Penalty not leviable where underlying tax issue was debatable and substantial questions of law had been admitted

Penalty for concealment or furnishing inaccurate particulars was not exigible where the underlying additions had already given rise to substantial questions of law admitted by the High Court, because the issue was no longer free from doubt and had become debatable. The Tribunal upheld deletion of penalty under section 271(1)(c), applying the settled principle that penalty is not warranted when the dispute is subject to judicial consideration on a contested legal issue.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the underlying addition had given rise to substantial questions of law admitted by the High Court.

Analysis: The penalty was deleted by the first appellate authority on the footing that once substantial questions of law had been admitted by the High Court, the issue ceased to be free from doubt and became debatable. The Tribunal noted that the High Court had already admitted questions of law on the underlying additions and relied on the settled principle that penalty for concealment or furnishing inaccurate particulars is not exigible where the issue is debatable and subject to judicial consideration.

Conclusion: Penalty under section 271(1)(c) was not leviable and the deletion of penalty was upheld.

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