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On admission of appeal by HC, penalty cannot survive

Schrader Duncan Limited vs. ACIT (ITAT Mumbai)

S. 271(1)(c): If the High Court admits the appeal u/s 260A, it means that the issue is debatable and penalty cannot survive

Decided:.....Without going into much deliberation and merits of the case, now question arises since the substantial question of law “whether on the facts in the circumstances of the case and in law, the Tribunal was justified in holding that the appellant was not entitled to claim the loss of Rs.6.34 crore arising on conversion of UTI US 64 units in to 6.75% Tax Free Bonds of UTI?” has been admitted by the Hon’ble jurisdictional High Court, vide order dated 19th September, 2014, now question arises whether penalty u/s 271(1)(c) of the Act survives when the addition has become debatable? We note that the Hon’ble jurisdictional High court vide order dated 08/07/2014 in the case of CIT vs M/s Nayan Builders & Developers (ITA No.415/2012) held that no penalty is imposable u/s 271(1)(c) of the Act. Likewise, the Tribunal, in the case of M/s Nayan Builders & Developers Pvt. Ltd. (ITA No.2379/Mum/2009) order dated 18th March 2011, deleted the penalty. In another case Advaita Estate Development (P.) Ltd. vs ITO (2013) 409 Taxman.com 142 (Mumbai-Trib.) vide order dated 27/08/2013 deleted the penalty. In view of these facts, when the Hon’ble jurisdictional High Court has admitted substantial question of law on the addition, it becomes apparent that the addition so made has become debatable. The penalty was imposed on the basis of addition so made, therefore, when the addition on the basis of which the penalty was imposed has become doubtful/debatable, therefore, penalty imposed u/s 271(1)(c) of the Act cannot survive. Respectfully following the Hon’ble jurisdictional High Court, the appeal of the assessee is allowed. However, it is made clear that if at any stage, the order of the Tribunal on quantum addition is upheld by the Hon’ble High Court, the Department is free to proceed in accordance with law on penalty proceedings.

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