2010 (6) TMI 853 - AT - Income Tax

Summary

Issues Involved:
1. Penalty u/s 271(1)(c) of the Income Tax Act for assessment years 1989-90 and 1990-91.
2. Business connection and Permanent Establishment (PE) in India.
3. Furnishing of inaccurate particulars of income.

Summary:

1. Penalty u/s 271(1)(c) of the Income Tax Act:
The appeals were filed by the assessee against the order of the CIT(Appeals)-XXXI, Mumbai, which confirmed the penalty levied by the AO u/s 271(1)(c) of the Act for assessment years 1989-90 and 1990-91. The AO levied the penalty on the grounds that the appellant had a business connection in India and thus was liable to be taxed in India. The CIT(Appeals) upheld this penalty, relying on the Tribunal's decision on the merits.

2. Business Connection and Permanent Establishment (PE) in India:
The appellant, a foreign company, argued that no income accrued or arose in India and hence was not chargeable to tax. For the assessment year 1990-91, it was contended that the appellant did not have a PE in India under the DTAA between India and the Netherlands. The AO, however, taxed the income on the premise of a business connection in India and held AFL to be a PE of the appellant under the DTAA. The CIT(Appeals) initially held that there was no business connection or PE in India, but the Tribunal later held that the appellant had a business connection in India and that AFL was a PE of the appellant.

3. Furnishing of Inaccurate Particulars of Income:
The appellant disclosed all particulars in the return of income, and the AO did not point out any undisclosed material particulars. The Tribunal noted that the issue was debatable and referred to a Special Bench for adjudication, indicating a bona fide claim by the appellant. The Tribunal cited the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that making an incorrect claim in law does not amount to furnishing inaccurate particulars. The Tribunal concluded that no penalty could be levied as there was no concealment or furnishing of inaccurate particulars of income.

Conclusion:
The Tribunal allowed the appeals of the assessee, deleting the penalties for both assessment years, stating that merely making a bona fide claim, which the Revenue rejected on a different legal interpretation, does not attract penalty u/s 271(1)(c). The order was pronounced on June 25, 2010.