2015 (6) TMI 326 - HC - Income Tax

Penalty under section 271(1)(c) - disallowances under section 40(a)(i) and income of Head Office / Branch Office - ITAT deleted penalty levy - Held that - On the merits of the disallowances have not been accepted and the special Bench had to be constituted to resolve the legal issue. All this indicates that there were two views possible on the issue and before it was settled by a special Bench decision of the Tribunal. Thus, on a debatable point and legal issue, a penalty could not have been imposed and the ingredients of section 271(1)(c) of the Income Tax Act are not attracted in such cases. This is essentially a finding of fact and clearly emerging from the admitted position. In the circumstances, the Tribunal s direction to delete the penalty does not raise any substantial question of law. - Decided in favour of assessee.

Summary

Issues:
Challenge to deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal.

Analysis:

1. The appeal before the High Court challenged the deletion of a penalty amounting to Rs. 8,56,72,539/- imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The appellant argued that the Tribunal's finding raised a substantial question of law warranting admission of the appeal.

2. The High Court, however, disagreed with the appellant's contention. The Tribunal's order highlighted two disallowances made by the Assessing Officer under section 40(a)(i) and another regarding the income of Head Office/Branch Office. The Assessing Officer initiated penalty proceedings under section 271(1)(c) based on these disallowances. The Tribunal observed that there were differing views on the disallowances, leading to the constitution of a special Bench to resolve the legal issue. Given the debatable nature of the issue and the existence of two possible views, the Tribunal concluded that the penalty under section 271(1)(c) was not warranted.

3. The Tribunal's decision to delete the penalty was based on the finding that the Assessing Officer's views on the disallowances were not universally accepted, necessitating a special Bench to resolve the legal issue. This factual determination, indicating the existence of two plausible views on the matter, led to the conclusion that the penalty provisions of section 271(1)(c) were not applicable in this case. The High Court concurred with this assessment, emphasizing that the Tribunal's direction did not raise any substantial question of law.

4. Ultimately, the High Court dismissed the appeal, ruling that it lacked merit. The Court also decided that no costs would be awarded in this matter.