Foreign company avoids penalty under section 271(1)(c) despite income reclassification from section 44BBB to 115A

ITAT Rajkot held that penalty under section 271(1)(c) was not leviable where foreign company returned income under section 44BBB but AO assessed it as FTS under section 115A. The tribunal found no concealment or inaccurate particulars, noting the assessee was guided by consultants and uncertainty existed regarding correct classification. The dispute involved only interpretation of income nature, not facts or figures. CIT(A)'s deletion of penalty was upheld, following Reliance Petroproducts precedent that mere change of opinion on income classification doesn't attract penalty.

---

---

Issues Involved:
1. Whether the penalty levied under Section 271(1)(c) of the Income-Tax Act, 1961 for furnishing inaccurate particulars of income was justified.
2. Whether the order of the CIT(A) deleting the penalty was correct despite the ITAT confirming the nature of receipts as Fees for Technical Services (FTS).

Summary:

1. Justification of Penalty under Section 271(1)(c):

The Revenue challenged the deletion of the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income-Tax Act, 1961, amounting to Rs. 53,97,870/- for AY 2011-12. The AO had imposed the penalty on the grounds that the assessee had incorrectly returned its income under Section 44BBB of the Act, while it should have been taxable as FTS under Section 115A. The CIT(A) deleted the penalty, noting that the only impact of the assessment was rejecting the assessee's claim of returning presumptive income under Section 44BBB and treating it as taxable as FTS at 10% of the gross income. The CIT(A) found no adverse findings regarding inaccurate particulars of income in the books of accounts maintained by the assessee or any other claim of deduction. Further, the assessee had initially returned its income computed under Section 28 of the Act and paid taxes at normal rates, subsequently revising the return under Section 44BBB without changing the book results or other figures. Similar benefits were availed by the assessee in subsequent years without penalty being levied.

2. Order of CIT(A) Deleting the Penalty:

The CIT(A) held that the claim of inaccurate particulars of income arose merely due to the AO's view that the underlying business activities were not in the nature of "turn-key power projects" as specified under Section 44BBB but were FTS. The CIT(A) relied on various judicial decisions, stating that a mere change of head of income does not amount to furnishing inaccurate particulars of income or concealing particulars of income for the levy of penalty under Section 271(1)(c). The CIT(A) also noted that the assessee, being a non-resident company, relied on the opinion of tax consultants and that there was no concrete opinion provided by the consultants. The CIT(A) emphasized that the Form 15CB, which stated the nature of income as FTS, was obtained by the payer (CGPL) and not the assessee, and it provided only a tentative rate for tax deduction, not a binding opinion. The CIT(A) further noted that in subsequent years, the AO himself dropped penalty proceedings, indicating that the AO did not have a case for levy of penalty.

Conclusion:

The ITAT upheld the CIT(A)'s order, agreeing that the dispute only related to the nature of income and there were no adverse findings by the AO relating to the facts of the income earned. The ITAT found no merit in the Revenue's grounds, noting that the penalty was levied solely on the basis of the nature of receipts being FTS and not under Section 44BBB. The ITAT concluded that the assessee could not be charged with having concealed particulars of income, as the claim under Section 44BBB was bona fide and based on the opinion of consultants. The ITAT dismissed the Revenue's appeal, emphasizing that mere disallowance of a claim does not attract the levy of penalty under Section 271(1)(c) of the Act.

---