No Penalty Applicable when assessee has not claimed any benefit of carry forward of losses: ITAT

M/s. Abacus International Pte Ltd. Vs. The Deputy Director of Income Tax

(Order pronounced on 24/05/2022)

We find that assessee is a resident of Singapore engaged in the business of promotion, development, operation, marketing, and maintenance of a computerized reservation system. He licenses the right to market the computer reservation system to National Marketing Company (NMC) which in turn markets the computer reservation system directly to the travel agents. For each of the booking made through the NMC subscribers, commission is paid by the assessee to the NMC. The assessee had licensed its wholly owned Indian subsidiary company viz., Abacus Distribution System (India) Ltd., as its NMC in India. The assessee filed its return of income for A.Y.2006-07 declaring a total income of Rs. Nil. The assessment was completed u/s.143(3) of the Act final assessment order was passed wherein the total income of the assessee was determined at Rs. 6,92,17,625. On account of TP adjustment, the ld. DRP has held that only 10% of the receipts would be taxed in India and penalty u/s.271(1)(c) of the Act was levied on the same by the ld. AO.

Appeal before CIT(A): In appeal before CIT(A) confirmed levy of penalty of Rs.66,62,768 u/s.271(1)(c) of the Act in the facts and circumstances of the instant case.

Appeal before ITAT: The Tribunal has held that the notional interest income on the interest-free loan advanced by the assessee to its AE would be assessable as income of the assessee which has business connection / PE in India and the same would be entitled to be adjusted against the expenditure incurred by the assessee by way of marketing services fee paid to NMC in India i.e. Abacus Distribution System (India) Ltd.

The Tribunal had specifically stated the quantum proceedings with the notional interest income would be entitled to be adjusted as against the expenditure incurred by the assessee by way of the marketing services fee paid to ADSIL. However, the matter was restored back for the limited purpose of making verification of the said claim to the file of the ld AO. It was pointed out that assessee has not claimed any benefit of carry forward of losses. Hence, there is no question of tax sought to be evaded within the meaning of Section 271(1)(c) of the Act. As one of the main ground the quantum proceedings had been remanded back to the ld. AO, the tribunal deemed it fit and appropriate to remand the penalty proceedings also to the file of the ld. AO for adjudication in accordance with law and also decide afresh the fact as to whether at all penalty is leviable in the instant case. Therefore, the appeal of assessee was allowed for statistical purposes.

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