2019 (4) TMI 1115 - AT - Income Tax

Penalty u/s 271(1)(c) - debatable issue - order passed beyond the period of limitation prescribed under Section 275(1)(a) - period of limitation - HELD THAT - It is not disputed that substantial questions of law on the quantum additions confirmed by ITAT have already been framed by Hon ble Delhi High Court regarding all the additions in respect of which penalties (disputed in the present appeals before us) have been levied by the AO, u/s 271(1)(c) of IT Act. It is also not in dispute that quantum additions were on disputable and debatable issues on which different views could legitimately exist. In these facts and circumstances, respectfully following the aforesaid precedents, vide order of Hon ble Delhi High Court in CIT vs. Liquid Investment and Trading Company 2010 (10) TMI 1021 - DELHI HIGH COURT , CIT vs. Nayan Builders Developers 2014 (7) TMI 1150 - BOMBAY HIGH COURT , ACIT vs. Moradabad Toll Road Co. Ltd. 2015 (11) TMI 848 - ITAT DELHI ; and after due consideration of PCIT vs. M/s Shree Gopal Housing and Plantation Corporation 2018 (2) TMI 604 - BOMBAY HIGH COURT ; in our view the issue regarding penalty u/s 271(1)(c) of IT Act disputed in the appeals before us is covered in favour of the assessee by the aforesaid orders - as we have already deleted the penalties levied u/s 271(1)(c) of IT Act, the other contention raised by the assessee, that the penalties were barred by limitation, is academic in nature and need not be adjudicated - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Jurisdiction and limitation of the penalty order under Section 271(1)(c) of the Act.
3. Specificity of the penalty notice under Section 274 of the Act.
4. Alleged concealment of income and furnishing of inaccurate particulars of income.
5. Consistency with previous decisions in similar cases.
6. Impact of substantial questions of law framed by the High Court.
7. Basis of profits attributed to the alleged Permanent Establishment (PE).

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in these appeals is the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The assessee contested the penalty imposed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the additions were on debatable and disputable issues. The Tribunal highlighted that the quantum additions, confirmed by the Income Tax Appellate Tribunal (ITAT) but contested in appeals under Section 260A of the Act, were on issues where differences of opinion could legitimately exist. The Tribunal emphasized that penalties on such debatable issues are unjustified, referencing the Delhi High Court's decision in CIT vs. Liquid Investment and Trading Company, which held that the existence of substantial questions of law indicates a debatable issue, precluding penalty imposition.

2. Jurisdiction and Limitation of the Penalty Order:
The assessee argued that the penalty orders were barred by limitation under Section 275(1)(a) of the Act. While the Tribunal acknowledged this contention, it deemed the issue academic since the penalties were deleted on other grounds. Thus, the question of jurisdiction and limitation was not adjudicated.

3. Specificity of the Penalty Notice under Section 274 of the Act:
The assessee contended that the penalty notices issued under Section 274 did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal noted this argument but did not adjudicate it, considering it academic after deciding to delete the penalties on other grounds.

4. Alleged Concealment of Income and Furnishing of Inaccurate Particulars of Income:
The Tribunal found that the assessee had made complete disclosures in the notes accompanying the return of income, and the CIT(A) erred in alleging concealment of income. The Tribunal reiterated that penalties under Section 271(1)(c) are not warranted when the issues are debatable and substantial questions of law have been framed by the High Court.

5. Consistency with Previous Decisions in Similar Cases:
The Tribunal referred to previous decisions where penalties under similar circumstances were deleted. It cited cases like GE Caledonian Ltd. and GE Aviation Service Operation LLP, where penalties were deleted on identical facts. The Tribunal also referenced the decision in Rolls Royce, which formed the basis for the additions by the AO, and noted that penalties were deleted in that case as well.

6. Impact of Substantial Questions of Law Framed by the High Court:
The Tribunal emphasized that the framing of substantial questions of law by the High Court in appeals under Section 260A of the Act indicates that the issues are debatable. This was a crucial factor in deciding that penalties under Section 271(1)(c) were not justified. The Tribunal supported this view with the Delhi High Court's decision in CIT vs. Liquid Investment and Trading Company and the Bombay High Court's decision in CIT vs. Nayan Builders & Developers.

7. Basis of Profits Attributed to the Alleged Permanent Establishment (PE):
The Tribunal noted that the profits attributed to the alleged PE of the assessee were based on estimation, which does not amount to concealment of income or furnishing inaccurate particulars of income. The Tribunal held that penalties based on such estimations are not sustainable.

Conclusion:
The Tribunal concluded that the penalties levied under Section 271(1)(c) were not sustainable due to the debatable nature of the issues, the framing of substantial questions of law by the High Court, and the lack of specific charges in the penalty notices. Consequently, the penalties were deleted, and the stay applications were dismissed as infructuous. The Tribunal's decision was pronounced in the Open Court on 12.04.2019.