Income Tax Appellate Tribunal - Chennai
Indian Overseas Bank, Chennai vs Department Of Income Tax
1 ITA No.1990/1991/Mds./12
IN THE INCOME TAX APPELLATE TRIBUNAL
" A" BENCH, CHENNAI
(BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER )
.....
I.T.A. No. 1990 & 1991/Mds/2011
Assessment Year : 2006-07 & 2007-08
Dy. Commissioner of Income M/s.Indian Overseas Bank,,
Tax, v. 763 Anna Salai,
Large Taxpayer Unit, Chennai.
Chennai.
PAN : AAAC 1223 J
(Appellant) (Respondent)
Appellant by : Shri Shaji P Jacob
Respondent by : Shri S.Sridhar, Advocate
Date of Hearing : 07.02.13
Date of Pronouncement : 14.02.13
O R D E R
PER N.S.SAINI, ACCOUNTANT MEMBER:
These are the appeals filed by the Revenue against the order of CIT(A) LTU, Chennai dated 09.02.2011 for Assessment Years 2006-07 & 2007-08.
2. In both the appeals, the Revenue has taken the following common grounds of appeal:-
"1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.2 ITA No.1990/1991/Mds./12
2.1. The CIT(A) erred in deleting the penalty levied under section 271 (1)(c of the Act.
2.2. The CIT(A) erred in stating that the assessee cannot be considered to have concealed particulars of income. The Assessing Officer had not stated that the assessee had concealed particulars of income, but had initiated and levied penalty under section 271(1)(c) only on the ground that the assessee Bank had furnished inaccurate particulars of income.
2.3. The CIT(A) failed 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. The CIT(A) ought to have followed the decision of ITAT Chennai in the case of Terra Energy Ltd. in ITA No.1014/Mds/09 dated 23.4.2010 and ought to have appreciated that the assessee has not rectified or conceded the mistake pointed out by the Assessing Officer during the scrutiny proceedings.3 ITA No.1990/1991/Mds./12
3. The sole issue involved in both the appeals is that the CIT(A) erred in deleting the levy of penalty under section 271(1)(c) of the Act. The facts of the case are that the assessee is a public sector bank. It filed return of income for Assessment Year 2006-07 disclosing in income of Rs. 652,90,26,687/- and for Assessment Year 2007-08 disclosing a total income of Rs.832,78,14,867/-. In the return of income, the assessee claimed double income-tax relief (DITR) in respect of income from its foreign branches at Seoul, Singapore, Colombo and Hong Kong.
During the assessment proceedings under section 143(3) of the Act, the Assessing Officer raised various queries and the assessee replied to them. The A.O. disallowed the entire claim of DITR in respect of all these countries on the ground that decision of Hon'ble Supreme Court in Kulandagan Chettiar, 267 ITR 654(SC) relied on by the assessee was not applicable to assessee's case. Thereafter, he initiated penalty proceedings under section 271(1)(c) of the Act for concealment and furnishing of inaccurate particulars of the income. In reply to the said notice, the assessee had filed a detailed reply. In the appellate proceedings before the CIT(A), the assessee, though relied on the decision of Apex Court in Kulandagan Chettiar(SC) (supra), stated that there was no separate agreement with Hong Kong. Having noticed this, Assessing Officer proposed to impose penalty and sought explanation 4 ITA No.1990/1991/Mds./12 from the assessee who vide letter dated 27.07.2010 furnished the reasons for the claim made in return. The Assessing Officer being not convinced with the explanation, levied penalty @ 100% of the tax sought to be evaded. Aggrieved by the penalty order, assessee filed an appeal before the CIT(A).
4. The CIT(A) observed that the Assessing Officer has not accepted the explanation of the assessee and levied penalty @ 100% of the tax sought to be evaded on the wrong claim of DITR for the profit earned from its Hong Kong branch. According to Assessing Officer, when there is no double tax avoidance agreement between India and Hong Kong, the 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.) 5 ITA No.1990/1991/Mds./12 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 much as Hong Kong became a Special Administrative Region (SAR) of the People Republic of China since July 1, 1997.
2. In as much as the DTA between India and China provides that the business profits arising from business carried on with permanent establishment therein is to be taxed only in the other contracting country VIZ Hongkong and not in India based on the Supreme Court decision in Kulandagan Chettiar reported in 267 ITR 654(SC) the appellant was of bonafide belief that income of Hong Kong Branch was not exigible to tax in India.
3. The AO ought not to have dismissed the above claim of the appellant by stating" Not knowing the above basic fact of non applicability of the Indo China DTAA to the Hong Kong was a conscious attempt by the asessee taken now to soften the original deliberate wrong claim to avoid the penalty proceedings and hence the same cannot be accepted"
4. We submit that the proceedings in the levy of penalty is an independent proceeding from that of the assessment proceeding and hence the AO ought not to have pre judged the issue with a color of assessment proceedings. Merely because the reason given for a claim in the return was credible same could not be rejected as an attempt to soften the effect of wrong claim.
5. Reliance is placed on the decision of jurisdictional High Court decision in CIT v Sri Saradha Textile Processors Pvt Ltd (2006) 286 6 ITA No.1990/1991/Mds./12 499 (Mad) holding that 'penalty cannot be imposed on account of a bona fide mistake.
6. Further we submit that merely because the appellant withdrew an appeal against addition before the CIT(A) or was not contested before appellate authorities the same cannot automatically result in levy of penalty. Reliance is placed on the following decisions in support of this claim
a) WTO v Premchand & others 18 TLR 794 (Bom)
b) CIT v Bhimji Bhanjee & Co 146 ITR 145 (Bom)
c) CIT v Punjab Tyres 56 CTR 7
d) ITO v Prabhu Singh Triloksingh Grover Taxation 82(4) 60 (Chd)
7. We further submit that in law where two views are possible the assessee cannot be faulted for adopting a view favorable to him in filing the return as held in CIT v Calcutta Credit Corporation 56 ITR
142.
8. Further the assessee may adopt /accept the departmental view to avoid litigation but such acceptance cannot put him in a position worse than another who contests departmental view. Reliance 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 7 ITA No.1990/1991/Mds./12 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 a case of interpretational nature.
10 .Further the reliance placed by the A.O on the decision of Apex Court in the case of Union of India v Dharmedra Textile Processors (2008) 306 ITR 277 (SC) to the effect that any addition to returned income would invites penalty is not correct for the following reason-:
a) The Apex Court in CIT v Reliance Petro products Pvt Ltd 322 ITR 158 (SC) categorically held that "Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271 (1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the .assessee will invite penalty under Section 271 (1)(c). That is clearly not the intendment of the Legislature"
11. The decision in Dharmedra Textile Processors itself was interpreted by subsequent decision of Apex Court in Union of India v Rajasthan Spinning & Weaving Mills Ltd 224 CTR 1 (SC) that mere addition would not necessarily call for automatic levy of penalty. Further the Apex Court decision in Reliance Petro products 322 ITR 158 SC the Hon'ble Court held that decision is an authority only for the proposition that element of mens rea stands excluded from the scope of the provisions of section 271(1) (C)."
4.1 The Id. AR further submitted that the decisions relied by the AO are distinguishable on facts inasmuch the appellant's explanation are bona fide and are based on legal precedents as fortified by the decisions of the Apex Court. He further submitted that the decision of Hon'ble ITAT in 8 ITA No.1990/1991/Mds./12 DCIT v Terra Energy Ltd case related to mistake in computation which was a factual error but was not accepted by assessee. The decision of Kerala High Court in P.C.Joseph & Bros v CIT, 240 ITR 818 was that on agreed addition after detection of concealment penalty was leviable. This decision is not applicable to appellant's case since there is no question of concealment in its case and all the particulars had been duly furnished. It was further submitted without prejudice to the above that having quantified the tax sought to be evaded at Rs.13,70,49,296/-, the AO ought not to have levied penalty of Rs.15,37,69,311/-. He also stated that the appellant itself being 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, the levy of penalty was not warranted.
5.1 Let us now discuss the scope of section 271 (1 )(c) of the Act.
9 ITA No.1990/1991/Mds./12Penalty is levied over and above any tax or interest payable by the appellant. It is thus distinct and separate from the tax payable. Penalty proceedings are also distinct and separate from assessment proceedings [CIT v. Dharam Chand L. Shah, 204 ITR 462 (Bom), Kanbay Software India Pvt. Ltd. (2009) 31 SOT 153 (Pune)]. It is well settled that the provisions dealing with penalty should be strictly construed. 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 statutory provision. Here, the only issue that arises for consideration is whether the appellant had furnished inaccurate particulars in respect of the claim of DITR in respect of Hong Kong branch. Since the DT A between India and China provides that the business profits arising from business carried on with permanent 10 ITA No.1990/1991/Mds./12 establishment(PE) therein is to be taxed only in the other contracting country viz .Hong Kong (i.e.,part of China) and not in India, based on the Supreme Court decision in Kulandagan Chettiar reported in 267 ITR 654(SC), the income of the Hong Kong branch is not taxable in India. However, it has subsequently come to the knowledge of the appellant that the DTA agreement with 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 analyzing its own decisions in the cases of Dilip N. Shroff v. JCIT (291 ITR 519), Union of India v. Dharmendra Textiles (306 ITR 277), Union of India v. Rajasthan Spinning and Weaving Mills (224 CTR 1) and CIT v. Atul Mohan Jindal (317 ITR 1), the Hon'ble Court, has stated as under:
"The basic reason why decision in Dilip N. Shroff v. Joint Cl T was overruled by this court in Union of India v. Dharmendra Textile Processors, was that according to this court the effect and difference between section 271(1)(c) and section 276C of the Act 11 ITA No.1990/1991/Mds./12 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 uls 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 ---- As the assessee had furnished all the details of Its expenditure as well as income in its return, which details,in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty u/s 271 (1 )(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under 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 12 ITA No.1990/1991/Mds./12 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 Kong. These details are not proved to be inaccurate and cannot be considered as concealment of income by the appellant. The appellant has been claiming relief in respect of Hong Kong branch from the preceding assessment years. Such claim has not been accepted and necessary addition has been made. This, by itself, would not attract penalty. This view is supported by the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products (supra) discussed above. Even the decision of the Supreme Court 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."
5. Before us, the Departmental Representative has filed written submission which read as follows:-
'Levy of Penalty under section 271(1)(c) As per the memo of total income filed alongwith the return of income filed for A.Y. 2006-07, assessee claimed double taxation relief on the income 01' foreign branches to the tune of Rs. 35,32,70,363. This claim included 13 ITA No.1990/1991/Mds./12 income from Hong Kong branch also. During the course of assessment proceedings assessee was asked to furnish the rate of tax in the concerned foreign countries where assessee has branches and also to clarify whether DTAA exists between India and such foreign countries. There was no response from assessee on this query.
During the course of scrutiny proceedings it was noticed that assessee claimed tax credit of Rs. 28,54,62,828 from its Hong Kong income whereas actual taxes paid by assessee in Hong, Kong was only sum of Rs. 14,84,13,532. Since India did not have DT AA with Hong Kong in the relevant A.Y., sec. 91 will be applicable and assessee is eligible for deduction only to the extent of Rs. 14,84 crores as against Rs. 28,54 crorcs claimed by it in the return.
Even during the course of assessment proceedings when the discrepancy was pointed out to the assessee, it did not bother to file revised return I 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 rTR 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 DTR268 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 14 ITA No.1990/1991/Mds./12 ` 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 fact is that the assessee claimed entire Indian tax on the income of its Hong Kong branch as relief under section-90 of the Act on the ground that Hong Kong branch is a colony of China with which there is a double taxation agreement. However, it was found that there was no double taxation agreement with Hong Kong and therefore, the assessee was entitled for tax relief under section 91 of the Act to the extent of tax paid in Hong Kong only subject to maximum of tax leviable in India on that Income. Consequently, in the assessment it was found that the assessee claimed excess relief of ` 13,70,49,296/- in A.Y. 2006-07 and of `9,54,04,138/- in A.Y. 2007-08. For the above reasons, the Assessing Officer levied penalty under section 271(1)(c) of the Act , which is under present appeal.
8. On appeals, CIT(A) deleted the aforesaid levy of penalty in both the years for the reasons 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 15 ITA No.1990/1991/Mds./12 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, the levy of penalty was not warranted.
5.1 Let us now discuss the scope of section 271 (1 )(c) of the Act. Penalty is levied over and above any tax or interest payable by the appellant. It is thus distinct and separate from the tax payable. Penalty proceedings are also distinct and separate from assessment proceedings [CIT v. Dharam Chand L. Shah, 204 ITR 462 (Bom), Kanbay Software India Pvt. Ltd. (2009) 31 SOT 153 (Pune)]. It is well settled that the provisions dealing with penalty should be strictly construed. 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 16 ITA No.1990/1991/Mds./12 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 statutory provision. Here, the only issue that arises for consideration is whether the appellant had furnished inaccurate particulars in respect of the claim of DITR in respect of Hong Kong branch. Since the DT A between India and China provides that the business profits arising from business carried on with permanent establishment(PE) therein is to be taxed only in the other contracting country viz .Hong Kong (i.e.,part of China) and not in India, based on the Supreme Court decision in Kulandagan Chettiar reported in 267 ITR 654(SC), the income of the Hong Kong branch is not taxable in India.
However, it has subsequently come to the knowledge of the appellant that the DTA agreement with 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 analyzing its own 17 ITA No.1990/1991/Mds./12 decisions in the cases of Dilip N. Shroff v. JCIT (291 ITR 519), Union of India v. Dharmendra Textiles (306 ITR 277), Union of India v. Rajasthan Spinning and Weaving Mills (224 CTR 1) and CIT v. Atul Mohan Jindal (317 ITR 1), the Hon'ble Court, has stated as under:
"The basic reason why decision in Dilip N. Shroff v. Joint Cl T was overruled by this court in Union of India v. Dharmendra Textile Processors, was that according to this court the effect and difference between section 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 ---- As the assessee had furnished all the details of Its expenditure as well as income in its return, which details,in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty u/s 271 (1 )(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under 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 18 ITA No.1990/1991/Mds./12 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 the particulars/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 Kong. These details are not proved to be inaccurate and cannot be considered as concealment of income by the appellant. The appellant has been claiming relief in respect of Hong Kong branch from the preceding assessment years. Such claim has not been accepted and necessary addition has been made. This, by itself, would not attract penalty. This view is supported by the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products (supra) discussed above. Even the decision of the Supreme Court 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.
19 ITA No.1990/1991/Mds./12No 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 section 271(1) of the Act , no penalty is legally leviable under section 271(1)(c) of the Act. We ,therefore confirm the order of the CIT(A) and dismiss both the appeals of the Revenue.
10. In the result, the appeals of Revenue are dismissed.
Order pronounced on Thursday, the 14th February, 2013 at Chennai.
Sd/- Sd/-
(VIKAS AWASTHY) (N.S.SAINI)
Judicial Member Accountant Member
Chennai,
Dated the 14th February, 2013.
K s sundaram.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file 20 ITA No.1990/1991/Mds./12 21 ITA No.1990/1991/Mds./12 22 ITA No.1990/1991/Mds./12 23 ITA No.1990/1991/Mds./12 24 ITA No.1990/1991/Mds./12 25 ITA No.1990/1991/Mds./12 26 ITA No.1990/1991/Mds./12 27 ITA No.1990/1991/Mds./12 28 ITA No.1990/1991/Mds./12 29 ITA No.1990/1991/Mds./12 30 ITA No.1990/1991/Mds./12 31 ITA No.1990/1991/Mds./12 33 ITA No. /Mds/ 34 ITA No. /Mds/ Before us, the Departmental Representative has filed written submission which read as follows:-
'Levy of Penalty under section 271(1)(c) On the other hand, the A.R. relied on the submissions made before the CIT(A) and supported the order of the CIT(A).
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 fact is that the assessee claimed entire Indian tax rate on the income of its Hong Kong branch as relief under section 90 of the Act on the ground that Hong Kong branch is a colony of China with which there is a double taxation agreement. However, it was found that there was no taxation agreement with Hong Kong and therefore, the assessee was entitled for tax relief under section 91 of the Act to the extent of tax paid in 35 ITA No. /Mds/ Hong Kong only subject to maximum of tax leviable in India on that Income. Consequently, in the assessment it was found that the assessee claimed excess relief of ` 13,70,49,296/- in A.Y. 2006-07 and of `9,54,04,138/- in A.Y. 2007-08. For the above reasons, the Assessing Officer levied penalty under section 271(1)(c) of the Act , which is under present appeal.
On appeals, CIT(A) deleted the aforesaid levy of penalty in both the years for the reasons as under:-
(CIT(A) findings ) 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 particular of the income disclosed by the assessee was found in the assessment. The only error which was found in the assessment for the penalty in question is levied relates to the computation of tax liability. In the above circumstances, in our considered opinion, it cannot be levied 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 section 271(1) of the Act , 36 ITA No. /Mds/ no penalty is legally liable under section 271(1)(c) of the Act. We ,therefore, confirm the order of the CIT(A) and dismiss both the appeals of the Revenue.
. In the result, appeals of Revenue are dismissed.
Order pronounced on , the February, 2013 at Chennai.
Chennai, Dated the February, 2013. K s sundaram.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file 37 ITA No. /Mds/ 38 ITA No. /Mds/ 39 ITA No. /Mds/