2018 (2) TMI 1742 - AT - Income Tax

Tribunal upholds penalty deletion under sec 271(1)(c) based on High Court's substantial questions of law

The Tribunal upheld the decision to delete the penalty under section 271(1)(c) based on the High Court's admission of substantial questions of law, ... Penalty u/s 271(1)(c) - additions were made on account of profits attributable to PE, Software (Taxable @ 15%) and IPLC Charges - Held that:- CIT(A) while deleting the penalty levied by the Assessing Officer u/s 271(1)(c) has observed that the Hon'ble High Court has admitted the substantial question of law. Therefore, it is clear that the issue is subject to different interpretation. We do not find any infirmity in the order of the CIT(A). As mentioned earlier, the Hon'ble High Court has already admitted the substantial question of law which has already been reproduced in the preceding paragraphs. Therefore, in view of the decision of the Hon'ble High Court in the case of Liquid Investment and Trading Co. (2010 (10) TMI 1021 - DELHI HIGH COURT), according to which, penalty cannot be levied when substantial question of law has been framed and admitted, therefore, in absence of any contrary material brought to our notice, we do not find any infirmity in the order of the CIT(A). - Decided against revenue Issues:Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961.Analysis:The appeal was filed by the Revenue against the order of the CIT(A) relating to the assessment year 2006-07, specifically challenging the deletion of a penalty of Rs. 23,90,093 under section 271(1)(c). The assessee had initially shown an income of Rs. 40,006,350, but the assessment order passed by the Assessing Officer attributed a much higher income of Rs. 2,944,673,964, making significant additions. The Tribunal had previously held that the assessee had a Permanent Establishment (PE) in India, with profits attributed to the PE and certain charges deemed non-taxable. The High Court had admitted substantial questions of law related to the case.The counsel for the assessee argued that since the High Court had admitted substantial questions of law, the issue was debatable, citing a precedent where it was held that no penalty under section 271(1)(c) should be levied in such cases. The Tribunal upheld the CIT(A)'s decision to delete the penalty, emphasizing that the issue was subject to different interpretations, and in light of the High Court's admission of substantial questions of law, no penalty could be levied. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty under section 271(1)(c).In conclusion, the Tribunal upheld the decision to delete the penalty under section 271(1)(c) based on the High Court's admission of substantial questions of law, which rendered the issue debatable and precluded the imposition of the penalty. The appeal filed by the Revenue was consequently dismissed, affirming the CIT(A)'s order in favor of the assessee.