2015 (7) TMI 409 - HC - Income Tax

Levy of penalty on addition made u/s 40(a)(ia) - Non deduction of TDS on payment for technical services received from singapore - Penalty for concealment of income and furnishing of inaccurate particulars of income u/s 271(1)(c) of the Act - Held that - It is well settled principle that penalty proceedings are quite different from the assessment proceedings. It is by now well settled that levy of penalty is not automatic if the addition/disallowance is sustained by the appellate authorities. The ingredients of the provisions of Section 271(1)(c) are to be satisfied for levying the penalty. It is no doubt true that the payment made by the respondent-assessee to M/s. Filtrex Holdings Pte. Ltd., Singapore, was liable for deduction of tax at source. It is also not in dispute that such amount of tax was not deducted at source in respect of the payment made to M/s. Filtrex Holdings Pte. Ltd., Singapore. It appears that there was genuine confusion on the question as to whether the payment made to a foreign party was liable for levying tax in India or not. The Chartered Accountant has given a certificate to the effect that the assessee is not required to deduct tax at source while making the payment to M/s. Filtrex Holding Pte. Ltd., Singapore. Thus, the assessee acted on the basis of the certificate issued by the expert.The assessee has filed Form 3CD along with the return of income in which the Chartered Accountant has not reported any violation by the assessee under Chapter XVII B which would attract disallowance under Section 40(a)(ia) of the Act. Refer case Dilip N.Shroff vs. Joint Commissioner of Income Tax & another 2007 (5) TMI 198 - SUPREME Court . - Decided against the revenue.

Summary

Issues:
1. Disallowance of payment for technical services under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Initiation of penalty proceedings under Section 271(1)(c) of the Act for alleged concealment of income.
3. Assessment of whether the disallowance made by the Assessing Officer amounts to concealment of income.
4. Determination of whether the respondent-assessee furnished inaccurate particulars of income.
5. Application of penalty under Section 271(1)(c) in the case.

Analysis:
1. The respondent-assessee, engaged in manufacturing carbon blocks, filed its income tax return for the assessment year 2006-07, declaring income at Rs. 40,22,030. The Assessing Officer determined total income at Rs. 1,77,14,890, including a payment of Rs. 79,98,870 for technical services to a foreign entity. Disallowances under Section 40(a)(ia) were contested by the assessee, leading to penalty proceedings initiated by the Assessing Officer under Section 271(1)(c) of the Act.

2. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal concluded that the respondent did not furnish inaccurate particulars of income. They found that the failure to deduct tax on the payment was a genuine mistake, not warranting a penalty under Section 271(1)(c). The genuineness of the payment was upheld, and the authorities determined that the respondent neither concealed income nor provided inaccurate particulars.

3. The question of whether the disallowance of Rs. 79,98,870 by the Assessing Officer constituted concealment of income under Section 271(1)(c) was addressed in favor of the assessee by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. Both authorities found no grounds for penalty imposition based on the facts presented.

4. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and require specific conditions under Section 271(1)(c) to be met. The respondent relied on a certificate from a Chartered Accountant regarding tax deductions, which was considered a valid explanation for the non-deduction of tax on the payment. The Tribunal and the Commissioner of Income Tax (Appeals) concurred that no deliberate concealment or furnishing of inaccurate particulars occurred.

5. Citing the case of Dilip N. Shroff vs. Joint Commissioner of Income Tax, the Tribunal highlighted that acting on expert advice, as in the case of the Chartered Accountant's certificate, does not constitute furnishing inaccurate particulars under Section 271(1)(c). The respondent's submission of Form 3CD without any reported violations further supported the conclusion that no penalty was warranted. Ultimately, the Tribunal found no substantial question of law justifying interference with the impugned order.

In conclusion, the appeals challenging the Income Tax Appellate Tribunal's decision were dismissed, affirming that the respondent did not engage in concealment of income or furnish inaccurate particulars, and penalty imposition was unwarranted in this case.