Penalty for debatable permanent establishment issue deleted where the underlying quantum dispute remained unsettled in higher appeal.

Penalty under section 271(1)(c) was not sustainable where the quantum addition turned on a genuinely debatable question of the existence of a permanent establishment and attribution of profits, and that issue remained sub judice before the Supreme Court. Since concealment or furnishing of inaccurate particulars was not established merely by an addition based on an unsettled legal issue, the penalty orders were deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the quantum addition relating to existence of a permanent establishment and attribution of profits was still sub judice and had been admitted as involving substantial questions of law.

Analysis: The addition giving rise to penalty had arisen from the view that the assessee had a permanent establishment in India and that part of the profits from Indian sales were attributable to that establishment. The issue had already travelled through the appellate hierarchy and the quantum dispute had reached the Supreme Court after the High Court had framed substantial questions of law. Penalty under section 271(1)(c) cannot be sustained where the underlying issue is genuinely debatable and not finally settled, since concealment or furnishing of inaccurate particulars is not established merely because the quantum addition is made on a disputed legal question.

Conclusion: Penalty under section 271(1)(c) was held to be not leviable, and the penalty orders were deleted.

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