Bona fide dispute on taxability defeats penalty where receipts for secondment and IT support were genuinely debatable.

Penalty under Section 270-A of the Income-tax Act was held not leviable where the taxability of secondment-related reimbursements and IT support service receipts was genuinely debatable. The receipts were contested as either fee for technical services under the Act or fees for included services under Article 12 of the India-US DTAA, and conflicting judicial views, including a jurisdictional ruling favouring the assessee, supported a bona fide belief of non-taxability. In that setting, the Tribunal treated the issue as vexed with two possible views and the penalty could not be sustained.

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Issues: Whether penalty under Section 270-A of the Income-tax Act, 1961 was leviable where the taxability of receipts towards secondment-related reimbursements and IT support services was debatable and the assessee had entertained a bona fide belief that the amounts were not taxable.

Analysis: The receipts were disputed on the question whether they constituted fee for technical services under the Act or fees for included services under Article 12 of the India-US Double Taxation Avoidance Agreement. The legal position on such receipts had been the subject of conflicting judicial views, and the jurisdictional decision in Flipkart Internet (P.) Ltd. had favoured the assessee. The Tribunal therefore held that the issue was vexed and that two views were possible. In that situation, the assessee's belief that the receipts were not taxable was treated as bona fide, and penalty could not be sustained.

Conclusion: Penalty under Section 270-A was not leviable, and the finding of the Tribunal was upheld.

Final Conclusion: The challenge to the penalty failed because the dispute on taxability was genuinely debatable and did not justify penal consequences.

Ratio Decidendi: Where the underlying taxability issue is debatable and the assessee acts under a bona fide belief supported by possible judicial views, penalty for under-reporting or misreporting cannot be imposed.

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