2017 (2) TMI 550 - AT - Income Tax

Penalty u/s. 271(1)(c) - allowability of project development expenses - Held that - Respectfully following the judgments of Nayan Builders and Developers and Liquid Investment and Trading Company (2014 (7) TMI 1150 - BOMBAY HIGH COURT ),we hold that after admission of substantial question of law by the Hon ble Bombay High Court the issue has become debatable and that penalty u/s. 271(1)(c) cannot be imposed in such cases. Reversing the order of the FAA, we decide effective Ground of appeal in favour of the assessee.

Summary

Issues Involved:
1. Disallowance of project development expenses by Assessing Officer and confirmation by Tribunal.
2. Levy of penalty under section 271(1)(c) for filing inaccurate particulars of income.
3. Admissibility of penalty after admission of substantial question of law by High Court.

Issue 1: Disallowance of Project Development Expenses
The Assessing Officer disallowed project development expenses claimed by the assessee, leading to a dispute that reached the Tribunal. The Tribunal upheld the disallowance, prompting the assessee to challenge the order. The Hon'ble Bombay High Court admitted a substantial question of law regarding the disallowance, making the issue debatable. Citing relevant case laws, the Tribunal concluded that penalty under section 271(1)(c) cannot be imposed on debatable issues. Consequently, the Tribunal reversed the First Appellate Authority's decision and ruled in favor of the assessee, allowing the appeal.

Issue 2: Levy of Penalty under Section 271(1)(c)
The Assessing Officer initiated penalty proceedings under section 271(1)(c) for inaccurate particulars of income. Despite detailed submissions by the assessee before the First Appellate Authority, the penalty was upheld based on precedents and case laws cited by the FAA. However, during the hearing before the Tribunal, it was argued that the admission of a substantial question of law by the High Court rendered the penalty unjustifiable. The Tribunal, after considering the legal aspects and judgments of Nayan Builders and Developers and Liquid Investment and Trading Company, held that the penalty could not be imposed on debatable issues. Consequently, the Tribunal allowed the appeal filed by the assessee.

Issue 3: Admissibility of Penalty after Admission of Substantial Question of Law
The Tribunal deliberated on the admissibility of a penalty under section 271(1)(c) after the admission of a substantial question of law by the Hon'ble High Court. Citing relevant judgments from the Hon'ble Bombay High Court and the Hon'ble Delhi High Court, the Tribunal concluded that penalties cannot be levied on debatable and arguable issues. Relying on legal discussions and precedents, the Tribunal dismissed the appeal of the Revenue and reversed the decision of the First Appellate Authority in favor of the assessee. The Tribunal emphasized that after the admission of a substantial question of law by the High Court, penalties cannot be imposed on such debatable issues.

In conclusion, the Tribunal's detailed analysis and reliance on legal precedents led to the reversal of the First Appellate Authority's decision and the allowance of the assessee's appeal. The Tribunal emphasized the importance of the admission of substantial questions of law by the High Court in determining the admissibility of penalties under section 271(1)(c) in cases involving debatable issues.