TMI Blog2013 (2) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.) 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 appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 such a legal fiction would not amount to furnishing wrong particulars. Reiience is placed on the decision of ITAT in ITa v.Blbhutl Mlshra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en duly furnished. It was further submitted without prejudice to the above that having quantified the tax sought to be evaded at ₹ 13,70,49,296/-, the AO ought not to have levied penalty of ₹ 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 appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountry 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y., sec. 91 will be applicable and assessee is eligible for deduction only to the extent of ₹ 14,84 crores as against ₹ 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 ITR 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 DTR 268 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. No inaccuracy in the particulars of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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