2023 (10) TMI 1243 - HC - Income Tax

Penalty u/s 271AA - failure to make disclosers as required u/s 92E - related party - shareholding structure of assessee - reasonable cause u/s 273B - HELD THAT - Tribunal, in our opinion, while examining the veracity of the view taken both by the AO and the CIT(A), has adopted the correct approach. A perusal of the chart would show that one of the joint venture partners i.e., SUCG, is controlled by the State Assets Supervision and Administration Commission SASAC . The record shows that SASAC holds 100% shares in SUCG. There is a downstream control by SASAC of SPMCECL.The record also shows that the two joint venture partners i.e., L T and SUCG holds shares in the ratio of 68 32 in SPMCECL. L T, thus, has a dominant control in the joint venture. Besides this, as to whether SPMCECL was a related party is an issue qua which there can possibly be more than one view. Assessee has taken a stand that the legal advice that it received seems to indicate that it was not a related party. CIT(A) has done its own analysis of the Chinese Law and concluded that it was a related party to the transaction and hence required disclosure. One can only say that insofar as Chinese Law is concerned, it is a matter of fact which could only be ascertained, at the very least, by having an expert in Chinese Law being produced as a witness. We agree with Mr Sethi that the reasonable cause defence which is statutorily ingrained in Section 273B of the Act, perhaps, is the basis of the conclusion reached by the Tribunal. Section 273B of the Act, which refers to various penalty provisions, including Section 271AA clearly provides that no penalty is imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions, if he proves there was a reasonable cause for the said failure. Tribunal, in our opinion, has taken recourse to the correct approach.

Summary

Issues involved:
1. Condonation of delay in re-filing the appeal.
2. Challenge to penalty order under Section 271AA of the Income Tax Act, 1961.

Issue 1: Condonation of delay in re-filing the appeal:
An application was filed seeking condonation of a 387-day delay in re-filing the appeal. The respondent did not oppose the application, and the delay was condoned. The application was disposed of accordingly.

Issue 2: Challenge to penalty order under Section 271AA of the Income Tax Act, 1961:
The appeal pertains to Assessment Year 2014-15 and challenges the penalty order passed by the Income Tax Appellate Tribunal. The key issue before the Tribunal was whether the penalty order should be sustained. The penalty was imposed on the respondent for failure to report a transaction and maintain records as required under Sections 92E and 92D of the Act.

The respondent, a joint venture between Larsen & Turbo and Shanghai Urban Construction Group, was awarded a construction contract. Despite additions to the declared income during scrutiny assessment, the Tribunal ruled in favor of the respondent regarding a specific transaction, leading to the deletion of an addition concerning the purchase of a tunnel-boring machine.

The Assessing Officer concluded that the respondent had not made required disclosures under Section 92E based on the shareholding structure. The Tribunal, after examining the AO and CIT(A)'s views, found the approach correct. The Tribunal's analysis of the shareholding structure and the nature of the joint venture partners supported its decision.

The issue of whether the entity involved in the transaction was a related party had differing views. The respondent argued it was not a related party based on legal advice, while the CIT(A) concluded otherwise. The Tribunal's decision seemed to consider the reasonable cause defense under Section 273B of the Act as a basis for its conclusion.

The High Court upheld the Tribunal's decision, finding no substantial question of law for consideration. The appeal was closed accordingly.