DCIT Vs Palmer Investment Group Ltd (ITAT Bangalore)
Penalty Deleted as Issue Becomes Debatable – HC Admission of Quantum Appeal Saves Assessee
The ITAT Bangalore upheld the deletion of penalty under Section 271(1)(c), holding that once the High Court admits the quantum appeal on substantial questions of law, the issue becomes debatable and penalty cannot survive.
The case involved a non-resident company where substantial transfer pricing adjustment (₹262 crores) was made on sale of shares, which was upheld by the Tribunal. The assessee challenged the quantum before the Karnataka High Court, which admitted the appeal and framed substantial questions of law.
Despite this, the AO levied penalty alleging furnishing of inaccurate particulars of income. However, the CIT(A) deleted the penalty, relying on Karnataka High Court rulings.
The Tribunal affirmed this view, observing that:
- Admission of appeal by High Court shows the issue is not free from doubt,
- The matter becomes debatable, and
- Penalty cannot be levied where two views are possible.
Relying on binding jurisdictional precedents (including Dr. Harsha N. Biliangady and Ankita Electronics), the ITAT held that mere confirmation of addition does not automatically justify penalty, especially when higher courts recognize arguable legal issues.
Accordingly, the Revenue’s appeal was dismissed, and deletion of penalty was upheld.
The ruling reinforces a key principle: once a substantial question of law is admitted by the High Court, the foundation for penalty collapses as the issue ceases to be settled and becomes debatable.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
