DCIT-1(2)1, MUMBAI, MUMBAI vs. BOMBAY RAYON HOLDINGS LIMITED, MUMBAI

"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 ITA No.6267-6269/Mum/2018 in the case of DC!T(LTU)-1 vs Reliance Industries Ltd. without appreciating that the case is distinguishable on facts?"

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

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.

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.

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.

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.

In the result, all the four appeals by the Revenue having common ground are dismissed.”

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.