The Tax Publishers2013 TaxPub(DT) 0399 (Mum-Trib) : (2013) 140 ITD 0528 : (2013) 151 TTJ 0409 : (2013) 081 DTR 0161

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c), Explanation 1Concealment Income disclosed net of TDS vis-a-vis bona fideness of assessee--Japanee-company was having a branch the India. The Indian Branch had received 2,43,56,075 as income from one 'S' of Korea. This income was subject to tax according to Korean law and thus TDS was deducted thereon and balance amount was remitted to India. Assessee in fee P&L Account prepared for the purpose of Indian operations credited the entire amount of Rs. 2,43,56, 075. In return of income this amount was excluded from profit arrived at by the Indian Branch and only the net amount was offered for taxation. Moreover, credit for Ltds was also not derived. Entire amount of Rs. 2,43,56,075 was accrued to the principal company through its Branch in India which was taxable entity by virtue of PE in India. Decision of Jurisdictional High Court establish that the gross amount was taxable in India. Held: Contention of assessed that it was under bona fide belief that any net amount was taxable could not be accepted in funds situation and levy of penalty was justified.

There is no bona fide reason for excluding the above amount from the computation of income by assessee. On facts there is no dispute that the amount of Rs. 2,43,56,074 was receivable from M/s S.K. Korea in respect of the loan granted by the bank to DSS Ltd. in India. Assessee has in fact accounted for the total interest as income in the P&L a/c. The issue is with reference to the tax deducted by M/s S, Korea as per the law of Korea to an extent of Rs. 59,85,368. It is to be kept in mind that assessee is. not a resident in India. Assessee a resident of Japan has a permanent establishment (PE) in India and its taxation is governed by Indo-Japan DTAA. The entire amount of Rs. 2,43,56,074 has accrued to the principal company through its branch in India which was the taxable entity by virtue of PE in India. As rightly considered by assessing officer in his order the amount deducted by the S.K. Korea is not an expenditure at all. Whatever tax has been deducted in Korea on behalf of the non-resident assessee has to be claimed in its own country i.e. Japan. Therefore, as far as assessee bank branches in India are concerned the entire amount of Rs. 2,43,56,074 has accrued to India, which was ultimately affirmed by the Tribunal. [Para 9] The 'bona fide belief so set by assessee does not hold in the light of the clear judgments of the jurisdictional High Court given in the context of Indian residents again. Therefore, assessee's non-offering of income attracts penalty under section 271(1)(c). Commissioner (Appeals) did not separately examine the issue of 'bona fide belief on this addition but considered the same along with other additions which stand deleted. [Para 14] No explanation was given why the amount was not included when assessee was claiming credit of tax so deducted while filing the return of income. Even though assessee has left a note that so much of the amount being the tax deducted in Korea does not accrue to its in India, the same cannot be accepted as assessee accounted entire amount as income in its books of account prepared for the purpose of being assessed in India having its PE. Since the amount excluded is not an expenditure claim but only a tax paid on behalf of the principal company in Korea ,as far as provisions of DTAA are concerned read with provisions of the Indian Income Tax Act governing the accrual of income, entire amount of Rs. 2,43,56,074 is taxable in the hands of assessee in India. Therefore, since this claim is not bona fide, nor there is any justification for excluding the same, this Tribunal is not persuaded by the contention of assessee's counsel that the principles laid down by the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts (P) Ltd. will apply to assessee's case. Likewise the decision of the Tribunal in the case of VIP Industries was also not applicable wherein claim of bad debts disallowed for levy of penalty was considered. Making a legal claim under the provisions of Income Tax Act is different from not offering income without any valid/ bona fide reason. [Para 15] In view of this, we are not in agreement with the Commissioner (Appeals)'s observations that the second limb of Explanation 1 to section 271(1)(c) will apply. Since the exclusion of the amount is not bona fide and there is no justification for excluding the amount, penalty under section 271(1)(c) is warranted on the facts of the case. Accordingly, the order of the Commissioner (Appeals) is reverse to that extent and direct assessing officer to calculate the penalty applicable on the above amount at 100 per cent of tax sought to be evaded. With these directions, the grounds are considered partly allowed. [Para 16]

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