2021 (5) TMI 938 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of professional fees for non-deduction of TDS - HELD THAT - Expenses disallowed u/s 40(a)(i) on account of non withholding of taxes was subject to payments made to vendors based in Thailand who are in the business of providing movers and packers Services to its client. This was in relation to the expats transfer movement. The service related to Movers and Packers cannot be characterized as royalty income in the hands of those vendors under the provisions of India Thailand DTAA and the same does not quality as technical service as it does not include the element of technical services relating to FTS. The tax relating to Section 40(a)(i) will not be applicable in assessee s case and is a contesting issue. Merely not filing appeal on the contesting issues does not tantamount to concealment of income and furnishing inaccurate particulars of income. These two elements along with Explanation 1 of Section 271(1)(c) are not present in assessee s case for imposing penalty or initiating penalty proceedings. As related to payment made to control risk, the same also does not impugned to FTS as per the provisions of Article 12(4) of India Singapore DTAA as the same does not result in making available technical knowhow to the recipient. Thus, these two elements upon which the penalty has been imposed by the Revenue Assessment Year contesting in nature and the assessee though has not opted for any appeal, it cannot be stated that these are the element of concealment of income and furnishing of inaccurate particulars. The case laws given by the assessee are clearly applicable in assessee s case specially that of Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT . Hence we delete the penalty and allow the appeal of the assessee.

Summary

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.
2. Disallowance under section 40(a)(i) for non-deduction of tax at source.
3. Non-filing of appeal against CIT(A)'s order and its implications.
4. Applicability of Explanation 1 to section 271(1)(c) regarding concealment of income or furnishing inaccurate particulars.
5. Interpretation of provisions of the Income Tax Act and DTAA.

Detailed Analysis:

Issue 1: Confirmation of Penalty under Section 271(1)(c)
The assessee contested the penalty of ?10,49,995 levied by the Assessing Officer (AO) under section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars. The Tribunal emphasized that for invoking Section 271(1)(c), it must be established that there was concealment of income or furnishing of inaccurate particulars. The Tribunal found that the penalty was based on disallowances under section 40(a)(i), which involve interpretation of the Income Tax Act and DTAA provisions. The Tribunal concluded that the mere rejection of the assessee's claim does not amount to furnishing inaccurate particulars or concealment of income.

Issue 2: Disallowance under Section 40(a)(i) for Non-Deduction of Tax at Source
The disallowance was related to payments made for due diligence services and relocation expenses to non-residents. The assessee argued that these payments were not taxable in India and hence, no tax was required to be deducted under section 195. The Tribunal noted that the issue of taxability involves interpretation of the Act and DTAA, and merely because the assessee did not appeal against the CIT(A)'s quantum order does not imply acceptance of liability. The Tribunal referred to the Delhi High Court's decision in CIT v. AT & T Communication Services India (P.) Ltd., which held that disallowance under section 40(a)(i) does not automatically result in penalty under section 271(1)(c).

Issue 3: Non-Filing of Appeal Against CIT(A)'s Order
The CIT(A) had upheld certain disallowances, and the assessee did not file an appeal against this order. The Tribunal clarified that non-filing of an appeal should not be construed as acceptance of liability for the purpose of penalty. The Tribunal cited various judicial precedents, including CIT vs. Asian Hotels Ltd., which support the view that non-filing of an appeal does not automatically lead to penalty.

Issue 4: Applicability of Explanation 1 to Section 271(1)(c)
Explanation 1 to Section 271(1)(c) deems concealment of income if the assessee fails to offer an explanation or if the explanation is found to be false. The Tribunal observed that the assessee had furnished complete details and offered a bona fide explanation during the assessment proceedings. The Tribunal emphasized that the mere rejection of the explanation does not attract penalty under Explanation 1, especially when the issue involves debatable questions of law.

Issue 5: Interpretation of Provisions of the Income Tax Act and DTAA
The Tribunal highlighted that the disallowances under section 40(a)(i) were based on the interpretation of the Income Tax Act and DTAA between India and Singapore. The Tribunal noted that the payments made for due diligence services and relocation expenses did not qualify as Fees for Technical Services (FTS) under the DTAA, and hence, no tax was required to be deducted. The Tribunal concluded that the disallowances were a result of differing interpretations and not due to concealment or furnishing inaccurate particulars.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the penalty under section 271(1)(c) was not justified as there was no concealment of income or furnishing of inaccurate particulars. The Tribunal emphasized that the disallowances were based on interpretative issues and the mere non-filing of an appeal does not warrant penalty. The Tribunal deleted the penalty and ruled in favor of the assessee.