DCIT Vs Raytheon Company (ITAT Delhi)
ITAT Delhi held that imposition of penalty u/s. 271(1)(c) of the Income Tax Act unsustainable in absence of any concealment of income or furnishing inaccurate particulars of income by the assessee.
Facts- The assessee filed returns of income declaring Nil incomeand the assessments were completed u/s 143(3) r.w.s. 144C of the Act bringing to tax the amounts received by the assessee towards supply of spares contract and rotary joints on the contracts entered into with Airports Authority of India, contract for hardware repair support, contract for software maintenance support, supply of spares etc. CIT(A) deleted the additions. Notably, the appeals were settled under Mutual Agreement Procedures (MAP) and the additions were reduced and pending appeals before ITAT were dismissed.
Consequent to MAP proceedings final orders were passed and the penalties were levied u/s 271(1)(c) of the Act for concealment of income against which the assessee preferred appeals before the Ld.CIT(A) and the Ld.CIT(A) deleted the penalty. The Ld. DR strongly supported the orders of the Assessing Officer in levying penalty u/s 271(1)(c) of the Act.
Conclusion- CIT(A) while deleting the penalty levied u/s 271(1)(c) of the Act held that the assessee has not concealed any particulars of income and has disclosed all material facts during the assessment as well as MAP proceedings.
Held that there is no concealment of income or furnishing inaccurate particulars of such income by the assessee in any of these assessment years and thus, we sustain the order of the Ld. CIT(A) for the assessment years 2004-05 to 2011-12 and 2014-15 to 2016-17.
FULL TEXT OF THE ORDER OF ITAT DELHI
All these appeals are filed by the Revenue against different orders of the Ld. Commissioner of Income Tax (Appeals) for the assessment years 2004-05 to 2011-12 and 2014-15 to 2016-17 in deleting the penalty levied u/s 271(1)(c) of the Act. The Revenue has raised the following common grounds in all these appeals: –
(i) Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in holding that the assessee has not concealed any particulars of income and quashing the impugned penalty order u/s 271(1)(c) of the Act when there has been a difference in returned income and assessed income and apparently, the difference is in view of royalty income not offered to tax in Return of Income which was accepted later in MAP resolution.
(ii) Whether on the facts and circumstances of the case the Ld. CIT(A) has erred by relying on the decision of the Hon’ble Supreme Court of India in case of Engineering Analysis whereas in the instant case there is no dispute by the assessee that the Royalty income is taxable in India and keeping in view that the said decision of the Apex Court was not available to it while filing its Return of Income for the concerned year.
(iii) Whether on the facts and circumstances of the case the Ld. CIT(A) has erred by relying on settled principle of law that where two views are possible, taking of one of the plausible views does not amount to concealment of particulars of income whereas in this case both assessee and the Department are having the same view that the assessee had taxable presence in India.
(iv) Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in holding that the assessee has not concealed any particulars of income and quashed the impugned penalty order u/s 271(1)(c) by ignoring the fact that in the case of non-resident the primary onus of ascertaining the income tax liability is with the non-resident payee as is evident in the instant case wherein the assessee filed nil Return of Income considering that it had no PE which was subsequently negated by the department during the assessment proceedings and also admitted by the assessee in MAP proceedings that it was having a taxable presence in India, therefore, penalty provisions u/s 271(1)(c) would be applicable in its case for concealment of particulars of income.
(v) Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in holding that the assessee ahs not concealed any particulars of income and quashing the impugned penalty order u/s 271(1)(c) without appreciating the fact that the Hon’ble High Court of Karnataka in the case of M/s Toyota Kirloskar Motor (P) Ltd. Vs. UOI [2019] 109 taxmann.com 137 (Karnataka HC) has also that the MAP order is an adjustment to assessment order and is not annulment of assessment order.”
2. The Ld. DR submits that in all these assessment years the assessee filed returns of income declaring Nil income and the assessments were completed u/s 143(3) r.w.s. 144C of the Act bringing to tax the amounts received by the assessee towards supply of spares contract and rotary joints on the contracts entered into with Airports Authority of India, contract for hardware repair support, contract for software maintenance support, supply of spares etc. Ld. DR submits that the Assessing Officer held that the assessee had executed these contracts through PE in India, therefore, the amounts received by the assessee from the contracts entered into with Airports Authority of India was treated as royalty and the same were brought to tax at 20% rate as applicable to royalty income. Ld. DR submits that assessee filed appeals against the assessment orders passed u/s 143(3) r.w.s. 144C of the Act and the Ld.CIT(A) deleted the additions holding that the assessee does not have a PE in India. Ld. DR submits that meanwhile the assessee approached the authorities for settling the issue under Mutual Agreement Procedures (MAP) before the competent authority as per the provisions of Article 27 of India USA DTAA. Ld. DR submits that the appeals were settled under the MAP proceedings, wherein the additions were reduced and pending appeals before ITAT were dismissed. Consequent to MAP proceedings final orders were passed and the penalties were levied u/s 271(1)(c) of the Act for concealment of income against which the assessee preferred appeals before the Ld.CIT(A) and the Ld.CIT(A) deleted the penalty on the ground that the quantum additions made in the assessment orders passed u/s 143(3) r.w.s. 144C have been deleted by the Ld.CIT(A) on the ground that there is no PE existence for assessee in India. Ld. DR strongly placing reliance on the decision of the Karnataka High Court in the case of Toyota Kirloskar Motor Private Limited Vs. Union of India in WP No. 57865/2015 dated 11.06.2019 submits that even after MAP proceedings there is no bar in levying penalty u/s 271(1)(c) of the Act. The Ld. DR strongly supported the orders of the Assessing Officer in levying penalty u/s 271(1)(c) of the Act.
3. On the other hand, the Ld. Counsel for the assessee inviting our attention to the Ld.CIT(Appeals) order submits that in all these assessment years the quantum additions made while passing the assessment order u/s 143(3) r.w.s. 144C have been deleted by the Ld.CIT(Appeals). However, the assessee to by peace approached the authorities for settling the issues under MAP and also subsequently the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited Vs. CIT 432 ITR 471 held that supply of software and document is not royalty. The Ld. Counsel further referring to MAP proceedings submits that it is only on assumption and by deeming fiction it was held that the assessee has a PE in India and the Assessing Officer has not established that there exists PE in India for assessee. Therefore, the Ld. Counsel for the assessee submits that there is no concealment of income or furnishing all inaccurate particulars by the assessee which warrant any penalty u/s 271(1)(c) of the Act.
4. Heard rival submissions, perused the orders of the authorities below.
5. We observe that the assessee in all these assessment years filed returns declaring NIL income. The assessments were completed by the AO treating the amounts received by the assessee for report maintenance support services, supply of spares, supply of hardware software and installation and training services, repair support, software maintenance support, etc. as royalty on the ground that the assessee has existence of PE in India. However, the Ld.CIT(A) deleted the additions made in all these assessment years holding that there is no existence of PE in India for the assessee. Assessee under MAP approached the authorities to settle the issues. Meanwhile the Hon’ble Supreme Court in the case of Engineering Analysis Center of Excellence (P) Ltd. Vs. CIT (supra) held that supply of software and documentation did not constitute.
6. We find that the authorities for the purpose of settling the cases under MAP proceeded on assumption that the assessee has PE in India and the business profits earned from those contracts are deemed to be attributed to the assumed PE and taxed in India at 30% of the profits arrived. We observe that even in the MAP proceedings it is only by way of an assumption that the authorities have concluded that the assessee has PE and on such assumption of PE the business profits were attributed to the PE for the purpose of settling the issues. No corroborative evidence is brought on record by the Revenue Authorities to suggest that the assessee has PE in India. Further the Ld.CIT(A) in all these assessment years in fact deleted the additions holding that Assessee does not have a PE in India.
7. We also find that the Ld.CIT(A) while deleting the penalty levied u/s 271(1)(c) of the Act held that the assessee has not concealed any particulars of income and has disclosed all material facts during the assessment as well as MAP proceedings observing as under: –
“5.1.1 I have perused the Penalty Order, Grounds of Appeal, and considered the submission of the Appellant. The AO levied Penalty under section 271(1) (c) of the Income Tax Act, 1961. The said Penalty under section 271(1) (c) of the Act is leviable upon satisfaction of either of the following two primary conditions:
