TaxTMI 
TaxTMI 
2024 (6) TMI 323
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....(IT)A No.492 to 494/Bang/2024, ITA No.542 & 497/Bang/2024, IT(IT)A No.497/Bang/2024, ITA No.544/Bang/2024, IT(IT)A No.503/Bang/2024, IT(IT)A No.498/Bang/2024, ITA No.543/Bang/2024, IT(IT)A No.488/Bang/2024 & ITA No.541/Bang/2024 Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri Sharath Rao, A.R., Shri Rajat Nahata, A.R. & Shri Dhiraj R., A.R. For the Respondent : Shri D.K. Mishra, D.R. ORDER PER BENCH: Income Tax Appeals at Sl.Nos.1 to 18 above are relating to sustaining the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 (in short "The Act") by NFAC and Sl.Nos.19 to 24 are with regard to sustaining penalty u/s 270A of the Act by NFAC arising out of different orders of NFAC for the respective above assessment years. 2. Facts of the case are that IBM is a multinational corporation, headquartered in the USA with multiple subsidiaries around the globe, including India. IBM foreign entities received notices under section 148/ section 143(2) of the Income-tax Act, 1961 ("the Act") for various assessment years against which the entities had voluntarily offered the reimbursement of salary cost of the secon....
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.... along with required documentation to substantiate the claim of the assessees. Furthermore, the following assessees also furnished revised grounds of appeal in respect of the below cases: − IBM Australia for the AY 2018-19 and the AY 2019-20 − IBM Nederland B.V. for the AY 2017-18 − IBM Corporation for the AY 2017-18 − IBM United Kingdom Limited for the AY 2017-18 and − IBM Canada Limited for the AY 2017-18 2.2 For the case of convenience, the subject matters are classified into following categories based on facts of the case and for ease of understanding: − Category A: 271(1)(c) cases where original return under section 139(1) of the Act was not filed and receipts were offered to tax in the return filed under section 148 of the Act − Category B: 271(1)(c) case where original return under section 139(1) of the Act was not filed and receipts were offered to tax during the reassessment proceedings − Category C: 271(1)(c) case where original return under section 139(1) of the Act has been filed however, secondment related receipts were offered to tax only in the r....
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.... In ROI filed u/s 148 Compagnie IBM France 2015- 16 271(1)(c) 546/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Australia 2014- 15 271(1)(c) 487/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Corporation 2016- 17 271(1)(c) 499/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2013- 14 271(1)(c) 492/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2015- 16 271(1)(c) 493/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2016- 17 271(1)(c) 494/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM United Kingdom Limited 2014- 15 271(1)(c) 542/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM United Kingdom Limited 2016- 17 271(1)(c) 497/Bang/2024 Filed but not offered In ROI filed u/s 148 Category D: 270A case where original return under section 139(1) of the Act has been filed however, secondment related receipts were offered to tax only in the return filed under section 148 of the Act IBM Corporation 2017- 18 270A 544/Bang/2024 Fil....
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....f expenses incurred by the respective IBM Foreign Entity on behalf of IBM India on a cost-to-cost basis, no income element is embedded in such payment. Accordingly, there being no income element in the aforesaid reimbursement, the same is not chargeable to tax in India and hence, not subject to taxes as FTS under the Act. 3.3 The above view was backed by various judicial precedents including the Hon'ble Delhi High Court ("HC") decision in the case of DIT vs HCL Infosystems Ltd. [2005] 274 ITR 261 (Delhi HC), which was pronounced on 6 January 2004. Thereafter, the jurisdictional Bangalore Income-tax Appellate Tribunal ("ITAT") in the case of M/s Abbey Business Service (India) Private Limited vs DCIT [2012] 23 Taxmann.com 346 (Bangalore ITAT) vide order dated 18 July 2012 has also upheld the said view. Therefore, the Assessees was under a bonafide belief that receipts in the nature of reimbursement of salary cost of employees was not liable for taxation as FTS in India. 3.4 At this juncture, ld. A.Rs for the assessees submitted that they want to strongly highlight that IBM Corporation (one of the IBM Foreign Entities) in its own case received a notice under section 143(2) of th....
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....T)A.No.1/Bang.2014 & IT(IT)A.No.6/Bang/2017 order dated 6.1.2017, the Tribunal took the view that there was an obligation on the part of the Assessee in that case to deduct tax at source u/s.195 of the Act when making payment by way of reimbursement. The conclusions of the Tribunal are contained in paragraph 5 of its order and it is based on failure by the Assessee to furnish certain details before the AO which is extracted in paragraph 2.1 of the CIT(A)'s order which was subject matter of the aforesaid appeal. The CIT(A)'s order which was subject matter of the aforesaid appeal in paragraph 2.4 of his order has referred to the decisions of the ITAT in the case of Mis. Abbey Business Services India Pvt.Ltd.(supra) and IDS Software (supra) and concluded in para 2.5 that the aforesaid decisions were rendered on its own facts and had no applicability to the facts of the Assessee's case. We however find that the facts of the case in these appeals and the facts of the case in the case of Mis. Abbey Business Services India Pvt.Ltd. (supra) and IDS Software (supra) are identical." 3.8 In the aforesaid referral order, the division bench has discussed various case laws in deta....
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....A. These judgements are as follows: * Karnataka HC judgment in Flipkart Internet (P.) Ltd (2022) 139 taxmann.com 595;(page 57-77 case law compilation) * Delhi ITAT in Ernst & Young US LLP [2023] 153 taxmann.com 95 (Delhi-Trib); (page 78-87 case law compilation) * Delhi HC in Boeing India Pvt Ltd [2023] 146 taxmann.com 131(Delhi) (page 88-93 case law compilation); and * Bangalore ITAT in Google LLC vs JCIT(OSD)/DCIT(IT) [2023] 147 taxmann.com 428 (Bangalore-Trib) 3.12 They drew our attention to the table capturing various Courts/ Tribunal decisions on said issue in a chronological order, which is as follows: Sl No. Caselaw with Citation Favourable/ unfavourable Forum Date of pronouncement 1 DIT vs HCL Infosystems Limited [2005] 144 Taxman 492 - followed by Karnataka HC in Abbey case Favourable Delhi HC 6 January 2004 2 Karl Storz Endoscopy India (P) Limited (ITA No 13 of 2008) (Delhi HC) (refer page 199 - 201 of PB) Favourable Delhi HC 13 September 2010 3 Abbey Business Services India Pvt Ltd (23 Taxmann.com 346) - later on confirmed by Karnataka High Court Favourable Bangalore ITAT 18....
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....urthering any litigation on this aspect, IBM India had settled its appeals under VsV scheme for the AY 200910 to AY 2015-16, wherein tax liability of approximately Rs 83 crore was duly paid by IBM India as per the VsV Scheme and the litigation pertaining to seven years was settled to end litigation and attain closure. 3.14 IBM India, on acceptance of the said receipts to tax in India, withdrew its pending appeals before the ITAT (Special Bench) and remitted the taxes due under the VsV scheme (for the AY 2009-10 to AY 2015-16). 3.15 The VsV scheme was also opted by the IBM Foreign Entities for the AY 2007-08 to AY 2017-18 (these are in respect of cases which are not subject to reassessment since they are settled under VsV scheme), in respect of the secondment receipts (in respect all IBM Foreign Entities) and receipts from IBM India for services rendered under the AP IT Services Centre (specifically for IBM Australia). The total tax liability accepted on such cases which were opted under VsV to end litigation and attain closure was approximately Rs 33 crores. 3.16 In summary, a total of 62 applications were filed under the VsV Act and Rs 116 crores (Rs 83 crores + Rs 33 cro....
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....the Act and has made full disclosure of income only in the reassessment proceedings under section 148 of the Act. 4.2.2 The AO in concluding so has provided a blanket statement for all the foreign entities and has completely disregarded the fact that not all IBM foreign entities had failed to furnish original return under section 139 of the Act. 4.2.3 Further, the AO in the penalty order has taken shelter under Explanation 3 to section 271(1)(c) without considering the specific exclusion for cases where the taxpayer fails to furnish return of income on account of 'reasonable cause'. Moreover, cases where the original return of income is filed by the taxpayer under section 139 of the Act, such cases ought to be outside the ambit of Explanation 3 to section 271(1)(c). However, the AO has completely disregarded the said fact in case of IBM foreign entities where due return was filed under section 139 of the Act (for AY 2012-13 to AY 2016-17). 4.3 Specific observation by the AO with respect to penalty under section 270A of the Act 4.3.1 The AO in the penalty order has confirmed that the Assessee has 'under reported income which is in consequence of misreporting' by not fili....
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....due return of income was furnished under section 139 of the Act and the details of secondment receipts were duly disclosed in the Form 3CEB filed for the relevant years. d) In respect of cases falling under Category A and B, the IBM foreign entities contested the validity of the penalty orders by highlighting that the receipts were duly offered to tax in the revised ROI (even before receipt of reasons for reopening the assessment) or voluntarily during the course of the reassessment proceedings. e) Reason for levy of penalty under section 271(1)(c) of the Act (i.e, whether for concealment of income or for furnishing of inaccurate particulars) was not discernible from the penalty orders. 4.4.3 With respect to penalty levied under section 270A (AY 2017-18 to AY 2019-20) of the Act, the following specific submissions / contentions were made before the CIT(A): a) Substantiating the 'bonafide' intention of the Assessee for not offering secondment receipts to tax under section 270A(6) of the Act which states that where an Assessee offers a 'bonafide' explanation to the satisfaction of the AO and duly discloses all material facts to substantiate the explanati....
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....hed the decision of the Hon'ble judgment of the Apex Court in Northern Operating Systems (P.) Ltd. [2022] 138 taxmann.com 359. Hence, ld. A.Rs submitted that as of the today, the issue of secondment of employees are not taxable. 4.5.3 However, the foreign entities considering the prolonged litigation with income tax department and for administrative reasons paid the tax merely to buy peace. Hence, although the taxes were not paid during the filing of return u/s 139, the payments were made while filing the revised return u/s 148 and/or during the assessment proceedings. The ld. A.Rs submitted that imposition of penalty is not automatic and the tax payment made by the assessee is it to buy peace and the same cannot be considered as concealment. Assessee relies on the decision of the Punjab and Haryana High Court in the of Rajiv Garg [2008] 175 Taxman 184 wherein the court has held as under: "Undisputedly, the assessee filed the return of income declaring its total income at Rs. 47,05,230, which inter alia included long-term capital gain on sale of shares amounting to Rs. 29,74,951. The return was processed in terms of section 143(1)(a) of the Act on 15-3-1999. Subsequentl....
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....nd ought not to be penalized for adopting a favourable view in the said issue. Relevant judicial precedents were discussed to justify that non-acceptance of the bonafide explanation offered by the Assessee and mere rejection of Assessee's claim on account of difference of opinion by the AO would per se not lead to levy of penalty; 4.5.6 It has been held by judicial precedents that penalty cannot be imposed in a case where an adjustment has been made in respect of a debatable issue. Without prejudice to the fact that IBM group believes that reimbursement of secondment receipts are not taxable, it wishes to submit that penalty cannot be levied in respect of an adjustment which is debatable or in respect of which two views are possible. In relation to the same, IBM Foreign Entities wish to place reliance on the below judicial precedents: - CIT v. Reliance Petroproducts [2010] 322 ITR 158 (SC) The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed....
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...., are not sustainable. Accordingly, the penalties levied u/s 271(1)(c) ofIT Act and disputed in the present appeals before us are hereby cancelled." (Emphasis Supplied) * CIT vs Harsh International Pvt Ltd (ITA 620/2019, 622/2019 and CM Appl 30811/2019, 301813/2019) "Having heard the learned counsel for the appellant and having perused the impugned order, this Court is of the view that the ITAT was right in deleting the penalty levied under Section 271(1)(c) of the Act. It has to be noted that penalty proceedings are an outcome of assessment and if the assessment itself is debatable, the penalty proceedings cannot survive." (Emphasis Supplied) 4.5.7 Without prejudice to the above, it was highlighted that in case of a non-resident, the tax liability if any is required to be discharged only by way of TDS. Furthermore, IBM India had duly deducted taxes under section 192 of the Act in respect of same secondment reimbursements. Given the same, there was no requirement on part of the IBM Foreign Entities to obtain a certificate under section 197 of the Act. Additionally, they submitted that the provisions of section 197 of the Act are not mandatory in nature an....
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....bove contention (Page 10/11 of the CIT(A)'s order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily offered pursuant to a survey proceeding under section 133A of the Act. No bonafide explanations were provided under Explanation 1 of section 271(1)(c) of the Act in respect of the income being surrendered. The only argument made by the Assessee was that it voluntarily offered receipts to tax and therefore, penalty cannot be levied. - In the case of IBM, the matter in respect of taxability of secondment expenses which is at the least a debatable issue, even if not considered as in issue which actually now stands decided in favor of the Assessee. - The above case is therefore distinguishable on facts. Assessee relies on ruling by the Punjab and Haryana HC in the case of CIT v. Rajiv Garg [2008] 175 Taxman 184 - page 204 case law compilation The CIT(A) has contended that the explanations offered by IBM are not bonafide, since: - The explanation offered by the Assessee was rejected by the AO - Failure on part of the Assessee to offer receipts to tax in the first instance (u/s 139) and thereby contending that the Assessee ....
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....ot mandatory and therefore the AO cannot be expected to seek recourse to the same. - Therefore, the same isn't sufficient ground to contend that the Assessee's conduct is not bonafide. The CIT(A) has rejected the judicial precedents cited by the Assessee on the ground that: - In all of the rulings relied, the 'make available' criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the 'make available' criteria is satisfied and the subject receipts are taxable as FTS. (Page 14-15 of the CIT(A)'s order) - Merely because IBM has voluntarily offered receipts to tax, it does not mean that the same is perse taxable, given that the same were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. CIT(A) rejected the Assessee reference to provisions of 273B of the Act to define the term reasonable cause including reliance on Singapore Airlines Ltd. vs Commissioner of Income Tax [2022] 144 taxmann.com 221 (SC). (Page 15 of the CIT(A)'s order) - The SC in the subject ruling has laid down ....
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....ment proceedings. - Reference to Explanation 3 to section 271(1)(c) of the Act was upheld (Page 10 of the CIT(A)'s order) - In addition to the above, legal submissions, it is submitted that IBM India has reported such receipts in 3CEB - Explanation 3 refers to the term 'reasonable cause'. Reliance can be placed on decision of SC in Singapore Airlines Ltd. vs Commissioner of Income Tax [2022] 144 taxmann.com 221 (SC) wherein the SC has dealt with the aspect of 'reasonable cause". IBM foreign entities had reasonable cause to not file a return under section 139 of the Act basis: - IBM Corp's assessment order for AY 2011-12 which had attained finality - Plethora of judicial precedents in assessee's favor on the secondment matter, including the Special Bench referral order in IBM India's own case which has referred to IBM's facts being similar to M/s Abbey Business Service (India) Private Limited vs DCIT [2012] 23 Taxmann.com 346 (Bangalore ITAT) - The CIT(A) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has relied on the ruling of the Supreme Court ("SC") in MAK Data P. Ltd....
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....bbey solely on the basis that IBM has voluntarily offered receipts to tax. However, the CIT(A) has failed to look into the similarity of facts of both these cases. CIT(A) has failed to acknowledge that ITAT in the Special Bench referral order in case of IBM India has noted that the facts in case of IBM are similar to those in case of Abbey (supra). - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. The CIT(A) has contended that the explanations offered by the Assessee are not bonafide since no application under section 197 was presented by the Assessee. The CIT(A) observed that: - The option to present an application under section 197 of the Act was open to the Assessee - section 195(2) and section 197 of the Act are in the nature of safeguard sections to make sure that taxes are rightfully deducted on payments. - Assessee has not availed any of the safeguards and basis that has rejected the Assessee's contention of 'bonafide belief'. (Page 12-13 of the CIT(A)'s order) - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot ....
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....in case of IBM India - Receipts were offered to tax only after a notice under section 148 of the Act was issued, initiating the reassessment proceedings/ during the course of reassessment proceedings. - Reference to Explanation 3 to section 271(1)(c) of the Act was upheld (Page 10-11 of the CIT(A)'s order) - In addition to the above, legal submissions, it is submitted that IBM India has reported such receipts in 3CEB - Explanation 3 refers to the term 'reasonable cause'. Reliance can be placed on decision of SC in Singapore Airlines Ltd. vs Commissioner of Income Tax [2022] 144 taxmann.com 221 (SC) wherein the SC has dealt with the aspect of 'reasonable cause". IBM foreign entities had reasonable cause to not offer the receipts to tax in the return under section 139 of the Act basis: - IBM Corp's assessment order for AY 2011-12 which had attained finality - Plethora of judicial precedents in assessee's favor on the secondment matter, including the Special Bench referral order in IBM India's own case which has referred to IBM's facts being similar to M/s Abbey Business Service (India) Private Limited vs DCIT [2012] 23 Taxmann.com 346 (Bangalore ITAT) - ....
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....lia for AY 2007-08 and AY 2008-09, the then CIT(A)-IV, Bangalore vide order dated 20 November 2013 had upheld the addition of reimbursement of expenses on seconded employees as FTS. Therefore, the CIT(A) has rejected the Assessee's claim that it was not aware of the Department's position on the treatment of reimbursement of secondment expenses as FTS. - Hence the Assessee's claim that it harbored a bona fide belief that the receipts from reimbursement of secondment expenses were not taxable, is rejected in the face of the facts of its case (Page 11/12/14/15 of the CIT(A)'s order) - While the CIT(A)'s order was received prior to the favorable order passed in case of IBM Corp, the said order of IBM Australia was challenged before the ITAT. Thereafter, the appeal was withdrawn because IBM Australia chose to settle the litigations under the Vivad se Vishwas Act, 2020. Therefore, it cannot be said that the issue was settled in the case of IBM Australia for the AY 2007- 08 and AY 2008-09. - Further, the issue of taxation of secondment reimbursements was scrutinized and thereby, decided in favour of the Assessee in the order passed subsequently in case of IBM Corporation for A....
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....d to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. Category D: 270A case where original return under section 139(1) of the Act has been filed however, secondment related receipts were offered to tax only in the return filed under section 148 of the Act Observation of the CIT(A) Rebuttal to the CIT(A)'s observations The CIT(A) has rejected the submission of IBM in respect of discrepancies under which limb penalty is levied, basis the below contentions: - The provisions of section 270A(2)(a) of the Act are applicable - The AO has levied penalty for underreporting of income, which is the same reason that was recorded in the assessment order read with the corrigendum - Receipts were offered to tax only after a notice under section 148 of the Act was issued, initiating the reassessment proceedings. - The CIT(A) has distinguished the facts of the case from Karnataka HC's ruling in Manjunatha Cotton & Ginning Factory [2013] 35 Taxmann.com 250 (Karnataka HC) - The CIT(A) has concluded that the provisions of 270A(8) need not be inv....
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....tional Taxation [2022] 139 taxmann.com 595 (Karnataka HC), whereby the Assessee had presented an application under section 197, in respect to deductibility of tax on similar receipts - The CIT(A) highlighted that section 195(2) and section 197 of the Act are in the nature of safeguard sections to make sure that taxes are rightfully deducted on payments. - The CIT(A) has thereafter contended that the Assessee has not availed any of the safeguards and basis that has rejected the Assessee's contention of 'bonafide belief'. Furthermore, the CIT(A) has contended that deduction of TDS under section 192 of the Act would not be of any relevance since the credit of taxes deducted under section 192 of the Act are given in the hands of the employees whereas the Assessee's receipts were in nature of FTS. (Page 16-17 of the CIT(A) order) - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. - Therefore, the same isn't sufficient ground to contend that the Assessee's conduct is not bonafide. - Deduction under section 192 of the Act establishes employer-employee relationship and is th....
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.... to CIT v. Rajiv Garg [2008] 175 Taxman 184 ruling by the Punjab and Haryana HC to be retained. The CIT(A) has contended that the Assessee had offered the additional receipts only in response to the notice under section 148 indicating that its explanation was not bona fide and was hence not accepted by the AO. Consequently, the CIT(A) has rejected the plea of the Assessee with respect to the said cases being covered under the exclusion specified under section 270A(6) of the Act. (Page 18 of the CIT(A) order) - The contention that the explanations of the Assessee are not bonafide merely because receipts were offered in the 148 return is not sufficient. - The Assessee wishes to re-iterate that it had bonafide reasons to not offer receipts to tax under section 139 basis the IBM Corporation's order and judicial precedents. Category E: 270A case where original return under section 139(1) of the Act has not been filed and receipts were offered to tax in the return filed under section 148 of the Act Observation of the CIT(A) Rebuttal to the CIT(A)'s observations The CIT(A) has rejected the submission of IBM in respect of discrepancies under which limb penalty....
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....ever, the CIT(A) has failed to look into the similarity of facts of both these cases. - CIT(A) has failed to acknowledge that ITAT in the Special Bench referral order in case of IBM India has noted that the facts in case of IBM are similar to those in case of Abbey (supra). - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. The CIT(A) has contended that the explanations offered by the Assessee are not bonafide since no application under section 197 was presented by the Assessee. The CIT(A) observed that: - The option to present an application under section 197 of the Act was open to the Assessee at the time of receipt of payment - The placed reliance on Karnataka HC's ruling in Flipkart Internet (P.) Ltd. vs DCIT International Taxation [2022] 139 taxmann.com 595 (Karnataka HC), whereby the Assessee had presented an application under section 197, in respect to deductibility of tax on similar receipts - The CIT(A) highlighted that section 195(2) and section 197 of the Act are in the nature of safeguard sections to make sure that taxes are rightfully deducted on paym....
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....ents received by it but chose not to offer the same to tax. (Page 17 of the CIT(A) order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily offered pursuant to a survey proceeding under section 133A of the Act. No bonafide explanations were provided under Explanation 1 of section 271(1)(c) of the Act in respect of the income being surrendered. The only argument made by the Assessee was that it voluntarily offered receipts to tax and therefore, penalty cannot be levied. - In the case of IBM, the matter in respect of taxability of secondment expenses is a debatable issue with various judicial precedents in support of the tax payer. - The above case is therefore distinguishable on facts. - Reference to CIT v. Rajiv Garg [2008] 175 Taxman 184 ruling by the Punjab and Haryana HC to be retained. - The Assessee's contention that there was reasonable cause for its failure to offer the receipts from IBM India and hence it was covered under the provisions of section 270A(6) is rejected. - Further, the Assessee's reliance on the decision of the SC in the case of Singapore Airlines Ltd. vs Commissioner of Income Tax [2022] 144 taxmann.com 2....
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....ion of secondment reimbursements was scrutinized and thereby, decided in favour of the Assessee in the order passed subsequently in case of IBM Corporation for AY 2011-12. We specifically wish to highlight that the said order has achieved finality since the same has neither been revised under section 263 nor has been reassessed under section 147 of the Act. Category F: 270A case where original return under section 139(1) of the Act has been filed and receipts were offered to tax during the course of the assessment proceedings Observation of the CIT(A) Rebuttal to the CIT(A)'s observations The CIT(A) has rejected the submission of IBM in respect of discrepancies under which limb penalty is levied, basis the below contentions: - The provisions of section 270A(2)(a) of the Act are applicable - The AO has levied penalty for underreporting of income, which is the same reason that was recorded in the assessment order read with the corrigendum - Receipts were offered to tax only after a notice under section 148 of the Act was issued, initiating the reassessment proceedings. - The CIT(A) has distinguished the facts of the case from Karn....
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....ication under section 197 of the Act was open to the Assessee at the time of receipt of payment - The placed reliance on Karnataka HC's ruling in Flipkart Internet (P.) Ltd. vs DCIT International Taxation [2022] 139 taxmann.com 595 (Karnataka HC), whereby the Assessee had presented an application under section 197, in respect to deductibility of tax on similar receipts - The CIT(A) highlighted that section 195(2) and section 197 of the Act are in the nature of safeguard sections to make sure that taxes are rightfully deducted on payments. - The CIT(A) has thereafter contended that the Assessee has not availed any of the safeguards and basis that has rejected the Assessee's contention of 'bonafide belief'. Furthermore, the CIT(A) has contended that deduction of TDS under section 192 of the Act would not be of any relevance since the credit of taxes deducted under section 192 of the Act are given in the hands of the employees whereas the Assessee's receipts were in nature of FTS. (Page 22-23 of the CIT(A) order) - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. - T....
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.... support of the tax payer. - The above case is therefore distinguishable on facts. - Reference to CIT v. Rajiv Garg [2008] 175 Taxman 184 ruling by the Punjab and Haryana HC to be retained. - The CIT(A) has relied on the below cases to contend that where an Assessee has himself admitted that an amount represented his own income, no further evidence would be necessary to show that income has been concealed: * ITO vs Leela Mammen (ITAT, Cochin) 63 TTJ 252 * CIT vs Dr. R.C. Gupta & Co. (Raj.) 122 ITR 719 * ACIT vs S.M. Kanappa Automobiles (P.) Ltd. (ITAT, Bangalore) 72 ITD 474 * T. Prashanth Reddy vs ACIT [2011] 9 taxmann.com 231 (Hyderabad ITAT) - Further, the CIT(A) concluded that the Assessee accepting that receipts are in nature of FTS, itself indicates that under reporting has undertaken and therefore, penalty is leviable. (Page 20 of the CIT(A) order) - It is submitted the payment are made to buy peace. It is reiterated that there are multiple judicial precedence including Jurisdictional Karnataka High Court and Bangalore ITAT decision including assessee's own special bench matter wherein it has been categorically held that t....
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.... light of the above factual position and judicial precedence, it is submitted that the entire penalty levied in the case of the Assessee deserves to be quashed. 5. On the other hand, ld. D.R. submitted that assessee has not offered the reimbursement of salary cost of the secondment of employees to tax. The same has been applied by assessee while filing revised return u/s 148 of the Act or applying the same for taxation while framing the assessment when the assessee has been cornered and unearthed the discrepancies or lapses by the department. Hence, the penalty is to be sustained. 6. We have heard the rival submissions and perused the materials available on record. In these cases the penalty is levied either u/s 271C of the Act or u/s 270A of the Act, which can be actually classified as follows: Category 'A': Levy of penalty u/s 271(1)(c) of the Act, where the original return u/s 139(1) of the Act has not been filed and receipts were offered to tax in the return filed u/s 148 of the Act. Name of the assessee ITA No. Assessment year IBM Canada Limited 490/Bang/2024 2013-14 IBM Canada Limited 491/Bang/2024 2016-17 IBM China Hongko....
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..... Assessment year IBM Australia 488/Bang/2024 2018-19 IBM Australia 541/Bang/2024 2019-20 6.1 As seen from the above, the assessee has offered the said receipts offered during the course of original assessment proceedings or during the return filed u/s 148 of the Act or during the reassessment proceedings. There was no avoiding of the income offered to tax by the assessee. The assessee made a plea before us that though at the time of filing of original return of income or at the time of filing revised return of income, there was a bonafide belief which the assessee is having regarding the taxability of the impugned secondment receipts. At the time of filing original return of income or at the time of revised return of income, there is a doubt in the mind of the assessee regarding taxability of secondment charges. Hence, assessee has not offered the same at earlier stage. However, later, to buy peace, assessee offered the same for taxation. It is also noted that the issue in dispute with regard to taxability of secondment receipts, there is a judgement of jurisdictional High Court in the case of Abbey Business Services India Pvt. Ltd. in ITA No.214 of 2014 da....
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....t the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : 10. After having noticed the relevant statutory provisions, we may take note of relevant clauses of DTAA. Article 5 of DTAA deals with 'permanent establishment'. Article 5(2)(k) describes the expression 'permanent establishment' and furnishing of services including managerial services, other than those taxable under Section 13 within a Contracting State by an enterprise through employees or other personnel. Article 7 deals with business profits and provides that profits of a business of a Contracting State shall be taxable only in that state unless the enterprise carries on business in other contracting state to a permanent establishment situate therein. Article 13 inter alia provides that provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permane....
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.... by BSTL and DEML, the overseas entities fall within Article 12 of India, Canada and Article 13 of India, UK DTAAs, which embody the concept of service permanent establishment. In the instant case, the issue of permanent establishment is not involved. Therefore, the aforesaid decision is not applicable to the fact situation of the case. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee." 6.2 Earlier to this judgement, the chargeability of secondment receipts was subject matter of appeal before this Tribunal. The Tribunal in view of the divergent views on this issue referred the matter to Special Bench in the assessee's own case, wherein it categorically observed that the facts in the case of IBM India Ltd. are similar to that is in case of Abbey Business Services India Pvt. Ltd. cited (supra). In our opinion, the conduct of assessees is bonafide though it was not agreed by the department and it is also noted that assessees have all material time disclosing this secondment receipts in its Form 3CB filed with the department and also with bonafide explanation before....