2016 (1) TMI 599 - AT - Income Tax

Levying penalty u/s 271(1 )(c) - addition u/s 2(22)(e) - Held that - In the present case, the alleged amount was given from M/s Beacon Logicwares Pvt. Ltd. to SRVR Software Solutions Pvt. Ltd. and the assessee was neither the recipient nor the payer of the money and since there was no receipt of payment of the money by the assessee, the conscious act of furnishing of inaccurate particulars of income or concealment of income cannot be attributed to the assessee, specially when the addition u/s 2(22)(e) was made under the deeming provision. The case of the assessee is squarely covered by the judgment of West Coast Industries vs ACIT 2009 (4) TMI 937 - ITAT MUMBAIA and CIT vs Hrishikesh Kundu (2014 (7) TMI 1164 - ITAT KOLKATA). Thus, we have no hesitation to hold that the Assessing Officer imposed penalty against the well-settled proposition on this issue and the assessee cannot be held responsible for furnishing of inaccurate particulars of income or concealment of particulars of her income which attracts penalty u/s 271(1)(c) of the Act. Accordingly, main ground of the assessee is allowed and the Assessing Officer is directed to delete the penalty. - Decided in favour of assessee

Issues Involved:
1. Legality of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Section 2(22)(e) regarding deemed dividend.
3. Validity of the explanation provided by the assessee.
4. Justification for the concealment of income and furnishing of inaccurate particulars.

Issue-wise Detailed Analysis:

1. Legality of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue raised by the assessee was the legality of the penalty of Rs. 13,50,000 levied under Section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the penalty was imposed without proper jurisdiction and without appreciating the facts and circumstances of the case. The Tribunal noted that the Assessing Officer (AO) had imposed the penalty on the grounds that the assessee had concealed income and furnished inaccurate particulars, which was deemed to be a fit case for penalty under Section 271(1)(c) read with Explanation 1. However, the Tribunal found that the AO's conclusion was based on the classification of the amount as "unsecured loans" rather than "share application money," which was a colorable device to avoid tax under Section 2(22)(e).

2. Applicability of Section 2(22)(e) regarding deemed dividend:
The AO had added Rs. 45,00,000 to the assessee's income under Section 2(22)(e), treating it as deemed dividend. The assessee argued that the amount was share application money and not a loan or advance, and therefore, the provisions of Section 2(22)(e) were not applicable. The Tribunal observed that the deeming provision of Section 2(22)(e) could not be invoked unless there was a conscious and malafide act of furnishing inaccurate particulars or concealing income. The Tribunal cited the decision of ITAT Mumbai in the case of West Coast Industries vs ACIT, which held that if there were two opinions regarding taxability, it could not be deemed as concealment or furnishing inaccurate particulars.

3. Validity of the explanation provided by the assessee:
The assessee's explanation was that the amount in question was share application money and not a loan or advance. The Tribunal noted that the share application money forms were duly filled and signed, and the transaction was well explained with evidence during the assessment proceedings. The Tribunal also referred to the decision of ITAT Kolkata in the case of ACIT vs Hrishikesh Kundu, which held that ignorance of the provisions of Section 2(22)(e) was a reasonable cause for deleting the penalty. The Tribunal found that the assessee had a reasonable justification for not showing the deemed dividend in her hands, and there was no conscious act of furnishing inaccurate particulars or concealing income.

4. Justification for the concealment of income and furnishing of inaccurate particulars:
The Tribunal held that since the assessee was neither the recipient nor the payer of the money, the conscious act of furnishing inaccurate particulars or concealing income could not be attributed to her. The Tribunal cited the decision of ITAT Mumbai in the case of West Coast Industries vs ACIT and the order of ITAT Kolkata in the case of ACIT vs Hrishikesh Kundu, which supported the assessee's case. The Tribunal concluded that the AO had imposed the penalty against the well-settled proposition on this issue, and the assessee could not be held responsible for furnishing inaccurate particulars or concealing income that attracted penalty under Section 271(1)(c).

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to delete the penalty imposed under Section 271(1)(c). The Tribunal found that the assessee had not concealed income or furnished inaccurate particulars, and the addition under Section 2(22)(e) was made under a deeming provision, which did not justify the penalty. The Tribunal's decision was pronounced in the open court on 23.10.2015.

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