2026 (4) TMI 192 - AT - Income Tax

Debatable quantum addition bars concealment penalty where the High Court has admitted the underlying tax appeal.

Penalty under Section 271(1)(c) of the Income-tax Act was not leviable because the quantum addition had already been admitted by the High Court on ... Penalty u/s 271(1)(c) - Debatable addition - quantum appeal had been admitted by the High Court - adjustment made by the AO by treating the transaction as international transaction -assessee submitted that particulars of income was furnished by the assessee but the department estimated the said income by treating the said transactions as international transactions HELD THAT: - The Tribunal held that once the jurisdictional High Court had admitted the assessee's quantum appeals and framed substantial questions of law on the transfer pricing addition, the underlying addition had not attained finality and had become debatable. As gone through judgments of Ankita Electronics (P.) Ltd. [2015 (3) TMI 1029 - KARNATAKA HIGH COURT] wherein it was held that “the admission of substantial question of law by the High Court leads credence to the bonafide of the assessee and therefore the penalty is not leviable u/s. 271(1)(c) and merely because the claim of the assessee has been rejected by the revenue authorities would not make the assessee liable for penalty.” Applying the law laid down supra, it held that where the sustainability of the addition itself is debatable after admission of the appeal on substantial questions of law, the assessee cannot be regarded as having concealed income or furnished inaccurate particulars so as to attract penalty under section 271(1)(c). On that basis, the order deleting the penalty was upheld. [Paras 9, 10, 12] Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the order deleting the penalty. It held that, since the quantum addition was already admitted by the High Court on substantial questions of law, the issue was debatable and penalty under section 271(1)(c) was not leviable. Issues: Whether penalty under Section 271(1)(c) of the Income-tax Act, 1961 was leviable where the quantum appeal had been admitted by the High Court and the addition was therefore debatable.Analysis: The admission of the quantum appeals by the High Court and the framing of substantial questions of law showed that the sustainability of the addition had not attained finality. In such a situation, the issue ceased to be clear-cut and became debatable. Penalty under Section 271(1)(c) can be sustained only where concealment of material particulars or furnishing of inaccurate particulars is established, and not where the underlying addition itself remains open to serious judicial scrutiny. The reasoning was consistent with the jurisdictional High Court decisions relied upon, which treat admission of a substantial question of law as a circumstance indicating that penalty is not warranted.Conclusion: The deletion of penalty was upheld and the revenue's challenge failed.Ratio Decidendi: Where a quantum addition is pending in appeal before the High Court on substantial questions of law, the addition is treated as debatable and penalty for concealment or furnishing inaccurate particulars under Section 271(1)(c) of the Income-tax Act, 1961 is not leviable.