Relief for Google – No Penalty under Section 271(1)(c) if the matter has been admitted by High Court: ITAT [Read Order]

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The Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of M/s Google India Pvt. Ltd. v. The Assistant Commissioner of Income Tax held that no penalty can be levied under Section 271(1)(c) if Hon’ble High Court has admitted the matter.

The assessee company engaged in the business of providing information technology and information technology-enabled services to its group companies is a subsidiary of Google International LLC, USA. It entered into a distribution agreement with an Ireland PE whereby assessee was granted marketing and distribution rights of AdWord Program to advertisers in India.

The Assessing Officer (hereinafter referred to as the ‘AO’) observed that assessee under agreement acquired marketing and distribution rights over AdWord Programmes for the territory of India from its U.S. AE. AO noticed that there was no deduction of TDS and no ‘nil’ deduction certificate was obtained.

The Respondent before the present tribunal in agreement of the view taken by the Commissioner of Income Tax (Appeals) (hereinafter referred to as ‘CIT(A)’) contended that that the payments made by assessee under the agreement were business profits in the hands of U.S. AE paid for purchase of Adword space even though AdWord advertisement spaces was further sold to different advertisers. Hence, penalty order was passed levying a penalty for alleged ‘tax evasion’ passed by the CIT (A) shall be upheld.

The Bench constituting of Hon’ble members: Shri. B.R. Baskaran (accountant member) and Smt. Beena Pillai (judicial member) held that the AO initiated penalty proceedings without referring to any charge as to for “concealment of income” or “filing of inaccurate particulars of income. Further, the AO subsequent to order passed by Ld. CIT (A) passes penalty order, wherein penalty has been levied for the deliberateness of “tax evasion”, which in our considered opinion is not at all the requirement of Sec.271(1)(c ) of the IT Act. Furthermore, the admission of the matter before the High Court itself signifies that the issue is certainly debatable and in such circumstances penalty cannot be levied by AO.

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