2019 (10) TMI 147 - AT - Income Tax

Penalty u/s 271(1)(c) - addition by changing the Most Appropriate Method (MAM) from TNMM to CUP by the TPO - whether the assessee has concealed particulars of income or has furnished inaccurate particulars of such income during assessment proceedings? - HELD THAT - It is settled principle of law that when substantial question of law has been framed by the Hon ble High Court in the appeal filed by the assessee challenging the addition confirmed by the Tribunal, the issue become debatable and no penalty in such circumstances can be levied. Hon ble Delhi High Court in case of CIT vs. Liquid Investment Trading Co. 2010 (10) TMI 1021 - DELHI HIGH COURT confirmed the order passed by the Tribunal setting aside the penalty confirmed by the ld. CIT (A) u/s 271(1)(c) on the ground that the issue has become debatable - We are of the considered view that the penalty levied by the AO and confirmed by the ld. CIT (A) for AYs 2007-08 2008-09 is not sustainable in the eyes of law, hence ordered to be deleted. Consequently, appeals filed by the assessee are allowed.

Summary

Issues:
- Appeal against penalty orders passed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment years 2007-08 & 2008-09.
- Whether the assessee concealed particulars of income or furnished inaccurate particulars during assessment proceedings?

Analysis:
1. The appellant, a company involved in the manufacture of auto exhaust catalyst, challenged penalty orders passed by the Commissioner of Income-tax (Appeals) for the assessment years 2007-08 & 2008-09. The appellant contended that the orders were bad in law and failed to appreciate the diligent computation of international transaction prices. The appellant argued that no concealment occurred as full disclosure was made and penalty should not be levied where two views are possible under section 271(1)(c) of the Act.

2. The Assessing Officer initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income based on transfer pricing adjustments and sales-tax subsidy. The penalties were confirmed by the Commissioner of Income-tax (Appeals) and subsequently challenged by the appellant before the Tribunal. The key question was whether the assessee concealed income particulars during assessment proceedings.

3. The Tribunal noted that the Assessing Officer and Commissioner of Income-tax (Appeals) confirmed penalties based on transfer pricing adjustments. However, the Tribunal found that the mere change of method by the Transfer Pricing Officer did not warrant penalty under section 271(1)(c). The Tribunal cited previous decisions to support its stance that penalties cannot be levied on debatable issues, especially when substantial questions of law are framed by the High Court.

4. The Tribunal emphasized that when an issue becomes debatable, as evidenced by the framing of substantial questions of law by the High Court, penalties for concealment or furnishing inaccurate particulars of income are not justified. Citing precedents, the Tribunal concluded that the penalties for the assessment years 2007-08 & 2008-09 were unsustainable in law and ordered them to be deleted, thereby allowing the appeals filed by the assessee.

5. In light of the above analysis, the Tribunal ruled in favor of the appellant, setting aside the penalty orders for the assessment years 2007-08 & 2008-09. The decision highlighted the importance of debatable issues and substantial questions of law in determining the validity of penalties under section 271(1)(c) of the Income-tax Act, 1961.