2018 (3) TMI 1700 - AT - Income Tax

Penalty u/s 271 (1)(c) - Held that - We find that it is a established position of law that penalty under Section 271 (1)(c) of the Act cannot be imposed in respect of a debatable issue. This view is supported by the decision in the case of CIT vs. H.B. Leasing and Finance C.O. Limited (2011 (2) TMI 434 - DELHI HIGH COURT) wherein it was held that on a debatable issue no penalty under Section 271 (1)(c) was leviable. The issue involved is yet to be resolved by the Hon ble Supreme Court and as the issue was admitted by the High Court as involving substantial questions of law which is beyond any shadow of doubt that the addition in the instant case was made in respect of an issue which is highly debatable. Therefore we are of the considered view that a penalty u/s 271 (1)(c) is not exigible in the instant case. - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against orders confirming penalty under Section 271(1)(c) of the Income Tax Act for multiple assessment years.

Analysis:

1. Existence of Permanent Establishment (PE) in India:
The case involved the issue of whether the assessee had a permanent establishment in India, particularly through Rolls Royce India Limited (RRIL). The Assessing Officer (AO) initially attributed 100% of profits to the PE, leading to significant tax assessments. The CIT(A) and the Tribunal successively reduced the attribution to 35%, which was further upheld by the Delhi High Court. The Hon'ble Supreme Court admitted the appeal, indicating the debatable nature of the issue.

2. Validity of Penalty under Section 271(1)(c):
The key contention was whether the penalty under Section 271(1)(c) was justified given the debatable nature of the permanent establishment issue. The AR argued that since the issue had reached the Hon'ble Supreme Court, the penalty should not apply. The DR supported the lower authorities' decisions.

3. Precedents and Legal Position on Debatable Issues:
The Tribunal referred to legal precedents, including the decision in CIT vs. H.B. Leasing and Finance Co. Ltd., emphasizing that penalties cannot be imposed on debatable issues. The Tribunal cited the Supreme Court's stance that substantial questions of law must be debatable and not previously settled. Additionally, decisions from other High Courts were referenced to support the view that penalties are not applicable when issues are unresolved and debatable.

Conclusion:
Considering the unsettled nature of the permanent establishment issue, the Tribunal held that penalties under Section 271(1)(c) were not justified. Citing legal precedents and the debatable nature of the matter, the Tribunal set aside the penalties imposed for various assessment years. Consequently, the appeals of the assessee were allowed, and the penalties were deleted for all the years under appeal.

This comprehensive analysis of the judgment highlights the legal intricacies surrounding the issues raised in the case and the Tribunal's decision based on the debatable nature of the permanent establishment matter.