Case Law Details

Case Name : Nayan Builders & Developers Pvt Ltd Vs. ITO (ITAT Mumbai)
Appeal Number : ITA No. 2379/Mum/2009
Date of Judgement/Order : 18/03/2011
Related Assessment Year : 1997- 98
Courts : All ITAT (5005) ITAT Mumbai (1601)

Nayan Builders & Developers Pvt Ltd Vs. ITO (ITAT Mumbai)

When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u!s 271(1)(c) as has been held in several cases including Rupam Mercantile Vs. DCIT [(2004) 91 ITD 237 (Ahd) (TM)] and Smt.Ramila Ratilal Shah Vs. ACIT [(1998) 60 TTJ (Ahd) 171].

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IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “B”, MUMBAI

Before Shri R.S.Syal, AM and Smt.Asha Vijayaraghavan, JM

ITA No. 2379/Mum/2009 : Asst.Year 1997- 98

M/s.Nayan Builders & Developers Pvt.Ltd 36 Fancy Chambers, 94 Surat Street Mumbai – 400 009.

PAN : AAACN1198H.

Vs. The Income Tax Officer Ward 7(1)(1)

Mumbai.

(Respondent)
(Appellant)

Appellant by : Shri Sanjiv M.Shah
Respondent by : Shri Hari Govind Singh

O R D E R

Per R.S.Syal, AM :

This appeal by the assessee arises out of the order passed by the CIT(A) on 20.01.2009 confirming the penalty of Rs.37,32,777 imposed by the AO u/s.271(1)(c) of the Act in relation to assessment year 1997-98.

2. Shorn off unnecessary details it is an admitted position from both the sides that the penalty has been finally upheld qua the addition of Rs.1,04,76,050 towards income from Spectrum Corporate Services Ltd. assessed in this year, dis allowance of brokerage of Rs.10,79,221 and dis allowance of legal fees of Rs.2,00,000. It is seen that the Tribunal has upheld these additions in quantum proceedings for which the penalty has been held to be imposable. The learned A.R. has placed on record the judgement of the Hon’ble jurisdictional High Court in Income Tax Appeal No.23 68 of 2009 admitting inter alia the following two questions:-

“Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the deposit Rs. 1,04,76,050/- received from Spectrum is exigible to tax in the Assessment Year 1997-98?

Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the dis allowance of brokerage Rs.10, 79,221/- and legal fees Rs.2,00,000/-?”

3. It is, therefore, abundantly clear that the additions in respect of which penalty was confirmed have been accepted by the Hon’ble Bombay High Court leading to substantial question of law. When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u!s 271(1)(c ) as has been held in several cases including Rupam Mercantile Vs. DCIT [(2004) 91 ITD 237 (Ahd) (TM)] and Smt.Ramila Ratilal Shah Vs. ACIT [(1998) 60 TTJ (Ahd) 171]. The admission of substantial question of law by the Hon’ble High Court lends credence to the bona fides of the assessee in claiming 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 at all, the mere fact of confirmation of dis allowance would not per se lead to the imposition of penalty. Since the additions, in respect of which penalty has been upheld in the present proceedings, have been held by the Hon’ble High Court to be involving a substantial question of law, in our considered opinion, the penalty is not exigible under this section. We, therefore, order for the deletion of penalty.
4. In the result, the appeal is allowed.

Order pronounced on this 18th day of March, 2011.

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