2016 (6) TMI 729 - AT - Income Tax

Levy of penalty by the AO u/s 271(1) (c) - claim of deduction for expenditure incurred in respect of seconded employees under the Management Provision Agreement (MPA) - Held that - We find that the assessee has filed details to the extent of 99.97 percent, which means the assessee on merits is eligible for deduction of these expenses from its income, what to talk of penalty under section 271(1)(c) of the Act. This case is not covered under any of the penalty provisions provided under section 271(1)(c) of the Act, it is very clear from the facts of the case itself. From the above facts, it is clear that it is not a case of concealment of income or furnishing of inaccurate particulars of income as the case may be because neither the AO nor CIT (A) has appreciated the facts of the case during penalty proceedings or during appellate proceedings. The meaning of the term particulars used in section 271 (1) (c) of the Act would embrace the details of the clam made. Where no information is given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing of inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provisions of section 271 (1) (c) of the Act, the penalty provisions cannot be invoked. The Revenue has wrongly invoked the provisions in the present case. The CIT (A) has misconstrued the facts of the case for the reason that he has not understood the American system of dates and for that purpose the entire matter went for a toss. In the given facts of the case, we are of the view that the penalty levied by AO and sustained by CIT (A) cannot be upheld and hence, the same is deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Legitimacy of penalty under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income.
2. Validity of evidence submitted during penalty and appellate proceedings.
3. Interpretation of dates in American format.
4. Consideration of additional evidence in penalty proceedings.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in this appeal is whether the assessee furnished inaccurate particulars of income, justifying the penalty under section 271(1)(c) of the Income Tax Act. The assessee, a Foreign Company incorporated in the USA, entered into a Management Provision Agreement (MPA) with General Motors India Ltd. (GMIL). The AO treated certain unsubstantiated expenses as business profit and initiated penalty proceedings. The CIT (A) confirmed the penalty, stating that the assessee had not declared income to the extent of USD 150,619.75 in the return of income. The Tribunal, however, found that the assessee had provided substantial evidence for the expenses and that the penalty provisions were wrongly invoked.

2. Validity of Evidence Submitted During Penalty and Appellate Proceedings:
During the penalty proceedings, the assessee submitted additional details of expenses, which the AO refused to consider, stating it was difficult to do so at that stage. The CIT (A) also forwarded these additional evidences to the AO for comments, who negated the claim. The Tribunal noted that the assessee had submitted substantial evidence (99.97% of the claim) and that the CIT (A) and AO failed to appreciate these facts. The Tribunal concluded that the assessee was eligible for the deduction of these expenses and that the penalty for furnishing inaccurate particulars of income was not justified.

3. Interpretation of Dates in American Format:
The CIT (A) had rejected an invoice on the grounds that it was dated 03-09-2001, whereas the accounting period closed on 31-03-2001. The assessee clarified that the invoice was in American format (MM/DD/YY) and was actually dated 9th March 2001. The Tribunal found that the CIT (A) failed to appreciate this format, leading to a misunderstanding of the facts.

4. Consideration of Additional Evidence in Penalty Proceedings:
The Tribunal observed that the additional evidence submitted during penalty proceedings should have been examined in the interest of justice. The AO's remand report indicated that a notice issued under section 133(6) of the Act was returned un-served, but the Tribunal noted that the notice was sent to an incorrect address. The Tribunal emphasized that the assessee had provided substantial evidence and that the penalty provisions could not be invoked in this case.

Conclusion:
The Tribunal concluded that the penalty levied by the AO and sustained by the CIT (A) could not be upheld. The assessee had provided substantial evidence for the expenses claimed, and the misunderstanding regarding the American date format led to an incorrect conclusion. The Tribunal deleted the penalty, allowing the appeal of the assessee.