2015 (8) TMI 1485 - AT - Income Tax

Penalty levied u/s 271(1)(c) - deemed dividend addition u/s 2(22)(e) - as alleged true particulars of income were not furnished by the assessee in its return - CIT-A deleted the addition - HELD THAT - It is the case of the assessee that he was under a bonafide impression that since it(partnership firm-m/s Quixotic Healthcare)was not a shareholder in M/s Preet Remedies Pvt. Ltd, the advance given by M/s Preet Remedies Pvt. Ltd could not be treated as deemed dividend in its hands u/s 2(22)(e) of the Act..This belief was based on decisions of the ITAT in the case of ACIT vs V. Bhaumik Colour (P) ltd 2008 (11) TMI 273 - ITAT BOMBAY-E .In our view this submission offered by the assesse had considerable force since there were also decisions by the Delhi High Court in the case of CIT Vs. Ankitech P. Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT and CIT Vs. Hotel Hilltop 2008 (3) TMI 310 - RAJASTHAN HIGH COURT which held that to bring to tax any amount as deemed dividend as per the provisions of section 2(22)(e) it is essential that the recipient of the amount must be a shareholder of the company. Moreover the AO has not stated as to why the ratio promulgated in the case referred to by the assessee would not apply to the him. We are therefore satisfied that the assesses explanation in regard to taxability of this amount in its hands is probable and true. Explanation of the assessee that he had no intention to either conceal or furnish inaccurate particulars of income is quite probable and true in the state of law set out. The assessee has therefore discharged his onus of proof under Explanation 1 to section 271(1)(c) of the Act and shown that there was no willful or gross neglect on his part in returning the correct income. We are also satisfied that the assessee had disclosed all relevant particulars relating to his income and there was neither any concealment of income nor furnishing of inaccurate particulars of income. Addition made applying deeming provisions would not disclose it to be a case of filing inaccurate particulars of income. In any case without prejudice to what has been stated above the displacement of presumption raised against the assessee by the Expl. 1 to section 271(1)(c) amounts to concealing particulars of income. AO in the present case has levied penalty for furnishing inaccurate particulars of income . The AO therefore is apparently satisfied that the Expl 1 to section 271(1)(c) is not attracted in the assesses case for the levy of penalty. Hon ble Supreme court in CIT Vs. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT has held that disallowance of the claim in the assessment proceedings could not be the sole basis for levying of penalty under Section 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 by the CIT(A).

Analysis:

Issue 1: Deletion of penalty under section 271(1)(c) by the CIT(A)

The appeal by the Revenue challenged the deletion of penalty of Rs. 4,61,465/- levied under section 271(1)(c) of the Income Tax Act, 1961. The case involved a partnership concern that received a loan from a company, which was treated as deemed dividend under section 2(22)(e) of the Act. The Assessing Officer (AO) imposed the penalty, alleging concealment of income. However, the CIT(A) canceled the penalty, stating that the assessee had disclosed the borrowing in its balance sheet and had not concealed any material facts. The CIT(A) relied on previous ITAT judgments to support the cancellation of the penalty.

The key argument was whether the advance received should be treated as income in the nature of deemed dividend, attracting penalty under section 271(1)(c). The partnership concern had disclosed the advance in its balance sheet, and it was not a shareholder in the lending company. The CIT(A) found that the assessee's explanation regarding the taxability of the amount in its hands was probable and true, based on legal precedents. The CIT(A) held that there was no intention to conceal or furnish inaccurate particulars of income, and the assessee had disclosed all relevant particulars. The CIT(A) concluded that the penalty was not leviable, as the addition made under deeming provisions did not amount to filing inaccurate particulars of income.

Additionally, the Tribunal referred to legal principles established by the Supreme Court, emphasizing that penalties should not be imposed for technical breaches or when the offender acted in good faith. The Tribunal concurred with the CIT(A)'s view and upheld the cancellation of the penalty, stating that no penalty was exigible under section 271(1)(c) in this case. The decision on the penalty had no impact on the quantum addition. Consequently, the Department's appeal was dismissed.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) of the Income Tax Act, 1961, based on the assessee's full disclosure of the relevant facts and legal interpretations supporting the non-leviability of the penalty.