2014 (7) TMI 1164 - AT - Income Tax

Levying penalty u/s 271(1 )(c) - addition u/s 2(22)(e) - Held that - Addition on account of deemed dividend no penalty u/s. 271(1)(c) of the Act for concealment or furnishing inaccurate particulars of income is warranted. In the case of Sunil Chandra Vohra Vs. ACIT (2009 (6) TMI 682 - ITAT MUMBAI) wherein the ignorance of the provisions of section 2(22)(e) of the Act was held to be reasonable cause for deleting the penalty. Also see case of Dr. Minati Chakraborty 2010 (7) TMI 1027 - CALCUTTA HIGH COURT - Decided in favour of assessee

Summary

Issues: Appeal against deletion of penalty under section 271(1)(c) for furnishing inaccurate particulars of income in respect to deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.

Analysis:
1. The appeal by revenue challenged the order of the CIT(A) deleting the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Act for inaccurate particulars of income related to deemed dividend under section 2(22)(e) of the Act.

2. The facts revealed that the assessment for the relevant year was completed under section 143(3) of the Act, resulting in an addition on account of deemed dividend under section 2(22)(e) of the Act. The CIT(A) enhanced this addition, which was later restricted to the original amount by the ITAT. The assessee explained that the advance received was against future commissions, and due to business circumstances, the actual commission payable was lower than anticipated.

3. The assessee contended that the advance was purely for business purposes and not to violate the provisions of section 2(22)(e) of the Act. The assessee also cited a jurisdictional High Court decision and a Mumbai Tribunal ruling supporting the deletion of penalties in similar cases due to ignorance of the tax provisions being considered a reasonable cause.

4. The Tribunal, considering the complexity of tax laws and the possibility of ignorance even among specialists, held that the explanation provided by the assessee was bona fide and outside the scope of penalty under section 271(1)(c) of the Act. The Tribunal emphasized that the burden was on the Revenue to prove the falsity of the explanation, which was not done in this case.

5. Ultimately, the Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) of the Act, citing precedents and the bonafide nature of the assessee's explanation. The appeal by the revenue was dismissed based on the favorable decisions from the jurisdictional High Court and the Mumbai Tribunal.

6. Therefore, the Tribunal confirmed the order of the CIT(A) and dismissed the appeal by the revenue, concluding that no penalty under section 271(1)(c) of the Act was warranted in this case.