ITAT upholds deletion of penalty under Sec 271(1)(c) of Income Tax Act, 1961

The ITAT upheld the CIT (A)'s decision to delete the penalty of Rs. 36,07,868/- imposed under Section 271(1)(c) of the Income Tax Act, 1961. The ITAT concluded that the assessee did not conceal income or furnish inaccurate particulars, referencing the Supreme Court's ruling that making an incorrect claim does not amount to furnishing inaccurate particulars of income. The appeal of the revenue was dismissed, and the decision was pronounced on 09.02.2016.

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Issues Involved:
1. Legitimacy of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Interpretation of contract under Section 44BBB of the Income Tax Act.
3. Applicability of tax rates under Section 115A and Article 7 of the DTAA between India and Germany.
4. Whether the assessee furnished inaccurate particulars of income.

Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c):
The appeal was preferred by the revenue against the order of the CIT (A) deleting the penalty of Rs. 36,07,868/- levied under Section 271(1)(c) of the Income Tax Act, 1961. The AO had levied the penalty on the grounds that the assessee furnished inaccurate particulars of income by making an incorrect claim under Section 44BBB. The CIT (A) deleted the penalty, holding that the assessee did not conceal particulars of its income nor furnished inaccurate particulars. The ITAT upheld the CIT (A)'s decision, referencing the Supreme Court's judgment in CIT Vs. Reliance Petro Products (P) Ltd., which stated that merely making an incorrect claim does not amount to furnishing inaccurate particulars of income.

2. Interpretation of Contract under Section 44BBB:
The appellant, a resident of Germany, engaged in the business of supplying plant, equipment, and related services for hydro power plants, was awarded a contract for the renovation and modernization of Hirakund Power House in Orissa. The contract required the supply of material, supervision services, and training services. The assessee filed its return under Section 44BBB, offering 10% of the total amount of supply of material and equipment. The AO denied the benefit of Section 44BBB, treating the contract as a service contract and not satisfying the conditions of Section 44BBB.

3. Applicability of Tax Rates under Section 115A and Article 7 of DTAA:
The AO held that the consideration received for supervision and training charges was taxable at 20% under Section 115A and Article 7 of the DTAA between India and Germany. The CIT (A) upheld the AO's decision regarding the 20% tax on supervision charges but held that the consideration for training was taxable at 10% as per Article 12(2) of the DTAA. The ITAT dismissed the assessee's appeal, agreeing with the AO and CIT (A) on the tax rates applicable to the service contracts.

4. Furnishing Inaccurate Particulars of Income:
The AO argued that the assessee furnished inaccurate particulars of income by claiming benefits under Section 44BBB, which were not applicable. The CIT (A) and ITAT found that the assessee had disclosed all relevant details and the claim under Section 44BBB was a matter of legal interpretation. The Supreme Court in CIT V Reliance Petro Products held that making an incorrect claim does not amount to furnishing inaccurate particulars if the details provided are not found to be false. The ITAT concluded that the assessee did not furnish inaccurate particulars, and the penalty under Section 271(1)(c) was not justified.

Conclusion:
The ITAT upheld the CIT (A)'s order deleting the penalty of Rs. 36,07,868/- under Section 271(1)(c), concluding that the assessee did not conceal income or furnish inaccurate particulars. The appeal of the revenue was dismissed, and the order was pronounced in the open court on 09.02.2016.

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