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TMI Blog2025 (4) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Distributor of the assessee's Cloud based Software Products in India through Intercompany Service Agreement. The assessee enters into a separate agreement for sale of software products to a customer in India (Page 73 of the Factual paper book) wherein different terms and conditions of sale like granting license, pricing, payment terms, various obligations of assessee in connection with the sale of software like software implementation, after sale technical support, retain and maintaining all proprietary and intellectual property are agreed by the parties. CSOD India is also a party to the sale agreement which defines the role of CSOD India to be restricted to receiving a Purchase Order from a customer in India, raising invoices and collecting payments on behalf of the assessee in India. The assessee earns income from distribution of Cloud-based Software to CSOD India. ITA No.3747/Mum/2024 - AY 2015-16 3. For the purpose of adjudicating the levy of penalty under section 271(1)(c) of the Act we will consider the appeal filed by the assessee for AY 2015-16 as a lead case. For the AY 2015-16 the assessee filed the return of income on 31.03.2017 declaring Nil income and claimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a settled legal position that furnishing of inaccurate particulars for levy of penalty under section 271(1)(c) of the Act would arise only when the assessee has wilfully and consciously attempted to prevent demonstrating the correct position. The ld. AR argued that making a claim which is held to be not sustainable in law does not amount to furnishing of inaccurate particulars and that making of additions / disallowance does not necessarily mean that the additions / disallowances attract penalty under section 271(1)(c). The ld AR further argued that accepting the additions made in the assessment order does not automatically invite the penalty under section 271(1)(c) of the Act. The ld AR also argued that additions by attributing a percentage of receipts as income is done on an adhoc basis and that when it is accepted by the revenue that CSOD India is remunerated at arm's length no further addition as DAPE can be made. The ld. AR placed reliance on various judicial precedents in this regard. It is also brought to our attention that the assessee has suffered global losses for A.Y. 2015-16 and 2016-17 therefore, no further income was attributable to the DAPE in India. The ld AR al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under :- "271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned Counsel for revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271(1)(c) would embrace the meaning of the details of the claim made. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff's case (supra) was upset. In Dharamendra Textile Processors' case (supra), after quoting from section 271 extensively and also considering section 271(1)(c), the Court came to the conclusion that since section 271(1)(c) indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts 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. 10. In view of the above discussion and considering facts in assessee's case for the year under consideration, we are of the view that the 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. ITA No.3751/Mum/2024 - AY 2016-17 11. The facts in AY 2016-17 are identical where the AO has levied penalty under section 271(1)(c) on the same ground. Therefore our decision in AY 2015-16 is mutatis mutandis applicable to AY 2016-17 also. Accordingly we direct the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e merits of the addition made in the assessment proceedings. Accordingly the ld. AR argued that the levy of penalty by the AO under section 270A is not justified. 14. The ld. DR on the other hand supported the orders of the lower authorities. 15. For AY 2017-18, the AO initiated the penalty proceedings under section 270A on the ground that assessee has under reported income. The provisions pertaining penalty for under reporting of income under section 270A reads as under - 270A - Penalty for under-reporting and misreporting of income. (1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. (2) A person shall be considered to have under-reported his income, if- (a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143; (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB. 16. The argument of the ld AR is that the assessee's case would get covered under the exception provided under section 270A(6)(a) of the Act since the assessee has made full disclosure and has offered explanation which is bonafide. It is also relevant to consider the argument of the ld AR that in the hands of CSOD the revenue has accepted that the compensation received from the assessee towards services rendered is at Arm's length and no TP adjustments are made (page 342, 369 and 343 of PB). Accordingly it was argued that once the dependant agent i.e. CSOD India's remuneration is accepted there cannot be any attribution of income and that the addition made is not sustainable on merits. In this regard we notice that during the course assessment, the AO issued a show cause notice as to why the impugned receipts from CSOD India cannot be assessed to tax in India, the assessee has furnished details such as the agreement with CSOD India, Tri-parte agreement with the customer application made before Authority for Advance Ruling with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case. 11. As submitted by Ld A.R that sub. Sec. (2) of sec. 270A lists out the instances which are considered to be "under reporting" of income and clause (g) of it covers the case, when loss is converted into income. However, subsection (6) of section 270A lists out exceptions to sub. Sec (2), i.e., the instances which will not be considered as cases of 'under reporting' of income. Clause (a) of sub. Sec. (6) specifically states that the amount of income in respect of which the assessee offers an explanation and the Assessing Officer is satisfied that the explanation is bonafide and the assessee has disclosed all material facts to substantiate explanation so offered will not be considered as under reporting of income. In the instant case, as noticed earlier, the assessee has not under reported any income. The addition has arisen on account of change in head of income. We notice that the assessee has offered an explanation as to why it reported the rental income under the head Income from House property and the said explanation is not found to be false. Accordingly, we are of the view that the case of the assessee is covered by clause (a) of sub.sec. (6) of sec. 270A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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