2015 (3) TMI 975 - AT - Income Tax

Penalty under section 271(1)(c) - additions made on account Offshore supply of equipment - CIT(A) deleted the levy - Held that - So far as the penalty levied on the addition made on account of offshore supply of equipment is concern, the addition has been finally deleted by the Tribunal vide order 2010 (9) TMI 624 - ITAT, DELHI Similarly the Tribunal has also deleted the addition made on account of income from foreign exchange fluctuation gain. Thus there is no question of levy of penalty under section 271(1)(c) of the Act on these additions - Decided against revenue. Penalty levied on the addition made on account of onshore supply of equipment is concerned, the assessee had offered the income from onshore supply and other contract receipts to tax on the basis of the audited books of account as maintained by them. The Assessing Officer was of the opinion that there was various discrepancies in the books of account maintained by the assessee and accordingly the books were rejected under section 145 of the Act and the income from the above activity was estimated by the Assessing Officer by applying 8 per cent. profit rate on the gross receipts from this activity. Since the assessee had claimed loss which it was not able to justify, therefore, the Assessing Officer held that the assessee had furnished inaccurate particulars of income and has levied penalty. The Assessing Officer has not given reason for applying 8 per cent. rate. Of course, there is no finding beyond doubt by the Assessing Officer that any false claim was made by the assessee and there is no dispute that income from onshore supply and other contract receipts has been estimated by the Assessing Officer after rejection of books of account under section 145 of the Act. The estimation of income in this regard has also been made on the basis of the disclosure made by the assessee. It is now a well-established proposition of law that penalty under section 271(1)(c) of the Act cannot be levied on an estimated income. See CIT v. K. L. Mangal Sain 1974 (5) TMI 6 - ALLAHABAD High Court - CIT(A) correctly deleted penalty.- Decided against revenue. Penalty levied on addition made on account of income from fee for design and engineering under section 115A is concerned there is no reason to doubt the submission of the assessee that the assessee had a bona fide basis and reasoning regarding the manner of taxability of income on account of design and engineering fees on net income basis nor is there any dispute regarding this material fact that all the facts necessary for the computation of income were duly disclosed by the assessee. We thus find that the dispute is limited to the manner of computing taxability of such income only about which the assessee was having a bona fide belief as discussed above. Considering these facts in totality we are of the view, that the learned Commissioner of Income-tax (Appeals) has rightly deleted the penalty levied on the addition made on account of income from fee for design and engineering under section 115A of the Act. - CIT(A) correctly deleted penalty - Decided against revenue.

Summary

Issues Involved:
1. Deletion of penalty under section 271(1)(c) of the Income-tax Act.
2. Taxability of offshore supply of equipment.
3. Taxability of onshore supply and contract receipts.
4. Taxability of fees for design and engineering services.
5. Taxability of foreign exchange fluctuation gain.
6. Assessment of interest income.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income-tax Act:
The Revenue challenged the deletion of a penalty amounting to Rs. 73,35,800 by the Commissioner of Income-tax (Appeals). The Tribunal considered the arguments, the material on record, and relevant decisions. The penalty was initially levied for furnishing inaccurate particulars of income. The Tribunal found that the penalty could not be sustained on debatable issues, estimated additions, or when the books were rejected, and the income was assessed at a lower amount than returned. The Tribunal upheld the deletion of the penalty, emphasizing that there was no fraudulent or grossly negligent behavior by the assessee.

2. Taxability of Offshore Supply of Equipment:
The assessee, Technip, did not offer revenue from offshore supply of equipment to tax in India. The Assessing Officer (AO) considered this revenue taxable and estimated the income at 10% of the receipts. The Tribunal, however, set aside this addition and ultimately deleted it, concluding that the offshore supply was not taxable in India.

3. Taxability of Onshore Supply and Contract Receipts:
The assessee offered revenue from onshore supply and contract receipts as business income based on audited accounts. The AO taxed this revenue on a gross basis at 20% under section 115A. The Tribunal confirmed this addition. However, the penalty for this addition was deleted by the Tribunal, noting that the income was estimated after rejecting the books of account, and there was no conclusive evidence of inaccurate particulars.

4. Taxability of Fees for Design and Engineering Services:
The assessee offered this revenue as business income based on audited accounts. The AO added this income separately, considering it taxable under section 115A at 20%. The Tribunal confirmed the addition but deleted the penalty, noting that the issue was debatable, and the assessee had a bona fide belief regarding its taxability. The Tribunal cited several decisions supporting that penalty cannot be levied on debatable issues or where the explanation is bona fide.

5. Taxability of Foreign Exchange Fluctuation Gain:
The assessee credited this income in its profit and loss account. The AO did not make any specific addition for this income. The Tribunal deleted any penalty related to this income, as the addition itself was not sustained.

6. Assessment of Interest Income:
The assessee credited this income in its profit and loss account. The AO assessed it as income from other sources. The Tribunal did not specifically address this in the context of penalty, implying no penalty was levied or contested for this item.

Conclusion:
The Tribunal upheld the deletion of the penalty under section 271(1)(c) of the Act, emphasizing that penalties cannot be imposed on debatable issues, estimated additions, or where the assessee's explanation is bona fide. The appeal by the Revenue was dismissed.