No Penalty If High Court Admits Quantum Issue As Substantial Question Of Law: Mumbai ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 15 April held that “penalty” under Section 271(1)(c) of the Income Tax Act cannot be sustained where the quantum issue has already been admitted by the High Court as a substantial question of law.

A Bench comprising Judicial Member Sandeep Singh Karhail and Accountant Member Bijayananda Pruseth quashed the penalty imposed on the Small Industries Development Bank of India, holding that admission of a substantial question of law by the High Court shows that the issue is debatable and supports the bona fide nature of the its claim.

It observed:

“It is a trite law that no penalty is leviable on an issue on which the appeal in the quantum proceedings has been admitted by the Hon'ble High Court.”

The Small Industries Development Bank of India claimed deduction of proportionate amortised lease premium paid to the Mumbai Metropolitan Regional Development Authority in respect of leasehold land.

During scrutiny, the Assessing Officer (AO) treated the expenditure as capital in nature and disallowed the claim. The AO thereafter initiated penalty proceedings under Section 271(1)(c) and imposed penalty for Assessment Years 2014–15 and 2015–16.

Before the Tribunal, the Bank argued that the Bombay High Court had already admitted the same issue in earlier years as a substantial question of law. It contended that the issue was therefore debatable and did not warrant a penalty.

The Tribunal accepted the contention. It relied on judgments including the Delhi High Court ruling in PCIT v. Harsh International (P.) Ltd. and the Supreme Court decision in CIT v. Reliance Petroproducts Pvt. Ltd., reiterating that mere rejection of a claim does not amount to furnishing inaccurate particulars.

Accordingly, the ITAT quashed the penalties for both assessment years and allowed the appeals.

Appearance for the Assessee: Ms. Vinita Shah, AR

Appearance for the Revenue: Shri Anurag Tripathi, SR. AR