Penalty under Section 271(1)(c) unsustainable in the absence of income concealment or false information provided
Fact and issue of the case
Following substantial questions of law are framed:
(a) Whether in the facts and circumstances of the case, the learned ITAT has erred in setting aside the findings of the CIT(A) and directing the Assessing Officer to delete the penalty u/s. 271(1)(c) of the Income Tax Ac, 1961 levied by him?
(b) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in taking view that there is no furnishing of any inaccurate particulars of income by assessee when assessee had made adequate disclosure of all material facts in Form 3CEB, TPSR and also during TP assessment and scrutiny assessment when substantial proceedings addition/adjustment was confirmed by ITAT?
(c) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in holding that Explanation 7 to Sec. 271(1)(c) of the Income Tax Act cannot be invoked while levying penalty in relation to the transfer pricing adjustment when the said explanation was neither referred to nor relied upon at the time of initiation of penalty proceedings under the Act?
(d) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in holding that “Base Erosion” is a debatable issue when Kolkata Special Bench of ITAT and Ahmedabad ITAT itself has already taken a view against the appellant on the same issue in assessee’s own case?
(e) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in holding that reimbursement of expenses does not qualify as FTS and hence no penalty can be levied u/s. 271(1)(c) of the Act on such expenses?”
The respondent assessee company is a Foreign Company registered in Netherlands, deriving income from Royalties or fees for technical services. A return of income of Rs.9,19,53,530/- was filed. Audit Report under Section 92E relating to international transactions for 3CEB was filed. The case was selected for scrutiny and a notice under Section 143(2) of the Act was issued on 22.09.2010. On verification of Form 3CEB, it was noticed that the assessee company had entered into international transactions. The case of the assessee was referred to the Transfer Pricing Officer vide letter dated 15.11.2010 for determination of Arm’s length price of the international transactions. A draft order was passed under Section 144C(1) and the assessee made objections before the Dispute Resolution Panel. The DRP vide order dated 31.08.2012 issued directions under Section 144C(5) of the Act. A reference was made under Section 92CA(1) of the Income Tax Act to the Transfer Pricing Officer who passed an order on 10.10.2011 making an upward adjustment of Rs.29,43,61,998/- on account of variations in service charges. The upward total adjustment by way of an order under Section 92CA(3) of Rs.29,43,61,998/- was made as above. By assessment order dated 25.10.2012 penalty proceedings were also proposed to be initiated under Section 271(1)(C) for furnishing inaccurate particulars of income and thereby concealing income. The assessment order was under challenge before the ITAT which dismissed the appeal and the assessee is in appeal before the High Court in Tax Appeals on quantum which are admitted and pending for final hearing.
Observation of the court
The issue pertains to penalty imposed by the Assessing Officer against the respondent-assessee. The Tribunal, by the impugned order, confirmed the view of the CIT(Appeals) deleting the penalty. The Tribunal, of course, cited the sole reason of the quantum additions being deleted for confirming the view of the CIT (Appeals). Learned counsel for the Revenue, therefore, would be correct in pointing out that when the Revenue has, challenged the judgment of the Tribunal concerning the quantum additions which appeal is pending before the High Court, the question of penalty should normally be further examined. However, for reasons entirely different from those recorded by the Tribunal it may be possible to confirm the order of the CIT (Appeals) deleting the penalty. This is so because the very issue on which the Assessing Officer had initiated proceedings and ultimately imposed the penalty proceedings for and ultimately imposed penalty was a highly debatable legal issue as can be seen from the Tribunal’s following observations in the judgement considering the quantum additions:
We have considered the rival submissions and perused the material available on record and the paper book containing 1 to 149 pages filed by the assessee. From the facts of the case it is evidence that the grouse of the learned AO for denying exemption u/s. 54 of the Act was due to the following three reasons:
(1) the asset which is the subject matter of transfer belonged to the assets of Late Shri Prabhashankar Patni which is separate assessable entity and not the assessee.
(2) The asset which is the subject matter of transfer is predominantly is a case of transfer of land and the same cannot be treated as transfer of building with land appurtenant thereto as envisaged u/s. 54 of the Act. (3) The subject matter of assets being transferred was converted to commercial asset and no more remained as house property as defined u/s. 22 of the Act.”
Thus, the Tribunal outlined three objections of the Revenue against granting the exemption to the assessee under section 54 of the Income Tax Act. The Tribunal thereafter proceeded to deal with each one of them threadbare and overruling each of the Revenue’s objections. There is no element of any suppression on part of the assessee of material facts. The assessee had neither withheld the source of income nor provide accurate particulars about the income.
Under the circumstances, tax appeal is dismissed.”
For the aforesaid reasons therefore the appeals deserve to be dismissed as no questions of law much less substantial questions of law are involved.
In the result, appeals are dismissed.
Read the full order from hereCIT-Vs-Shell-Global-Solutions-International-B.V.-Gujarat-High-Court2