2019 (3) TMI 69 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee having fixed place PE in India - HELD THAT - GE Overseas entities have PEs in various forms and these are fixed place PE, Office PE, construction PE and agency PE and in case of oil and gas business, involves in installation and commissioning would also constitute construction PE and since the assessee has earned global profit of 10% on the sales made to the customer in India, the income chargeable to tax as attributable to the PE was computed at 3.5% of the sales made. The question as to whether the assessee is having fixed place PE in India is debatable one and in these circumstances, penalty levied by the AO is not sustainable in the eyes of law. Since substantial question of law has been framed by Hon ble High Court on the issue if the assessee is having fixed place PE in India, which is the basis of levying/confirming the penalty u/s 271(1)(c) of the Act, the issue becomes debatable, hence penalty u/s 271(1)(c) is not leviable. See CIT-II vs. Liquid Investment and Trading Co. 2010 (10) TMI 1021 - DELHI HIGH COURT . - Decided in favour of assessee.

Summary

Issues:
- Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961 by the Commissioner of Income-tax (Appeals) in various assessment years.
- Allegations of concealment of income and furnishing inaccurate particulars of income.
- Applicability of penalty in cases where the existence of a permanent establishment is debatable.
- Jurisdiction of the Assessing Officer in passing penalty orders beyond the prescribed limitation period.

Analysis:

In a series of appeals before the Appellate Tribunal ITAT DELHI, the issue revolved around the confirmation of penalties under Section 271(1)(c) of the Income Tax Act, 1961 by the Commissioner of Income-tax (Appeals) for different assessment years. The appellants, GE Energy Parts Inc., GE Wind Energy Gmbh, and GE Transportation Parts LLC, contested the penalties imposed by the Assessing Officer, alleging concealment of income and furnishing inaccurate particulars of income. The appeals highlighted common grounds challenging the penalty orders, including contentions regarding the initiation of penalties without specifying the nature of the violation, the complete disclosure of income particulars by the appellants, and the deletion of penalties in similar cases.

The Assessing Officer had initiated penalty proceedings based on the alleged non-disclosure of material facts related to Permanent Establishments (PE) in India by the appellants. The penalties were imposed at varying amounts for different assessment years. The Commissioner of Income-tax (Appeals) upheld the penalties, leading the appellants to approach the Tribunal seeking relief. The Tribunal reviewed the facts, orders, and contentions presented by both parties. It was established that the overseas entities of GE had PEs in various forms, including fixed place PE, Office PE, construction PE, and agency PE. The Tribunal affirmed the findings that the appellants' profits attributable to their Indian operations were chargeable to tax.

However, the Hon'ble Delhi High Court had framed substantial questions of law regarding the existence of fixed place PEs in India in a separate batch of petitions. The High Court's acknowledgment of the debatable nature of this issue rendered the penalties imposed by the Assessing Officer unsustainable in law. Citing a precedent where penalties were set aside due to the debatable nature of an issue, the Tribunal concluded that the penalties levied on the appellants were not justifiable. Consequently, the penalties imposed in the respective assessment years were ordered to be deleted, and the appeals filed by the appellants were allowed.

The Tribunal's decision to delete the penalties was based on the principle that penalties under Section 271(1)(c) cannot be sustained when the existence of a PE is a debatable issue. The Tribunal's reliance on the High Court's acknowledgment of the debatable nature of the PE issue and the precedent supporting the non-leviability of penalties in such cases formed the basis for allowing the appeals and overturning the penalties imposed by the revenue authorities.