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Equivalent Citations

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Case Number

I.T.A No. 272.Ind/2011, A.Y: 1994-95

Attorney(S)

Appellant by: Shri Pankaj Shah and Shri G.J Shah, CAs
Respondent by: Shri R.A Verma, Sr. DR

Judges

Joginder Singh, J.M
R.C Sharma, A.M

Acts

u/s. 271(1)(c) of the Income-tax Act, 1961,12.
u/s. 271(1)(c) of the Income-tax Act, 1961.2.
u/s. 271(1)(c) of the Income-tax Act, 1961.
Section 271(1)(c) vide Finance Act 2008).
Section 271(1)(c)

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Smart Summary

Comprehensive Summary of the Tribunal Opinion (Penalty u/s. 271(1)(c), Assessment Year 2004-05)

Factual and Procedural Background

This appeal arises from an order of the CIT(A) dated 19th July 2011 concerning imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2004-2005. The assessee is engaged in manufacturing textile machinery from aluminium scrap. For the year under consideration the assessee reported a gross profit rate of 18.23%, up from 15.78% in the previous year.

During scrutiny assessment the Assessing Officer (AO) made additions on account of alleged bogus purchases and job work and also for delayed payment of Provident Fund and E.S.I. The CIT(A) deleted all such additions. The Revenue appealed to the Tribunal (I.T.A.T.), which confirmed the Assessing Officer's additions. The assessee then approached the Hon'ble High Court, which admitted the appeal by accepting substantial questions of law. The assessee subsequently appealed to the Tribunal against the CIT(A)'s order imposing penalty u/s. 271(1)(c).

Legal Issues Presented

Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 can be levied where the Hon'ble High Court has admitted substantial questions of law (i.e., whether admission of such questions renders the issue debatable and precludes penalty).
Whether the Tribunal was right in directing depreciation on the estimated value of Rs. 18,00,000 as against actual purchase value of Rs. 26,05,000, ignoring the valuation report of a Chartered Engineer (as framed in the High Court's first substantial question of law admitted).
Whether the Tribunal was right in directing outstanding liabilities against purchases of Rs. 8,34,690 as income when purchases were assessed as genuine (the High Court's second substantial question of law admitted).
Whether the Tribunal was right in directing outstanding liabilities of job work of Rs. 3,490,395 as income, ignoring facts considered by the CIT(A) and the record (the High Court's third substantial question of law admitted).
Whether penalty under section 271(1)(c) is valid where the Assessing Officer has not recorded satisfaction in the assessment order that there was concealment or inaccurate particulars of income (as specifically argued by the assessee).

Arguments of the Parties

Assessee's Arguments (Appellant)

Since the CIT(A) had deleted the additions and the High Court admitted the appeal on substantial questions of law, the issues were debatable and therefore penalty cannot be imposed. Reliance was placed on K.G. Nariman (33 TTJ 565) and principles articulated in Santosh Hosiery ((2001) 3 SCC 179) and Hero Vinod v. Sheshamal ((2006) 5 SCC 545 : AIR 2006 SC 2234) that a substantial question of law must be debatable.
The Assessing Officer did not record his satisfaction in the assessment order that there was concealment or inaccurate particulars of income; therefore, levy of penalty u/s. 271(1)(c) is invalid. Reliance was cited to Sarita Agarwal (17 ITJ 193) and to the I.T.A.T. Delhi Bench decision in Global Green Company Limited v. D. CIT (I.T.A No.1390.Del/11) following Madhu Shree Gupta (317 ITR 107 (Del)).
With regard to alleged bogus purchases: the assessee disclosed purchases and amounts payable in profit and loss account and balance sheet; accounts were audited under section 44AB; names, addresses and bank details of creditors were furnished; payments were made by account-payee cheques; certificates and production records from a Chartered Engineer were produced; sales invoices and sales tax registration details of creditors were provided; various other documents were produced. Therefore, there was full and adequate disclosure and no concealment to attract penalty.
Reliance on Chempur v. ITO (I.T.A No.451.M/2006) where ITAT held that penalty u/s. 271(1)(c) cannot be imposed in cases where purchases are treated as bogus if the assessee was not given a chance to examine parties—assessee submitted facts are similar.
General submission that where there are two views or the point gives rise to a substantial question of law (i.e., is debatable), penalty should not be levied; authorities cited include Santosh Hazari v. Purshottam Tiwari and Rimmalapudi S. Rao (AIR 1951 Mad 969).

Revenue's Arguments (Respondent)

Since the Tribunal confirmed the additions made by the Assessing Officer, there is concealment of income and the Assessing Officer was justified in imposing penalty under section 271(1)(c).
Relied upon several judicial pronouncements to support imposition of penalty, including K.P. Madhusudanan (251 ITR 99 (S.C)), Chirag Metal Rolling Mills (305 ITR 29 (MP)), Dharmendra Textile Processors (306 ITR 277 (S.C)), K. Shridharan & Co. (325 ITR 229 (Ker)), Harprasad & Co. (325 ITR 229 (Ker)), and Sankarlal Shri Niwas (205 ITR 140 (Raj)).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court (as stated in the opinion)
K.G. Nariman, 33 TTJ 565	Cited by assessee to support the proposition that penalty should not be imposed where issue is debatable.	Referenced by the assessee; relied on as supporting authority for non-imposition of penalty where issues are debatable.
Santosh Hosiery ((2001) 3 SCC 179) (Full Bench)	“To be substantial a question of law must be debatable.”	The Tribunal cited this Supreme Court proposition and treated admission of a substantial question by the High Court as indicating the issue is debatable and thus not attracting penalty.
Hero Vinod v. Sheshamal ((2006) 5 SCC 545 : AIR 2006 S.C. 2234)	“Substantial question of law involves a debatable legal issue.”	Cited to reinforce the principle that admission of a substantial question denotes that two views are possible; relied upon in reasoning to deny penalty.
Sarita Agarwal, 17 ITJ 193 (Indore Bench)	Held that no penalty is leviable u/s. 271(1)(c) when the Assessing Officer has not recorded satisfaction that there was concealment or inaccurate particulars of income in the assessment order.	Cited by the assessee to argue that absence of recorded satisfaction in the assessment order makes penalty invalid; Tribunal considered this line of authority in its assessment of arguments.
Global Green Company Limited v. D. CIT (I.T.A No. 1390.Del/11) (ITAT Delhi Bench, 13 July 2012)	Following Delhi High Court in Madhu Shree Gupta, held that section 271(1)(c) penalty not valid if “satisfaction” not recorded in the assessment order (after Explanation 1B to section 271(1)(c) vide Finance Act 2008).	Placed before the Tribunal by the assessee to support the submission that unrecorded satisfaction renders penalty invalid; Court noted the decision as part of authorities on the point.
Madhu Shree Gupta, 317 ITR 107 (Del)	Authority dealing with requirement of recording satisfaction in assessment order for imposition of penalty (as cited).	Referenced via the Global Green decision; used by the assessee to challenge validity of penalty where satisfaction was not recorded by AO.
Chempur v. ITO (I.T.A No. 451.M/2006, ITAT Mumbai)	Held that penalty u/s. 271(1)(c) cannot be imposed in case where purchases are treated as bogus where assessee failed to produce the parties before the AO for examination.	Cited by the assessee; Tribunal considered similarity of facts and the proposition in assessing whether penalty was justified.
Addl. CIT v. Bahri Bros. P. Ltd. (154 ITR 244) (Patna HC)	Held that transactions entered through account-payee cheque make question of identity of creditors irrelevant.	Relied upon by the assessee to argue that payments through account-payee cheques negate concealment; Tribunal recorded this reliance in the factual argument summary.
Rimmalapudi S. Rao (AIR 1951 Mad 969)	Principle that where a question of law is fairly arguable or there is room for difference of opinion, the question is a substantial question of law.	Cited by the assessee and referred to by the Tribunal in explaining the meaning of “substantial question of law.”
Sir Chunilal case (cited in connection with Rimmalapudi Subba Rao)	Reference to the Constitution Bench's agreement with the Full Bench view that a fairly arguable question or room for difference of opinion makes a question substantial.	Cited in the opinion to support the textual understanding of what constitutes a substantial question of law.
CIT v. Late G.D. Naidu (165 ITR 63)	Cited by the assessee in support of the proposition that no penalty is leviable where two views are possible.	Listed among authorities relied on by the assessee; the Tribunal noted such cases as forming part of the line of authorities on debatable issues and penalty.
Commissioner of Income-Tax v. Calcutta Credit Corporation (166 ITR 29)	Cited in the same group as G.D. Naidu for the proposition regarding absence of penalty where two views exist.	Noted by the Tribunal as part of the assessee's cited authorities on the “two views” principle.
CIT v. Amarnath (143 CTR 148 (All))	Cited by the assessee to support the “two views” proposition.	Included in the list of cases relied upon by the assessee; Tribunal recorded it among similar authorities.
Alpha Associates v. DCIT (66 TTJ 758) (Bombay)	Cited in support of the assessee's contention that penalty should not be levied where two views are possible.	Noted by the Tribunal as part of the assessee's supporting authorities.
DCIT v. Rahoul Siemens Engg. (P.) Ltd. (140 Taxman 100 (Del))	Cited to support the proposition that when two views are possible penalty should not be levied.	Recorded by the Tribunal as one of the cited cases in support of the assessee's position.
K.P. Madhusudanan (251 ITR 99) (S.C.)	Cited by the Revenue in support of imposing penalty (specific principle not detailed in the opinion).	Cited by the Revenue; Tribunal recorded it among authorities relied upon by the Department to justify penalty.
Chirag Metal Rolling Mills (305 ITR 29 (MP))	Cited by the Revenue in support of penalty (specific principle not detailed in the opinion).	Recorded by the Tribunal as relied on by the Revenue to contend concealment and justify penalty.
Dharmendra Textile Processors (306 ITR 277 (S.C))	Cited by the Revenue in support of levying penalty (specific principle not described in the opinion).	Included by the Tribunal among the Revenue's authorities in favour of penalty imposition.
K. Shridharan & Co. (325 ITR 229 (Ker))	Cited by the Revenue (specific principle not detailed in the opinion).	Recorded as one of the Revenue's cited precedents.
Harprasad & Co. (325 ITR 229 (Ker))	Cited by the Revenue (specific principle not detailed in the opinion).	Recorded among the Revenue's authorities relied upon before the Tribunal.
Sankarlal Shri Niwas (205 ITR 140 (Raj))	Cited by the Revenue in support of penalty (specific principle not detailed in the opinion).	Listed by the Tribunal as part of the Revenue's authorities.
Late Mohd. Anwar Khan v. ITO (I.T.A No. 343.Ind/2011, ITAT Indore)	ITAT Indore held that where substantial question of law is accepted by the High Court, the issue becomes debatable and penalty should not be imposed.	The Tribunal followed this coordinate-bench view and cited it as consistent with refusing penalty where the High Court has accepted substantial questions.
Surendra Singh Thakur v. ITO (I.T.A No. 329.Ind/2012, ITAT Indore)	Used by the Indore Bench to hold that where High Court accepts substantial questions of law, the claim cannot be treated as frivolous or mala fide so as to attract penalty u/s. 271(1)(c).	Cited by the Tribunal as part of a consistent line of coordinate-bench decisions that an accepted substantial question renders the issue debatable and disfavors levy of penalty.
Rupam Mercantile (91 ITD 1273)	Authority cited for the proposition that a plea accepted by the High Court as giving rise to a substantial question cannot be treated as frivolous or mala fide so as to attract penalty.	Referred to by the Tribunal through coordinate-bench reasoning to support the no-penalty conclusion where High Court admits substantial question.
Nayan Builders and Developers Pvt. Ltd. (Bombay High Court)	Held that when High Court admits a substantial question of law on an addition, it becomes apparent that the addition is debatable and penalty cannot be levied u/s. 271(1)(c).	Referred to by the Tribunal in support of the proposition that admission of substantial question by the High Court lends credence to the assessee's bona fides and disfavors penalty.
Kusum Oswal (I.T(SS).A. No. 101.Ind/2009)	Coordinate-bench decision following the view that penalty should not be levied where High Court accepts substantial questions of law.	Noted by the Tribunal as part of consistent coordinate-bench authority followed in reaching the decision to cancel penalty.
CIT v. Liquid Investment Limited (I.T.A No. 240/2009, Delhi High Court, order dated 05.10.2010)	Held that where High Court has accepted substantial questions of law under section 260A, the issue is debatable and penalty u/s. 271(1)(c) is not imposable.	Cited by the Tribunal to support the proposition that admission of substantial questions by the High Court shows the issue is debatable and militates against imposition of penalty.

Court's Reasoning and Analysis

The Tribunal recorded and considered rival submissions and the orders of the authorities below. The salient elements of its reasoning are as follows:

Factual posture: The Assessing Officer made additions (bogus purchases, job work liabilities, delayed PF & E.S.I.) which were deleted by the CIT(A) but later confirmed by the Tribunal; the assessee obtained admission of substantial questions of law by the Hon'ble M.P. High Court on 6.9.2005 in respect of the quantum additions.
Principle applied: The Tribunal relied on a line of precedent (Supreme Court decisions and coordinate-bench decisions) stating that an accepted substantial question of law must be debatable. The Tribunal specifically cited Santosh Hosiery and Hero Vinod for the proposition that “to be substantial, a question of law must be debatable” and that a substantial question involves a debatable legal issue.
Precedential consistency: The Tribunal referred to and followed prior decisions of coordinate Benches (e.g., Late Mohd. Anwar Khan, Surendra Singh Thakur, Kusum Oswal) and High Court decisions (e.g., Liquid Investment Limited, Nayan Builders) which held that where the High Court accepts substantial questions of law in respect of additions, such acceptance indicates that the issue is debatable and consequently penalty under section 271(1)(c) should not be imposed.
Application to present facts: Because the Hon'ble M.P. High Court admitted specific substantial questions (three distinct questions relating to depreciation valuation, treatment of outstanding liabilities against purchases as income, and treatment of outstanding liabilities of job works), the Tribunal treated these admitted questions as evidence that the additions were debatable. The Tribunal regarded admission of the substantial questions by the High Court as lending credibility to the assessee's bona fides and as demonstrating that two views existed on the matters in dispute.
Consideration of the “satisfaction” point: The Tribunal noted the assessee's argument and relied upon decisions (Sarita Agarwal; Global Green following Madhu Shree Gupta) which take the view that where the Assessing Officer has not recorded satisfaction in the assessment order, penalty u/s. 271(1)(c) may be invalid. The Tribunal considered these authorities together with the “debatable issue” principle in reaching its conclusion.
Conclusion from combined principles: Respectfully following coordinate-bench decisions and propositions from the High Court and Supreme Court, the Tribunal concluded that penalty imposed by the Assessing Officer should be cancelled insofar as it related to the additions which were deleted by the CIT(A) and in respect of which the Hon'ble High Court accepted substantial questions of law.

Holding and Implications

Core Ruling: The appeal is allowed and the penalty under section 271(1)(c) is cancelled insofar as it pertains to the additions deleted by the CIT(A) and with respect to which the Hon'ble High Court admitted substantial questions of law.

Implications and immediate consequences:

The Tribunal directed the Assessing Officer to cancel the penalty imposed under section 271(1)(c) in respect of those specific additions which were deleted by the CIT(A) and for which the High Court accepted substantial questions of law.
The decision operates directly between the parties in this appeal: the assessee's appeal is allowed and the specific penalties in question are to be set aside as directed by the Tribunal.
No broader or novel legal principle was announced by the Tribunal beyond its application of existing Supreme Court, High Court and coordinate-bench authority; the Tribunal expressly followed the line of authority that admission of substantial questions by a High Court indicates the issue is debatable and militates against imposition of penalty u/s. 271(1)(c).

Note: This summary is strictly confined to the content and reasoning contained in the provided opinion. No facts, authorities or implications beyond those expressly stated in the opinion have been added.

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Shri Yugal Kishore Jajoo, Prop. M/S. Impellers India, 27/34, Pologround, Indore v. Dy. Cit, 4(1), Indore .

R.C Sharma, A.M:— This is an appeal filed by the assessee against the order passed by the CIT(A) dated 19th July, 2011, for the assessment year 2004-2005, in the matter of imposition of penalty u/s. 271(1)(c) of the Income-tax Act, 1961.

2. Rival contentions have been heard and records perused. In the instant case, the assessee is engaged in manufacturing of textile machinery from aluminium scrap. During the year under consideration, the assessee has shown gross profit of 18.23% which was better than the gross profit rate of 15.78% shown in the last year. During the course of scrutiny assessment, the Assessing Officer made addition on account of bogus purchases and job work and also for delayed payment of P.F & E.S.I In the quantum appeal, the CIT(A) deleted all the additions however, in an appeal filed by the Revenue before the Tribunal, the Tribunal have again confirmed the additions made by the Assessing Officer. Against the order of I.T.A.T, the assessee has approached to the Hon'ble High Court, which has accepted substantial question of law. The fact that CIT(A) has deleted the addition as sustained by the Assessing Officer and which have again been confirmed by the Tribunal itself indicate that additions so made are debatable.

3. Shri Pankaj Shah, C.A appeared on behalf of the assessee and submitted that since the CIT(A) has allowed the claim and High Court has admitted the appeal, the issue has become debatable, therefore, no penalty can be imposed. For this purpose, reliance was placed on the decision of I.T.A.T, Mumbai Bench in the case of K.G Nariman, 33 TTJ 565. Our attention was also drawn to the relevant observation contained in Full Bench decision of Hon'ble Supreme Court in the case of Santosh Hosiery, (2001) 3 SCC 179, wherein it was held that “To be substantial a question of law must be debatable”. Reliance was also placed on observation of Hon'ble Supreme Court in the case of Hero Vinod v. Sheshamal, (2006) 5 SCC 545 : AIR 2006 S.C 2234, wherein it was held that “substantially question of law involves a debatable legal issue.” Our attention was also invited to various citations of judgments as contained at page 2 of synopsis in support of the proposition that this principle has been impliedly followed in these cases, where it is held that no penalty can be levied if issue is admitted by the Hon'ble High Court as it automatically becomes debatable. The ld. Authorized Representative further contended that no satisfaction has been recorded in the assessment order by the Assessing Officer, therefore, no penalty can be levied, in view of the decision of Indore Bench in the case of Sarita Agarwal, 17 ITJ 193, wherein it was held that no penalty is leviable u/s. 271(1)(c), when the Assessing Officer has not recorded satisfaction that there was concealment or inaccurate particulars of income in assessment order. Our attention was also invited to recent decision of Delhi Bench of I.T.A.T dated 13th July, 2012, in the case of Global Green Company Limited v. D. CIT, (I.T.A No. 1390.Del/11), where following Delhi High Court decision in the case of Madhu Shree Gupta, 317 ITR 107 (Del), it was held that Section 271(1)(c) penalty not valid if “satisfaction” not recorded in the assessment order (After considering the insertion of Explanation 1B to Section 271(1)(c) vide Finance Act 2008). As per ld. Authorized Representative, since in the assessee's case the Assessing Officer has not recorded his satisfaction in the assessment order the initiation of penalty is not valid and it was prayed to be deleted.

4. Ld. Authorized Representative placed reliance on the decision of I.T.A.T, Mumbai Bench in the case of Chempur v. ITO, I.T.A No. 451.M/2006, wherein it was held that penalty u/s. 271(1)(c) cannot be imposed in case where purchases are treated as bogus since assessee has failed to produce the parties before Assessing Officer for examination. As per ld. Authorized Representative, facts in assessee's case are similar to this decision, therefore, in view of this judgment, it was prayed that penalty should be deleted.

5. With regard to penalty on alleged bogus purchases, it was submitted by ld. Authorized Representative that there was full and adequate disclosure by the assessee and no penalty is called for in such case. Precise contentions of Mr. Shah was as under:—

a. Purchases and amount payable to parties was fully disclosed in profit and loss account and balance sheet and the same were audited u/s. 44AB of the Act.

b. Name, addresses and Bank account details of creditors were furnished to the Assessing Officer. Also all payments for purchases were made through account payee cheques. (Patna HC in the case of Addl CIT v. Bahri Bros. P. Ltd., (154 ITR 244) has held that the very fact that all the transactions were entered into between the parties through account payee cheque makes the question of identity of creditors fall into oblivion and it becomes absolutely irrelevant. Therefore, in assessee's case no question of concealment arises especially when all transactions were through account payee cheque).

c. Certificate for Consumption for aluminium scrap for misc. products certified by Chartered Engineer (copy at page 50 of paper book).

d. Copy of item-wise month-wise production being certified by Chartered Engineer was submitted for substantiating that the purchases were genuine and had nexus with the production.

e. Copy of Sales Invoices from the Creditors with Sales tax Registration No. was submitted.

f. Copy of Sales tax Registrations of creditors and their Sales tax assessment records were also submitted.

g. Various other documents which are attached in the paper book were submitted.

As per ld. Authorized Representative, after perusal of aforesaid documents, it can be concluded that there was full and adequate disclosure and in such circumstances where there is no concealment no penalty is called for.

6. With regard to the legal issue to the effect that no penalty can be imposed when there are two views, the submission of the ld. Authorized Representative Mr. Shah was as under:—

“When an appeal is admitted as substantial question of law, there has to be two views. When two views are there penalty cannot be levied.

“A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law.” - Santosh Hazari v. Purshottam Tiwari ((2001) 3 SCC 179) (Full Bench) S.C

“A question of law on which there is great divergence of judicial opinion will be substantial question of law. “(Para 6) - Rimmalapudi S. Rao (AIR 1951 Mad 969) (Mad H.C). “if there is room for reasonable doubt or difference of opinion on the question, then it would be a substantial question of law.” (Para 11) Rimmalapudi S. Rao (AIR 1951 Mad 969) (Mad H.C).

In Sir Chunilal's case, the Constitution Bench expressed agreement with the following view taken by a Full Bench of the Madras High Court in Rimmalapudi Subba Rao v. Noony Veeraju (Sir Chunilal case, SCR p. 557) AIR 1951 Mad 969, (1951) - When a question of law is fairly arguable, where there is room for difference of opinion on it or where the Court through it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law.

In assessee's case the issues are substantial question of law as per MP HC, therefore, it is evident that there are different views possible. Moreover, there is also difference of view between first and second appeal.

The assessee places reliance on following cases where it is held that no penalty is leviable where two views area possible:

CIT v. Late G.D Naidu, (165 ITR 63) (Commissioner Of Income-Tax v. Calcutta Credit Corporation, (166 ITR 29) (Cal)

CIT v. Amarnath, (143 CTR 148 (All).

Alpha Associates v. DCIT (66 TTJ 758) (Bom)

DCIT v. Rahoul Siemens Engg. (P.) Ltd. (140 Taxman 100 (Del).

7. On the other hand, the ld. Sr. DR relied on the order of lower authorities and contended that since additions have been confirmed by the Tribunal, there is clear case of concealment of income and Assessing Officer was justified in levying the penalty u/s. 271(1)(c) of the Income-tax Act, 1961. Further reliance was placed on the following judicial pronouncements:—

(i) K.P Madhusudanan, 251 ITR 99 (S.C)

(ii) Chirag Metal Roling Mills, 305 ITR 29 (MP)

(iii) Dharmendra Textile Processors, 306 ITR 277 (S.C)

(iv) K. Shridharan & Co., 325 ITR 229 (Ker).

(v) Harprasad & Co., 325 ITR 229 (Ker).

(vi) Sankarlal Shri Niwas, 205 ITR 140 (Raj)

8. We have considered the rival submissions and have gone through the orders of the authorities below and also deliberated on the judicial pronouncement cited by the ld. Authorized Representative during the course of hearing before us. I.T.A.T, Indore Bench in the case of Late Mohd. Anwar Khan v. ITO, in I.T.A No. 343.Ind/2011 have held as under:—

“3. We are consistently taking the view that where substantial question of law has been accepted by the Hon'ble High Court, the issue becomes debatable, therefore, no penalty can be imposed for such addition. I.T.A.T in its order passed in I.T.A No. 329.Ind/2012 dated 29th January, 2013, in the case of Surendra Singh Thakur v. ITO, for the assessment year 1996-1997 has observed as under:—

“8. It is clear from the order of the Hon'ble High Court that they have accepted substantial question of law with respect to the addition made on account of cash credit. In terms of decision of Ahmedabad Bench in the case of Rupam Mercantile, 91 ITD 1273, where a plea for claim which is held by the High Court could have given rise to a substantial question of law, cannot be treated to be frivolous or mala fide so as to attract levy of penalty u/s. 271(1)(c) of the Income-tax Act, 1961. Similar view was taken by the Hon'ble Bombay High Court in the case of Nayan Builders and Developers Private Limited, wherein it was held that when Hon'ble High Court admits substantial question of law on an addition, it become apparent that addition is certainly debatable and under such circumstances penalty cannot be levied u/s. 271(1)(c) of the Income-tax Act, 1961. The admission of substantial question of law leads credence to the bona fides of the assessee. By following these decisions, similar view has been taken by the I.T.A.T, Indore Bench in the case of Kusum Oswal I.T(SS).A. No. 101.Ind/2009 dated 20th April, 2011. Respectfully following the decision of Coordinate Bench as narrated above, we do not find any substance in action of Assessing Officer for levy of penalty in respect of addition for which substantial question of law has been accepted by the Hon'ble High Court. Even on merits, there is no justification for imposition of penalty where the assessee has discharged the burden casted on it, notwithstanding the fact of confirmation of such addition by appellate authorities.”

9. Furthermore, Hon'ble Delhi High Court in the case of CIT v. Liquid Investment Limited, I.T.A No. 240/2009 vide its order dated 5.10.2010 has clearly held that where High Court has accepted substantial question of law u/s. 260A, this itself shows that issue is debatable. Accordingly, no penalty was imposable u/s. 271(1)(c) of the Income-tax Act, 1961. Hon'ble Supreme Court in the case of Santosh Hosiery, Civil Appeal No. 1117 of 20001 in its order dated 3rd February, 2001, ob served that “To be substantial, a question of law must be debatable.” Hon'ble Supreme Court while deciding as to what is substantial question of law has held that same must be debatable.

10. In the instant case, the appeal against quantum additions was admitted by Hon'ble M.P High Court vide order dated 6.9.2005, on the following substantial questions of law:—

1) Whether in the facts and circumstances of the case the Tribunal was right in law in directing depreciation on the estimated value of Rs. 18,00,000/- as against actual purchase value of Rs. 26,05,000/- on which assessee took over the asset ignoring basic valuation report of the Chartered Engineer?

2) Whether in the facts and circumstances of the case the Tribunal was right in law in directing the outstanding liabilities against purchases of Rs. 8,34,690/- as income and the order of the Tribunal is perverse in law when purchases are assessed as genuine?

3) Whether in the facts and circumstances of the case the Tribunal was right in directing the outstanding liabilities of job works of Rs. 3,490,395/- as income ignoring the detailed facts considered by CIT(A) and facts on records and the order of the Tribunal is perverse and bad in law?

11. In view of the above, respectfully following the decision of Coordinate Bench as well as propositions laid down by Hon'ble High Court and Supreme Court, as narrated above, we direct the Assessing Officer to cancel the penalty imposed u/s. 271(1)(c) with respect to the additions so made by Assessing Officer which were deleted by CIT(A) and for which substantial question of law has been accepted by Hon'ble High Court. Agreeing with the contentions of Mr. Shah, we do not find any merit in the order of Assessing Officer for levying the penalty u/s. 271(1)(c) of the Income-tax Act, 1961,

12. In the result, the appeal of the assessee is allowed.

Shri Yugal Kishore J... v. Dy. Cit, 4(1), Indore .