 10. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as : "not accurate, not exact or correct ; not according to truth ; erroneous ; as an inaccurate statement, copy or transcript." 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. 12. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore,

Page 7 of 8 reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect ; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms ; (i) an item of receipt may be suppressed fraudulently ; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. 13. In this behalf the observations of this court made in Sree Krishna Electricals v. State of Tamil Nadu [2009] 23 VST 249 as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings under the Tamil Nadu General Sales tax Act, the court had found that the authorities below had found that there were some incorrect statements made in the return. However, the said transactions were reflected in the accounts of the assessee. This court, therefore, observed (page 251) :

"So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities includes these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." 14. The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its return.”

In view of above facts and following the decision of honourable supreme court in case of CIT V Reliance Petroprodcuts Private Limited we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) for deleting the penalty of

Page 8 of 8 Rs. 36,07,868/- u/s 271(1)(c) of the Act. Therefore we confirm the order of the learned Commissioner of Income-tax (Appeals). In the result the appeal of the revenue is dismissed. 6. Order pronounced in the open court on 09.02.2016. -SD/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:09/02/2016 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi