May 2011
Nayan Builders & Developers Pvt. Ltd. v. ITO ITAT ‘B’ Bench, Mumbai Before R. S. Syal (AM) and Asha Vijayaraghavan (JM) ITA No. 2379/M/2009 A.Y.: 1997-98. Decided on: 18-3-2011 Counsel for assessee/revenue: Sanjiv M. Shah/Hari Govind Singh
By Jagdish D. Shah, Jagdish T. Punjabi Charted Accountants
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Section 271(1)(c) — Penalty u/s.271(1)(c) cannot be levied with respect to an addition which has been admitted by the High Court as a substantial question of law.
Facts:
The Assessing Officer (AO) levied penalty u/s.271(1) (c) in respect of additions to total income of the assessee of Rs.1,04,76,050 towards income from Spectrum Corporate Services Ltd., disallowance of brokerage of Rs.10,79,221 and disallowance of legal fees of Rs.2,00,000 which additions were upheld by the Tribunal.
Aggrieved the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved by the order passed by the CIT(A) the assessee preferred an appeal to the Tribunal.
Held:
Having noted that the additions in respect of which the penalty was levied have been held by the jurisdictional High Court as involving a substantial question of law, the Tribunal held that when the High Court admits a substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances, penalty u/s.271(1)(c) cannot be levied. The admission of substantial question of law by the High Court lends credence to the bona fides of the assessee in claiming the deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty.
The Tribunal ordered deletion of the penalty. The Tribunal allowed the appeal filed by the assessee.
Cases referred to:
(i) Rupam Mercantile v. DCIT, (2004) 91 ITD 237 (Ahd.) (TM)
(ii) Smt. Ramila Ratilal Shah v. ACIT, (1998) 60 TTJ 171 (Ahd.)
