2017 (9) TMI 242 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - assessment of commission income - business income or salary income - Survey under section 133A - Reopening of assessment u/s 148 escaped income - Held that - The issue in dispute is squarely covered in favour of the assessee by the various decisions of the ITAT, Hon ble High Courts and the Hon ble Apex Court, because in the present case debatable issue is involved and Leave has been granted by the by the Hon ble Supreme Court of India in the case of assessee 2013 (4) TMI 870 - SUPREME COURT (from the judgment and order 2012 (12) TMI 168 - DELHI HIGH COURT). Hence, the penalty cannot be levied when the addition is made on debatable issue and appeal is admitted in Hon ble High Court/ Hon ble Supreme Court. - Decided in favor of the assessee

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Classification of commission income as salary or non-compete fee.
3. Admissibility of penalty when the addition is made on a debatable issue.
4. Impact of pending appeals in higher courts on the imposition of penalty.
5. Treatment of stay applications in light of the decision on the main appeals.

Issue-Wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue is whether the penalty of ?86,92,330/- under Section 271(1)(c) of the Income Tax Act, 1961, was rightly imposed. The Assessing Officer (AO) levied the penalty on the grounds that the assessee filed inaccurate particulars of income by not offering the commission income for taxation. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, but the Income Tax Appellate Tribunal (ITAT) reversed this decision, stating that the issue was debatable and pending before the Supreme Court.

2. Classification of Commission Income:
The assessee claimed that the commission received from M/s Uzind Corporation was not part of the salary but a non-compete fee for not taking away the business. The AO and CIT(A) treated this commission as part of the salary under Section 17(i) of the Act. However, the ITAT initially ruled in favor of the assessee, stating that the provisions of Section 28(v)(a) were applicable. The Delhi High Court later reversed ITAT's decision, classifying the commission as salary.

3. Admissibility of Penalty on Debatable Issues:
The assessee argued that no penalty should be levied when the addition is made on a debatable issue and the appeal is admitted in higher courts. The ITAT supported this view, citing various precedents, including the ITAT Mumbai's decision in Nayan Builders & Developers (P) Ltd. vs. ITO and the Mumbai High Court's decision in CIT vs. Nayan Builders & Developers Pvt. Ltd., which held that penalty is not exigible when the issue is debatable and pending before higher courts.

4. Impact of Pending Appeals in Higher Courts:
The ITAT noted that the Supreme Court had granted leave in the assessee's case, indicating that the issue was debatable. Citing the principle that penalty cannot be levied when the addition is made on a debatable issue and the appeal is admitted in higher courts, the ITAT decided in favor of the assessee.

5. Treatment of Stay Applications:
Given that the ITAT allowed all the appeals of the assessee and deleted the penalty, the stay applications for the outstanding demand/penalty became infructuous and were dismissed.

Conclusion:
The ITAT concluded that the penalty under Section 271(1)(c) was not justified as the issue was debatable and pending before the Supreme Court. The appeals were allowed, and the penalties were deleted. Consequently, the stay applications were dismissed as infructuous. The order was pronounced on 31/08/2017.

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