Description
I'm a symmetric cryptography expert and I think permutation networks are always impossible to break, no matter what components are used.
Solution
Analysis
The user is provided with the encryption of the flag after 5 rounds and 6 rounds. Why? With 5 rounds the first half of the flag can be found, whilst the second half can be found by exploiting the 6 rounds ciphertext.
The goal is to write the equations for both the instances and find some relations that can help to obtain the desired blocks.
The cipher
Given a key K, each round of the cipher works as shown by the following image:

Where, given a key k, the function f is defined as f(X,k)=X⊕sha1(k). For ease of notation, K=sha1(k).
The relations
From the 5 round instance:
C2(3)=T2(3)⊕T2(4)⊕C1⊕T1(4)
C2(2)=C2(3)⊕T2(2)⊕T1(3)⊕C1⊕C2⊕T2(4)
P2=T2(1)⊕T1(2)⊕C2(3)⊕T2(0)⊕T1(1)
From the 6 round instance:
C2(4)=T2(4)⊕T2(5)⊕C1⊕T1(5)
C2(1)=T2(2)⊕T1(3)⊕C2(4)⊕T2(1)⊕T1(2)
P1=C2(1)⊕T1(0)
Flag
The flag is the concatenation of P1 and P2.
Code
Here is the solver code.