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Facts
The Revenue appealed the deletion of penalty under Section 271(1)(c) by the CIT(A) for assessment years 2009-10 and 2012-13. The penalty was levied for furnishing inaccurate particulars of income. The appeals were clubbed due to common issues.
Held
The Tribunal held that penalty under Section 271(1)(c) is not leviable when the issue is debatable and two views are possible. This is especially true when the quantum appeal is pending before the High Court on a substantial question of law.
Key Issues
Whether penalty under Section 271(1)(c) is leviable when the quantum addition is debatable and appeal is pending before the High Court.
Sections Cited
271(1)(c)
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Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Shri Narender Kumar Choudhry (JM) & Shri Omkareshwar Chidara (AM)
Per Omkareshwar Chidara (AM) :- The following grounds of appeal were raised by Revenue in the above cited case for A.Ys. 2009-10 and 2012-13. Since the issue is common for both the years, two appeals were clubbed, heard and common order is passed. 1. "Whether, on the facts and in the circumstances of the case and in law, the Id, CIT(A) is correct in deleting the penalty levied u/s. 271(l)(c) of the Act even though assessee furnished inaccurate particulars c: income., and did not submit any new facts/material to substantiate its claim for non-levy of penalty ?
1. 2. "Whether, on the facts and in the circumstances of the case and in saw, the Ld. CIT(A) is correct in deleting the penalty levied u/s. 271(l)(c) of the Act by relying on the decision of Hon'ble ITAT, Mumbai Bench in in the case of DC!T(LTU)-1 vs Reliance Industries Ltd. without appreciating that the case is distinguishable on facts?"
2. On the date of hearing, none appeared on behalf of the appellant. It was noted that on earlier date of hearing i.e., 25.6.2025 also, none appeared on behalf of the appellant. The Bench has directed Ld. DR to file copy of ITAT
2 Bombay Rayon Holdings Limited decision of earlier years on the same issue as appellant’s case. On 19.8.2025, the day of hearing now, a copy of ITAT order of earlier year in appellant’s case, to 5606/Mum/2024 dated 27.2.2025, was filed.
Before going ahead to adjudicate the issue, it is observed that the Revenue filed these appeals with a delay of 8 days. The delay was explained by Ld. AO by way of letter dated 23.5.2025. This small delay is condoned.
From the record of ITAT, it is observed that there are two letters dated 17.6.2025 and 13.8.2025 filed by appellant company requesting the Bench that the appeals may be disposed off on the basis of ITAT order of earlier years in appellant’s own case where Revenue’s appeals were dismissed. Ld. DR relied on the penalty order and Grounds of Appeal.
5. Perused the letters of appellant company, ITAT order and heard Ld. DR. from the ITAT order of earlier years, it is observed that the penalty levied by Revenue was deleted. The operative portion of earlier year’s ITAT order is reproduced below :- “5. We have heard both the parties and perused the orders of the authorities below. In this case, upward adjustment was made by ld. TPO at SBI PLR which was confirmed by the ld. DRP but was restricted to LIBOR+200 bps by the Coordinate Bench on appeal by the assessee. Facts of the case are undisputed. We note that although Ld. Assessing Officer has levied penalty for furnishing of inaccurate particulars of income, fact of the matter is that assessee had disclosed necessary facts required for computation of total income in the return of income filed for the year. 5.1. It is also a fact on record that appeal by the assessee before the Hon’ble High Court of Bombay on the quantum assessment has been admitted on substantial question of law and is pending for disposal. Admission of appeal by the Hon'ble High Court indicates that the question is an arguable point in law on which two views are possible. Therefore, we are of the considered view that it is not a case for penalty under section 271(1)(c). When the issue is debatable and two views are possible, then on such issue, penalty under section 271(1)(c) cannot be levied by charging the assessee with the charge of furnishing inaccurate particulars of income.
3 Bombay Rayon Holdings Limited 5.2. For giving the above finding, we draw force from the decision of Hon’ble jurisdictional High Court of Bombay in the case of Nayan Builders & Developers 368 ITR 722 (Bom) who held that where the quantum appeal is pending before the Hon’ble High Court, penalty under section 271(1)(c) is not leviable. Similarly, before the coordinate bench of ITAT Mumbai in the case of DCIT LTU v. Reliance Industries Ltd in 6269/Mum/2018 who after considering plethora of judicial precedents including that of Nayan Builders & Developers (supra) deleted the penalty imposed.
Ld. Sr. DR placed reliance on the decision of coordinate bench of ITAT Gauhati in the case of Kamal Kumar Saharia v. ITO [1991] 391 ITR 301 (Gau). In this case, setting aside the order of penalty was declined on the ground of it being premature though a reference was made to the Hon'ble High Court against the quantum addition confirmed by the Tribunal. Present case of the assessee is on account of TP adjustment towards notional interest by applying a different rate basis as compared to what assessee applied. Ultimately, it is the notional interest which is attempted to be brought to tax in the hands of the assessee by way of TP adjustment, there being no real income earned on this account. Thus, reliance placed by ld. Sr. DR on the case of Kamal Kumar Saharia (supra) is distinguishable.
Accordingly, considering the facts on record, pendency of appeal by the assessee before the Hon’ble High Court on quantum addition which forms the basis for levy of penalty by admitting substantial question of law as well as judicial precedents referred above, we hold that penalty under section 271(1)(c) is not leviable. We do not find any reason to interfere with the findings arrived at by Ld. CIT(A) for deleting the penalty so imposed by the Ld. Assessing Officer of ₹2,97,86,762/-. Thus, grounds raised
by the Revenue are dismissed.
8. In the result, all the four appeals by the Revenue having common ground are dismissed.”
6. Respectfully following the decisions of the Coordinate Bench of earlier years in appellant’s case, the appeals filed for A.Y. 2009-10 and 2012-13 are Dismissed.
Order pronounced in the open Court on 29/08/2025.