TaxTMI 
TaxTMI 
2023 (12) TMI 580
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sec. 143(3) of IT Act for which reason appears that ld. AO also appreciated the bona-fide belief of assessee that no tax is deductible on payment to foreign Suppliers, having no permanent establishment in India. 2. The ld. CIT(A) was not justified in disagreeing to different judicial pronouncement that period of 4 years from assessment year is the limitation to initiate and levy of penalty where there is no limitation prescribed under the relevant Act. 3. Without prejudice to above grounds of appeal, though the quantum appeal of the Assessee Company was partly allowed on 13th Nov, 2017 by this Hon'ble Tribunal with relief of 100% deduction of enhanced profit as per CBDT Circular dated 2nd Nov, 2016, however after different judicial pronouncements by the Hon'ble High Court and Apex Court, the dispute is resolved that when there is no PE, no branch, no liaison office nor PAN in India, there is no Income tax liability of the foreign company in India under sec. 195(1) of the Act and therefore, TDS provisions are not applicable. Considering the language of section 195 of IT. Act and DTAA between India and USA, the Assessee company was under bon-fide belief that no tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch the order is not maintainable. The appellant has referred to several case laws which are not squarely applicable to the facts and circumstances of the case. Moreover, the contention taken in ground no. 1 has been controverted in ground no.2 taken by the appellant itself. In ground no.2 the appellant has stated inter alia that penalty proceedings u/s 271C, 271D, 271E, 271F and so on of the 1.T. Act are independent of the quantum appeal and therefore provision of section 275(1)(c) of the Act is applicable and not the provision of section 275(1)(a), if at all the penalty is initiated in the assessment order. The appellant has rightly pointed out that limitation of penalty u/s 271C is guided by section 275(1)(c) and therefore independent of any assessment order through which the penalty might have been initiated. Therefore, the cited court case of Pr.CIT Vs. Mahesh Wood Products Pvt. Ltd. (2017)394 ITR 312 (Del) is not applicable to the fact of the instant case. The appellant has raised the issue of reasonable cause for failure to deduct tax at source and has cited the case of CIT Vs. I.T.C Ltd. (2017)297 CTR (Del) 47. In the case of the appellant, the liability to deduct T....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cause notice by the Additional CIT. Held-yes; From the above, it is apparent that decision of the case does not in any way have a bearing on the decision to be taken on the grounds taken in the appeal by the appellant. The appellant has again relied upon the jurisdictional ITAT case of ITO Vs. Eid Mohammed Nizamuddin (2018) 196 TTJ (JP) 232 wherein the Honourable Tribunal has considered a period of 4 years to be reasonable for passing the order u/s 201(1)/ 201(1A) of the Act. The ratio of the case is not applicable to the penalties u/s 271C etc. and is not related to the limitations provided u/s 275(1)(a) and 275(1)(c) of the Act. Therefore, this ground of appeal is dismissed. 7. In the result, the appeal of the appellant is dismissed. " 5. As the assessee did not find any favor from the appeal so filed before the ld. CIT(A) the assessee has preferred the present appeal. The ld. AR of the assessee in support of the grounds so raised has filed and relied upon the following written submission: BRIEF FACTS OF THE CASE: Data-wise happenings in this case are as under:- S. No. Order dated Description of issue and the relevant auth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Supreme Court, in different judicial pronouncements have held that payment to non-resident, having no PE in India is not liable to Income tax in India and therefore no TDS was required. Reliance is placed on following decisions: (1) CIT v S. Herbalife International India (P) Ltd. (2016) 286 CTR (Del) 372 & (2016) 384 ITR 276 (Del): Disallowance under sec. 40(a)(i)- Effect of non-discrimination clause of art. 26(3) of DTAA between India and USA. Sec. 40(a)(i) is discriminatory and therefore, not applicable in terms of article 26(3) of Indo US DTAA. Tribunal was correct in allowing deduction.(PB P.43 to 54) (2) US Technology Resources Pvt. Ltd. Vs. CIT (2018) 407 ITR 327 (Ker): India and USA. Non-resident- Income deemed to accrue or arise in India. DTAA more beneficial than Income tax Act. Fee for included services would be taxable in India. Meaning of included services. Transfer of technical knowledge, experience, skill, know-how or process or consists of development or transfer of technical plan or design. Payment to US Company for providing management, financial, legal public relations and treasury or risk management services- not for included services. Payment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....327 ITR 456 (SC) (2) Anusha Investment Ltd. Vs. ITO (Intt. Taxation) (2015) 378 ITR 621 (Mad) (3) CIT (Intt. Taxation) Vs. Micro Focus Ltd. (2021) 431 ITR 136 (Del) (4) CIT (Intt. Taxation) vs. Gracemac Corp. (No.1)(2023) 456 ITR 124 (Del); (5) CIT VS. Gracemac Corp. (2023) 456 ITR 135 (SC); (6) CIT (Intt. Taxation) Vs. ZTE Corp. (2023) 454 ITR 541 (SC) Ground No. (2) That Id. CIT(A) was not justified in disagreeing to different judicial pronouncement that period of 4 years from assessment year is the limitation to the assessment year 2011-12. initiate and levy of penalty where there is no limitation prescribed under the relevant Act. The penalty U / s 271C was initiated on 22.03.2018, i.e. after six years from In case of State of Punjab Vs. Bhatinda Distt. Cooperative Milk Producer Union Ltd. (2007) 11 SSC 363 (referred to at page 298 of 428 ITR), Hon'ble Supreme Court has held as under (P.B. Page 126-127): 18. In so far as the Income tax Act is concerned, our attention has been drawn to section 153(1)(n) thereof which prescribes the time limit for completing the assessment, which is two years from the end....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provide any limitation for passing the order by the AO under ss.206(6)/206(7)- However, non-providing the limitation in the statute would not confer the powers to the AO to pass order under s. 206C at any point of time- if the contention of the Revenue that the AO is free to initiate the action and pass the order under s. 206C at any time depending upon the circumstances of the case is accepted, it would give an unfettered powers to AO to take action at any point of time till an indefinite period- such interpretation or inference would defy or defeat the very purpose and scheme of the statute and further the concept of finality of matter- A consistent view has been taken by various High Courts that since no limitation is provided in the statute, a period of four years be considered a reasonable for passing the order under ss. 201(1) / 201 * (1A) and consequent amendment has been made in those provisions- Therefore, the analogy and reasoning given in those decisions of various High Courts is also applicable for considering the reasonable period for passing the order under s. 206C- Hence, applying the reasonable period of limitation as four years within which the AO could pass order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anguage of section 195 of I. T. Act and DTAA between India and USA, the Assessee company was under bona-fide belief that no tax is deductible and therefore it had not committed any infringement of law for which penalty u / s 271C is to be levied on account of non-deduction of tax at source on payments to non- resident. The appeal of the Assessee company was partly allowed by this Hon'ble Tribunal (P.B. page 24 to 35) with direction to allowed 100% deduction of the enhanced profit as per CBDT Circular therefore no appeal before Hon'ble Rajasthan High Court under section 260A of Act could be preferred. Thereafter, as per different judicial pronouncements by higher judicial authorities, it is now settled that when there is no tax liability of the non-resident in India as per provisions of sec. 195 of Act and there exist DTAA, no tax is deductible at source on payments made to non-residents having no PAN, no branch, no PE, no liaison office in India. Therefore considering the language of section 195 of Act and DTAA between India and USA, the assessee company was under bona- fide belief that no tax is deductible on payments made to USA Companies against purchase of soft....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act. The assessee admitted that they have not deducted TDS under bondfide and the law does not permit the waive of levy of penalty under bonafide. 7. We have heard the rival contentions and perused the material placed on record. The bench noted that assessment u/s 143(3) of Act was completed by ld. AO vide order dated 29.03.2014 after disallowing Rs. 1,14,68,832/-, under sec. 40(a)(i) of Act for payment made for supply of software to two USA companies on which no tax was deductible but Id. AO, by treating it as payment for Royalty, made addition under sec. 40(a)(i) of Act. The first appeal filed by the assessee was dismissed (P.B. pages 15 to 23) whereas the second appeal before this Hon'ble ITAT was partly allowed with a direction to allow deduction @ 100% under section 10A of Act on enhanced profit as per circular No. 37 of 2016 of CBDT. Since there was no tax liability after order of this Hon'ble ITAT, assessee company did not prefer appeal u/s. 260 A before the Hon'ble High Court. 7.1 After receipt of order of the Hon'ble ITAT a notice dated 22.03.2018 was issued for the first time by Addl. CIT (TDS) Jaipur to show-cause as to why penalty under section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee. Therefore, in view of the Hon'ble Apex Court decision in the case of CIT vs. Bank of Nova Scotia wherein the Hon'ble Apex Court hold that the assessee has deliberately not avoided TDS and there is no contumacious conduct on the part of the assessee. Therefore, considering that aspect of the fact in this case. The bench feels that in this case levy of penalty is not correct as the assessee has reasonable cause for such failure and the revenue has already disregarded and disallowed the claim of the assessee on account of non deduction of tax. Thus, based on that set of facts, we hold that the levy of penalty is deleted on the ground that there was bona fide and reasonable cause in not deducting TDS. Thus the ground of appeal taken by the assessee on the reasonableness is considered and accordingly, the penalty is deleted. The other ground raised by the assessee has become purely academic and the same are treated as infructuous. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 22/11/2023. ============= Document 1 1. 2. S.No. Particulars/Short description Written synopsis in support of grounds of appeal. Sof....