2016 (4) TMI 577 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Transfer pricing adjustment - Held that - As the adjustment made and confirmed by the Tribunal on account of arm s length price in respect of interest free loan provided by the appellant to its wholly owned subsidiaries has been admitted by the Hon ble High Court, so is clearly a debatable issue and so penalty levied cannot be sustained, so we order deletion of it. - Decided in favour of assessee

Summary

Issues Involved:
Levy of penalty u/s 271(1)(c) of the Income-tax Act, 1961.

Detailed Analysis:

1. Background and Facts:
The assessee filed an appeal against the order of CIT (Appeal)-XVII for the assessment years 2002-03 and 2003-04. The AO made transfer pricing adjustments and disallowed certain amounts, leading to penalty proceedings u/s 271(1)(c) of the Act.

2. AO's Findings and Penalty Imposition:
The AO found the assessee's explanations unsatisfactory and imposed a penalty based on the transfer pricing adjustments made. The AO concluded that the assessee failed to prove that the pricing was determined in accordance with section 92C in good faith and with due diligence, as required by the Act.

3. First Appellate Authority's Decision:
The CIT (A) confirmed the penalty imposed by the AO, leading the assessee to file an appeal before the ITAT.

4. ITAT's Decision and Legal Arguments:
The ITAT considered the debatable nature of the issue, as substantial questions of law were admitted by the High Court. It was established that when an issue is debatable and admitted by the High Court, penalties cannot be levied. Legal precedents were cited to support this argument.

5. Judgment and Conclusion:
The ITAT ruled in favor of the assessee, stating that the issue of transfer pricing adjustments was debatable and admitted as a substantial question of law by the High Court. Therefore, the penalty levied was not sustainable, and it was ordered to be deleted. Citing relevant case laws, the ITAT allowed the appeals of the assessee.

This detailed analysis highlights the progression of the case, the arguments presented, the findings of the authorities, and the final judgment by the ITAT in favor of the assessee based on the debatable nature of the issue and legal precedents.