2016 (3) TMI 504 - AT - Income Tax

Penalty u/s 271(1)(c) - inaccurate particulars of income - 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 and also the fees for supervision of erection, testing and commissioning of material were taxable u/s 44D on gross basis @20% u/s 115A - 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. See CIT V Reliance Petro products Private Limited 2010 (3) TMI 80 - SUPREME COURT wherein held a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.- Decided in favour of assessee

Summary

Issues Involved:
1. Legitimacy of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Interpretation of contract under Section 44BBB of the Income Tax Act.
3. Applicability of tax rates under Section 115A and Article 7 of the DTAA between India and Germany.
4. Whether the assessee furnished inaccurate particulars of income.

Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c):
The appeal was preferred by the revenue against the order of the CIT (A) deleting the penalty of Rs. 36,07,868/- levied under Section 271(1)(c) of the Income Tax Act, 1961. The AO had levied the penalty on the grounds that the assessee furnished inaccurate particulars of income by making an incorrect claim under Section 44BBB. The CIT (A) deleted the penalty, holding that the assessee did not conceal particulars of its income nor furnished inaccurate particulars. The ITAT upheld the CIT (A)'s decision, referencing the Supreme Court's judgment in CIT Vs. Reliance Petro Products (P) Ltd., which stated that merely making an incorrect claim does not amount to furnishing inaccurate particulars of income.

2. Interpretation of Contract under Section 44BBB:
The appellant, a resident of Germany, engaged in the business of supplying plant, equipment, and related services for hydro power plants, was awarded a contract for the renovation and modernization of Hirakund Power House in Orissa. The contract required the supply of material, supervision services, and training services. The assessee filed its return under Section 44BBB, offering 10% of the total amount of supply of material and equipment. The AO denied the benefit of Section 44BBB, treating the contract as a service contract and not satisfying the conditions of Section 44BBB.

3. Applicability of Tax Rates under Section 115A and Article 7 of DTAA:
The AO held that the consideration received for supervision and training charges was taxable at 20% under Section 115A and Article 7 of the DTAA between India and Germany. The CIT (A) upheld the AO's decision regarding the 20% tax on supervision charges but held that the consideration for training was taxable at 10% as per Article 12(2) of the DTAA. The ITAT dismissed the assessee's appeal, agreeing with the AO and CIT (A) on the tax rates applicable to the service contracts.

4. Furnishing Inaccurate Particulars of Income:
The AO argued that the assessee furnished inaccurate particulars of income by claiming benefits under Section 44BBB, which were not applicable. The CIT (A) and ITAT found that the assessee had disclosed all relevant details and the claim under Section 44BBB was a matter of legal interpretation. The Supreme Court in CIT V Reliance Petro Products held that making an incorrect claim does not amount to furnishing inaccurate particulars if the details provided are not found to be false. The ITAT concluded that the assessee did not furnish inaccurate particulars, and the penalty under Section 271(1)(c) was not justified.

Conclusion:
The ITAT upheld the CIT (A)'s order deleting the penalty of Rs. 36,07,868/- under Section 271(1)(c), concluding that the assessee did not conceal income or furnish inaccurate particulars. The appeal of the revenue was dismissed, and the order was pronounced in the open court on 09.02.2016.