The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that no penalty could be imposed under section 271(1)(c) as no concealment of income or furnishing of inaccurate particulars was done as Alleged by Revenue.
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 CIT(A) deleted the additions made in all these assessment years hoing that there is no existence of PE in India for the assessee. Assessee under MAP approached the authorities to settle the issues.
The CIT(A) considered all the aspects of the material and concluded that the assessee has disclosed all material facts during the assessment as well as MAP proceedings and has not concealed any particulars of income. The bench saw no infirmity in the order passed. We further observe that at best it is only a difference of opinion as to whether there exists PE in India for Assessee or not. There is no conclusive proof that the assessee has PE in India. In the penalty proceedings the AO simply relied on the MAP proceedings in hoing that the assessee has PE in India which in fact is not correct.
After hearing both the parties, the tribunal observed that in the case relied by the revenue, the assessee challenged the constitution validity of section 271(1)(c) in so far as it relates to imposition of penalty on amounts determined pursuant to convention for Avoidance of Double Taxation between India and Japan. The High Court had held that section 271(1)(c) of the I.T. Act is intra vires the constitution in so far as the imposition of penalty on amounts determined pursuant to convention for Avoidance of Double Taxation between Union of India and other sovereign countries.
High Court had also held that the Explanation 7 wou not empower the authorities to levy penalty automatically for the transactions where MAP proceedings are applied. It was also he that the onus lies on the assessee to establish that the addition finally decide by the MAP is not due to concealment of income or furnishing all inaccurate particulars. Therefore, this decision of the Karnataka High Court will not come to the rescue of the Revenue, the tribunal bench observed.
The two member bench consisting of M, Balaganesh (Accountant member) and C.N Prasad (Judicial member) 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, the bench sustained the order of the CIT(A) for the assessment years 2004-05 to 2011-12 and 2014-15 to 2016-17. Thus the appeal of the revenue was dismissed.
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