ITAT Upholds 10% DTAA Benefits for German Bank, Deletes Rs. 20 Crore Penalty for Alleged Concealment

The Deputy Commissioner of Income Tax (DCIT) has filed multiple appeals, and the DZ Bank India Representative Office has filed a cross-objection in the ITAT Mumbai bench, challenging separate orders, all dated the same, i.e., November 28, 2024, passed by the CIT(A) under section 250 of the Income Tax Act, 1961. The case is related to the assessment years 2008-09 to 2010-11 and 2014-15.

The key issue in the present case concerned penalty orders passed under section 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars that were correctly deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. Since all cases involved similar facts, the Tribunal treated AY 2008-09 as the lead case and applied its decision to the other years.

The assessee is a German bank that operates in India through a representative office. The assessee earned interest and related income from foreign currency loans given to Indian companies. Initially, the bank filed its income tax return (ITR) for the assessment year 2008-09, declaring NIL income, claiming that it was not required to file a tax return under Section 115A(5) since the tax had already been deducted at the source under Chapter XVIIB.

Later, assessment proceedings were initiated under Section 147 of the Act through a notice dated March 30, 2015. In response to the notice, the assessee filed its return, declaring an interest amounting to Rs. 72.28 crore taxable at 10% under the India-Germany DTAA. However, the AO treated the assessee’s Indian officer as a Permanent Establishment (PE) and taxed the assessee’s income at 40% and additionally imposed a penalty amounting to about Rs. 20 crore on the assessee, alleging tax concealment.

When the tribunal heard the appeals, it held that the assessee’s income should be taxed at 10% under the DTAA and accepted that the bank was not required to file a return earlier. Relying on legal principles, including Supreme Court rulings, it was held that merely making a claim that is later rejected does not amount to furnishing inaccurate particulars.

The ITAT endorsed the ruling of the CIT(A) in the present case, holding that the penalty was not justified because there was no mala fide intention and the issue was mainly about interpretation of law. Therefore, the tax department’s appeals were dismissed, and accordingly, the assessee’s cross-objections were also dismissed. The tribunal ruled in favour of the assessee.