Pacific Consultants International Inc., V. ADIT, Circle-2(1),

ITA 1694/DEL/2006

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86489 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 08-01-2015
• Assessment Year: 1997-1998
• Appeal Filed On: 12-05-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Keywords: Permanent establishment
• Section: 133A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NOS.1694 TO 1699/DEL/2006 ASSESSMENT YEARS : 1997-98 TO 2002-03 M/S PACIFIC CONSULTANTS INTERNATIONAL, 7-5, SEKIDO I, CHOME, TAMA-SHI, TOKYO 206-8551, JAPAN. PAN : AAFFA2605J VS. ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE 2(1), INTERNATIONAL TAXATION, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : NONE DEPARTMENT BY : S HRI J.P. CHANDRAKAR, SR. DR ORDER PER BENCH: THIS BATCH OF SIX APPEALS BY THE ASSESSEE AGAINST THE PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAF TER ALSO CALLED THE ACT) RELATES TO ASSESSMENT YEARS 1997-98 TO 2 002-03. 2. BEFORE DEALING WITH THE APPEALS ON MERITS, IT IS RELEVANT TO MENTION THAT THESE SIX APPEALS WERE EARLIER TAKEN U P FOR HEARING ITA NOS.1694 TO 1699/DEL/2006 2 BY THE TRIBUNAL. VIDE ITS ORDER DATED 13.12.2006, T HE TRIBUNAL DELETED THE PENALTY BY RELYING ON CERTAIN JUDGMENTS FAVOURING THE CANCELLATION OF PENALTY IN THE ABSENCE OF RECORDING OF PROPER SATISFACTION BY THE AO. THE REVENUE ASSAILED THIS ORDER OF THE TRIBUNAL BEFORE THE HONBLE DELHI HIGH COURT. VIDE ITS JUDGMENT DATED 16.7.2008, THE HONBLE HIGH COURT HAS REMANDE D THE MATTER TO THE TRIBUNAL FOR RE-DECIDING THE APPEALS IN THE LIGHT OF THE AMENDMENT TO THE ACT BY INTRODUCTION OF SECTION 271(1B) OF THE ACT. THAT IS HOW THE PRESENT APPEALS HAVE COME UP BEFORE US FOR CONSIDERATION AND DECISION. 3. THESE APPEALS WERE FIXED FOR FRESH HEARING O N 22.7.11. THERE WAS NO RESPONSE FROM THE ASSESSEE. THEREAFTER , THESE APPEALS HAVE BEEN ADJOURNED ON SEVERAL OCCASIONS BE CAUSE OF NON-PARTICIPATION BY THE ASSESSEE. SINCE THE ASSESS EE HAS CHOSEN NOT TO APPEAR BEFORE THE TRIBUNAL, WE ARE PROCEEDIN G TO DISPOSE OF THESE APPEALS EX PARTE QUA THE ASSESSEE. 4. IN SO FAR AS THE NON-RECORDING OF SATISFACTION B Y THE AO IN ASSESSMENT ORDERS IS CONCERNED, WE FIND THAT THIS I SSUE IS NO MORE RELEVANT BECAUSE OF THE INSERTION OF SUB-SECTION (1 B) TO SECTION ITA NOS.1694 TO 1699/DEL/2006 3 271 BY THE FINANCE ACT, 2008 WITH RETROSPECTIVE EFF ECT FROM 1.4.89. THE NEW SUB-SECTION PROVIDES THAT WHERE AN Y AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME O R LOSS OF AN ASSESSEE IN ANY ORDER OF ASSESSMENT OR RE-ASSESSMEN T AND THE SAID ORDER CONTAINS A DIRECTION FOR INITIATION OF P ENALTY PROCEEDINGS UNDER CLAUSE (C) OF SUB-SECTION (1), SU CH AN ORDER OF ASSESSMENT OR REASSESSMENT SHALL BE DEEMED TO CONST ITUTE SATISFACTION OF THE AO FOR INITIATION OF THE PENALT Y PROCEEDINGS UNDER THE SAID CLAUSE (C). WHEN WE EXAMINE THE ASS ESSMENT ORDERS FOR THE YEARS UNDER CONSIDERATION, IT CAN BE SEEN THAT THE AO HAS DIRECTED FOR THE INITIATION OF PENALTY PROCE EDINGS. AS SUCH, THE PENALTY CANNOT BE DELETED SIMPLY ON THE GROUND THAT THE AO FAILED TO RECORD PROPER SATISFACTION IN THE ASSESSM ENT ORDERS. 5. NOW WE TAKE UP THE APPEALS ON MERITS. FOR THE AY 1997-98, THE AO ISSUED NOTICE U/S 148 ON 11.9.2003 AS IT WAS NOTICED THAT THE ASSESSEE HAD NOT FILED ANY RETURN OF INCOME THO UGH IT WAS EARNING INCOME FROM EXECUTION OF VARIOUS CONTRACTS IN INDIA. THE ASSESSEE, A TAX RESIDENT OF JAPAN, WAS FOUND TO HAV E EARNED INCOME FROM THE EXECUTION OF THE I. BUDDHIST CIRCUI T PROJECT, II. BWSSB PROJECT AND III. AJANTA ELORA PROJECT. THE A O OBSERVED THAT ITA NOS.1694 TO 1699/DEL/2006 4 THE ASSESSEE HAD OPENED PROJECT OFFICES TO EXECUTE ALL THE ABOVE CONTRACTS AND EVEN ITS EXPATRIATE EMPLOYEES STAYED IN INDIA FOR SEVERAL YEARS FOR EXECUTING SUCH CONTRACTS. THIS, IN HIS OPINION, LED TO THE MAKING OF ITS PERMANENT ESTABLISHMENT IN INDIA. CONSIDERING THE PROVISIONS OF SECTION 115A, THE AO HELD THAT TAX @ 30% ON THE RECEIPTS FROM THE ABOVE THREE PROJECTS WAS PAYABLE. THAT IS HOW HE SUM TOTALED THE RECEIPTS F ROM THESE THREE CONTRACTS AT `5.40 CRORE AND DETERMINED TAX L IABILITY AT `1.62 CRORE @ 30%. FOR THE ASSESSMENT YEAR 1998-99 ALSO, A NOTICE U/S 148 WAS ISSUED ON 11.9.03 AND THE AO COM PUTED TOTAL INCOME FROM THE ABOVE REFERRED THREE PROJECTS AT `6 .69 CRORE ON WHICH TAX @ 30% WAS COMPUTED AT `1.94 CRORE. FOR T HE AY 99- 2000, THE ASSESSEE VOLUNTARILY FILED ITS RETURN DEC LARING TOTAL INCOME OF `16.87 CRORE. NOTICE U/S 148 WAS ISSUED ON 11.9.03. EVENTUALLY, ASSESSMENT WAS COMPLETED COMPUTING TOTA L TAX PAYABLE AT `5.02 CRORE. FOR THE AY 2000-01, THE AS SESSEE FLED ITS RETURN DECLARING INCOME OF `9.94 CRORE WHICH WAS LA TER ON REVISED TO `7.07 CRORE. NOTICE U/S 148 WAS ISSUED ON THE G ROUND THAT THE ASSESSEE DID NOT SHOW THE CORRECT INCOME. TAX FOR THIS YEAR WAS COMPUTED BY THE AO AT `1.63 CRORE. FOR THE AY 2001 -02, THE ITA NOS.1694 TO 1699/DEL/2006 5 ASSESSEE FILED RETURN DECLARING INCOME OF `8.65 CRO RE ON 12.4.2002. NOTICE U/S 148 WAS ISSUED ON 8.11.2004 AS THE ASSESSEE, IN THE OPINION OF THE AO, FAILED TO OFFER THE CORRECT INCOME. THE AO COMPUTED TOTAL TAX LIABILITY OF THE ASSESSEE FOR THIS YEAR AT `2.04 CRORE. FOR THE AY 2002-03, THE A SSESSEE FILED RETURN DECLARING INCOME OF `15.97 CRORE. IN THE AS SESSMENT MADE U/S 143(3), THE AO COMPUTED TOTAL CHARGEABLE TAX AT `3.85 CRORE. 6. DURING THE COURSE OF PENALTY PROCEEDINGS, THE AS SESSEE STATED THAT THE INCOME ARISING FROM THE CONTRACTS, IN RESPECT OF WHICH THE AO PROPOSED TO IMPOSE PENALTY, WAS EARNED FROM MINISTRY OF TOURISM (MOT), GOVERNMENT OF INDIA AND, AS PER ITS AGREEMENT WITH THE MOT, ALL THE TAXES WERE EITHER E XEMPT OR IF AT ALL PAYABLE, WERE TO BE BORNE BY THE MOT ITSELF. THE AO OPINED THAT IT WAS ONLY BECAUSE OF THE SURVEY CONDUCTED BY THE AUTHORITIES U/S 133A OF THE ACT THAT THE UNDISCLOSE D INCOME IN THIS CASE CAME TO LIGHT. REJECTING THE ASSESSEES CONTE NTION, THE AO IMPOSED PENALTY IN RESPECT OF INCOME FROM BUDDHIST CIRCUIT AND AJANTA ELORA PROJECTS @ 100% OF THE TAX SOUGHT TO B E EVADED FOR THE YEARS IN QUESTION. NO RELIEF WAS ALLOWED IN TH E FIRST APPEAL. ITA NOS.1694 TO 1699/DEL/2006 6 THE ASSESSEE IS AGGRIEVED AGAINST THE CONFIRMATION OF THE PENALTY IMPOSED FOR THESE ASSESSMENT YEARS UNDER CONSIDERAT ION. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T MATERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSEE IS A TA X RESIDENT OF JAPAN. PENALTY HAS BEEN IMPOSED IN RESPECT OF INCO ME FROM TWO PROJECTS ONLY, NAMELY, BUDDHIST CIRCUIT AND AJANT A ELORA. THE ASSESSEE ENTERED INTO AGREEMENT WITH THE MOT FOR PR OVIDING ENGINEERING AND TECHNICAL SERVICES AND EXECUTING TH E ABOVE REFERRED TWO CONTRACTS. THE INCOME FROM THESE TWO P ROJECTS IN THE YEARS UNDER CONSIDERATION WAS NOT OFFERED FOR TAXAT ION BECAUSE OF ITS AGREEMENT DATED 19.10.90 WITH MOT. CLAUSE 5.01 OF ARTICLE-V OF THIS AGREEMENT WITH THE MOT PROVIDES THAT: THE FOREIGN CONSULTANT AND THEIR EXPATRIATE STAFF SHALL BE EXEM PT FROM THE PAYMENT OF ALL TAXES, DUTIES, FEES, LEVIES AND OTHE R EXEMPTIONS UNDER THE LAWS AND REGULATIONS IN INDIA OR THE GOVE RNMENT OF INDIA SHALL REIMBURSE THE CONSULTANTS THE PAYMENT M ADE BY WAY OF TAXES, DUTIES, ETC., IF THE EXEMPTION IS NOT GRA NTED BY THE TAX AUTHORITIES. THE ABOVE AGREEMENT WAS AMENDED VIDE AMENDMENT DATED 19.8.98 CARRYING OUT AMENDMENT IN A RTICLE 5.01 OF THE ORIGINAL AGREEMENT. THE AMENDMENT STATE S THAT : THE ITA NOS.1694 TO 1699/DEL/2006 7 GOVERNMENT ARE PURSUING THE MATTER OF TAX EXEMPTION FOR THE PCI (I.E. THE ASSESSEE) AND THEIR STAFF AS MENTIONED IN ARTICLE 5.01 OF THE ORIGINAL AGREEMENT. IN THE EVENT THAT EXEMPTIO N IS NOT GRANTED, THE GOVERNMENT WILL PAY ANY TAXES DUE DIRE CT TO THE RELEVANT TAX AUTHORITIES. FROM A PERUSAL OF THE A BOVE EXTRACTED CLAUSES OF THE AGREEMENTS OF THE ASSESSEE WITH THE MOT, IT BECOMES EVIDENT THAT THE PAYMENTS RECEIVED BY THE A SSESSEE FROM MOT UNDER THIS AGREEMENT FOR THE ABOVE TWO CON TRACTS WERE ASSURED TO BE NOT CHARGEABLE TO TAX, OR IF ANY TAX WAS TO BE PAID, IT WAS TO BE BORNE BY THE MOT. IT IS A MATTER OF R ECORD, THE MOT AND ALSO THE ASSESSEE APPROACHED THE CBDT CLAIMING EXEMPTION FROM TAX IN RESPECT OF THE ASSESSEES INCOME AND IT S EXPATRIATE STAFF. SUCH REQUEST WAS TURNED DOWN BY THE CBDT. THEREAFTER, MOT AGAIN TOOK UP THE MATTER WITH THE MINISTRY OF F INANCE FOR RE- CONSIDERATION OF THE EARLIER STAND. HOWEVER, THE F INANCE MINISTER, VIDE HIS COMMUNICATION DATED 12.12.01, ADVISED THE MOT THAT IN CASE THIS IS A COMMITTED EXPENDITURE, THEN IT SHOUL D BE MADE OUT OF PROJECT COST AVAILABLE IN THE GRANT TO THE MOT. PURSUANT TO THE ASSESSMENTS SO MADE, THE ASSESSEE ACCEPTED THE TAX LIABILITY, PAID THE SAME AND DID NOT CHOOSE TO PREFER ANY APPE AL IN ITA NOS.1694 TO 1699/DEL/2006 8 QUANTUM PROCEEDINGS. IT IS, THEREAFTER, THAT THE A O PROCEEDED TO LEVY PENALTY IN RESPECT OF INCOME NOT DECLARED BY T HE ASSESSEE FROM THESE TWO PROJECTS FOR WHICH THE AGREEMENTS WE RE ENTERED INTO WITH THE MOT. 8. UNDER SUCH CIRCUMSTANCES, THE QUESTION ARISES AS TO WHETHER THE PENALTY CAN BE SUSTAINED UNDER SECTION 271(1)(C ) OF THE ACT. IN OUR CONSIDERED OPINION, THERE IS NO MERIT IN THE DEPARTMENTAL STAND OF IMPOSING AND CONFIRMING PENALTY U/S 271( 1)(C) OF THE ACT. HERE IS A CASE IN WHICH THE ASSESSEE, A NON R ESIDENT HAS BEEN LANDED INTO A PITIABLE CONDITION INASMUCH AS O NE ARM OF THE GOVERNMENT OF INDIA, NAMELY, MOT AGREES THAT ITS IN COME SHALL BE EXEMPT FROM THE PAYMENT OF ALL TAXES AND IF THE EXE MPTION IS NOT GRANTED BY THE TAX AUTHORITIES, THEN, THE GOVERNMEN T OF INDIA SHALL PAY TAXES DUE DIRECT TO THE RELEVANT TAX AUTH ORITIES ; AND THE OTHER ARM, NAMELY, THE MINISTRY OF FINANCE, NOT ONL Y REJECTS THE CLAIM OF EXEMPTION OF INCOME BUT THE AO RECOVERS TA XES DUE, AND ALSO IMPOSES PENALTY ON ACCOUNT OF CONCEALMENT OF I NCOME. WHEN THE MOT AGREED BEFORE HAND WITH THE ASSESSEE T HAT IT WILL SEEK EXEMPTION OF THE ASSESSEES INCOME FROM THE MI NISTRY OF FINANCE OR IF SOME TAX BECOMES PAYABLE, IT SHALL BE DIRECTLY PAID, ITA NOS.1694 TO 1699/DEL/2006 9 HOW THE ASSESSEE COULD HAVE INCLUDED INCOME FROM TH ESE TWO PROJECTS IN ITS TOTAL INCOME, IS ANYBODYS GUESS. IN OUR CONSIDERED OPINION, THERE CAN BE NO DOUBT ABOUT THE BONA FIDES OF THE ASSESSEE IN NOT OFFERING THE INCOME FROM THESE TWO CONTRACTS. THE HONBLE SUPREME COURT IN PRICEWATER HOUSE COOPERS PVT. LTD. VS. CIT (2012) 348 ITR 306 (SC) HAS HELD THAT NO PENALTY CAN BE IMPOSED WHERE THE ASSESSEE COMMITS AN INADVERTENT A ND BONA FIDE ERROR WITHOUT INTENDING OR ADMITTING TO EITHER CONCEAL ITS INCOME OR FURNISH INACCURATE PARTICULARS. THE HON BLE BOMBAY HIGH COURT IN CIT VS. SOMANY EVERGREE KNITS LTD. (2012) 352 ITR 592 (BOM) HAS ALSO UPHELD THE DELETION OF PENALTY ON ACCOUNT OF BONA FIDE AND INADVERTENT MISTAKE. 9. ADVERTING TO THE FACTS OF THE INSTANT CASE, W E FIND THAT THE ACT OF THE ASSESSEE IN NOT INCLUDING INCOME FROM THESE TWO PROJECTS IN ITS TOTAL INCOME IS ABSOLUTELY BONA FIDE BACKED BY PROPER AGREEMENT WITH THE MINISTRY OF TOURISM, GOVERNMENT OF INDIA AND DOES NOT WARRANT IMPOSITION OF ANY PENALTY U/S 271( 1)(C). IT IS AN ALTOGETHER A DIFFERENT MATTER THAT THE MOT, AFTER M AKING COMMITMENT TO A NON-RESIDENT ASSESSEE, COULD NOT SE EK EXEMPTION UNDER THE RELEVANT PROVISIONS OF THE ACT AND THE ITA NOS.1694 TO 1699/DEL/2006 10 ASSESSEE COMPLETED THE LITIGATION BY PAYING THE TAX ES DUE ON SUCH INCOME. NOW, IF, AT ALL, THERE IS SOME PENAL TY LIABILITY, THAT SHOULD HAVE BEEN DISCHARGED BY THE MOT IN TERMS OF ITS AGREEMENT WITH THE ASSESSEE. SINCE WE ARE ONLY CONC ERNED WITH THE IMPOSITION OF PENALTY ON SUCH INCOME, THERE CAN BE NO CASE UNDER THE PRESENT FACTS FOR IMPOSING CONCEALMENT PE NALTY U/S 271(1) OF THE ACT ON THE ASSESSEE AS THERE WAS A B ONA FIDE REASON FOR NOT INCLUDING SUCH INCOME IN THE TOTAL I NCOME. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND ORDER F OR THE CANCELLATION OF PENALTY FOR ALL THE YEARS UNDER CON SIDERATION. 10. IN THE RESULT, ALL THE APPEALS ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.01.201 5. SD/- SD/- [ A.T. VARKEY ] [ R.S. SYAL ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 12 TH JANUARY, 2015. DK ITA NOS.1694 TO 1699/DEL/2006 11 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.