Facts of the Case

The Revenue preferred an appeal before the Delhi High Court challenging the order passed by the Income Tax Appellate Tribunal (ITAT) dated 11 September 2009 for Assessment Year 1999–2000. The ITAT had deleted the penalty imposed by the Assessing Officer under Section 271(1)(c).

The penalty was levied on the premise that the assessee had allegedly concealed particulars of income or furnished inaccurate particulars. The Revenue challenged the deletion of such penalty by the Tribunal.

Issues Involved

  1. Whether the ITAT was justified in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act?
  2. Whether penalty for concealment can be sustained when the underlying tax issue is debatable in nature?

Petitioner’s Arguments (Revenue’s Arguments)

  • The Revenue contended that the ITAT erred in deleting the penalty imposed by the Assessing Officer.
  • It was argued that the assessee had furnished inaccurate particulars attracting penalty provisions under Section 271(1)(c).
  • The Revenue sought restoration of the penalty amount levied by the Assessing Officer.

Respondent’s Arguments (Assessee’s Arguments)

  • The assessee argued that the issue involved in the quantum proceedings was highly debatable.
  • It was submitted that penalty under Section 271(1)(c) cannot be imposed merely because a claim made by the assessee was not accepted by the Department.
  • The assessee relied upon judicial precedent establishing that penalty is not leviable where legal interpretation remains debatable.

Court Findings / Court Order

The Delhi High Court observed that in view of its decision rendered in ITA No. 31 of 2005, the issue involved was clearly a debatable issue.

The Court held that where the issue is debatable and capable of multiple legal interpretations, penalty under Section 271(1)(c) is not justified.

Accordingly, the Court answered the question against the Revenue and in favour of the Assessee, and dismissed the Revenue’s appeal.

Important Clarification

The judgment reiterates the settled legal principle that:

Penalty under Section 271(1)(c) cannot be levied merely because the Revenue disagrees with the assessee’s claim, particularly where the issue is debatable and involves interpretation of law.

A debatable issue does not automatically amount to concealment of income or furnishing inaccurate particulars.

Sections Involved

  • Section 271(1)(c), Income Tax Act, 1961 – Penalty for concealment of income or furnishing inaccurate particulars
  • Section 260A, Income Tax Act, 1961 – Appeal before High Court

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:7630-DB/SMD07122017ITA14032010.pdf

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