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2025 (4) TMI 147 - AT - Income TaxLevy of penalty u/s 271(1)(c) - assessee receives payment from CSOD India towards the distribution of software to its Indian customers but assessee did not offer the said receipts to tax for the reason that according to the assessee the receipts do not fall within the definition of Royalty or FTS or Business profits as per the DTAA between India and UK - AO held that CSOD India is the DAPE of the assessee and accordingly attributed 80% of the receipts as taxable in India - DRP reduced the attribution to 30% and the assessee did not contend the attribution further in appeal -HELD THAT - Merely making a claim in the return of income which is not sustainable under the Act cannot amount to furnishing inaccurate particulars regarding the assessee s income and that mere non-acceptance of claim by the revenue cannot attract any penalty. In assessee s case the claim of the assessee that the receipts from CSOD India towards sale of software is not taxable in India is not accepted by the revenue and when we apply the above ratio of Apex Court the same cannot be the sole reason for levy of penalty. Further the assessee during the course of assessment has furnished all the details as has been called for with regard to the impugned receipts which substantiate the contention that there is no wilful intention to provide inaccurate particulars and that during assessment proceedings the assessee has fully cooperated. Thus AO is not correct in levying the penalty under section 271(1)(c) on the ground of furnishing inaccurate particulars whereas the assessee has merely made a claim which according to the revenue is not allowed. Accordingly we direct the AO to delete the penalty. Penalty proceedings u/s 270A on the ground that assessee has under reported income - AO treated the CSOD India as DAPE of the assessee and accordingly attributed 80% of the total receipts as income in the hands of the assessee taxable in India. The DRP reduced the attribution of income to 30% - HELD THAT - As decided in D.C.Polyester 2023 (10) TMI 971 - ITAT MUMBAI levy of penalty under section 270A is not automatic and that the AO s powers to levy penalty is discretionary. We have already quoted in the earlier part of this order the observations of Hindustan Steel Ltd 1969 (8) TMI 31 - SUPREME COURT that Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Further the assessee for the year under consideration has disclosed all the material facts and the AO/CIT(A) has not held that the explanation offered is not bonafide. Therefore we are of the view that the exception u/s 270A(6)(a) is applicable to assessee s case and accordingly we direct the AO delete the penalty levied.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in these appeals were:
ISSUE-WISE DETAILED ANALYSIS 1. Penalty under Section 271(1)(c) for AY 2015-16 and 2016-17 Relevant legal framework and precedents: Section 271(1)(c) of the Income Tax Act pertains to penalties for concealing income or furnishing inaccurate particulars of income. The Supreme Court's decision in CIT vs. Reliance Petro Products Ltd established that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. Court's interpretation and reasoning: The Tribunal relied on the Supreme Court's interpretation, emphasizing that for a penalty to be levied, there must be concealment or deliberate furnishing of inaccurate particulars. The Tribunal noted that the assessee had disclosed all relevant facts and that the dispute was merely over the legal interpretation of income characterization. Key evidence and findings: The assessee argued that the income from CSOD India was not taxable as royalty or fees for technical services under the India-UK DTAA. The Revenue's position was that CSOD India constituted a Dependent Agency Permanent Establishment (DAPE), attributing 30% of the income as taxable. Application of law to facts: The Tribunal found that the assessee had made all necessary disclosures and that the disagreement was over legal interpretation, not factual inaccuracy. Treatment of competing arguments: The Tribunal sided with the assessee, noting that the Revenue's position did not demonstrate any concealment or inaccurate particulars. Conclusions: The Tribunal directed the deletion of penalties under section 271(1)(c) for AY 2015-16 and 2016-17. 2. Penalty under Section 270A for AY 2017-18 to 2019-20 Relevant legal framework and precedents: Section 270A deals with penalties for under-reporting and misreporting of income. The Act provides exceptions where penalties are not applicable if the assessee's explanation is bona fide and all material facts are disclosed. Court's interpretation and reasoning: The Tribunal emphasized that the levy of penalty under section 270A is discretionary and not automatic. The Tribunal found that the assessee's explanations were bona fide, and all material facts had been disclosed. Key evidence and findings: The assessee provided comprehensive documentation and explanations regarding the nature and taxability of its transactions. The Revenue's attribution of income was based on a different legal interpretation rather than an omission or misreporting by the assessee. Application of law to facts: The Tribunal applied the exceptions under section 270A(6)(a), finding that the assessee's disclosures and explanations were adequate and bona fide. Treatment of competing arguments: The Tribunal rejected the Revenue's argument for penalties, noting the absence of any concealment or misreporting by the assessee. Conclusions: The Tribunal directed the deletion of penalties under section 270A for AY 2017-18 to 2019-20. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: "A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee." Core principles established: The Tribunal reaffirmed that penalties for inaccurate particulars or under-reporting require evidence of concealment or misreporting, not merely a legal disagreement over income characterization. Final determinations on each issue: The Tribunal allowed the appeals for all assessment years, directing the deletion of penalties levied under sections 271(1)(c) and 270A.
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