Section 271(1)(c) – No penalty can be imposed if Assessing Officer has not pointed out any specific fact not disclosed by the assessee or any wrong particulars furnished by the assessee. Based on the primary facts disclosed by the assessee inference drawn by the AO could have been drawn.

The assessee is a company incorporated in the USA. It was awarded three distinct contracts by a company in India viz., PGCIL. The contracts entered into were for on shore supply of goods and services as well as for off shore supply of goods. The assessee executed only the offshore supply contract and sub-contracted onshore supply and the major part of the onshore service contracts to an Indian party on cost to cost basis with approval of PGCIL. All the above contracts were being carried forward from preceding years. That in AY 2003-04, on the same facts, the Assessing Officer had accepted that the assessee was not having any PE in India and, therefore, no tax was levied on offshore supply of equipment and services rendered outside India. However, during the year under consideration, the Assessing Officer held that the assessee is having PE in India and accordingly, taxed the income from offshore supply of hardware equipment and also in respect of payment for onshore services. Since a small amount was involved, the assessee, with a view to buy peace and end the litigation, did not file any appeal against the assessment order. The AO then levied penalty u/s. 271(1)(c) of Rs. 13.12 lakh for furnishing inaccurate particulars of income. On appeal, however, the penalty order was struck down by the CIT(A).

Held:

The tribunal noted that the facts of the year under consideration and of assessment year 2003-04 are identical. In AY 2003-04, the Assessing Officer had accepted the assessee’s claim that the assessee company did not have any PE in India. However, on the basis of the same facts in the year under consideration, the Assessing Officer came to the conclusion that there was a PE. The Assessing Officer has not pointed out any specific fact which was not disclosed by the assessee or any wrong particulars furnished by the assessee. It was the question of inference to be drawn from the primary facts which were duly disclosed by the assessee.

The tribunal further observed that merely because the assessee’s claim that it was not having a PE in India was not accepted by the Revenue in the year under consideration, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. It further noted that on identical facts, the assessee’s claim that it was not having a PE was accepted by the Revenue in the immediately preceding year. In view of the above, the tribunal following the decision of the Apex Court in the case of Reliance Petroproducts Pvt. Ltd. [322 ITR 158 (SC)] upheld the order of the CIT(A).