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TMI Blog2013 (2) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to appreciate that penalty proceedings us.271(1)(c) are attracted in cases where the assessee furnishes inaccurate particulars of income. The details provided by the assessee to claim DITR in respect of Hong Kong Branch were found to be inaccurate and therefore penalty u/s.271(1)(c) was levied. 2.4. The CIT(A) ought to have appreciated that there is no merit in the assessee's plea that it was under bonafide belief that the DIT relief applicable to Hong Kong branch is governed by DTAA provision between India and China, (since Hong Kong became a special administrative region of China with effect from 1.7.1997). 2.5. The CIT(A) ought to have appreciated that the assessee cannot plead ignorance especially when it is a large tax payer having its own internal set up of legal advisors and Chartered Accountants as well as professionals from outside. 2.6. The CIT(A) ought to have appreciated that the assessee's claim that it did not know about the basic fact of non applicability of the Indo China DTAA to Hong Kong, is a conscious and after thought attempt by the assessee to soften its original deliberate wrong claim, in order to avoid the penal proceedings. 2.7. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could not have claimed DITR under section 90 of the Act. The claim was made by assessee based on the decision of Hon'ble Apex Court in the case of Kulandagan Chettiar,(supra), but it had not disclosed that there was no DTA between India and Hong Kong. Even though the claim of the assessee was not accepted by the Assessing Officer and disallowance made, the Assessing Officer subsequently noticed that the assessee had accepted the same before the CIT(A) for A.Y. 2006-07. The Assessing Officer placed reliance on the following decisions. a) UOI Vs. Dharmedra Textile Processors (2008) 306 ITR 277 (SC) b) DCIT V. Terra Energy Ltd. (ITA No.104/Mds/09 dated 23.04.2010) c) P C Joseph & Bros. v CIT 240 ITR 818 (Ker) d) ITO V Geep Industrial Syndicate Ltd. e) Mani Hanumanthappa Setty v ITO 30 ITD 480 f) CIT V Chanchal Katyal 173 Taxman 71 (All.) 4.1. The Assessee vehemently argued against the order of the Assessing Officer and filed written submission which reads as under:- 4 The Appellant Submits that: 1. The appellant was of bona fide belief that the DTA relief applicable to Hongkong Branch is governed by the DTA provisions between India and China in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is placed on the decision of Jurisdictional High Court in CIT v Sivananda Steels Ltd (2002) 256 ITR 687 (Mad) 9. We further submit that it has been held in a number of decisions that ignorance of law can be excused. In the appellant's case it was not the law but the undisputed sovereign territorial right and contiguity of China over Hong Kong yet with no distinct and separate DTAA for Hong Kong which weighed in favor of preferring a claim. The present move of the Government of India to confer a restricted economical status to Hong Kong for a separate DTAA as a special territory with in a sovereign state at best would be considered as a legal fiction in so far as the Statutory Enactments are concerned for the purpose of determination of total income and hence making a claim for deduction ignorant of such a legal fiction would not amount to furnishing wrong particulars. Reiience is placed on the decision of ITAT in ITa v.Blbhutl Mlshra 13.ITD 158 (Patna). Further the latest decision of Apex Court In the case of Unlflex Cables Ltd v Commissioner of Central Excise, Surat in Civil Appeal No 5870 of 2005 clearly held that no penalty could be and is liable to be imposed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a public sector undertaking assessed by the government, the question of evasion of tax by concealment of income to the government itself would not arise." 4.2. The CIT(A) after considering the submissions held as under: "5. I have carefully considered the facts of the case and the submissions of the Id.AR. I have also gone through the assessment order and the penalty order passed by the AO. I have also gone through the decisions relied on by the AO and AR. The AO has levied the penalty on the ground that the appellant had furnished inaccurate particulars in respect of the claim of DITR in respect of Hong Kong branch where there was no DTA. On the other hand, the Id. AR has stated that the claim was originally made after due consideration of the circumstances at the relevant point of time. It was explained that only after the provisions of section 90 was amended with effect from 01.04.2009, the appellant came to know that the DTA with China will not be applicable to Hong Kong. He also submitted that the appellant had claimed the relief of Hong Kong branch only and not of China. It was also submitted that the AO had not allowed any relief at the assessment stage. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith China is not necessarily binding on either India or China in respect of Hong Kong branch because though part of Republic of China, Hong Kong enjoyed separate status as a Special Administrative Region (SAR). Therefore, Hong Kong as a SAR can have independent DTA with any other country. This information is more on account of development in the fiscal reform in the International taxation. It was also submitted that the above claim was not made for the first time in the relevant year but the bank has been claiming the relief in the aforesaid manner in every year and the claim, wherever disputed, was contested in appeal proceedings. Another important fact in the present case is that the appellant claimed relief of Hong Kong branch as pertaining to Hong Kong and not to China. 5.3 Let us now examine the above facts in the light of the recent decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd 322 ITR 158(SC). The Hon'ble Court has considered the nature of default which would constitute concealment of particulars of income or furnishing of inaccurate particulars, in the context of the provisions of section 271 (1 )(c) of the Act. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 271 (1)(c). That is clearly not the intendment of the Legislature. " 5.4 In view of the above factual position and authoritative precedent and since the penalty proceedings are independent from assessment proceedings, the default of the appellant warranting imposition of penalty u/s 271(1)(c) needs to be separately and independently established before imposing penalty upon the appellant. Merely because certain additions have been made by disallowing the claim of the appellant in the assessment order, it does not mean that penalty would automatically become leviable in relation to such income. It may be stated that theparticulars/information were available in the details filed by the appellant itself and was not unearthed from any other sources. The appellant had claimed relief of its Hong Kong branch and not of China. The fact would have been different if the appellant had included the income of Hong Kong as income of China and claimed relief thereon. That is not the case. In fact, the appellant had furnished all details of its income from various foreign branches including that of Hong Kong branch and claimed DITR in respect of certain branches including Hong Ko ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revised statement. There was no' basis for the assessee to make inflated claim of Double Taxation Relief. Before claiming DTR, assessee has to ensure existence or DT AA between India and Hong Kong. When assessee failed to furnish any evidence to show that the claim made by it is bonafide, penalty u/s 271 (1)(c)is leviable as held in : CIT Vs Zoom Communication P. Ltd. (Del) 327 ITR 510 CIT Vs Escort Finance Itd. (Del) 328 ITR 44 Chadha sugars P. Ltd. (ITAT, Del) 17 ITR (Trib) 316 Trinity touch (P.) Ltd. Vs ITA (ITAT, Del) 132 ITD 88 Darwabshaw B. Cursetjee Sons Ltd. Vs ITA (lTAT, Kol-TM) 7--t DTR 268 CIT Vs Fortis Financial services Ltd. (Del) 76 DTR 429 " 6. On the other hand, the A.R. relied on the submissions made before the CIT(A) and supported the order of the CIT(A). 7. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. In the instant case, Assessing Officer levied penalty under section 271(1) (c) of the Act of ₹ 15,37,69,311/- for A.Y. 2006-07 and of ₹ 10,70,43,443/- for A.Y. 2007-08. In both the years, the facts are same except with change in figures. The relevant fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. It is to be construed within the terms and language of the particular section(s). Findings in the assessment proceedings for determining or computing tax cannot be said to be conclusive for the purpose of levy of penalty. Penalty u/s. 271(1)(c) is levied @ 100 per cent to 300 per cent of tax sought to be evaded for concealment of particulars of income or furnishing inaccurate particulars thereof. Sec. 271(1)(c) needs to be read along with the Explanations provided therein. Explanation-1 stipulates that where in respect of any facts material to the computation of the total income of any person: such person fails to offer an explanation or offers an explanation which is found by the AO/CIT(A)/CIT to be false; or such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to computation of his total income have been disclosed by him, then, in that case the amount added or disallowed is deemed to represent the income in respect of which the particulars have been concealed. 5.2 It would be relevant to examine the facts of the case against the above statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 271(1)(c) and section 276C of the Act was lost sight on in the case of Dilip N. Shroff v. Joint ClT, However, it must be pointed out that in Union of India v. Dharmendra Textile Processors, no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint ClT, where the court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Joint Ct'T to the effect that mens rea was an essential ingredient for the penalty u/s 271 (1 )(c) that the decision in Dilip N. Shroff v. Joint ClT was overruled." The department in the Reliance Petroproducts (supra) had argued that since the appellant had claimed excessive deduction knowing that they are incorrect; it amounted to concealment of income. The Hon'ble Court did not find substance in such argument and noted the above by itself to be insufficient to attract penalty. It held as under: "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. Such claim made in the return cannot amount to the inaccurate particulars - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Union of India v. Dharmendra Textiles (supra) cannot be read to construe that penalty is automatically leviable, as has been subsequently explained by the Supreme Court in the cases of Union of India v. Rajasthan Spinning and Weaving Mills (supra) and Reliance Petroproducts Ltd (supra). In view of the above factual position and judicial authorities, I am of the considered opinion that the case of the appellant does not attract levy of penalty u/s 271(1)(c). The AO is accordingly directed to delete the same. This ground is accordingly allowed." 9. We find that it is not in dispute that income of Hong Kong branch was truly and correctly declared by the assessee in its return of income. No inaccuracy in the particulars of the income disclosed by the assessee was found in the assessment. The only error which was found in the assessment for which penalty in question is levied, relates to the computation of tax liability. In the above circumstances, in our considered opinion, it cannot be held that the assessee had concealed the particulars of its income or furnished inaccurate particulars of its income and consequently keeping in view the provisions of Explantion-4 to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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