The Revenue has impugned the first appellate order on the ground that the learned CIT(A) has erred in deleting the penalty under s. 271(l)(c) of the Act amounting to Rs. 73,35,800 without appreciating the facts properly as brought out by the AO in the penalty order.
2. We have heard and considered the arguments advanced by the parties and have gone through the orders of the authorities below. material available on record and the decisions relied upon. The facts in brief are that "Technip", a company incorporated in Italy. was awarded a turnkey contract by Indian Oil Corporation Ltd. (IOCL) in November, 1999 for design, construction and commissioning of a hydro treater and hydrogen facility at IOCL's Gowhati refinery. Under the terms of the contract, Technip was required to supply equipment to IOCL and undertake construction/installation services and related design and engineering services, the consideration for which was dominated partly ·in Indian and partly in foreign currency. Revenues arising to "Technip" from onshore construction, onshore design'and engineering, onshore supply, offshore construction and offsflore design and engineering were offered to tax in india by Technip. The revenues from offshore supply of equipmefit were' not considered to be chargeable to tax in India. The "Technip" had established a project office in India for execution of the aforesaid contract. In view of the fact that P.O constituted a PE of 'Technip" in India under art. 5 of India Italy Treaty, 'Technip" filed a return of income for the subject year on 31st Oct., 2002 declaring business income of Rs. 7,34,39,734 which was adjusted with brought forward losses of asst. yr. 2001-02 and nil income return was filed. In the assessment framed under s. 143(3) of the Act, the AO rejected the books of account of the assessee and. total income was assessed at Rs. 8,91,39,231. With the assistance of following chart, the returned income and the assessed income arising from different activities can be understood.
Vide order dt. 30th Nov., 2005 the learned CIT(A) has confirmed the additions made by the AO. Against the said first appellate order, the assessee went in second appeal (ITA No. 173/Del/2006) before the Tribunal and the Tribunal vide its order dt. 31st July, 2009 set aside the issue relating to offshore supply of equipment to the file of the learned CIT(A) for his fresh consideration. The issue relating to foreign exchange fluctuation gain was decided in favour of the assessee. The addition made on account of onshore supply and contract receipts as well as fees for design and engineering services raised before the Tribunal were not pressed. Vide order dt. 26th Nov., 2009 the learned CIT(A) in compliance of the direction of the Tribunal has again confirmed the taxability of offshore supply of equipment. This action of the learned CIT(A) was questioned by the assessee before the Tribunal in ITA No. 434/Del/2010 and the Tribunal vide its order dt. 30th Sept., 2010'[reported as Teclmip ItaLy SPA vs. AddL CIT (2011) 136 TTJ (Del) 403 : (2011) 51 DTR (DeL)(Trib) 266-Ed.) has finally deleted the addition. Mter considering the order of the Tribunal, the final assessed income of the assessee has been worked out at Rs. 8,02,65,698 as against the returned income of Rs. 7,34,39,734.
3. The penalty order under s. 271(I)(c) of the Act was passed on 29th March, 2007 after confirmation of the additions by the learned CIT(A) in its first round on 30th Nov., 2005. The AO has levied penalty under s. 271(l)(c) of the Act at Rs. 75,35,800 on all the additions made in the assessment order and upheld by the learned CIT(A). The learned CIT(A) vide his order dt. 18th Feb., 2010 has deleted this penalty of Rs. 75,35,800 against which the Revenue is in appeal before the Tribunal.
4. In support of the ground the learned Departmental Representative has basically placed reliance on the penalty order. He submitted that additions made on account of taxability of offshore supply of equipment and offshore revenue have been set aside by the Tribunal. So far as onshore revenue is concerned the income is not disputed by the assessee, the only dispute is regarding its quantum. It is also an established fact that the assessee has furnished inaccurate particulars regarding I taxability for design and engineering. The learned Departmental Representative referred contents of page No. 12 of the penalty order in support of his above contention that the penalty is leviable on the addition not in dispute. He also placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Zoom Communication (P) Ltd. (2010) 233 CTR (Del) 465 : (2010) 40 DTR (Del) 249 : (2010) 327 ITR 510 (Del).
5. While reiterating the submissions made before the authorities below. the learned Authorised Representative submitted that in the present case penal provision under s. 271(I)(c) of the Act are not attracted due to several reasons. Firstly, penalty cannot be levied on a debatable issue, secondly it cannot be levied on as estimated addition, thirdly penalty cannot be levied where books have been rejected and the tax has been assessed on lower income than the returned income. The learned Authorised Representative also referred provisions laid down under s. 271(I)(c) of the Act. To support his argument that penalty cannot be levied on the explanation of the assessee which is bona fide and when all the facts relating to the same and material to the computation of its total income have been disclosed by the assessee. The learned Authorised Representative placed reliance on the following decisions:
CIT vs. K.L. Mangal Sain (1977) 107 ITR 598 (All);
CIT vs. Chhaganlal ShankarlaL (1975) 100 ITR 464 (Gau);
CIT vs. Shiunarayan Jamnalal & Co. (1998) 232 ITR 311 (MP);
CIT vs. Subhash Trading Co. (1996) 131 CTR (Guj) 121 : (1996) 221 ITR 110 (Guj);
CIT vs. Aljun Prasad Ajit Kumar (2008) 1 DTR (All) 272 ;
CIT vs. Raj Bans Singh (2005) 276 ITR 351 (AU);
Asstt. CIT vs. Allied Construction (2007) 106 TTJ (Del) 616;
CIT vs. Aero Traders (P) Ltd. (2010) 231 CTR (Del) 524 : (2010) 38 DTR (Del) 150: (2010) 322 ITR 316 (Del);
ITO vs. Raui Khurana (2008) 1141TJ (Del) 561;
CIT vs. Modi Industrial Corporation (2010) 34 DTR (P&H) 158;
CIT vs. Vyay Kumar Jain (2010) 232 CTR (Chatiisgarh) 255 : (2010) 38 DTR (Chattisgarh) 345 : (2010) 325 ITR 378 (Chattisgarh);
Asstt. CIT vs. Om Prakash AgganvaL. ITA No. 5589/Del/201O, Delhi Bench 'E';
CIT vs. Bhoj Raj & Co. (2001) 247 ITR 696 (P&H);
CIT vs. Reliance Petroproducts (P) Ltd. (2010) 230 CTR (SC) 320: (2010) 36 DTR (SC) 449: (2010) 322 ITR 158 (SC);
CIT vs. Tarapore & Co. (200B) 1 DTR (Mad) 196;
CIT vs. S. Dhanabal (200B) 12 DTR (Del) 337;
CIT vs. Vamchampigons & Agro Produce (2006) 200 CTR (Del) 259 : (2006) 284 ITR 408 (Del);
CIT vs. Amit Jain (2013) 258 CTR (Del) 88 : (2013) 85 DTR (Del) 175 : (2013) 351 ITR 74 (Del);
Global Green Co. Ltd. vs. Dy. CIT, ITA No. 1390/Del/2011.
6. Having gone through the orders of the authorities below, we find that the AO has levied penalty under s. 271(l)(c) of the Act at Rs. 75,35,800 on the additions made on account of :
(i) Offshore supply of equipment (Rs. 16,27,231)
(ii) Income from foreign exchange quantum gain (Rs. 72,46,302)
(iii) Income from onshore supply and contract receipts (Rs. 4,46,53,300) and
(iv) Income from fee for design and engineering under s. 115A (Rs. 3,55,85,515).
7. So far as the penalty levied on the addition made on account of offshore supply of equipment is concerned, the addition has been finally deleted by the Tribunal vide order dt. 30th Sept., 2010 in ITA No. 434/Del/201O (supra). Similarly the Tribunal has also deleted the addition made on account of income from foreign exchange fluctuation gain. Thus there is no question of levy of penalty under s. 271(1)(c) of the Act on these additions. So far as penalty levied on the addition made on account of onshore supply of equipment is concerned. we find that in the penalty order, the AO has dealt with this issue at page Nos. 12 to 17 of the penalty order. The genuineness of the foreign expenditure incurred was not accepted on the basis that the books of accounts pertaining to dollar payments were not verifiable, payments have been made in dollar accounts to non-residents and the assessee company had filed only photocopies of vouchers. It was held that the onus was on the assessee to produce the original books of account and other relevant documents regarding payment in dollar. The AO accordingly rejected the books of account and estimated the profit @ 8 per cent. It was held that the assessee failed to establish the claimed loss and hence it has furnished inaccurate particulars of income. In this regard, the learned CIT(A) has given his finding in para Nos. 9 to 9.7 at page Nos. 36 to 38 of the first appellate order against penalty. In crux the assessee had offered the income from onshore supply and other contraot receipts to inl~ on the basis of the audited books of accounts as maintained by the. The AO was of the opinion that there were various discrepancies in the books of account maintained by the assessee and accordingly the books were rejected under s. 145 of the Act and the income from the above activity was estimated by the AO by applying 8 per cent profit rate on the gross receipts from this activity. Since the assessee had claimed loss which it was not able to justify, therefore, the AO held that the assessee had furnished inaccurate particulars of income and has levied penalty. The AO has not given reason for applying 8 per cent rate. Of course, there is no finding beyond doubt by the AO that any false claim was made by the assessee and there is no dispute that income from onshore supply and other contract receipts has been estimated by the AO after rejection of books of account under s. 145 of the Act. The estimation of income in this regard has also been made on the basis of the disclosure made by the assessee. It is now a well established proposition of law that per cent under s. 27l(U(c) DLthe Act cannot be levied on an estimated income. One of such cited decisions is of Hon'ble Allahabad High Court in the case of CIT vs. K.L. Mangal Sain (supra) wherein it has been held that merely because books of the assessee were rejected and income was assessed on estimate basis, it could not be held that the assessee was guilty of fraud or gross or wilful neglect for the purpose of levy of penalty under s. 271(1)(c) of the Act. Similar view has been taken by the Hon'ble Gauhati High Court in the case of CIT vs. Chhaganlal Shankarlal (supra) wherein accounts maintained on regular basis on the basis of which return was filed, was rejected and income was estimated. Respectfully following ratio laid down in these decisions on this issue, we are of the view that the learned CIT(A) has right deleted the penalty. The reason being in such an estimation of income it cannot be held beyond doubt that there was furnishing of inaccurate particulars of the income on the part of the assessee to justify the penal action under s.271(1)(c) of the Act. The material finding of the learned CIT(A) that the income from the activity of onshore supply and contract receipts was duly disclosed by the assessee in its return of income has also not been rebutted. The action of the learned CIT(A) in this regard is thus upheld.
8. So far as penalty levied on addition made on account of income from fee for design and engineering under s. 115A is concerned, we find that the issue has been discussed by the AO at page No. 7 of the penalty order. The AO has justified the levy of penalty on the basis that the IT Act provides for a specific section for charging of income from technical fees for a foreign company under s. 115A @ 20 per cent and that the assessee had wrongly not paid tax on such receipts under s. 115A. Therefore, the assessee had filed inaccurate particulars of its income. The learned CIT(A) dealt with this issue in para Nos. 10.5 and 10.6 at page No. 39 of his order. The learned CIT(A) has deleted the penalty on the basis that penal provision is not applicable on a debatable issue. He observed that there was difference of opinion regarding the manner of taxability of a particular stream of income. The learned CIT(A) has also observed that the assessee had a bona fide belief regarding the manner of taxability of income on account of design and engineering fees on net income basis and that all the facts material to the computation of income were duly disclosed by the assessee and the dispute is limited to the manner of computing taxability on such income and thus there is no concealment of income or furnishing of inaccurate particulars of income. In this regard he has taken support from several decisions including that of Hon'ble jurisdictional Delhi High Court in the case of CIT vs. S. Dhanabal (2008) 12 DTR (Del) 337 : (2009) 309 ITR 268 (Del) holding that where explanation offered by the assessee is bona fide and all the facts which were material to the computation of his income were disclosed by the assessee, penalty under s. 271(1)(c) is not leviable. Before us the learned Authorised Representative has also placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. (supra) and of Hon'ble Delhi High Court in the case of CIT vs. Amit Jain (supra). There is no dispute that penalty under s. 271(1)(c) cannot be imposed where bonafide claim of the assessee is not accepted and a different view is taken by the AO. It is also an established proposition of law that where an issue is debatable on which two views are possible, penalty cannot be levied under s. 271(1)(c) of the Act wherein addition has been made by taking one of the possible views. In the present case we find that e assessee had credited the revenues arising on account of fees from design and engineering services in its P&L a/ c and income so eamed offered to tax on the basis of net profit as per audited books of accounts. The complete break up of the revenue arising to the assessee was furnished before the AO and an explanation was also furnished for the reasons for not considering such receipts as taxable under s. 9(1)(vii) of the Act. The basis for offering the income from this activity as business income on net profit basis was as per Explanation to s. 9(1)(vii) of the Act and advance ruling in the case of Horizontal Drilling International S.A., In re (1999) 152 CTR (AAR) 401. Thus, there is no reason to doubt the submission of the assessee that the assessee had a bona fide basis and reasoning regarding the manner of taxability of income on account of design and engineering fees on net income basis nor is there any dispute regarding this material fact that all the facts necessary for the computation of income were duly disclosed by the assessee. We thus find that the dispute is limited to the manner of computing taxability of such income only about which the assessee was having a bona fide belief as discussed above. Considering these facts in totality we are of the view, that the learned CIT(A) has rightly deleted the penalty levied on the addition made on account of income from fee for design and engineering under s. 115A of the Act.
9. Even otherwise no penalty is leviable as tax sought to be evaded is nil. In this regard, we find support from cl. (C) to Expln. 4 to s. 271(1)(c) of the Act, as per which the amount of tax sought to be evaded means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income being reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. In the present case, however, tax sought to be evaded worked out at Rs. 2,85,50,495 whereas tax on returned income has been shown at Rs. 3,52,51,072. The learned CIT(A) has discussed relevant submission in this regard in para Nos. 10.4 and 10.5.1, page Nos. 26 and 27 of the first appellate order and has given his finding in para No. 13.2 at page No., 40 of the order.
10. Under these facts and circumstances, we do not find infirmity in the first appellate order, whereby the learned CIT(A) has rightly deleted the penalty levied under s. 271(l)(c) of the Act in question. We are thus not inclined to interfere with the finding of the learned CIT(A) in this regard. The same is upheld. The ground is accordingly rejected.
11. Consequently appeal is dismissed .