2019 (3) TMI 134 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee has not disclosed full material facts regarding the issue of Permanent Establishment (PE) in India attributable to the activities carried out from this PE and has thereby concealed the particulars of its income - HELD THAT - Undisputedly assessment orders framed by the AO have been upheld by the CIT (A) as well as by the Tribunal who have held that GE Overseas entities have PEs in various forms and these are fixed place PE Office PE construction PE and agency PE and in case of oil and gas business involves in installation and commissioning would also constitute construction PE and since the assessee has earned global profit of 10% on the sales made to the customer in India the income chargeable to tax as attributable to the PE was computed at 3.5% of the sales made. The question as to whether the assessee is having fixed place PE in India is debatable one and in these circumstances penalty levied by the AO is not sustainable in the eyes of law. Identical issue has been decided in favour of the assessee. Since substantial question of law has been framed by Hon ble High Court on the issue if the assessee is having fixed place PE in India which is the basis of levying/confirming the penalty u/s 271(1)(c) the issue becomes debatable hence penalty u/s 271(1)(c) is not leviable. - Decided in favour of assessee.

Summary

Issues involved:
1. Penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2002-03.
2. Penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2008-09.

Analysis:

Issue 1: Penalty levied under Section 271(1)(c) for Assessment Year 2002-03
The appellant, M/s. GE Engine Services Malaysia SDN BHD, appealed the order passed by the Ld. CIT (Appeals)-42, New Delhi, seeking to set aside the penalty of &8377; 17,32,920/- imposed under Section 271(1)(c) of the Act. The appellant contended that the penalty order was passed beyond the prescribed limitation period under Section 275(1)(a) of the Act. The CIT(A) was criticized for not specifying whether the penalty was for concealment of income or furnishing inaccurate particulars. The appellant argued that complete disclosure was made in the return of income notes. Additionally, the CIT(A) was faulted for upholding the penalty without considering precedents where penalties were deleted in similar cases. The High Court's admission of the appeal on the existence of a permanent establishment raised a debatable issue, rendering the penalty unjustified. The Tribunal noted that the issue of a fixed place PE in India was debatable, making the penalty unsustainable.

Issue 2: Penalty levied under Section 271(1)(c) for Assessment Year 2008-09
Similarly, in the case of M/s. GE Engine Services LLC, the penalty of &8377; 26,35,620/- under Section 271(1)(c) was challenged. The grounds for appeal mirrored those in the previous case, emphasizing the lack of jurisdiction, the absence of specified reasons for penalty initiation, and the debatable nature of the permanent establishment issue. The Tribunal highlighted that the High Court's framing of substantial questions of law regarding the fixed place PE in India indicated a debatable matter, leading to the deletion of the imposed penalties.

In both cases, the Tribunal found that the penalties were not sustainable due to the debatable nature of the permanent establishment issue, as acknowledged by the Hon'ble High Court. Therefore, the penalties of &8377; 17,32,920/- and &8377; 26,35,620/- for Assessment Years 2002-03 and 2008-09, respectively, were ordered to be deleted, and the appeals filed by the assessee were allowed.

This detailed analysis of the judgment provides insights into the issues raised, the arguments presented, and the Tribunal's decision based on the debatable nature of the permanent establishment matter.