2019 (12) TMI 1039 - AT - Income Tax

Penalty levied u/s 271(1)(c) - provision for bonus claimed u/s 43B - HELD THAT - Profit includes profit from Sri Lanka branch as well. Thereafter, the assessee has reduced the profits losses of the overseas branch at Sri Lanka and Bangladesh, respectively. The assessee is that the assessee was under bona-fide belief that the profits of the overseas branches are taxable in the host country as the assessee is having permanent establishment in the said country. This belief of the assessee is further substantiated by the fact that the assessee has offered income from said overseas branch to tax in the host country. The DRP has given benefit of the tax credit to the assessee for the taxes paid overseas. Whether the profits of foreign branch are liable to be taxed in India is debatable - We find that in the case of DCIT vs. Essar Oil Ltd. 2011 (8) TMI 428 - ITAT MUMBAI , the Tribunal has held that income from overseas branch is taxable in the country where branch is established. In the immediately succeeding assessment year, the Co-ordinate Bench of Tribunal in the case of very same assessee i.e. Essar Oil Ltd. vs. Addl. CIT (supra) has held that the profits of overseas branch are taxable in India. These two divergent views by two different benches of the Tribunal has made the issue debatable. The matter has travelled to the Hon ble Bombay High Court 2016 (12) TMI 1802 - BOMBAY HIGH COURT as admitted substantial question of law on the issue of place of taxability of profits earned by the overseas. It is a trait law that where the issue is debatable no penalty under section 271(1)(c) is leviable. We further observe that the assessee in computation of income has already disclosed profits of Sri Lanka branch though, the same were subsequently reduced from the total taxable income by the assessee. Merely for the reason that the claim made by the assessee under bona-fide belief is not accepted by the Department penalty under section 271(1)(c) of the Act cannot be levied. Our this view is fortified by the decision rendered in the case of CIT vs. Reliance Petroproducts Ltd. ( 2010 (3) TMI 80 - SUPREME COURT ) . It is not a fit case for levy of penalty under section 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of provision for bonus under section 43B of the Income Tax Act, 1961.
2. Addition of profits of overseas branch at Sri Lanka.
3. Penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of income.

Analysis:
1. The Revenue's appeal challenged the deletion of penalty under section 271(1)(c) for disallowance of provision for bonus. The CIT(A) relied on a previous Tribunal decision in the assessee's favor for the assessment year 2001-02. The ITAT found no change in facts to warrant interference, dismissing the Revenue's appeal due to lack of merit. Additionally, the tax effect was below the prescribed limit, leading to the dismissal of the appeal on this ground as well.

2. The assessee's appeal contested the penalty under section 271(1)(c) for not disclosing profits from the Sri Lanka branch. The assessee argued that the profits were disclosed in the computation of income and believed they were taxable in Sri Lanka, where the branch was established. Citing debatable issues and legal precedents, the ITAT found in favor of the assessee. The Tribunal held that the issue of taxability of overseas branch profits was debatable, as evidenced by conflicting Tribunal decisions and a pending High Court case. The ITAT concluded that no penalty was warranted under section 271(1)(c) due to the bona fide belief of the assessee and allowed the appeal.

3. In conclusion, the ITAT upheld the CIT(A)'s decision to dismiss the Revenue's appeal regarding the provision for bonus disallowance and allowed the assessee's appeal regarding the non-disclosure of profits from the Sri Lanka branch. The penalty under section 271(1)(c) was deleted for the assessee, emphasizing the debatable nature of the tax issue. The judgments were pronounced on December 20, 2019, with the appeal of the Revenue dismissed and that of the assessee allowed.