2023 (12) TMI 810 - AT - Income Tax

Penalty u/s. 271(1)(c) - income was taxable as FTS and not u/s. 44BBB - as per AO Assessee had incorrectly returned its income as taxable u/s. 44BBB while the Assessing Officer had held the same taxable as Fee for Technical Services (FTS) - assessee is a foreign company registered under the laws of Republic of Korea as engaged in the business of development of electric power resources, generation and other related business activities, Research and Development of technology related to development and generation of electric power and also doing overseas business in relation to above, as its main objects - HELD THAT - As rightly noted by the CIT(A), the assessee being a non resident was guided by consultants . The fact that it returned incomes under different heads in the original and revised returns filed shows that even the consultants were unable to guide the assessee with certainty in determining the head/ section under which it was taxable. Therefore merely because the AO assessed the income of the assessee as FTS u/s 115A of the Act, the assessee cannot be charged with having concealed or furnished inaccurate particulars of income for returning it as income u/s 44BBB of the Act. The fact that in similar circumstances in succeeding years the AO did not find it fit to levy penalty streghthens the case for no penalty to be levied in the impugned year. CIT(A) s , we find, has adequately dealt with the AO s basis of levying penalty noting that it rests on Form 15C disclosing income of the assessee as fts and the assessee therefore being fully aware of the nature. The Ld.CIT(A) has brushed aside this logic noting that Form 15C is required to be filed by the payer of income and the assessee is therefore not bound by any disclosure made in it since it is not responsible for the same. DR was unable to point any infirmity in this finding of the Ld.CIT(A). We see no reason therefore to interfere in the order of the Ld.CIT(A) holding that with no infirmity found in the books of the assessee and only the nature of income being in dispute it tantamounted to mere disallowance of claim which would not attract levy of penalty u/s. 271(1)(c) of the Act . The issue we agree with the Ld.CIT(A) is squarely covered by the decision of Reliance Petroproducts (P.) Ltd. 2010 (3) TMI 80 - SUPREME COURT - CIT(A) has taken a holistic view and we are in complete agreement with the Ld.CIT(A) that there is no case made out by the Revenue Authorities for charging the assessee with having furnished inaccurate particulars of income so as to attract the levy of penalty u/s. 271(1)(c) of the Act. Decided against revenue. CIT(A) deleting penalty holding that taxing the receipts as FTS by Assessing Officer as opposed to that returned by the assessee u/s. 44BBB was a mere change of opinion? - HELD THAT - The fact remains that the AO assessed the income of the assessee treating the income returned by the assessee as profits and gains of business of civil construction in turnkey power projects , u/s 44BBB of the Act, to be in the nature of Fees for Technical Services taxable u/s 115A of the Act and it is for this reason alone that penalty was levied charging the assessee with furnishing inaccurate particulars of income. There are no adverse findings with respect to the Books of accounts maintained by the assessee. All facts and figures disclosed therein have been accepted. It all therefore boils down to interpreting the nature of activities carried out by the assessee whether qualifying u/s 44BBB of the Act or being FTS. All particulars relating to the nature of income remaining unchallenged, the Ld.CIT(A)s finding that the determination of its income by AO only tantamounted to change of head is we hold correct. That the ITAT confirmed the findings of the AO makes no difference to the aforesaid fact. Therefore, the plea raised by the Revenue dismissed.

Summary

Issues Involved:
1. Whether the penalty levied under Section 271(1)(c) of the Income-Tax Act, 1961 for furnishing inaccurate particulars of income was justified.
2. Whether the order of the CIT(A) deleting the penalty was correct despite the ITAT confirming the nature of receipts as Fees for Technical Services (FTS).

Summary:

1. Justification of Penalty under Section 271(1)(c):

The Revenue challenged the deletion of the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income-Tax Act, 1961, amounting to Rs. 53,97,870/- for AY 2011-12. The AO had imposed the penalty on the grounds that the assessee had incorrectly returned its income under Section 44BBB of the Act, while it should have been taxable as FTS under Section 115A. The CIT(A) deleted the penalty, noting that the only impact of the assessment was rejecting the assessee's claim of returning presumptive income under Section 44BBB and treating it as taxable as FTS at 10% of the gross income. The CIT(A) found no adverse findings regarding inaccurate particulars of income in the books of accounts maintained by the assessee or any other claim of deduction. Further, the assessee had initially returned its income computed under Section 28 of the Act and paid taxes at normal rates, subsequently revising the return under Section 44BBB without changing the book results or other figures. Similar benefits were availed by the assessee in subsequent years without penalty being levied.

2. Order of CIT(A) Deleting the Penalty:

The CIT(A) held that the claim of inaccurate particulars of income arose merely due to the AO's view that the underlying business activities were not in the nature of "turn-key power projects"� as specified under Section 44BBB but were FTS. The CIT(A) relied on various judicial decisions, stating that a mere change of head of income does not amount to furnishing inaccurate particulars of income or concealing particulars of income for the levy of penalty under Section 271(1)(c). The CIT(A) also noted that the assessee, being a non-resident company, relied on the opinion of tax consultants and that there was no concrete opinion provided by the consultants. The CIT(A) emphasized that the Form 15CB, which stated the nature of income as FTS, was obtained by the payer (CGPL) and not the assessee, and it provided only a tentative rate for tax deduction, not a binding opinion. The CIT(A) further noted that in subsequent years, the AO himself dropped penalty proceedings, indicating that the AO did not have a case for levy of penalty.

Conclusion:

The ITAT upheld the CIT(A)'s order, agreeing that the dispute only related to the nature of income and there were no adverse findings by the AO relating to the facts of the income earned. The ITAT found no merit in the Revenue's grounds, noting that the penalty was levied solely on the basis of the nature of receipts being FTS and not under Section 44BBB. The ITAT concluded that the assessee could not be charged with having concealed particulars of income, as the claim under Section 44BBB was bona fide and based on the opinion of consultants. The ITAT dismissed the Revenue's appeal, emphasizing that mere disallowance of a claim does not attract the levy of penalty under Section 271(1)(c) of the Act.