DIGNITY TRADING CO.PVT.LTD.,MUMBAI vs. ITO CIRCLE 9(1)(3), MUMBAI

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ITA 605/MUM/2011Status: DisposedITAT Mumbai21 October 2015AY 1997-985 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that if the High Court admits a substantial question of law regarding the addition, it indicates the issue is debatable. Therefore, levying penalty under Section 271(1)(c) is not justified in such circumstances.

What were the facts?

The assessee received an advance of Rs. 7 crores against shares, which was added back as an unexplained cash credit. Subsequently, penalty proceedings were initiated under Section 271(1)(c) for furnishing inaccurate particulars.

What were the issues?

Whether penalty under Section 271(1)(c) is leviable when the underlying addition is a subject of admitted substantial question of law before the High Court.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 68

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI N.K. BILLAIYA & SHRI AMARJIT SINGH

Hearing: 12.10.2015

आदेश / O R D E R

PER N.K. BILLAIYA, AM:

1.

This appeal by the assessee is preferred against the order of the Ld. CIT(A)-19, Mumbai dated 15.11.2010 pertaining to Assessment year 1997-98.

2.

The grievance of the assessee relates to the levy of penalty u/s. 271(1)(c) of the Act uphold by the Ld. CIT(A).

2.1. The roots for the levy of penalty lie in the assessment order dated 31.3.2005 made u/s. 143(3) r.w. Section 250 of the Act. The original assessment was made u/s. 143(3) of the Act vide order dated 28.3.2000.

3.

Aggrieved by the addition, the assessee carried the matter before the Ld. CIT(A) and being unsuccessful before the First Appellate Authority, the matter travelled upto the Tribunal and the Tribunal vide order dated 21.4.2003 in restored the issue back to the file of the AO for fresh consideration.

4.

The undisputed addition relates to the advance received by the assessee against shares amounting to Rs. 7 crores.

4.1. Once again the same amount was added back by the AO as unexplained cash credit u/s. 68 of the Act. Penalty proceedings have been initiated for furnishing inaccurate particulars. After considering the detailed submissions made by the assessee during the course of the penal proceedings, drawing support from the decision of the Hon’ble Supreme Court in the case of Dharmendra Textiles Processors and Others 306 ITR 277, the AO was convinced that penalty is leviable u/s. 271(1)(c) of the Act and accordingly levied penalty of Rs. 3.01 crores.

5.

The assessee carried the matter before the Ld. CIT(A) but without any success.

6.

Aggrieved by which the assessee is before us.

7.

At the very outset, the Ld. Senior Counsel drew our attention to the order of the Hon’ble High Court of Bombay in Income-Tax Appeal No. 3590 of 2009 and pointed out that the Hon’ble Court had admitted the following substantial question of law:

“Whether on the facts and in the circumstances of the case, the Tribunal was justified in disregarding the fact that the amount of Rs. 700 lacs received by the Appellant was on account of share application money and the same cannot be treated as unexplained cash credit u/s. 68 of the Act?

7.1. It is the say of the Ld. Counsel that once a substantial question of law is admitted by the High Court, no case is made out for in levying of penalty. The Ld. Counsel heavily relied upon the decision of the Hon’ble High Court of Bombay in the case of Nayan Builders and Developers in Income Tax Appeal No. 415 of 2012 which was followed by the Tribunal in the case of S.B. Billimoria & Co in ITA No. 34/M/2012.

8.

Per contra, the Ld. Departmental Representative strongly submitted that either the appellate proceedings should be kept in abeyance till the outcome of the decision by the Hon’ble High Court in quantum proceedings or the appeal should be adjourned till the disposal of the appeal by the Hon’ble High Court.

9.

After going carefully through the orders of the authorities below, we have given a thoughtful consideration to the rival contentions. At the very outset, we do not find any force in the contentions of the Ld. DR. If the Revenue authorities were so concerned with the outcome of the quantum addition by the decision of the Hon’ble High Court, then they should not have proceeded with the penalty proceedings at all. Be that as it may, the Hon’ble High Court of Bombay in the case of Nayan Builders & Developers (supra) has held as under:

“We find that this appeal cannot be entertained as it does not raise any substantial question of law. The imposition of penalty was found not to be justified and the appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on assessee’s appeal in quantum proceedings and the substantial questions of law which have been framed therein. In our view, there was no case made out for imposition of penalty and the same was rightly set aside”

10.

A similar view was taken by the Hon’ble High Court of Delhi in the case of Liquid Investment and Trading Co. in Income-Tax Appeal No. 240/2009. The findings of the Hon’ble High Court read as under:

“Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the AO u/s. 271(1)(c) of the I.T. Act, 1961 on the ground that the issue of deduction u/s. 14A of the Act was a debatable issue. We may also note that against the quantum assessment where under deduction u/s. 14A of the Act was prescribed to the assessee, the assessee has preferred an appeal in this Court u/s. 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case.”

Respectfully following the decisions referred to hereinabove, in our considered opinion, this is not a fit case for the levy of penalty u/s. 271(1)(c) of the Act. We, therefore, set aside the order of the Ld.

CIT(A) and direct the AO to delete the penalty levied u/s. 271(1)(c) of the Act.

11.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 21st October, 2015

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