2011 (2) TMI 1288 - AT - Income Tax

Summary

Issues Involved:
1. Justification of penalty u/s 271(1)(c) for concealment of income.
2. Applicability of section 2(22)(e) regarding deemed dividend.

Summary:

Issue 1: Justification of penalty u/s 271(1)(c) for concealment of income

The assessee appealed against the confirmation of a penalty of Rs. 19,90,738 levied by the Assessing Officer (AO) u/s 271(1)(c) of the Act. The assessee argued that there was no concealment of income or furnishing of inaccurate particulars, as all facts were disclosed in the tax audit report. The Tribunal noted that for imposing penalty u/s 271(1)(c), there must be concealment of income or furnishing of inaccurate particulars. In this case, the assessee disclosed all particulars of transactions with the sister concern in the audited accounts and the return of income. The Tribunal concluded that the penalty was not justified as the additions were made based on legal interpretation, and the assessee had disclosed all material facts. The Tribunal referenced the Hon'ble Supreme Court's decision in Reliance Petro Products (P.) Ltd., which held that a mere claim not sustainable in law does not amount to furnishing inaccurate particulars. Therefore, the penalty u/s 271(1)(c) was not sustainable.

Issue 2: Applicability of section 2(22)(e) regarding deemed dividend

The AO treated the credit balance in the assessee's accounts as deemed dividend u/s 2(22)(e) and made an addition of Rs. 59,14,250. The assessee contended that the credit was not a loan or advance but collections made on behalf of the sister concern. The Tribunal noted that the assessee company was not a registered shareholder of M/s Rishmon Liquors Private Limited, which had given the loan. The Tribunal referred to the ITAT Special Bench decision in Bhaumik Colour (P.) Ltd., which held that deemed dividend can only be assessed in the hands of a registered shareholder. Since the assessee was not a registered shareholder, the amount could not be taxed u/s 2(22)(e). The Tribunal concluded that the penalty based on this addition was not justified, as the deeming provisions of section 2(22)(e) could not be applied to a non-shareholder.

Conclusion:

The Tribunal allowed the appeal of the assessee, concluding that the penalty u/s 271(1)(c) was not justified as there was no concealment of income or furnishing of inaccurate particulars, and the provisions of section 2(22)(e) could not be applied to the assessee, who was not a registered shareholder.