2012 (9) TMI 440 - AT - Income Tax

Penalty u/s 271(1)(c) - addition to deemed dividend - Held that - As all the concerned facts were duly disclosed by the assessee in the assessment proceedings, stating that a sum of Rs. 7,65,921/- was due to the assessee from the company and also that the amounts received represented Rs. 6 lac as security deposit against property given on rent to the company and advance of Rs. 4,50,000/- received against salary in the capacity of director holding 67.40% of the company s shareholdings. The balance sheet of the company contains the name of the assessee under the schedule of Loans and advances. No intention of either furnishing inaccurate particulars of income or concealment of any particulars of income is, therefore, manifest. The belief of the assessee regarding both the components, i.e., the security deposit, as well as the advance received, has not been shown to be not bona fide. Orders for addition on the difference of credit and debit balance amounting to Rs. 18,94,309/- and the assessee did not file any appeal against the addition, thus mere fact that the assessee did not prefer any appeal against addition in the quantum proceedings does not lead to automatic levy of concealment penalty, particularly when the belief nurtured by the assessee has not been shown to be mala fide - in favour of assessee.

Summary

Issues:
Levy of concealment penalty under Section 271(1)(c) for Assessment Year 2005-06.

Detailed Analysis:
The appellant, an individual director in a company, was subjected to a penalty of Rs. 5,79,659/- for not adding a credit balance of Rs. 26,60,230/- to his income as deemed dividend under Section 2(22)(e). The Assessing Officer added the difference between credit and debit balances, amounting to Rs. 18,94,309/-. The appellant argued that the company maintained one account for various transactions, including advances received, and that the balance sheet clearly mentioned the appellant's name under 'Loans & Advances,' indicating no intention to furnish inaccurate particulars of income. The appellant contended that the deemed dividend was exempt under Section 10(34) and that the advance received was in the capacity of an employee, believing only received or earned income was taxable under the IT Act. The appellant's belief was supported by the fact that no tax was paid on dividend income from other companies, relying on legal precedents. The CIT (A) confirmed the penalty, leading to the appeal.

The appellant reiterated their arguments before the ITAT, emphasizing the bona fide belief that the advance received was not taxable as dividend income. The Department, however, argued that ignorance of the law is no excuse, asserting that the appellant should have declared the deemed dividend in their return. The ITAT noted that all relevant facts were disclosed during assessment proceedings, with no intention of concealment or furnishing inaccurate particulars. Referring to 'Reliance Petroproducts Pvt. Ltd.' case, the ITAT held that if no incorrect or inaccurate information was provided, no penalty could be levied. The ITAT distinguished 'Dharmendra Textiles' case, stating that mens rea was not required to be proved in concealment penalties. The ITAT further emphasized that the appellant's failure to appeal the CIT (A)'s order did not automatically warrant a penalty, especially considering the absence of mala fide intent. Consequently, the ITAT set aside the penalty, ruling in favor of the appellant.

In conclusion, the ITAT allowed the appeal, deleting the penalty imposed on the appellant for the Assessment Year 2005-06 under Section 271(1)(c).