MAHENDRA & MAHENDRA LTD,MUMBAI vs. ADDL CIT RG 2(2), MUMBAI

At the outset, Ld Counsel for the assessee submitted that in this appeal, assessee is aggrieved against the CIT (A)’s order in connection with the penalty of Rs. 42,08,774/- levied u/s 271(1)(c) of the Act in connection with R & D asset and set off of related loss against the long term capital gains. In this regard, Ld Counsel for the assessee, submitted that an identical issue was adjudicated by the Tribunal in the assessee’s own case for the AY 2006-07 vide (AY 2006-2007), dated 7.4.2016. Para 5 of the said Tribunal’s order is relevant in this regard and on the ground of debatability, the Tribunal granted relief and deleted the penalty. In the process, the Tribunal distinguished the judgment of the Hon’ble Gujarat High Court in the case of Dharamshi B. Shah (51 taxmann.com 274) wherein a divergent view was taken in relation to the ratio laid down by the jurisdictional High Court in the case of CIT vs. M/s. Nayan Builders and Developers vide IT Appeal No.415 of 2012, dated 8.7.2014.

We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited precedents of the Hon’bel High Courts (supra). On examination of the facts of the present case and the cases cited by the Ld AR, we find, the issue on which penalty was levied is identical to that of the one adjudicated by the Tribunal in the AY 2006-09. Considering the same and for the sake of completeness of this order, the said para 5 of the cited Tribunal’s order (supra) dated 7.4.2016 is extracted as under:- “5. We have heard both sides and gone through the facts and circumstances of the case. We find that the only issue is disallowance of capital loss, pertaining to receipt arising out of sale of research and development of capital assets, on which the AO has levied penalty and CIT (A) confirmed. On this issue, the Hon’ble Bombay High Court, in quantum, has admitted the substantial question of law as noted above. In view of these facts, we find that the issue is squarely covered by the decision of the jurisdictional High Court in assessee’s own case cited supra and also of the Hon’ble Delhi High Court in the case of Liquid Investment and Trading Co supra, wherein it is held that whenever the assessee had preferred appeal in High Court u/s 260A of the Act, which has been admitted and substantial question of law frames, that itself shows that the issue is debatable and for that reason the penalty under section 271(1)(c) of the Act cannot be levied. We are of the view that Hon’ble jurisdictional High Court has clearly laid down the principle that once Hon’ble High Court admits the substantial question of law in quantum appeal of the assessee, that itself shows that the issue is debatable and for that reason penalty u/s 271(1)(c) of the Act cannot be levied. As the issue is squarely covered by jurisdictional High Court and respectfully following the same and Hon’ble Delhi High Court, we delete the penalty and allow the appeal of the assessee.”