Income Tax Act, 1961

--Penalty under section 271(1)(c)Validity Various additions to income--Assessee-company, incorporated in Italy, was awarded a turnkey contract by Indian Oil Corporation Ltd. (IOCL). Where it was required to supply equipment and undertake construction/installation services and related design and engineering services, the consideration for which was dominated partly in Indian and partly in foreign currency. Assessee had established a project office in India for execution of the aforesaid contract, declaring business income which was adjusted with brought forward losses of assessment year 2001-02 and nil income return was filed. In the assessment framed under section 143(3), assessing officer rejected the books of account of the assessee and on total income was assessed. Assessing officer had levied penalty under section 271(1) on the additions made on account of offshore supply of equipment, income from foreign exchange quantum gain, income from onshore supply and contract receipts and income from fee for design and engineering under section 115A. Held: So far as the penalty levied on the addition made on account of offshore supply of equipment was concerned, the addition had been finally deleted by the Tribunal vide order dated 30-9-2010 in ITA No. 434/Del/2010. Similarly, the Tribunal had also deleted the addition made on account of income from foreign exchange fluctuation gain. Thus, there was no question of levy of penalty under section 271(1)(c) on these additions. So far as penalty levied on the addition made on account of onshore supply of equipment was concerned, assessing officer was of the opinion that there were various discrepancies in the books of account maintained by the assessee and accordingly the books were rejected under section 145 and the income from the above activity was estimated by the assessing officer by applying 8 per cent profit rate on the gross receipts from this activity. It is now a well established proposition of law that penalty under section 271(1)(c) cannot be levied on an estimated income and following the ratio laid down in CIT v. K.L. Mangal Sain 1977 TaxPub(DT) 257 (All-HC) : (1977) 107 ITR 598 (All) and CIT v. Chhaganlal Shankarlal 1975 TaxPub(DT) 116 (Gau-HC) : (1975) 100 ITR 464 (Gau) penalty under section 271(1)(c) was to be deleted. As far as the last addition was concerned, there was no reason to doubt the submission of the assessee that the assessee had a bona fide basis and reasoning regarding the manner of taxability of income on account of design and engineering fees on net income basis nor was there any dispute regarding this material fact that all the facts necessary for the computation of income were duly disclosed by the assessee. Thus, penalty was to be deleted and even otherwise, no penalty was leviable as tax sought to be evaded was nil.

Income Tax Act, 1961 Section 271(1)(c)

In the ITAT, Delhi Bench

I.C. Sudhir, J.M. & T.S. Kapoor, A.M.

Asstt. CIT v. Technip Italy Spa

ITA No. 2101/Del/2010