ADIT - 3(2), MUMBAI V. M/s. LINKLATERS (FORMERLY KNOWN AS LINKLATER & PAINES), MUMBAI

ITA 7085/MUM/2005

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4180 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 04-02-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 06-12-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHAUHANDR
• Keywords: Double taxation relief; Permanent establishment; Question of law; Wrong claim; Difference of opinion

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI L BENCH BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.7081/MUM/2005, /ASSESSMENT YEAR-1996-97 ADIT-(IT)-3(2) SCINDIA HOUSE, ROOM NO.132 1 ST FLOOR, N.M. ROAD MUMBAI-400 038. VS. LINKLATERS (FORMERLY LINKLATERS & PAINES) C/O., C.C. CHOKSHI & CO. 12, ANNIE BESANT ROAD, WORLI MUMBAI-400 018. PAN:AABFL 2160 M ( / APPELLANT) ( / RESPONDENT) C.O. NO.194/M/06 ARISING OUT OF /.ITA NO.7081/M/2005 , /ASSESSMENT YEAR-1996-97 LINKLATERS (FORMERLY LINKLATERS & PAINES) MUMBAI-400 018. VS. ADIT-(IT)-3(2) MUMBAI-400 038. ( / CROSS OBJECTOR) ( / RESPONDENT) /.ITA NO.7082-85/MUM/2005, /ASSESSMENT YEAR-1997-98 TO 2000-01 ADIT-(IT)-3(2) SCINDIA HOUSE, ROOM NO.132 1 ST FLOOR, N.M. ROAD MUMBAI-400 038. VS. LINKLATERS (FORMERLY LINKLATERS & PAINES) MUMBAI-400 018. PAN:AABFL 2160 M ( / APPELLANT) ( / RESPONDENT) C.O. NO.195-198/M/06 /ASSESSMENT YEAR-1997-98 TO 2000-01 LINKLATERS (FORMERLY LINKLATERS & PAINES),, MUMBAI-400 018. VS. ADIT-(IT)-3(2) MUMBAI-400 038. ( / CROSS OBJECTOR) ( / RESPONDENT) /ASSESSEE BY : SHRI NIRAJ SHETH / REVENUE BY : SHRI JASBIR CHAUHAN-DR / DATE OF HEARING : 04.02.2016 / DATE OF PRONOUNCEMENT : 04.02.2016 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER BENCH - CHALLENGING THE ORDERS,DATED 30.0.2005,OF CS.IT(A)- MUMBAI THE ASSESSING OFFICERS(AO.S)/ ASSESSEE HAVE FILED APPEALS/CROSS OBJECTIONS FOR TH E ASSESSMENT YEARS(AY.S) MENTIONED ABOVE. THE ISSUE INVOLVED IN THE APPEALS/CROSS OBJECTIONS IS COMMON, SO, WE ARE DECIDING THE MATTER BY PASSING A SINGLE ORDER.THE DETAILS OF FILING OF RET URNS OF INCOME,AMOUNTS OF PENALTY LEVIED U/S. 271(1)(C), DATES OF ORDER OF THE AO AND THE FAA ARE TABULATED AS UNDER: ASSESSMENT YEAR DT. OF PENALTY ORDER PENALTY AMOUNT (RS.) 1996-97 28.03.2005 92,20,383/- 1997-98 28.03.2005 1,80,59,410/- 1998-99 28.03.2005 1,23,35,563/- ITA7081 & ORS/M/05,AY.96-97-LINKLATERS(LLP) 2 1999-2000 28.03.2005 13,86,47,740/- 2000-01 28.03.2005 7,10,80,003/- ITA NO.7081/M/2005-AY-96-97 THE EFFECTIVE GROUND OF APPEAL IS ABOUT DELETION OF PENALTY LEVIED BY THE AO U/S. 271(1)(C) OF THE ACT, AMOUNTING TO RS.92.20 LACS. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS BASED IN UNITED KINGDOM (UK) AND IS ENGAGED IN THE PRACTICE OF LAW. IT FILED ITS RETURN OF INCOME ON 30.10.1996,DECLARING TOTAL INCOME AT RS.NIL. IN THE RETURN OF INCOME IT WAS CONTENDED THAT THE ASSESSEE WAS NOT HAVING A PERMANENT ESTABLISHMENT (PE) IN INDIA, THAT NO INCOME WAS CHA RGEABLE TO TAX IN INDIA.ALONGWITH THE RETURN OF INCOME,IT ALSO SUBMITTED,WITHOUT PREJUDICE,AN IN COME AND EXPENDITURE ACCOUNT WITH A REFERENCE TO FEE CHARGED TO ITS CLIENTS AS COULD BE REASONABLE ATTRIBUTED TO WORK PERFORMED IN INDIA.THE AO COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 25.3.99 DETERMINING THE INCOME OF THE ASSESSEE AT RS.25.52 CRORES.AGGRIEVED BY TH E ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AF TER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THA T THE ASSESSEE HAD A PE IN INDIA, THAT ONLY INCOME RELATING TO SERVICES RENDERED IN INDIA WAS L IABLE TO TAX AND NOT THE ENTIRE INCOME AS ASSESSED BY THE AO.THE ASSESSEE CHALLENGED THE ORD ER OF THE AO BEFORE THE TRIBUNAL. MEANWHILE,THE AO GAVE EFFECT TO THE ORDER OF THE FA A AND DETERMINED THE INCOME OF THE ASSESSEE AT RS.1.69 CRORES.HE AO HAD INITIATED PEN ALTY PROCEEDINGS AGAINST THE ASSESSEE U/S. 271 (1)(C)OF THE ACT FOR FURNISHING INACCURATE PARTICUL ARS OF INCOME.IN RESPONSE TO THE NOTICE ISSUE FOR INITIATION OF PENALTY,THE ASSESSEE ARGUED BEFORE T HE AO THAT IT HAD DISCLOSED ALL THE PARTICULARS OF ITS INCOME IN THE RETURN, THAT THE AO HAD JUST TAKE N A DIFFERENT VIEW, THAT THERE WERE TWO VIEW POSSIBLE WITH REGARD TO THE ISSUE INVOLVED NO PENAL TY SHOULD BE LEVIED.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ,THE AO HELD THAT THE FA A HAD CONFIRMED THE SERVICES PERFORMED IN INDIA WERE LIABLE FOR TAXATION IN INDIA,THAT THE AS SESSEE HAD FURNISHED INACCURATE PARTICULARS REGARDING THAT PART OF INCOME, THAT DEPARTMENT WAS SCRUTINISING ONLY 1-3% OF THE RETURNS, THAT HAD THE CASE NOT BEEN SELECTED FOR SCRUTINY NO ADDITION WOULD HAVE BEEN MADE ON ACCOUNT OF AGGRESSIVE TAX PLANNING OF THE ASSESSEE,THAT MERE D ISCLOSURE IN THE NOTES TO THE RETURN COULD NOT MITIGATE THE ASSESSEES ATTEMPT TO PUT UP A WRONG C LAIM OF NON-TAXABILITY. HE REFERRED TO THE CASE OF VIDYAGAURI NATVARLAL (238ITR91)AND HELD THAT ASS ESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME.FINALLY, HE LEVIED A PENALTY OF RS.92,20, 383/-. 3. THE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE T HE FAA.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,ASSESSMENT ORDER AND THE PENALTY OR DER THE FAA HELD THAT THE ASSESSMENT ORDER WAS BASED ON THE INFORMATION /DETAILS FILED BY THE ASSESSEE , THAT THE AO HAD NOWHERE MENTIONED THAT THE INFORMATION/EXPLANATION PROVIDED BY THE AS SESSEE WAS FOUND TO BE INCORRECT,THAT THE ASSESSEE SUO MOTO HAD FILED RETURN OF INCOME AND HA D MADE ADEQUATE DISCLOSURE IN THE RETURN, THAT HE HAD NOT ISSUED NOTICES U/S. 142(1)/148 OF T HE ACT, THAT THE ADDITION TO THE INCOME OF THE ASSESSEE WAS DUE TO DIFFERENT INTERPRETATION OF TH E PROVISIONS OF INDIA AND UK TAX TREATY BY THE AO,THAT THE LEGAL INTERPRETATION OF THE TREATY ADVA NCED BY THE ASSESSEE WAS BASED UPON OECD COMMENTARY,THAT IT WAS A DEBATABLE ISSUE, THAT THE ASSESSEES CLAIM THAT IT DID NOT HAVE PE IN INDIA WAS SUPPORTED BY THE CERTIFICATE ISSUED BY TH E UK TAX AUTHORITIES. THE FAA REFERRED TO THE CASES OF GD NAIDU (165ITR 63),CEMENT MARKETING CO. INDIA LTD. (124ITR 15); DHOOLIE TEA CO. ITA7081 & ORS/M/05,AY.96-97-LINKLATERS(LLP) 3 LTD. (231ITR 65) AND GEO SEA FOODS (244 ITR 44) AND HELD THAT SUSTAINING OF AN ADDITION COULD NOT BE A GROUND FOR LEVY OF PENALTY, THAT THE ASSES SEE HAD PLACED ALL MATERIAL BEFORE THE AO, THAT THE CLAIM OF THE ASSESSEE WAS REJECTED BY HIM ONLY ON LEGAL INTERPRETATION.FINALLY, ALLOWING THE APPEAL OF THE ASSESSEE ,THE FAA DELETED THE PENALTY LEVIED BY THE AO U/S. 271(1)(C) OF THE ACT. 4. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE (DR) STATED THAT THE ADDITION UPHELD BY THE FAA WAS CONFIRMED BY THE TR IBUNAL, THAT THE ASSESSEE HAD MADE A FALSE CLAIM, THAT THE AO WAS JUSTIFIED IN LEVING PENALTY. HE RELIED UPON THE CASES OF ZOOM COMMUNICA -TION(P)LTD.(327ITR 510),ESCORTS FINANCE LTD (328IT R44). THE AUTHORISED REPRESENTATIVE (AR) STATED THAT ORDER OF THE TRIBUNAL CONFIRMING THE AD DITION ABOUT INDIAN CLIENTS HAD BEEN CHALLENGED BEFORE THE HON'BLE BOMBAY HIGH COURT , T HAT THE HIGH COURT HAD ADMITTED THE APPEAL AND A SUBSTANTIAL QUESTION OF LAW HAS BEEN FRAMED W ITH REGARD TO THE ISSUE OF TAXABILITY OF INDIAN INCOME AND EXISTENCE OF PE IN INDIA,THAT THE ISSUE WAS DEBATABLE AND PENALTY U/S. 271(1)(C) COULD NOT BE LEVIED ONCE THE APPEAL HAD BEEN ADMITTED BY THE HONBLE HIGH COURT, THAT THE ASSESSEE HAD VOLUNTARILY FILED THE RETURN OF INCOME AND HAD FURN ISHED ALL THE NECESSARY DETAILS. HE REFERRED TO THE CASES OF EDROOS SYED MOHAMMED ZAKIR(ITA/3705/M UM/2014 AY.2005-06 DATED 1.1. 2016); NALIN P. SHAH (ITA/4780/MUM/2010 AY 2004-05 DT.18.7.14) AND ICICI BANK LTD. (ITA 4903/M/05, AY:1993-94 DT.1.1.2016).HE FURTHER CONTE NDED THAT FACTS UNDER CONSIDERATION WERE TOTALLY DIFFERENT FORM THAT OF ZOOM COMMUNICATION ( SUPRA) AND ESCORTS FINANCE LTD. (SUPRA). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD FILED THE RETURN OF INCOME IN ITS OWN, THAT IT HAD CLAIMED THAT INCOME RELATABLE TO INDIAN CLIENTS WAS NOT TAXABLE IN INDIA AS PER THE PROVISIONS OF DTAA, THAT ALTERNATIVELY IT HAD SUBMITTED THAT A PART OF THE INCOME COULD BE TAXED IN INDIA,THAT THE AO HAD TAXED THE WHOLE INCOME EARNED BY THE ASSESSEE, THAT THE FAA HAD GIV EN A SUBSTANTIAL RELIEF TO THE ASSESSEE , THAT THE TRIBUNAL HAD CONFIRMED THE ORDER OF THE FAA . IT IS A FACT THAT IN THE STATEMENT ACCOMPANYING THE RETURN OF INCOME AT PAGE-81 TO 83 OF THE PAPER BOOK THE ASSESSEE HAD MADE FULL DISCLOSURE ABOUT THE INCOME EARNED BY IT AS WELL AS NON TAXABI LITY OF SIDE INCOME,THAT AT PARA NO.10 OF THE STATEMENT AN ALTERNATIVE ARGUMENT HAD ALSO BEEN MAD E.THUS, IT IS CLEAR THAT THE ASSESSEE-FIRM HAD NOT CONCEALED THE PARTICULARS OF ITS INCOME.THERE W AS DIFFERENCE OF OPINION BETWEEN THE AO AND THE ASSESSEE ABOUT THE TAXABILITY OF INCOME AND PE. IN OUR OPINION,CONFIRMATION OF THE ADDITIONS, MADE BY THE AO,IN THE APPELLATE PROCEEDINGS AND LEV Y OF PENALTY U/S 271 (1)(C) OF THE ACT ARE TOTALLY TWO DIFFERENT THINGS.AS PER THE SETTLED PRI NCIPLE OF TAXATION JURISPRUDENCE,CONFIRMATION OF ADDITION IN APPELLATE PROCEEDINGS SHOULD NOT RESULT IN AUTOMATIC LEVY OF CONCEALMENT PENALTY. THE EXPLANATION FILED BY THE ASSESSEE HAS TO BE LOOKED INTO AND ONLY AFTER THAT PENALTY CAN TO BE LEVIED.IN OUR OPINION,IN THE CASE BEFORE US, THE EX PLANATION FILED BY THE ASSESSEE WAS ONE OF THE PLAUSIBLE EXPLANATION.WE HAVE TAKEN NOTE OF THE FAC T THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS ADMITTED A SUBSTANTIAL QUESTION OF LAW (INCOME TAX APPEAL NO.6834 OF 2010 DT.30.4.2014), WITH REGARD TO ADDITION PARTLY CONFIRMED BY THE TRI BUNAL AND PE. IN THE CASE OF ICICI BANK LTD. (SUPRA),THE TRIBUNAL HAS DEALT WITH A SITUATION WH ERE APPEAL IS ADMITTED BY THE HONBLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL AND LEVY O F CONCEALMENT PENALTY.WE ARE REPRODUCING THE RELEVANT PORTION OF THE SAID ORDER AND SAME READS A S UNDER: 4.1. IN THE MATTER OF NAYAN BUILDER AND DEVELOPER (SUPRA ),THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT ONCE A QUESTION OF LAW IS ADMITTED BY THE HONBLE HIGH COURT IN QUANTUM PROCEEDINGS THE ISSUE BECOMES DEBATABLE AND PENALTY U/S.271(1)(C) OF THE ACT CANNOT BE LEVIED. FOLLOWING THE ABOVE DECISION,VARIOUS BENCHES OF THE TRIBUNAL HAVE DELETED THE CONCEALMENT ITA7081 & ORS/M/05,AY.96-97-LINKLATERS(LLP) 4 PENALTY WHERE THE HONBLE HIGH COURT HAD ADMITTED T HE QUESTION OF LAW WITH REGARD TO QUANTUM APPEALS.WE HAVE GONE THROUGH THE ORDERS OF ADVAITA ESTATE DEVELOPMENT PVT. LTD.(SUPRA), SCHRADER DUNKEN LTD. (SUPRA),INDUSIND BANK LTD.(SUP RA),DEVELOPMENT CREDIT BANK LTD.(SUPRA). THE PERUSAL OF THE ORDER LEAD US TO THE CONCLUSION THAT ONCE A SUBSTANTIAL QUESTION OF LAW IS ADMITTED BY THE HONBLE HIGH COURT,THEN THE PENALT Y LEVIED U/S. 271(1)(C) OF THE ACT CANNOT SURVIVE. WE HAVE GONE THROUGH THE JUDGMENTS OF HON BLE GUJARAT HIGH COURT,RELIED UPON BY THE DR WHEREIN A CONTRARY VIEW HAS BEEN TAKEN AND HAS B EEN HELD THAT MERE ADMISSION OF QUANTUM APPEAL BY THE HONBLE COURT DOES NOT MEAN THAT PENA LTY U/S.271(1)(1)(C)CANNOT BE LEVIED.JUDICIAL DISCIPLINE DEMANDS THAT UNTIL AND UNLESS THE JUDGME NT OF THE HONBLE JURISDICTIONAL HIGH COURT IS REVERSED IT HAS TO BE RESPECTED AND FOLLOWED BY THE TRIBUNAL FUNCTIONING UNDER THE JURISDICTION OF THAT COURT. FOLLOWING THE JUDGMENT OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF NAYAN BUILDER AND DEVELOPER(SUPRA),WE ARE REVERSING THE O RDER OF THE FAA,AS THE HONBLE COURT HAS ADMITTED A QUESTION OF LAW IN QUANTUM PROCEEDINGS A ND THUS IT HAS BECOME A DEBATABLE ISSUE.EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVO UR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF NAYAN BUILDER AND DEVELOPER PVT. LTD.( 231 TAXMANN 665), WE UPHOLD THE ORDER OF THE FAA. EFFECTIVE GROUND OF APPEAL, FILED BY THE AO IS DECIDED AGAINS T HIM. C.O.194/MUM/06(ASSESSMENT YEAR 1996-97): 6. EFFECTIVE GROUND OF CROSS OBJECTION IS ABOUT QUANTI FICATION OF THE PENALTY LEVIED BY THE AO IN PURSUANCE OF THE ORDER OF THE FAA. AS WE HAVE DECIDED THE APPEAL AGAINST THE AO AND IN FAVOUROF THE ASSESSEE SO, THE CROSS OBJECTION IS TREATED AS INFRUCTUOUS. ITA NOS. /MUM/7082-85/MUM/2005 AND C.O.NOS. 195-198 /MUM/2005 (AY.S1997-98 TO 2000-2001): 7. THE ISSUES INVOLVED IN THE ABOVE MENTIONED FOUR APP EALS AND C.O.S ARE IDENTICAL TO THE ISSUES DEALT BY US AT PARA NO.5 AND PARA NO.6. FOLLOWING THE ORDER OF AY 1996-97 (ITA 7081 AND CO 194/MUM/),WE DISMISS THE APPEAL FILED BY THE ASSESS ING OFFICERS.CO.S FILED BY THE ASSESSEE, FOR ALL THE ABOVE MENTIONED FOUR AY.S ARE HELD TO BE IN FRUCTUOUS. AS A RESULT, ALL THE APPEALS FILED BY THE AO STAND DISMISSED AND CO.S FILED BY THE ASSESSEE ARE TREATED AS INFRUCTUOUS . ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH FEBRUARY, 2016. 4 , 2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 04.02. 2016 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / ITA7081 & ORS/M/05,AY.96-97-LINKLATERS(LLP) 5 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.