VAN OORD DREDGING AND MARINE CONTRACTORS BV, MUMBAI V. ASST DIT (IT)2(2), MUMBAI

ITA 1473/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1254 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2001-2002
• Appeal Filed On: 02-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Keywords: Permanent establishment; Wrong claim; Bad and doubtful debts; Corroborative evidences
• Section: 271(1)(c); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT& MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO. 1473/MUM/2017 (ASSESSMENT YEAR: 2001-02) VAN OORD DREDGING AND MARINE CONTRACTORS BV 201, 2 ND FLOOR CENTRAL PLAZA 166 CST RD, KALINA, MUMBAI PIN- 400098 VS. ASST DIT (IT)2(2) NOW TRANSFERRED TO DCIT (IT) 4(3)(1)16 TH FLOOR, AIR INDIA BLDG, NARIMAN POINT, MUMBAI, PIN-400020 [ PAN NO. AAA CH3 500 M ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI PORUS KAKA, AR RESPONDENT BY : SHRI JACINTA ZIMIK VASHAI , CIT D.R. DATE OF HEARING 08.01.2020 DATE OF PRONOUNCEMENT 2 7 . 0 5 . 20 20 O R D E R PER MS. MADHUMITA ROY - JM: THE APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIREC TED AGAINST THE ORDER DATED 29.11.2016 PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS) 58, MUMBAI ARISING OUT OF THE ORDER DATED 27.11.2006 PA SSED BY THE ADIT(INTERNATIONAL TAXATION)-2(2), MUMBAI UNDER SEC TION 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO T HE ACT) FOR ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE IS A COMPANY INCORPORATED IN THE NE THERLANDS AND IS AN INTERNATIONAL DREDGING CONTRACTOR. IT IS A TAX RES IDENT OF THE NETHERLAND AND EXECUTES CONTRACT IN INDIA AND FOR THIS PURPOSE IT HAS ESTABLISHED PROJECT/SITE OFFICES IN INDIA WITH THE APPROVAL OF RBI. THE ASS ESSEE HAS FILED ITS RETURN OF ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 2 - INCOME FOR THE A.Y. 2001-02 ON 30.10.2001 SHOWING A LOSS OF RS. 128,033,980/-. WHILE COMPUTING THE RETURNED LOSS O F THE SAID AMOUNT OF RS. 128,033,979/-, THE INCOME OF RS. 307,870,463/- RECE IVED BY THE ASSESSEE IN RELATION TO THE NEW MANGALORE PORT TRUST (NMPT) PRO JECT WAS REDUCED ON THE BASIS THAT THE SAID PROJECT WAS COMPLETED IN F.Y. 1 995-96 AND ACCORDINGLY IN THE ABSENCE OF ANY PERMANENT ESTABLISHMENT (PE) IN RELATION TO THE NMPT PROJECT IN A.Y. 2001-02, THE SAID AMOUNT WAS NOT TA XABLE AS PER THE PROVISIONS OF THE INDIA AND NETHERLANDS TAX TREATY. 3. THE FACT IS THIS THAT IN NOVEMBER, 1994 THE APPE LLANT WAS AWARDED A CAPITAL DREDGING CONTRACT BY NEW MANGALORE PORT TRU ST (NMPT) IN RELATION TO DEVELOPING FACILITIES AT NEW MANGALORE PORT FOR HAN DLING CRUDE AND POL PRODUCTS. PURSUANT TO THE SAME THE APPELLANT DULY OBTAINED APPROVAL FROM THE RBI TO OPEN A SITE OFFICE AT MANGALORE UP TO 30 TH AUGUST, 1996. UPON COMPLETION OF THE SAID PROJECT AT NEW MANGALORE POR T IN THE YEAR 1995-96 THE APPELLANT CLOSED ITS SITE OFFICE AND DEMOBILIZED EQ UIPMENT AND PERSONNEL. FURTHER THAT UPON COMPLETION OF THE SAID CONTRACT T HE APPELLANT MADE CLAIMS ON THE SAID NMPT AGGREGATING TO RS. 892,579,385/- FOR ADDITIONAL WORK PERFORMED. COUNTER CLAIM TO THE TUNE OF RS. 138,50 0,039/- FOR THE LOSS OF REVENUE DUE TO DELAY IN COMPLETION OF THE SAID CONT RACT BY THE ASSESSEE WAS ALSO MADE BY THE NMPT. ON MAY 19, 1998 THE ARBITRA L TRIBUNAL WAS PLEASED ITS AWARD IN FAVOUR OF THE APPELLANT UPON WHICH THE SAID NMPT FILED AN APPEAL BEFORE ADDITIONAL DISTRICT COURT. ULTIMATELY BY AN ORDER DATED MARCH 30, 2000 THE ADDITIONAL DISTRICT COURT OF MANGALORE WAS PLEA SED TO UPHELD THE CLAIM IN FAVOUR OF THE APPELLANT. THEREAFTER, AN APPEAL BEF ORE THE KARNATAKA HIGH COURT WAS MOVED BY THE NMPT AND DURING THE F.Y. 2000-01 T HE SAID NMPT WITHDREW THE APPEAL FILED WITH THE KARNATAKA HIGH C OURT AND PAID THE CLAIM OF ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 3 - THE APPELLANT TO THE TUNE OF RS. 307,870,463/- IN T HE MONTH OF SEPTEMBER, 2000. IN FACT, IN THE RETURN OF INCOME FILED BY THE APPEL LANT, THIS PARTICULAR AMOUNT WAS REDUCED FROM ITS BUSINESS PROFIT FOR DETERMININ G ITS TAXABLE INCOME. 4. THE CASE OF THE APPELLANT IS THIS THAT THE APPEA LLANT SITE OFFICE AT NEW MANGALORE PORT BEING AN INDEPENDENT PE; THE SAME WA S NOT IN EXISTENCE ON THE DATE OF ACCRUAL OF THE SAID INCOME BY WAY OF ARBITR ATION AWARD AND IN THE ABSENCE SUCH PE IN RELATION TO THE NMPT PROJECT IN THE A.Y. 2001-02 THE SAID AMOUNT OF RS. 307,870,463/- WAS NOT TAXABLE AS PER PROVISION OF THE INDIA NETHERLANDS TAX TREATY. THE SAME WAS NOT, HOWEVER, FOUND TENABLE BY THE LD. AO AND THE SAME WAS BROUGHT TO TAX. THE PENALTY PR OCEEDING UNDER SECTION 271(1)(C) READ WITH EXPLANATION 1 OF THE SAID SECTI ON OF THE INCOME TAX ACT HAS BEEN INITIATED DURING THE COURSE OF ASSESSMENT PROCEEDING AGAINST THE APPELLANT. SUBSEQUENTLY, THE SAID PENALTY PROCEEDI NG WAS KEPT IN ABEYANCE BECAUSE OF THE PARTICULAR FACT THAT THE APPEAL AGAI NST THE DECISION OF THE AO WAS PENDING BEFORE THE LD. CIT(A). THEREAFTER, BY AND UNDER AN ORDER DATED 15.12.2004 THE SAID APPEAL WAS DISMISSED BY THE LD. CIT(A) CONFIRMING THE ADDITION MADE BY THE LD. AO WHEREUPON, AN APPEAL HA S BEEN PREFERRED BEFORE THE INCOME TAX APPELLATE TRIBUNAL BUT THE SAME WAS DISMISSED VIDE ORDER DATED 29.03.2016. AS A RESULT, OF THE DISMISSAL OF THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD. CIT(A) DATED 15.12.2004 THE SAID ORDER ATTAINED FINALITY AND THE PENALTY PROCEEDING WHICH WAS KEPT IN ABEYANCE GOT REVIVED AND WAS FINALIZED BY AN ORDER DATED 27. 11.2006 BY LEVYING PENALTY TO THE TUNE OF RS. 14,77,77,822/- UNDER SECTION 271 (1)(C) OF THE ACT ON THE GROUND OF FURNISHING INACCURATE PARTICULARS OF INCO ME BY THE ASSESSEE WHICH WAS, IN TURN, CONFIRMED BY THE LD. CIT(A). HENCE, THE INSTANT APPEAL BEFORE US. ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 4 - AT THE TIME OF HEARING OF THE INSTANT APPEAL THE L D. SENIOR ADVOCATE APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT WHILE INITIATING THE PENALTY PROCEEDING, THE LD. AO HAS NEITHER ALLEGED CONCEALM ENT OF INCOME NOR FILING INACCURATE PARTICULARS OF INCOME. APART FROM THAT HE TOOK US TO THE NOTE 7 WHICH WAS ANNEXED TO THE RETURN OF INCOME FILED BY THE ASSESSEE FROM WHICH IT APPEARS THE ASSESSEE HAS RECEIVED GROSS AMOUNT OF R S. 307,870,463/- BY THE NMPT AGAINST THE CLAIM MADE BY THE ASSESSEE FOR ADD ITIONAL WORK PERFORMED. HOWEVER, AT THE TIME OF ACCRUAL OF THAT PARTICULAR INCOME, SINCE, THE APPELLANT DID NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) IN IN DIA, RELYING UPON ARTICLE 5 READ WITH ARTICLE 7 OF THE INDIA NETHERLANDS TREATY , THE SAID INCOME IS NOT TAXABLE IN INDIA FOR THE F.Y. 2000-01 FOR THE SAID NMPT PROJECT. THUS THE SAME WAS NOT OFFERED TO TAX AS SUBMITTED BY THE LD. SENIOR ADVOCATE APPEARING FOR THE ASSESSEE. THERE WAS A COMPLETE DISCLOSURE IN RESPECT OF THE NMPT ARBITRATION AWARD WHICH IS EVIDENT FROM THE NOTE 7 ANNEXED TO T HE COMPUTATION ON INCOME WHEREIN THE APPELLANT HAS DISCLOSED THE ARBITRATION AWARD AND EXPLAINED THE LEGAL OPINION OF THE ASSESSEE FOR NOT OFFERING THE SAME AS TAXABLE INCOME. THUS NEITHER CONCEALMENT OF INCOME NOR FURNISHING OF INA CCURATE PARTICULARS OF INCOME CAN BE ALLEGED AGAINST THE ASSESSEE AS THE A RGUED BY THE LD. AR AND PENALTY IS NOT LIABLE TO BE LEVIED UNDER SECTION 27 1(1)(C) OF THE ACT. 5. ON THE OTHER HAND, THE LD. REPRESENTATIVE APPEAR ING FOR THE REVENUE SUBMITTED BEFORE US THAT THE ASSESSEES ACTION OF O FFERING THE TAX IN RESPECT OF INCOME OF RS. 100 LAKHS ON ACCOUNT OF BAD DEBTS FRO M KANDALA PORT TRUST PROJECT BUT NOT OFFERING THE INCOME OF RS. 30.79 CR ORES RECEIVED BY WAY OF ARBITRATION AWARD SHOWS THE WILLFUL OMISSION ON T HE PART OF THE ASSESSEE AND THE INTENTION AND/OR DESIRE TO AVOID PAYMENT OF TAX . ACCORDING TO HIM THE ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 5 - ASSESSEE HAS NOT DISCHARGED ITS ONUS AND NO SATISFA CTORY EXPLANATION HAS BEEN POINTED BY THE ASSESSEE. ON THIS ASPECT, HE RELIED UPON THE ORDER PASSED BY THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTI ES AND WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT APPEARS FROM THE RECORDS THAT THE LD. AO WHILE INITIATING THE PENALTY PROCEEDING RELIED UPON THE CONTENTION MADE BY THE L D. AO IN THE QUANTUM ORDER SUBSEQUENTLY SUPPLEMENTED BY THE CIT(A) THAT, IN TERMS OF ARTICLE 7 OF THE INDIA NETHERLANDS TAX TREATY, THE BUSINESS PROF ITS OF A ENTERPRISE OF NETHERLANDS WILL BE TAXABLE IN INDIA IF THE ENTERPR ISE CARRIES THE BUSINESS IN INDIA THROUGH THE PE SITUATED IN INDIA; MEANING THE REBY THAT IT IS NOT NECESSARY THAT THE PE SHOULD BE IN EXISTENCE IN THE PARTICULA R YEAR IN WHICH THE INCOME IS TAXED. THUS, ADMITTEDLY THE CASE OF THE ASSESSEE M ADE BEFORE THE AUTHORITIES BELOW RELATING TO THE INCOME OF RS. 30.79 CRORES RE CEIVED FROM NMPT AS ARBITRATION AWARD NOT CHARGEABLE TO TAX IN INDIA HAS NOT BEEN ACCEPTED BY THE AUTHORITIES BELOW. THE AUTHORITIES BELOW WAS FURTH ER HARPING UPON THE CONDUCT OF THE ASSESSEE IN RESPECT OF OFFERING THE INCOME O F RS. 100 LAKHS ON ACCOUNT OF BAD DEBTS RECOVERY FROM KANDALA PORT TRUST PROJECT AND, THEREFORE, THE REASON FOR NOT BRINGING THIS PARTICULAR INCOME IN QUESTION TO THE TUNE OF RS. 30.79 CRORES AS RECEIVED AS ARBITRATION AWARD NOT FOUND T O BE JUSTIFIED. HOWEVER, THE STAND OF THE ASSESSEE BEFORE THE ITAT TOWARDS OFFER ING THE INCOME OF RS. 100 LAKHS ON ACCOUNT OF THE SAID BAD DEBTS RECOVERY AS A MISTAKE WAS FOUND TO BE TAKEN INTO CONSIDERATION NOT IN ITS PROPER PERSPECT IVE BECAUSE OF THE PARTICULAR REASON THAT THE ASSESSEE, AS WE FIND FROM THE RECOR DS BEFORE US, CATEGORICALLY EXPLAINED THAT THE SAID AMOUNT WAS RELEASED BY DCI AGAINST A BANK GUARANTEE AND WAS SUBJECT MATTER OF ARBITRATION BETWEEN DCI A ND KPT. ON A ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 6 - CONSERVATIVE BASIS RS. 1,18,40,000/- WAS OFFERED TO TAX IN A.Y. 2000-01. IN THE PREVIOUS YEAR ENDED MARCH 31, 2001, DCI HAS DISCHAR GED THE COMPANY FROM THE ABOVE GUARANTEE. ACCORDINGLY, THE BAD DEBT OF RS. 100 LAKH HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. APART FRO M THAT WE FIND FROM THE RECORDS, AS WELL AS FROM THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW REPEATEDLY THAT THE APPELLANT WAS UNDER BONA FIDE BELIEF AND ON THE INTERPRETATION OF THE DUTCH TREATY CLAIMED T HAT THE ARBITRATION AWARD OF 30.79 CRORES IS NOT TAXABLE. THE EXPLANATION HA S ALSO BEEN GIVEN BY THE ASSESSEE IN NOTE 7 ANNEXED TO THE RETURN OF INCOME FILED BY IT. IT IS RELEVANT TO MENTION THAT SEC. 271(1)(C) OF THE ACT PROVIDES THA T PENALTY MAY BE LEVIED, WHERE IN THE COURSE OF ANY PROCEEDING UNDER THE ACT THE AO IS SATISFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INC OME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THOUGH THE EXPRESSIONS CONCEALED THE PARTICULARS OF INCOME AND FURNISH INACCURATE PARTICULARS OF I NCOME HAVE NOT BEEN DEFINED EITHER IN SEC. 271(1)(C) OF THE ACT OR ELSE WHERE IN THE ACT RELYING ON DIFFERENT JUDICIAL PRONOUNCEMENT AND AS PER THE INT ERNATIONAL DICTIONARY AS WE FIND, CONCEAL IMPLIES TO HIDE OR WITHDRAW FROM OBS ERVATION, TO COVER OR KEEP FROM SIGHT, OR TO PREVENT THE DISCOVERY OF OR TO WI THHOLD KNOWLEDGE OF. THE OFFENCE OF CONCEALMENT IS THUS A DIRECT ATTEMPT TO HIDE AN ITEM OF INCOME OR A PORTION THEREOF FROM THE KNOWLEDGE OF THE INCOME-TA X AUTHORITIES. FURTHERMORE, THERE HAS TO HAVE A DELIBERATE ACT ON THE PART OF THE ASSESSEE FOR SUCH CONCEALMENT. ACCORDING TO THE SHORTER OXFORD ENGLISH DICTIONARY, 3 RD EDITION, VOLUME 1, CONCEALMENT IS THE INTENTIONAL S UPPRESSION OF TRUTH OR FACT KNOWN TO THE INJURY OR PREJUDICE TO ANOTHER. THUS, THE PRINCIPLE EMANATES FROM ABOVE ON SEC. 271(1)(C) OF THE ACT, CAN BE SUMMARIZ ED AS UNDER: (I) THE PROVISION OF BEING OF A PENAL NATURE, SOME AMOUNT OF CULPABLE NEGLIGENCE OR WILLFUL OMISSION ON THE PART OF THE A SSESSEE MUST BE ESTABLISHED ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 7 - BEFORE PENALTY IS IMPOSED. EXISTENCE OF MENS REA I S ESSENTIAL FOR IMPOSITION OF PENALTY. (II) IF THE DEFAULT FLOWS FROM A BONA FIDE BELIEF A ND IT IS NOT THE RESULT OF THE DELIBERATE ACT OF DEFIANCE OF THE LAW, NO PENALTY I S LEVIABLE. (III) NO PENALTY IS LEVIABLE WHEN THE ASSESSEES CO NTENTION IN THE COURSE OF THE ASSESSMENT PROCEEDINGS WAS BASED ON VARIOUS SUP PORTING DECISIONS, WHICH WERE REJECTED BY THE ASSESSING OFFICER DURING THE A SSESSMENT PROCEEDINGS. THE EXPRESSION FURNISHING OF INACCURATE PARTICULA RS OF INCOME HAS ALSO NOT BEEN DEFINED IN THE ACT. THE EXPRESSION INACC URATE REFERS TO NOT IN CONFORMITY WITH THE FACT OF TRUTH AND I.E. THE MEA NING WHICH IN OUR HUMBLE OPINION, IS RELEVANT TO THE CONTEXT OF FURNISHING OF INACCURATE PARTICULARS. THE EXPRESSION PARTICULARS REFERS TO FACTS, DETAIL, SPECIFIES, OR INFORMATION ABOUT SOMEONE OR SOMETHING. THUS, THE PLAIN MEANING OF EXPRESSION INACCURATE PARTICULARS OF INCOME IMPLIES FURNISHING OF DETAIL S OR INFORMATION ABOUT INCOME WHICH ARE NOT IN CONFORMITY WITH THE FACTS O F TRUTH. THE DETAILS OR INFORMATION ABOUT INCOME DEAL WITH THE FACTUAL DETA IL OF INCOME AND THIS CANNOT BE EXTENDED TO AREAS WHICH ARE SUBJECTIVE SU CH AS THE STATUS OF TAXABILITY OF AN INCOME, ADMISSIBILITY OF A DEDUCTION AND INTE RPRETATION OF LAW. THE FURNISHING OF INACCURATE INFORMATION THUS RELATES T O FURNISHING OF FACTUALLY CORRECT DETAILS AND INFORMATION ABOUT INCOME. IN T HE PRESENT CASE, WHAT HAS BEEN TREATED AS FURNISHING OF INACCURATE PARTICULAR S IS THE INCOME NOT BEING INCLUDED TO THE TUNE OF RS. 30.79 CRORES RECEIVED A S ARBITRATION AWARD IN ITS TAXABLE INCOME WHICH WAS NOT ADMITTED BY THE AO. W HAT IS CORRECT CLAIM AND WHAT IS AN INCORRECT CLAIM IS A MATTER OF PERSPECTI VE. RAISING A LEGAL CLAIM, EVEN IF IT IS ULTIMATELY FOUND TO BE LEGALLY UNACCE PTABLE, IN OUR CONSIDERED OPINION THE SAME CANNOT AMOUNT TO FURNISHING OF INA CCURATE PARTICULARS OF ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 8 - INCOME JUST BECAUSE THE AO DID NOT ACCEPT THE INTER PRETATION, SUCH AN INTERPRETATION IS NOT RENDERED INCORRECT. THUS, IN THAT VIEW OF THE MATTER THE CASE OF THE ASSESSEE CANNOT BE SAID TO BE NEITHER A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. HOWEVER, EVEN ASSUMING THAT THE DEEMING FICTION UN DER EXPLANATION 1 TO SEC. 271(1)(C) CAN BE TRIGGERED BY A WRONG LEGAL CLAIM, IT CANNOT BE THE CASE THAT MERELY BECAUSE THERE IS WRONG CLAIM, EVEN IF T HAT BE SO, PENALTY UNDER SECTION 271(1)(C) CAN BE IMPOSED. THIS DEEMING FIC TION UNDER SECTION 271(1)(C) ONLY SHIFTS THE ONUS OF PROOF ON THE ASSE SSEE, AS THIS EXPLANATION ITSELF PROVIDES THAT A PENALTY CAN ONLY BE IMPOSED (A) WHEN THERE IS NO EXPLANATION BY THE ASSESSEE, (B) WHEN THE EXPLANATI ON GIVEN BY THE ASSESSEE IS FOUND TO BE FALSE, AND (C) WHEN THE ASSESSEE PROVID ES AN EXPLANATION WHICH HE FAILS TO SUBSTANTIATE AND HE FAILS TO PROVE THAT TH E EXPLANATION WAS BONA FIDE AND THAT ALL THE FACTS NECESSARY FOR THE SAME AND MATER IAL FOR COMPUTATION OF INCOME HAVE BEEN DULY DISCLOSED BY THE ASSESSEE. IN THE CASE BEFORE US IN HAND NONE OF THE CONDITIO NS IS FULFILLED IN FAVOUR OF THE REVENUE FOR IMPOSING PENALTY. AS IT APPEARS ON RECORD THAT AT THE VERY ONSET OF FILING OF RETURN THE ASSESSEE EXPLAINED TH E REASONS FOR NOT INCLUDING THE AMOUNT IN QUESTION BEING 3.79 CRORES RECEIVED AS A RBITRATION AWARD IN ITS TAXABLE INCOME BY ANNEXING NOTE 7 RELYING UPON THE CONTENT OF THE INDIA- NETHERLANDS TREATY. SUCH EXPLANATION HAS NOT BEEN FOUND TO BE FALSE BY THE AUTHORITIES BELOW NEITHER THERE IS ANY FINDING TO T HAT EFFECT AS ON RECORD. EVEN ASSUMING THE ASSESSEE FAILS TO SUBSTANTIATE THE EXP LANATION, HE HAS BEEN ABLE TO DEMONSTRATE THAT THE EXPLANATION IS BONA FIDE. ALL THE DETAILS AND JUSTIFICATION OF CLAIM HAVE BEEN SET OUT IN SAID NOTE 7 ANNEXED T O THE RETURN OF INCOME FILED BY THE ASSESSEE GIVING RATIONAL AND COMPUTATION WHI CH IS EVIDENT FROM THE ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 9 - STATEMENT SHOWING GROSS TOTAL INCOME AS ANNEXED TO THE PAPER BOOK BEFORE US. THEREFORE, THE QUESTION OF BONA FIDES CANNOT BE DEC IDED AGAINST THE ASSESSEE EITHER. THE CONDUCT OF THE ASSESSEE IS BONA FIDE O R NOT IS ESSENTIALLY A QUESTION OF FACT AND THE RELATED FACTS ARE ALWAYS IN THE EXC LUSIVE KNOWLEDGE OF THE ASSESSEE. THE ASSESSEES CONTENTION BASED ON ARTIC LE 5 READ WITH ARTICLE 7 OF INDIA NETHERLANDS TREATY THAT HE WAS OF THE BONA FI DE BELIEF THAT THE ARBITRATION AWARD TO THE TUNE OF RS. 30.79 CRORES IS NOT TAXABLE IN INDIA SINCE HOLLANDSCHE AANNEMING MAATSCHAPPIJ BV (HAM) DOES NO T HAVE ANY PERMANENT ESTABLISHMENT IN INDIA IN THE F. Y. 2000-01 FOR THE NEW MANGALORE PORT TRUST PROJECT. THE REVENUE MAY OR M AY NOT AGREE WITH THIS UNDERSTANDING OF LAW OF THE ASSESSEE BUT THE FACT T HAT THERE CAN BE A BONA FIDE VIEW TO THAT EFFECT CANNOT BE RULED OUT. THE HUMAN PROBABILITIES FAVOUR ACCEPTANCE OF THIS EXPLANATION FOR BONA FIDES. IT CANNOT ALWAYS BE FEASIBLE TO PROVE THE CLAIM OF BONA FIDES TO THE HILT, NOR, IN OUR CONSIDERED OPINION, THE ASSESSEE CANNOT BE EXPECTED TO DO SO. WHETHER OR N OT THE PERSON HAS ACTED BONA FIDE REFLECTS THE STATE OF HIS MIND IN RESPECT OF HIS CONDUCT, AND, THEREFORE, THE ASSESSEE HAS HIS INHERENT LIMITATIONS IN ESTABL ISHING THIS ASPECT OF THE MANNER. ALL THAT THE ASSESSEE CAN DO, IS TO EXPLAI N THE CIRCUMSTANCES IN WHICH HE HAS ACTED IN A PARTICULAR MANNER AND SET OUT THE RELATED FACTS. THE EXPLANATION FOR BONAFIDES, AT THE COST OF REPETITIO N, NEEDS TO BE CONSIDERED IN A FAIR AND OBJECTIVE MANNER AND IN THE LIGHT OF HUMAN PROBABILITIES. AS LONG AS THE EXPLANATION GIVEN BY THE ASSESSEE IN THE LIGHT OF THE HUMAN PROBABILITIES, THERE ARE NO FACTUAL ERRORS OR INCONSISTENCIES, AND IT IS SUPPORTED BY RATIONAL SUPPORTING EVIDENCES REGARDING FACTUAL EVIDENCES EM BEDDED THEREIN, IF ANY, THE BONAFIDES SHOULD BE TAKEN AS PROVED. WE OBSERVE TH AT THE ASSESSEES EXPLANATION REGARDING BONAFIDES OF THE CLAIM DOES N OT SUFFER FROM ANY APPARENT INCONSISTENCIES OR FACTUAL ERRORS AND IT IS QUITE I N TUNE WITH THE HUMAN ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 10 - PROBABILITIES. WE, THEREFORE, FIND NO REASON TO RE JECT THE REASON AS UNACCEPTABLE. IN THAT VIEW THE MATTER THE CASE OF THE ASSESSEE IS NOT EVEN HIT BY THE MISCHIEF OF ANY OF THE THREE EVENTUALITIES ENVI SAGED BY THE DEEMING FICTION UNDER EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT. NEITHER WE FIND ANY CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE IN NOT INCLUDING RS. 30.79 C RORES RECEIVED AS ARBITRATION AWARD IN ITS TAXABLE INCOME AND THUS IMPOSITION OF PENALTY IS NOT JUSTIFIABLE AT ALL IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE C ASE. HENCE, WE DIRECT THE AO TO DELETE THE IMPUGNED PENALTY OF RS. 147,777,822/- . 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 8. BEFORE PARTING WE WOULD LIKE TO MAKE CERTAIN OBS ERVATION RELATING TO THE ISSUE CROPPED UP UNDER PRESENT SCENARIO OF COVI D-19 PANDEMIC AS TO WHETHER WHEN THE HEARING OF THE MATTER WAS CONCLUDE D ON 08.01.2020 THE ORDER CAN BE PRONOUNCED TODAY I.E. ON 19.05.2020. THE ISSUE HAS ALREADY BEEN DISCUSSED BY THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. JSW LTD. (ITA NOS. 6264 & 6103/MUM/2018) PRONOUNCED ON 14.05 .2020 IN THE LIGHT OF WHICH IT IS WELL WITHIN THE TIME LIMIT PERMITTED UNDER RULE 34(5) OF THE APPELLATE TRIBUNAL RULES, 1963 IN VIEW OF THE FOLLO WING OBSERVATIONS MADE THEREIN: 7. HOWEVER, BEFORE WE PART WITH THE MATTER, WE MUS T DEAL WITH ONE PROCEDURAL ISSUE AS WELL. WHILE HEARING OF THESE A PPEALS WAS CONCLUDED ON 8 TH JANUARY 2020, THIS ORDER THEREON IS BEING PRONOUNCE D TODAY ON THE DAY OF 14 TH MAY, 2020, MUCH AFTER THE EXPIRY OF 90 DAYS FROM TH E DATE OF CONCLUSION OF HEARING. WE ARE ALSO ALIVE TO THE FACT THAT RULE 34 (5) OF THE INCOME TAX ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 11 - APPELLATE TRIBUNAL RULES 1963, WHICH DEALS WITH PRO NOUNCEMENT OF ORDERS, PROVIDES AS FOLLOWS: (5) THE PRONOUNCEMENT MAY BE IN ANY OF THE FOLLOWIN G MANNERS : (A) THE BENCH MAY PRONOUNCE THE ORDER IM MEDIATELY UPON THE CONCLUSION OF THE HEARING. (B) IN CASE WHERE THE ORDER IS NOT PRONO UNCED IMMEDIATELY ON THE CONCLUSION OF THE HEARING, THE BENCH SHALL GIVE A DATE FOR PRO NOUNCEMENT. (C) IN A CASE WHERE NO DATE OF PRONOUNCE MENT IS GIVEN BY THE BENCH, EVERY ENDEAVOUR SHALL BE MADE BY THE BENCH TO PRONOUNCE T HE ORDER WITHIN 60 DAYS FROM THE DATE ON WHICH THE HEARING OF THE CASE WAS CONCL UDED BUT, WHERE IT IS NOT PRACTICABLE SO TO DO ON THE GROUND OF EXCEPTIONAL A ND EXTRAORDINARY CIRCUMSTANCES OF THE CASE, THE BENCH SHALL FIX A FUTURE DAY FOR PRON OUNCEMENT OF THE ORDER, AND SUCH DATE SHALL NOT ORDINARILY (EMPHASIS SUPPLIED BY US NOW) BE A DAY BEYOND A FURTHER PERIOD OF 30 DAYS AND DUE NOTICE OF THE DAY SO FIXE D SHALL BE GIVEN ON THE NOTICE BOARD. 8. QUITE CLEARLY, ORDINARILY THE ORDER ON AN APPE AL SHOULD BE PRONOUNCED BY THE BENCH WITHIN NO MORE THAN 90 DAYS FROM THE D ATE OF CONCLUDING THE HEARING. IT IS, HOWEVER, IMPORTANT TO NOTE THAT THE EXPRESSION ORDINARILY HAS BEEN USED IN THE SAID RULE ITSELF. THIS RULE WAS I NSERTED AS A RESULT OF DIRECTIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHIVSAGAR VEG RESTAURANT VS ACIT [(2009) 317 ITR 433 (BOM)] WHEREIN THEIR LORDSHIPS HAD, INTER ALIA, DIRECTED THAT WE, THEREFORE, DIRECT THE PRESIDENT OF THE APPELLA TE TRIBUNAL TO FRAME AND LAY DOWN THE GUIDELINES IN TH E SIMILAR LINES AS ARE LAID DOWN BY THE APEX COURT IN THE CASE OF ANIL RAI (SUPRA) AND TO ISSUE APPROPRIATE ADMINISTRATIVE DIRECTIONS TO ALL THE BE NCHES OF THE TRIBUNAL IN THAT BEHALF. WE HOPE AND TRUST THAT SUITABLE GUIDE LINES SHALL BE FRAMED AND ISSUED BY THE PRESIDENT OF THE APPELLATE TRIBUN AL WITHIN SHORTEST REASONABLE TIME AND FOLLOWED STRICTLY BY ALL THE BE NCHES OF THE TRIBUNAL. IN THE MEANWHILE (EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW) , ALL THE REVISIONAL AND APPELLATE AUTHORITIES UNDER THE INCO ME-TAX ACT ARE DIRECTED ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 12 - TO DECIDE MATTERS HEARD BY THEM WITHIN A PERIOD OF THREE MONTHS FROM THE DATE CASE IS CLOSED FOR JUDGMENT . IN THE RULED SO FRAMED, AS A RESULT OF THESE DIRECTIONS, THE EXPRESSION ORDINARILY HAS BEEN IN SERTED IN THE REQUIREMENT TO PRONOUNCE THE ORDER WITHIN A PERIOD OF 90 DAYS. THE QUESTION THEN ARISES WHETHER THE PASSING OF THIS ORDER, BEYOND NINETY DA YS, WAS NECESSITATED BY ANY EXTRAORDINARY CIRCUMSTANCES. 9. LET US IN THIS LIGHT REVERT TO THE PREVAILING SI TUATION IN THE COUNTRY. ON 24TH MARCH, 2020, HONBLE PRIME MINISTER OF INDIA T OOK THE BOLD STEP OF IMPOSING A NATIONWIDE LOCKDOWN, FOR 21 DAYS, TO PRE VENT SPREAD OF COVID 19 EPIDEMIC, AND THIS LOCKDOWN WAS EXTENDED FROM TIME TO TIME. AS A MATTER OF FACT, EVEN BEFORE THIS FORMAL NATIONWIDE LOCKDOWN, THE FUNCTIONING OF THE INCOME TAX APPELLATE TRIBUNAL AT MUMBAI WAS SEVEREL Y RESTRICTED ON ACCOUNT OF LOCKDOWN BY THE MAHARASHTRA GOVERNMENT, AND ON A CCOUNT OF STRICT ENFORCEMENT OF HEALTH ADVISORIES WITH A VIEW OF CHE CKING SPREAD OF COVID 19. THE EPIDEMIC SITUATION IN MUMBAI BEING GRAVE, THERE WAS NOT MUCH OF A RELAXATION IN SUBSEQUENT LOCKDOWNS ALSO. IN ANY CAS E, THERE WAS UNPRECEDENTED DISRUPTION OF JUDICIAL WOK ALL OVER THE COUNTRY. AS A MATTER OF FACT, IT HAS BEEN SUCH AN UNPRECEDENTED SITUATION, CAUSING DISRUPTION IN THE FUNCTIONING OF JUDICIAL MACHINERY, THAT HONBLE SUPREME COURT OF I NDIA, IN AN UNPRECEDENTED ORDER IN THE HISTORY OF INDIA AND VIDE ORDER DATED 6.5.2020 READ WITH ORDER DATED 23.3.2020, EXTENDED THE LIMITATION TO EXCLUDE NOT ONLY THIS LOCKDOWN PERIOD BUT ALSO A FEW MORE DAYS PRIOR TO, AND AFTER , THE LOCKDOWN BY OBSERVING THAT IN CASE THE LIMITATION HAS EXPIRED AFTER 15.03.202 0 THEN THE PERIOD FROM 15.03.2020 TILL THE DATE ON WHICH THE LOCKDOWN IS LIFTED IN THE JURISDICTIONAL AREA WHERE THE DISPUTE LIES OR WHERE THE CAUSE OF ACTION ARISES SHALL BE EXTENDED FOR A PERIOD OF 15DAYS AFT ER THE LIFTING OF LOCKDOWN . HONBLE BOMBAY HIGH COURT, IN AN ORDER DATED 15TH APRIL 2020, ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 13 - HAS, BESIDES EXTENDING THE VALIDITY OF ALL INTERIM ORDERS, HAS ALSO OBSERVED THAT, IT IS ALSO CLARIFIED THAT WHILE CALCULATING TIME FO R DISPOSAL OF MATTERS MADE TIME-BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY , AND ALSO OBSERVED THAT ARRANGEMENT CONTINUED BY AN ORDER DATED 26TH MARCH 2020 TILL 30TH APRIL 2020 SHALL CONTINUE FURTHER TILL 15TH JUNE 2020 . IT HAS BEEN AN UNPRECEDENTED SITUATION NOT ONLY IN INDIA BUT ALL OVER THE WORLD. GOVERNMENT OF INDIA HAS, V IDE NOTIFICATION DATED 19 TH FEBRUARY 2020, TAKEN THE STAND THAT, THE CORONA VIR US SHOULD BE CONSIDERED A CASE OF NATURAL CALAMITY AND FMC ( I.E. FORCE MAJEURE CLAUSE) MAY BE INVOKED, WHEREVER CONSIDERED APPROPRIATE, FOLLOWING THE DUE PROCEDURE. THE TERM FORCE MAJEURE HAS BEEN DEFINED IN BLACKS LAW DICTIONARY, AS AN EVENT OR EFFECT THAT CAN BE NEITHER ANTICIPATED NOR CONTROLL ED WHEN SUCH IS THE POSITION, AND IT IS OFFICIALLY SO NOTIFIED BY THE G OVERNMENT OF INDIA AND THE COVID-19 EPIDEMIC HAS BEEN NOTIFIED AS A DISASTER U NDER THE NATIONAL DISASTER MANAGEMENT ACT, 2005, AND ALSO IN THE LIGHT OF THE DISCUSSIONS ABOVE, THE PERIOD DURING WHICH LOCKDOWN WAS IN FORCE CAN BE AN YTHING BUT AN ORDINARY PERIOD. 10. IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT RATHER THAN TAKING A PEDANTIC VIEW OF THE RULE REQU IRING PRONOUNCEMENT OF ORDERS WITHIN 90 DAYS, DISREGARDING THE IMPORTANT F ACT THAT THE ENTIRE COUNTRY WAS IN LOCKDOWN, WE SHOULD COMPUTE THE PERIOD OF 90 DAYS BY EXCLUDING AT LEAST THE PERIOD DURING WHICH THE LOCKDOWN WAS IN F ORCE. WE MUST FACTOR GROUND REALITIES IN MIND WHILE INTERPRETING THE TIM E LIMIT FOR THE PRONOUNCEMENT OF THE ORDER. LAW IS NOT BROODING OMN IPOTENCE IN THE SKY. IT IS A PRAGMATIC TOOL OF THE SOCIAL ORDER. THE TENETS OF LAW BEING ENACTED ON THE ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 14 - BASIS OF PRAGMATISM, AND THAT IS HOW THE LAW IS REQ UIRED TO INTERPRETED. THE INTERPRETATION SO ASSIGNED BY US IS NOT ONLY IN CON SONANCE WITH THE LETTER AND SPIRIT OF RULE 34(5) BUT IS ALSO A PRAGMATIC APPROA CH AT A TIME WHEN A DISASTER, NOTIFIED UNDER THE DISASTER MANAGEMENT ACT 2005, IS CAUSING UNPRECEDENTED DISRUPTION IN THE FUNCTIONING OF OUR JUSTICE DELIVE RY SYSTEM. UNDOUBTEDLY, IN THE CASE OF OTTERS CLUB VS DIT [(2017) 392 ITR 244 (BOM)] , HONBLE BOMBAY HIGH COURT DID NOT APPROVE AN ORDER BEING PA SSED BY THE TRIBUNAL BEYOND A PERIOD OF 90 DAYS, BUT THEN IN THE PRESENT SITUATION HONBLE BOMBAY HIGH COURT ITSELF HAS, VIDE JUDGMENT DATED 15 TH APRIL 2020, HELD THAT DIRECTED WHILE CALCULATING THE TIME FOR DISPOSAL OF MATTERS MADE TIME- BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME S HALL STAND EXTENDED ACCORDINGLY . THE EXTRAORDINARY STEPS TAKEN SUO MOTU BY HONBLE JURISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT ALSO INDICATE THAT THIS PERIOD OF LOCKDOWN CANNOT BE TREATED AS AN ORDINARY PERIOD DURING WHICH THE NORMAL TIME LIMITS ARE TO REMAIN IN FORCE. IN OUR C ONSIDERED VIEW, EVEN WITHOUT THE WORDS ORDINARILY, IN THE LIGHT OF THE ABOVE A NALYSIS OF THE LEGAL POSITION, THE PERIOD DURING WHICH LOCKOUT WAS IN FORCE IS TO EXCLUDED FOR THE PURPOSE OF TIME LIMITS SET OUT IN RULE 34(5) OF THE APPELLATE TRIBUNAL RULES, 1963. VIEWED THUS, THE EXCEPTION, TO 90-DAY TIME-LIMIT FOR PRONO UNCEMENT OF ORDERS, INHERENT IN RULE 34(5)(C), WITH RESPECT TO THE PRONOUNCEMENT OF ORDERS WITHIN NINETY DAYS, CLEARLY COMES INTO PLAY IN THE PRESENT CASE. OF COURSE, THERE IS NO, AND THERE CANNOT BE ANY, BAR ON THE DISCRETION OF THE B ENCHES TO REFIX THE MATTERS FOR CLARIFICATIONS BECAUSE OF CONSIDERABLE TIME LAG BET WEEN THE POINT OF TIME WHEN THE HEARING IS CONCLUDED AND THE POINT OF TIME WHEN THE ORDER THEREON IS BEING FINALIZED, BUT THEN, IN OUR CONSIDERED VIEW, NO SUC H EXERCISE WAS REQUIRED TO BE CARRIED OUT ON THE FACTS OF THIS CASE. ITA NO.1473/MUM/2017 VAN OORD DREDGING AND MARINE VS. ADIT ASST.YEAR 2001-02 - 15 - 9. ON THE BASIS OF THE OBSERVATION MADE IN THE AFOR ESAID JUDGMENT WE EXCLUDE THE PERIOD OF LOCKDOWN WHILE COMPUTING THE LIMITATION PROVIDED UNDER RULE 34(5) OF THE INCOME TAX (APPELLATE TRIBU NAL) RULE 1963. ORDER IS, THUS, PRONOUNCED UNDER RULE 34(4) OF THE SAID R ULE BY PLACING THE DETAILS ON THE NOTICE BOARD. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 27 / 0 5 /20 20 SD/- SD/- (PRAMOD KUMAR) (MADHUMITA ROY) VICE PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 27/05/2020 TANMAY, SR. PS E TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. DATE OF DICTATION 03.03.2020 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 04.03.2020 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 06.03.2020 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT .03.2020 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S .03.2020 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .03.2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER