2022 (10) TMI 602 - AT - Income Tax

Assessee's Appeals Allowed, Penalties Deleted, Department's Objections Dismissed

Shell Global Solutions International B.V Versus DCIT, Intl. Taxn. -1, A’bad And ACIT (IT), A’bad Versus Shell Global Solutions International B.V

Shell Global Solutions International B.V Versus DCIT, Intl. Taxn. -1, A’bad And ACIT (IT), A’bad Versus Shell Global Solutions International B.V - TMI Issues Involved:1. Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.2. Validity of the Power of Attorney notarized in the Netherlands.3. Treatment of reimbursement of expenses as Fees for Technical Services (FTS).4. Transfer pricing adjustments and the principle of base erosion.5. Attribution of higher profits to the project office.Detailed Analysis:1. Levy of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:The primary issue in these appeals is the levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961, for alleged concealment of income and furnishing inaccurate particulars. The assessee argued that the penalty should not be levied because the notice issued under Section 274 r.w.s. 271(1)(c) did not specify the exact limb under which the penalty proceedings were initiated. The Tribunal observed that the assessee had consistently taken a position that transfer pricing provisions were not attracted in cases where there was no base erosion. The assessee had made adequate disclosures in Form 3CEB, TPSR, and during the course of assessment proceedings. The Tribunal held that no penalty could be levied as the issue was debatable, and there was no furnishing of inaccurate particulars of income.2. Validity of the Power of Attorney Notarized in the Netherlands:The Department raised cross objections challenging the validity of the Power of Attorney notarized in the Netherlands. The Tribunal noted that the cross objections were barred by 880 days, and the Department did not provide any substantial reason for the delay. Consequently, the Tribunal dismissed the cross objections filed by the Department due to the inordinate delay and lack of cogent reasons.3. Treatment of Reimbursement of Expenses as Fees for Technical Services (FTS):The assessee contested the levy of penalty on the addition made by treating reimbursement of expenses as FTS under Article 12 of the India-Netherlands Tax Treaty. The Tribunal observed that it was a debatable issue whether reimbursement of expenses qualifies as FTS, and various decisions have held that it does not. Therefore, the Tribunal concluded that no penalty could be levied on this account.4. Transfer Pricing Adjustments and the Principle of Base Erosion:The assessee argued that the transfer pricing adjustments should not lead to the levy of penalty as the principle of base erosion was not applicable. The Tribunal noted that the issue of base erosion was dealt with by the Special Bench of Kolkata ITAT in the case of Instrumentarium Corporation, which was decided against the assessee. However, the Tribunal observed that the assessee had consistently charged lower rates to its Associated Enterprises (AEs) even when the AEs started making profits, indicating a consistent position on base erosion. The Tribunal held that the issue was debatable and that the penalty under Section 271(1)(c) could not be imposed.5. Attribution of Higher Profits to the Project Office:For the assessment year 2009-10, an additional issue was the levy of penalty on the addition made on account of higher profit attribution to the project office. The assessee argued that the profit attribution report was prepared using the OECD authorized approach, and multiple year data was considered to capture the market and business cycle adequately. The Tribunal observed that the difference of opinion between the approach adopted by the assessee and the AO for determining the profits attributable to the project office did not warrant the imposition of penalty. The Tribunal concluded that the penalty under Section 271(1)(c) could not be imposed in this case.Conclusion:The Tribunal allowed the appeals of the assessee and directed that the penalty under Section 271(1)(c) be deleted for all assessment years under consideration. The cross objections filed by the Department were dismissed due to the inordinate delay in filing. The Tribunal emphasized that the issues involved were debatable, and the assessee had made adequate disclosures, thereby negating the grounds for imposing penalties.