ADIT (IT)- 3(2), MUMBAI v. FIDELITY MANGAEMTN & RESEARCH CO., MUMBAI

ITA 6648/MUM/2009 | 2004-2005
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 664819914 RSA 2009
Assessee PAN AAATF0621L
Bench Mumbai
Appeal Number ITA 6648/MUM/2009
Duration Of Justice 1 year(s) 1 month(s)
Appellant ADIT (IT)- 3(2), MUMBAI
Respondent FIDELITY MANGAEMTN & RESEARCH CO., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 31-01-2011
Date Of Final Hearing 08-11-2010
Next Hearing Date 08-11-2010
Assessment Year 2004-2005
Appeal Filed On 31-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI. R.V. EASWAR PRESIDENT AND SHRI P.M. J AGTAP AM ITA NO.6648/MUM/2009 ASSESSMENT YEAR : 2004-2005 A.D.I.T.(IT) 3(2) SCINDIA HOUSE R.NO.132 1 ST FLR. N.M. RD. MUMBAI VS. FIDELITY MANAGEMENT & RESEARCH CO. A/C FIDELITY INVESTMENT TRUST FIDELITY ADVISOR DIVERSIFIED INTERNATIONAL FUND C/O BMR & ASSOCIATES 3F CONTRACTOR BLDG. 41 R KAMANI RD. BALLARD ESTATE MUMBAI 400001. PAN : AAATF0621L (APPELLANT) (RESPONDENT) ITA NO.6649/MUM/2009 ASSESSMENT YEAR : 2004-2005 A.D.I.T.(IT) 3(2) SCINDIA HOUSE R.NO.134 1 ST FLR. N.M. RD. MUMBAI VS. FIDELITY MANAGEMENT & RESEARCH CO. A/C FIDELITY INVESTMENT TRUST FIDELITY GLOBAL OPPORTUNITIES FUNDS C/O BMR & ASSOCIATES 3F CONTRACTOR BLDG. 41 R KAMANI RD. BALLARD ESTATE MUMBAI 400001. PAN : AAATF0825C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUMEET KUMAR RESPONDENT BY : SHRI JIGNESH SHAH O R D E R PER P.M.JAGTAP A.M. THESE TWO APPEALS ARE PREFERRED BY THE REVENUE AGAI NST TWO SEPARATE ORDERS PASSED BY THE LEARNED CIT (A)-X MU MBAI DATED ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 2 15.10.2009 WHEREBY HE CANCELLED THE PENALTIES IMPOS ED BY THE AO U/S 271(1)(C) ON TWO ASSESSES FOR ASSESSMENT YEAR 2004- 05 . 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH ESE APPEALS ARE THAT BOTH THE ASSESSEES IN THE PRESENT CASES ARE REGISTE RED AS TRUSTS IN FOREIGN COUNTRIES AND ARE ALSO TAX RESIDENTS OF THA T COUNTRIES. THE ASSESSEES ARE REGISTERED AS SUB ACCOUNTS OF FUNDS W HICH ARE REGISTERED WITH SECURITIES EXCHANGE BOARD OF INDIA (SEBI) AS FOREIGN INSTITUTIONAL INVESTORS (FLLS). THE ASSESSEES ORIG INALLY FILED THEIR RETURNS OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING THE INCOME EARNED FROM SALE OF SECURITIES IN INDIA UNDE R THE HEAD CAPITAL GAINS AND ALSO PAID TAX DUE THEREON. THE ASSESSEE S HAD ALSO EARNED DIVIDEND INCOME ON THEIR INVESTMENT WHICH WAS CLAIM ED TO BE EXEMPT FROM TAX. THEREAFTER RELYING ON THE AAR RULING IN THE CASE OF XYZ/ABC EQUITY FUND (2001) (250 ITR 194) (AAR) AND FIDELITY ADVISORS SERIES VIII (2004)(271 ITR 1) (AAR) THE ASSESSEES FILED REVISED RETURNS OF INCOME ON SHOWING TAXABLE INCOME AT ` NIL AND CLAIMING REFUND OF TAXES PAID ON THE GROUND THAT T HEIR INCOME WAS IN THE NATURE OF BUSINESS INCOME AND IN THE ABSENCE OF ANY PE IN INDIA THE SAME WAS NOT TAXABLE IN INDIA IN VIEW OF ARTICL E 7 READ WITH ARTICLE 5 OF DTAA. THE ASSESSING OFFICER CONSIDERED THIS ST AND OF THE ASSESSEES IN THE LIGHT OF THE SCHEME OF GOVERNMENT OF INDIA UNDER WHICH THE FLLS ARE ALLOWED TO OPERATE IN INDIAN SE CURITIES AND SPECIAL PROVISIONS OF INDIAN INCOME-TAX DEALING WITH TAXABI LITY OF FLLS. HE HELD THAT FLLS ARE PERMITTED TO INVEST IN THE CAPIT AL MARKET AS INVESTORS AND GAINS ARISING ON PURCHASE AND SALE OF SHARES AN D STOCKS ARE TO BE ASSESSED AS CAPITAL GAINS U/S.115AD OF I.T. ACT 1961 AS SPECIFICALLY PROVIDED FOR UNDER GOVERNMENT OF INDIA GUIDELINES WHICH ARE PART OF SEBI REGULATION. ACCORDING TO HIM TO SAY THAT FLL S ARE ENTITLED TO CARRY OUT BUSINESS OF DEALING IN SECURITIES WOULD B E VIOLATIVE OF THE ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 3 CLEAR MANDATE OF SEBI REGULATIONS 1995 AND WOULD M AKE THE ENTIRE REGULATORY FRAME WORK REDUNDANT WHEREBY FLLS HAVE B EEN ALLOWED TRIBUNAL INVEST IN THE CAPITAL MARKET IN INDIA. TH E ASSESSING OFFICER DISCUSSED THE PROSPECTUS OF THE ASSESSEES AND OBSER VED THAT THE INVESTMENT OBJECTIVE OF THE FUND BEING AN INSURANC E PRODUCTS FUND- O.P. IS CAPITAL GROWTH. THE ASSESSING OFFICER ALS O QUOTED THE EXTRACTS OF THE PROSPECTUS AND OBSERVED THAT THE ASSESSEES FUNDS HAVE BEEN CREATED FOR THE PURPOSE OF INVESTMENT IN INTERNATIO NAL SECURITIES MARKET AND IN GIVING INFORMATION TO ITS OWN INVESTO RS THE NATURE OF INCOME OF THE FUND HAS BEEN STATED AS DIVIDEND OR C APITAL GAINS. THE ASSESSING OFFICER ALSO NOTED THAT THE FUNDS WILL BE HAVING INCOME IN THE FORM OF DIVIDENDS AND CAPITAL GAINS WHICH WILL BE DISTRIBUTED OR ALLOWED TO BE ACCUMULATED. THE FUNDS ARE TAX TRANS PARENT ENTITIES IN THEIR COUNTRIES AND ITS BENEFICIARIES ARE PAYING TA XES ON DIVIDEND INCOME AND CAPITAL GAINS. HE THEREFORE DID NOT AC CEPT THE ASSESSEES CONTENTION THAT THEIR INCOME FROM INDIAN SECURITIES MARKET IS BUSINESS INCOME WHICH IS NOT CHARGEABLE TO TAX IN INDIA. ACCORDINGLY THE ASSESSING OFFICER COMPLETED THE ASSESSMENTS ORD ER U/S.143(3) BRINGING TO TAX THE INCOME OF THE ASSESSEES UNDER T HE HEAD CAPITAL GAIN. THE PENALTY PROCEEDINGS U/S. 271(1)(C) WER E ALSO INITIATED FOR MAKING FALSE CLAIM IN THE REVISED RETURNS OF INCOME AND SINCE THE EXPLANATION OFFERED BY THE ASSESSEES IN REPLY TO TH E SHOW CAUSE NOTICE WAS NOT FOUND TO BE ACCEPTABLE BY HIM THE ASSESSIN G OFFICER PROCEEDED TO IMPOSE PENALTIES U/S. 271(1)(C) OF THE ACT. 3. THE PENALTIES IMPOSED BY THE AO WERE CHALLENGED BY THE ASSESSEES IN AN APPEAL FILED BEFORE THE LEARNED CIT (A). DURING THE COURSE OF PENALTY PROCEEDINGS IT WAS SUBMITTED ON ASSESSEES BEHALF THAT IN THE ASSESSMENT ORDERS IT WAS ONLY STATED TH AT THE INCOME OF ASSESSEES FROM INDIAN OPERATIONS IS OF THE NATURE O F CAPITAL GAINS AS ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 4 AGAINST BUSINESS INCOME ON THE BASIS OF A DIFFERENT VIEW ADOPTED BY HIM. THE ASSESSING OFFICER HAS ALSO NOT INDICATED WHETHER SUCH PENALTY PROCEEDINGS WERE INITIATED ON CONCEALMENT O F INCOME OR DUE TO FURNISHING INACCURATE PARTICULARS. IT WAS SUBMITTE D THAT ASSESSEES HAD FILED THEIR ORIGINAL RETURNS REPORTING INCOME F ROM SALE OF SECURITIES IN THE NATURE OF CAPITAL GAINS. IT WAS HOWEVER RUL ED BY AAR IN XYZ/ABC AND FAS VIII (SUPRA) SISTER CONCERN THAT I NCOME OF THESE FLLS FROM PURCHASE AND SALE OF SECURITIES IN INDIA IS BUSINESS INCOME. RELYING ON THE SAID RULING THE ASSESSEES REVISED T HEIR RETURNS OF INCOME AND MADE A CLAIM FOR THE BENEFIT UNDER TREAT Y AND TO CLAIM EXEMPTION FROM INCOME TAX INDIA. THE ASSESSEES ALSO FILED AN APPLICATION FOR ADVANCE RULING TO THE AAR IN THE YE AR 2006 ON THE ISSUE AS TO WHETHER THEIR INCOME FROM THE SALE OF P ORTFOLIO INVESTMENT IN INDIA WOULD BE CATEGORIZED AS BUSINESS INCOME. T HE ASSESSEES ARGUED BEFORE THE LEARNED CIT(A) THAT IT IS WELL ES TABLISHED PRINCIPLE THAT NO PENALTY CAN BE LEVIED WHERE A SUBSEQUENT JU DGMENT HAS BEEN DELIVERED WHICH ESTABLISHES A POINT OF LAW/PRINCIPL E CONTRARY AS TO THE POSITION TAKEN BY TAXPAYER. 4. IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEES THAT ALONG WITH THE REVISED RETURNS OF INCOME THE ENTIRE BASIS ON WHICH THE REVISED RETURNS HAVE BEEN FIELD WAS DULY EXPLAINED AND ALL THE INFORMATION AND EXPLANATIONS WERE ALSO TRULY AND FULLY FURNISHE D. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HIMSELF IN THE ASSESSMEN T ORDERS HAS DISCUSSED THE ISSUE AS TO WHETHER THE INCOME SHOULD BE ASSESSED UNDER THE HEAD BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAINS. IT WAS CONTENDED THAT IN THESE FACTS AND CIRCUMSTANCES OF THE CASE THE QUESTION OF COMING TO A CONCLUSION THAT THE ASSESSE ES HAVE CONCEALED THE PARTICULARS OF INCOME OR HAVE FURNISHED INACCUR ATE PARTICULARS OF INCOME SO AS TO ENABLE THE LEVY OF PENALTY U/S. 271 (1)(C) DOES NOT ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 5 ARISE. THE ASSESSEES BROUGHT IT TO THE NOTICE OF T HE LEARNED CIT(A) THAT A LETTER DATED 25.03.2005 WAS FILED ALONGWITH THE R EVISED RETURNS OF INCOME GIVING ALL THE RELEVANT INFORMATION AS UNDER : WE REFER THE RETURN OF INCOME (ROI) IN FORM NO.3 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION FILED WITH YOU R OFFICE ON 27.02.2004 BEARING ACKNOWLEDGMENT NO.1153. A COPY OF THE ACKNOWLEDGMENT ROI IS ENCLOSED HEREWITH AS ANNEXURE A FOR YOUR READY REFERENCE. THE FUND HAD IN THE ORIGINAL ROI OFFERED TO TAX T HE INCOME EARNED ON SALE OF SECURITIES IN INDIA AS CAPITAL GA INS AND PAID TAXES THEREON. HOWEVER AS THE FUND HAS BEEN CARRY ING ON BUSINESS AS AN INVESTMENT TRUST THE SHARES AND SEC URITIES WERE HELD BY THE FUND AS BUSINESS ASSETS THE PROFI TS FROM THE OBJECT OF THE FUND AS SEEN FROM ITS CHARTER DOCUMEN TS THE REGISTRATION WITH SECURITIES & EXCHANGE BOARD OF IN DIA (SEBI) AS A FOREIGN INSTITUTIONAL INVESTOR AND THE ENORMIT Y AND FREQUENCY OF TRANSACTIONS OF PURCHASE AND SALE OF S HARES AND SECURITIES BY THE FUND. FURTHER IN THE VIEW OF T HE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND USA THE BUSINESS PROFITS COULD BE TAXED IN INDIA ONLY IF THERE IS A PERMANENT ESTABLISHMENT (PE) I N INDIA. AS THE FUND DOES NOT HAVE AN OFFICE A PLACE OF BUSINE SS OR A DEPENDENT AGENT IN INDIA IT DOES NOT HAVE A PE IN INDIA AND THEREFORE THE BUSINESS INCOME ON SALE OF SECURITIE S WOULD NOT BE TAXABLE IN INDIA. WITH REGARDS TO OUR CLAIM THAT THE INCOME EARNED BY THE FUND IS IN THE NATURE OF BUSINESS INCOME WE WOULD LIKE TO P LACE RELIANCE ON A RECENT RULING DELIVERED BY THE AUTHOR ITY OF ADVANCE RULINGS (AAR) IN RESPECT OF ONE OF OUR SI STER FUNDS NAMELY FIDELITY ADVISOR SERIES VIII REPORTED IN ( 2004) 271(1)(C) ITR 0001 (AAR) THE FACTS OF THE WHICH ARE SIMILAR T O OUR CASE. THE RULING DELIVERED BY THE AAR IS ENCLOSED HEREWIT H AS ANNEXURE B. IN THIS CASE THE AAR AFTER PERUSING CE RTAIN PARAMETERS SUCH AS THE OBJECTS FOR WHICH THE APPLIC ANT WAS ESTABLISHED THE FREQUENCY OF TRADE ETC. HELD THAT THE INCOME EARNED BY FIDELITY ADVISOR SERIES VIII WAS IN THE N ATURE BUSINESS INCOME. THE AAR ALSO CONSIDERED WHETHER THE PRESENCE OF THE CUSTODIAN IN INDIA WOULD TANTAMOUNT TO THE FIDELITY ADVISOR SERIES VIII HAVING A PE IN INDIA AND IN THIS REGARD RULES IN THE NEGATIVE. THE AAR RULED THAT THE INCOME EARNED BY FIDELITY ADVISOR SERIES VIII WAS IN THE N ATURE OF BUSINESS INCOME. THE AAR ALSO CONSIDERED WHETHER T HE PRESENCE OF THE CUSTODIAN IN INDIA WOULD TANTAMOUNT TO THE FIDELITY ADVISOR SERIES VIII HAVING A PE IN INDIA AND IN THIS REGARD RULED IN THE NEGATIVE. THE AAR RULED THAT T HE INCOME EARNED BY FIDELITY ADVISOR SERIES VIII WAS IN THE N ATURE OF BUSINESS INCOME AND IN THE ABSENCE OF PE IN INDIA I TS INCOME FROM SALE OF SECURITIES WAS NOT TAXABLE IN INDIA. THE AAR HAS TAKEN A SIMILAR VIEW IN THE CASE OF XYZ/ABC EQUITY FUND (2001) 250 ITR 194 (AAR). ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 6 IN VIEW OF THE ABOVE THE FUND WISHES TO OFFER IS I NCOME AS BUSINESS INCOME AND ACCORDINGLY REVISED THE ROI FOR THE ABOVE MENTIONED ASSESSMENT YEAR. THE REVISED ROI IN FORM NO.2 ALONG WITH THE COMPUTATION OF INCOME IS ATTACHED WI TH THE LETTER. 5. IN VIEW OF THE ABOVE INFORMATION SUBMITTED ALONG WITH ITS REVISED RETURNS OF INCOME IT WAS CONTENDED ON ASSESSEES B EHALF THAT THERE IS NO CASE OF FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME SO AS TO ATTRACT PENALTY U/S 271(1)(C). IN SUPPORT OF THIS C ONTENTION RELIANCE WAS PLACED BY THE ASSESSEES ON THE FOLLOWING CASE L AWS : CIT VS. CARBORANDUM UNIVERSAL LTD. 215 ITR 376 (M AD.) CIT VS. GANESH PRASAD BADRI PRASAD 231 ITR 951 (M P) CIT VS. SUBRAMANIAN CHETTIAR 110 ITR 602 (KER.) CIT VS. RAJ TRADING 217 ITR 208 (RAJ) ACIT VS. PORRITS AND SPENCERS (A) LTD. 22 SOT 231 (DEL.) CIT VS. GANESH BUILDERS 299 ITR 403 (MAD.) THE ASSESSEES ALSO RELIED ON THE DECISION OF THE IT AT MUMBAI IN THE CASE OF M/S. VARIABLE PRODUCTS FUNDS OVERSEAS PORT FOLIO (ITA NO.559 & 584/MUM/2009 DT. 07.05.2009) WHEREIN PENALTY IMPO SED U/S 271(1)(C) IN THE SIMILAR FACTS AND CIRCUMSTANCES WA S CANCELLED BY THE TRIBUNAL. 6. THE CIT(A) FOUND MERIT IN THE SUBMISSIONS MADE O N BEHALF OF THE ASSESSEES FOR THE FOLLOWING REASONS GIVEN IN HIS IM PUGNED ORDERS: I HAVE CONSIDERED THE FACTS AND GONE THROUGH THE P ENALTY ORDER PASSED BY THE ASSESSING OFFICER AND ALSO THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE ME. I FIND THAT THE ASSESSEE HAS FILED ORIGINAL RETURN OF INCOME SHOWIN G INCOME UNDER THE HEAD OF CAPITAL GAIN. HOWEVER IT WAS REVISED ON THE BASIS OF ADVANCE RULING IN THE CASE OF XYZ/ABC EQUITY FUND (2001) (250 ITR 194) (AAR) AND FIDELITY ADVIS ORS SERIES VIII (2004) (271 ITR 1) (AAR) WHEREIN SAME SET OF FACTS THE INCOME WAS HELD TO BE ASSESSABLE AS BUSINESS INCOME . THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 31.03. 2005 SHOWING TAXABLE INCOME AT ` .NIL AND CLAIMING REFUND OF TAXES PAID ON THE GROUND THAT ITS INCOME WAS IN THE NATU RE OF BUSINESS INCOME AND SINCE THE ASSESSEE HAS NOT HA VING PE ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 7 ITS INCOME IS NOT TAXABLE IN INDIA IN VIEW OF ARTIC LE 7 READ WITH ARTICLE 5 OF DTAA. THIS REVISED RETURN OF INCOME WAS FILED WITH COVERING LETTER DATED 25.03.2005 EXPLAINING THE REA SONS THEREOF. HOWEVER THE ASSESSING OFFICER HAS ASSESS ED ITS A INCOME FORM CAPITAL GAINS ONLY. THERE IS NO ALLEGA TION OR OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER THAT ANY FACT MATERIAL TO THE COMPUTATION OF INCOME WAS EITHER NOT DISCLOSED OR WAS FOUND TO BE WRONG. THE ASSESS MENT HAS BEEN MADE ON THE BASIS OF FACTS DISCLOSED BY THE AS SESSEE IN THE RETURN OF INCOME AND ALSO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS AND WHEN DEMANDED BY THE ASSESSING O FFICER. ASSESSMENT HAS BEEN MADE BY THE ASSESSING OFFICER H AVING A DIFFERENT OPINION FORM THE POINT OF VIEW OF THE ASS ESSEE. THUS THERE IS NO QUESTION OF CONCEALING ANY FACTS. THE REVISED CLAIM WAS BASED ON LEGAL RULING. THUS THERE WAS NO CONCE ALMENT WHATSOEVER NOR HAS THE ASSESSEE HAS COMMITTED AN A CT OF FURNISHING INACCURATE PARTICULARS OF HIS INCOME. THE ENTIRE FACTS AND CLAIM HAS BEEN EXPLAINED IN THE LETTER WH ILE FILING THE REVISED RETURN OF INCOME AND SAME WAS BASED ON JUDI CIAL RULING. A PERUSAL OF THE PENALTY ORDER REVEALS THA T THE ASSESSING OFFICER HAS REJECTED THE CONTENTIONS ON T HE BASIS THAT IGNORANCE OF LAW DOES NOT EXTINGUISH THE LIABILITY TO OBEY THE LAW. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS TRIED HIS LUCK TO BE IN TWO BOATS AT THE SAME TIME WITH G UILTY MIND BUT AT THE SAME TIME CLAIMING HIS ASSERTION TO BE C ONTENTION ARISEN OUT OF BONAFIDE BELIEF WHICH DOES NOT HOLD WATER. THIS VIEW OF LEARNED ASSESSING OFFICER MANIFESTS THAT TH ERE WAS BONAFIDE BELIEF ON THE PART OF ASSESSEE AND AT THE SAME TIME IT WAS BASED ON JUDICIAL RULING IN SAME TYPE OF FUND T HAT THE ITS INCOME COULD BE ASSESSED AS BUSINESS INCOME. THE A SSESSEE FILED REVISED RETURNS OF INCOME ALONG WITH A LETTER WHICH EXPLAINING THE REASONS FOR FILING THE RETURN OF INC OME. IT IS EVIDENT FROM THE RETURN FILED BY THE ASSESSEE THAT FULL DISCLOSURE OF THE CLAIM THAT ITS BUSINESS INCOME IS NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 7 READ WITH ARTICLE 5 OF D TAA. THE ASSESSING OFFICER HAS HOWEVER TAKEN A DIFFERENT V IEW THAT THE AMOUNT IS TAXABLE. IT IS TRITE LAW THAT PENALTY PR OCEEDINGS ARE DISTINCT AND SEPARATE PROCEEDINGS FOR ASSESSMENT PR OCEEDINGS. THE FINDING RECORDED IN THE ASSESSMENT ORDER IS NOT CONCLUSIVE FOR DECIDING THE IMPOSITION OF PENALTY. IT ONLY HA S A PERSUASIVE VALUE. ANY FINDING RECORDED IN THE ASSESSMENT ORDER DOES NOT MEAN THAT THE PENALTY HAS TO BE IMPOSED AUTOMATICAL LY. EXPLANATION 1 TO SECTION 271(1)(C) PROVIDES THAT TH E PENALTY WOULD BE DEEMED TO ATTRACT WHERE IN RESPECT OF A FA CT MATERIAL TO THE COMPUTATION OF INCOME EITHER NO EXPLANATION IS OFFERED OR EXPLANATION OFFERED IS FOUND TO BE FALSE. ASSESSEE HAS OFFERED EXPLANATION WHICH WAS NOT FOUND TO BE FALSE AND ACC ORDINGLY ITS CASE IS NOT COVERED BY CLAUSES (A) OF EXPLANATI ON 1. CLAUSE (B) OF EXPLANATION 1 PROVIDES THAT WHERE THE ASSESS EE IS NOT BALE TO SUBSTANTIATE ITS EXPLANATION AND FAILS TO P ROVE THAT SUCH EXPLANATION IS BONAFIDE AND ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED PENALTY IS LEVIABLE. I FIND T HAT THE ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 8 ASSESSEE HAD MADE DISCLOSURE FIRST IN THE ORIGINAL RETURN LATER IN THE REVISED RETURN ENCLOSING A LETTER THEREWITH AND THEREAFTER DURING ASSESSMENT PROCEEDINGS ON THE BASIS OF JUDIC IAL RULINGS RELIED UPON. JUST BECAUSE ASSESSEE EXPLANATION WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER IT DOES NOT FO LLOW THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE HIS EXPLANATION BY PROVIDING VARIOUS EVIDENCES AND JUDICIAL OPINIONS. I AM THEREFORE OF THE VIEW THAT THE ASSESSMENT HAS BEEN MADE ON THE BASIS OF DIFFERENCE F OPINION ON THE SAME SET O F FACTS WHICH HAVE BEEN FULLY DISCLOSED BY THE ASSESSEE. THE CAS E OF THE ASSESSEE IS THEREFORE NOT COVERED BY EXPLANATION 1. BASED ON THE FACTS OF THE CASE I NOTE THAT THE ASSESSEE HAD MADE ALL THE NECESSARY DISCLOSURES BY WAY OF NOTES TO THE RETURN OF INCOME AND SUBMITTED REQUIRED INFORMATION DOCUMENTS AND EXPLANATIONS TO THE ASSESSING OFFICER DURING THE AS SESSMENT PROCEEDINGS. 7. THE CIT(A) ALSO DISCUSSED AND ANALYZED THE FOLLO WING CASE LAWS WHICH WERE FOUND TO BE RELEVANT IN THE CONTEXT: * THE HONBLE ITAT MUMBAI BENCH IN THE CASE OF ROB ORANT INVESTMENTS (P) LTD. (7 SOT 181) * THE HONBLE SUPREME COURT IN THE CASE OF K.C. BUILD ERS 265 ITR 562 (SUPREME COURT) * THE HONBLE JURISDICTIONAL MUMBAI TRIBUNAL IN THE C ASE OF TELEBUILD CONSTRUCTION (P) LTD. VS. ACIT (13 SOT 218) * THE HONBLE DELHI HIGH COURT IN THE CASE OF BACARD I MARTIN INDIA LTD. (288 ITR 585) (DELHI) * IN THE CASE OF DCIT VS. MS. AISHWARYA RAI (12 SOT 114) (MUM) * THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NATH BROS. EXIM INTERNATIONAL (288 ITR 670) (DEL) * THE HONBLE JURISDICTIONAL ITAT IN THE CASE OF VARI ABLE INSURANCE FUND OVERSEAS PORTFOLIO VS. ADIT (IT) 2(2) MUMBAI (ITA N O.559/M/2009) (ASSESSMENT YEAR 2004-05) (DTD 07.05.2009) 8. IN THE LIGHT OF THE LEGAL POSITION EMANATING FRO M THE ABOVE JUDICIAL PRONOUNCEMENT AND TAKING INTO CONSIDERATIO N THE RELEVANT FACTS OF THE ASSESSES CASES NOTED BY HIM THE LEAR NED CIT(A) FINALLY CANCELLED THE PENALTIES IMPOSED BY THE AO BY OBSERV ING AS UNDER: IN VIEW OF THE ABOVE I AM OF THE VIEW THAT THE AS SESSEE HAS MADE ITS CLAIMS UNDER A BONAFIDE BELIEF AND BASED O N JUDICIAL RULING. THE CONTENTIONS OF THE ASSESSEE THAT IT DO ES NOT HAVE A PE IN INDIA AND ITS INCOME COULD BE CONSIDERED AS B USINESS INCOME AS PER ARTICLE 7 OF DTAA HENCE ITS INCOME IS NOT TAXABLE IN INDIA IS BACKED BY VARIOUS JUDICIAL PRECEDENTS. WHEN THERE ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 9 ARE TWO VIEWS POSSIBLE AND THE ASSESSEE HAS TAKEN O NE VIEW BASED ON A BONAFIDE BELIEF WHICH IS NOT AGREEABLE TO THE ASSESSING OFFICER/HIGHER APPELLATE AUTHORITIES IT W ILL NOT AUTOMATICALLY LEAD TO A CASE FOR PENALTY U/S. 271(1 )(C) OF THE I.T. ACT 1961. CONSIDERING MY AFORESAID CONCLUSIONS A S WELL AS CASE LAWS AS DISCUSSED ABOVE AND RESPECTFULLY FOLLO WING THE DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF M/S. VARIABLE PRODUCT FUNDS; OVERSEAS PORTFOLIO VS. ADIT (IT) 2(2 ) (ITA NO.559/M/09)(ASSESSMENT YEAR 2004-05)(DTD.07.05.09) WHICH IS ANOTHER FIDELITY SUB ACCOUNT LIKE ASSESSEE AND W HICH IS FULLY APPLICABLE TO THE FACTS OF THE ASSESSEE IT IS HELD THAT NO PENALTY U/S. 271(1)(C) FOR THE YEAR UNDER CONSIDERATION IS LEVIABLE IN CASE OF ASSESSEE. I AM THEREFORE SATISFIED THAT THE ASSESSING OFFICER HAS WRONGLY IMPOSED PENALTY. PENALTY IMPOS ED BY THE ASSESSING OFFICER IS DELETED. ACCORDINGLY THE ASSE SSING OFFICER IS DIRECTED TO DELETE THE ENTIRE PENALTY OF ` .3 06 40 490/-. AGGRIEVED BY THE ORDERS OF THE LEARNED CIT(A) CANCE LLING THE PENALTIES IMPOSED BY THE AO IN THE CASES OF BOTH THE ASSESSEE S THE REVENUE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THA T IN THE RETURNS OF INCOME ORIGINALLY FILED BOTH THE ASSESSEES HAD DEC LARED THE PROFIT ON SALE OF SECURITIES AS CAPITAL GAINS. SUBSEQUENTLY ON THE BASIS OF THE ORDER PASSED BY AAR IN THE CASE OF XYZ/ABC EQUITY F UND (250 ITR 194) AND FIDELITY ADVISORS SERIES VIII (271 ITR 1) THE ASSESSEES FELT THAT THE SAID PROFITS MAY CONSTITUTE THEIR BUSINESS PROFITS AND AS THE ASSESSEES DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA THE SAME WOULD NOT BE TAXABLE IN INDIA. ACCORDINGLY T HEY FILED REVISED RETURNS CLAIMING THE INCOME AS EXEMPT AND APPENDING A NOTE EXPLAINING THE REASON FOR THE SAME. THIS CLAIM OF THE ASSESSEES HOWEVER WAS NOT ACCEPTED BY THE AO AND THE INCOME OF THE ASSESSEES WAS HELD TO BE CHARGEABLE TO TAX AS CAPITAL GAIN BY HIM IN THE ASSESSMENTS. HE ALSO IMPOSED PENALTIES U/S 271(1)(C ) HOLDING THAT THERE WAS CONCEALMENT ON THE PART OF THE ASSESSEES IN THE REVISED RETURNS FILED BY THEM. AS DEMONSTRATED BY THE ASSE SSEES BEFORE THE ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 10 LEARNED CIT(A) ON THE BASIS OF A NOTE APPENDED TO T HE REVISED RETURNS THERE WAS HOWEVER NO CASE OF FURNISHING OF ANY INAC CURATE PARTICULARS BY THE ASSESSSES. THE SAID NOTE HAS ALREADY BEEN EX TRACTED BY US ABOVE FROM THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND A PERUSAL OF THE SAME SHOWS THAT THE REASON FOR CLAIMING EXEMPTI ON OF ITS INCOME ON THE BASIS OF AAR RULING WAS DULY EXPLAINED BY TH E ASSESSEES WHICH IS SUFFICIENT TO SHOW THAT THE SAID CLAIM WAS MADE BONA-FIDE AND IN GOOD FAITH. MOREOVER ALL THE MATERIAL PARTICULARS RELEVANT TO THE SAID CLAIM WERE FULLY AND TRULY FURNISHED BY THE ASSESSE ES ALONGWITH THEIR REVISED RETURNS. EVEN THE AO HAS NOT POINTED OUT AN Y FALSITY IN THE SAID PARTICULARS EITHER IN THE ASSESSMENT ORDER OR IN THE PENALTY ORDER. 10. IN ITS RECENT JUDGMENT DELIVERED IN THE CASE O F CIT VS RELIANCE PETRO PRODUCTS (P) LTD. (322 ITR 158) HONBLE SUPR EME COURT HAS HELD THAT S. 271 (1) (C) APPLIES WHERE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. AS REGARDS THE FURNISHING OF INACCURATE PA RTICULARS IT WAS FOUND BY THE HONBLE SUPREME COURT THAT NO INFORMAT ION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR INACCURATE. IT WAS HELD THAT THE WORDS INACCURATE PARTICULARS MEAN THAT THE DETAIL S SUPPLIED IN THE RETURN ARE NOT ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO TRUTH OR ERRONEOUS AND IN THE ABSENCE OF A FINDING BY THE AO THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND T O BE INCORRECT OR ERRONEOUS OR FALSE THERE WOULD BE NO QUESTION OF I NVITING PENALTY U/S 271(1)(C). THE ARGUMENT OF THE REVENUE RAISED IN TH IS REGARD THAT SUBMITTING AN INCORRECT CLAIM FOR EXPENDITURE WOUL D AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INCOME WAS NOT FOUN D TO BE ACCEPTABLE BY THE HONBLE APEX COURT OBSERVING THAT BY NO STRE TCH OF IMAGINATION CAN THE MAKING OF AN INCORRECT CLAIM IN LAW TANTAMO UNT TO FURNISHING INACCURATE PARTICULARS. IT WAS HELD THAT A MERE MAKING OF THE CLAIM ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 11 WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NO T AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE AND IF THE CONTENTION OF THE REVENUE TO THIS EFFECT IS ACCEPTE D THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED B Y THE AO FOR ANY REASON THE ASSESSEE WILL INVITE PENALTY U/S 271(1) (C) WHICH IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. IT IS OBSERV ED THAT APPLYING THIS RATIO OF THE DECISION OF HONBLE SUPREME COURT IN T HE CASE OF RELIANCE PETRO PRODUCTS (P) LTD. (SUPRA) THE PENALTIES IMPO SED BY THE AO U/S 271(1)(C) IN THE CASES OF FIDELITY MANAGEMENT & RES EARCH CO. A/C FIDELITY FOCUS TECHNOLOGY FUND AND FIDELITY MANAGEM ENT & RESEARCH CO. A/C FIDELITY INVESTMENT CANADA INVOLVING IDENTI CAL FACTS AND CIRCUMSTANCES HAVE BEEN HELD TO BE NOT SUSTAINABLE BY THE TRIBUNAL VIDE ITS ORDER DATED 30 TH SEPTEMBER 2010 IN ITA NOS. 14 & 15/MUM/2010. RESPECTFULLY FOLLOWING THE SAID JUDICI AL PRONOUNCEMENT WE UPHOLD THE IMPUGNED ORDERS OF THE LEARNED CIT(A) CANCELLING THE PENALTIES IMPOSED BY THE AO AND DISM ISS THESE APPEALS FILED BY THE REVENUE. 12. IN THE RESULT THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF JANUARY 2011. SD/- (R.V. EASWAR) PRESIDENT SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER MUMBAI DATED 31 ST JANUARY 2010. ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 12 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 10 MUMBA I 4. DIT (INTERNATIONAL TAXATION) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH F MUMBAI 6. MASTER FILE //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI ITA NO.6648/MUM/09 ITA NO.6649MUM/09 M/S FIDELITY MGT. AND RESEARCH CO. 13 DATE INITIALS 1 DRAFT DICTATED ON 28.1.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 31.1.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER