Penalty under sections 271(1)(c) and 270A deleted where assessee disclosed secondment receipts during reassessment proceedings

ITAT Bangalore held that penalty under sections 271(1)(c) or 270A was not justified where assessee failed to offer secondment receipts in original returns but later disclosed them during reassessment proceedings. The tribunal found assessee's conduct bonafide, noting contradictory judicial decisions on taxability of employee secondment reimbursements created reasonable doubt. Assessee had disclosed receipts in Form 3CB and voluntarily offered them for taxation during proceedings. Karnataka HC precedent in Abbey Business Services supported assessee's position that secondment reimbursements don't constitute fees for technical services. No concealment of income or furnishing of inaccurate particulars established. Penalty deleted in favor of assessee.

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Issues Involved:
1. Sustaining the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961.
2. Sustaining the penalty u/s 270A of the Act.

Summary:

Issue 1: Sustaining the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961

The Tribunal examined the penalties imposed on IBM foreign entities for various assessment years under different categories:

Category A: Penalty u/s 271(1)(c) where original return u/s 139(1) was not filed, and receipts were offered to tax in the return filed u/s 148.

- IBM Canada Limited (AY 2013-14, 2016-17), IBM China Hongkong Limited (AY 2014-15), IBM Israel Limited (AY 2014-15, 2016-17).

Category B: Penalty u/s 271(1)(c) where original return u/s 139(1) was not filed, and receipts were offered to tax during reassessment proceedings.

- IBM Deutschland GMBH (AY 2012-13), IBM Canada Limited (AY 2012-13), IBM Osterreich Internale Buromaschinen Gesellschaft MBH (AY 2012-13), IBM Del Peru SAC (AY 2012-13).

Category C: Penalty u/s 271(1)(c) where original return u/s 139(1) was filed, but secondment related receipts were offered to tax only in the return filed u/s 148.

- Compagnie IBM France (AY 2013-14, 2015-16), IBM Australia (AY 2014-15), IBM Corporation (AY 2016-17), IBM Japan Limited (AY 2013-14, 2015-16, 2016-17), IBM United Kingdom Limited (AY 2014-15, 2016-17).

The Tribunal noted that the assessees had a bonafide belief based on judicial precedents and the favorable order for IBM Corporation for AY 2011-12 that secondment receipts were not taxable. The Tribunal emphasized that penalty cannot be imposed where there is a reasonable cause, and the conduct of the assessees was bonafide. The Tribunal deleted the penalties under u/s 271(1)(c).

Issue 2: Sustaining the penalty u/s 270A of the Act

The Tribunal examined penalties under u/s 270A for various categories:

Category D: Penalty u/s 270A where original return u/s 139(1) was filed, but secondment related receipts were offered to tax only in the return filed u/s 148.

- IBM Corporation (AY 2017-18), IBM Netherland B V (AY 2017-18), IBM United Kingdom Limited (AY 2017-18).

Category E: Penalty u/s 270A where original return u/s 139(1) was not filed, and receipts were offered to tax in the return filed u/s 148.

- IBM Canada Limited (AY 2017-18).

Category F: Penalty u/s 270A where original return u/s 139(1) was filed, and receipts were offered to tax during the assessment proceedings.

- IBM Australia (AY 2018-19, 2019-20).

The Tribunal reiterated that the assessees had a bonafide belief based on judicial precedents and the favorable order for IBM Corporation for AY 2011-12 that secondment receipts were not taxable. The Tribunal emphasized that penalty cannot be imposed where there is a reasonable cause, and the conduct of the assessees was bonafide. The Tribunal deleted the penalties under u/s 270A.

Conclusion:

The Tribunal deleted all penalties levied under u/s 271(1)(c) and u/s 270A, considering the bonafide belief of the assessees and the judicial precedents supporting their position. The appeals of the assessees were allowed.

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