2018 (6) TMI 1647 - AT - Income Tax

Penalty u/s. 271(1)(c) - deemed dividend addition u/s 2(22)(e) - HELD THAT - As decided in SHRI DIPESH L. SHAH 2017 (4) TMI 1458 - ITAT AHMEDABAD Section 2(22)(e) of the Act creates legal fiction whereby loans/advances received by an assessee are deemed as taxable income in the hands of the recipient assessee in certain circumstances as specified therein. In view of section 2(22)(e) of the Act, loans/advances amount under consideration artificially partake the character of dividend and brought to tax as deemed dividend. The aforesaid provision of section 2(22)(e) has brought a deeming and unnatural concept of treating the returnable loans/advances as taxable income in the hands of borrower in departure with the operation of the normal provisions. Admittedly, the relevant facts concerning the issue were available to the AO. Thus, there is no concealment of any particulars of any fact per se. Assessee has simultaneously claimed that the aforesaid advances have been received the course of ordinary business and owing to ongoing business transactions and thus not susceptible to provisions of section 2(22)(e) - while the provisions of s.2(22)(e) have been applied, the issue is not entirely free of any debate. As noted, section 2(22)(e) of the Act is only deeming provision of law and is not a substantive provision. Thus, in the absence of any perceptible mala fides, we find no infirmity in the order of the CIT(A) deleting the penalty imposed by the AO. Thus, we do not see any merits in the appeals of the Revenue.

Summary

Issues:
1. Confirmation of penalty u/s. 271(1)(c) of the Income Tax Act.
2. Interpretation of section 2(22)(e) regarding deemed dividend.
3. Consideration of penalty imposition on loans and advances under section 271(1)(c).

Analysis:

1. The appellant challenged the confirmation of penalty u/s. 271(1)(c) by the CIT(A) for the addition of deemed dividend u/s. 2(22)(e). The appellant argued that there were debatable aspects with two opinions, and penalty should not be levied as there was no concealment or inaccurate particulars. However, the ITAT upheld the penalty considering the failure to declare deemed dividend amounts totaling to ?47,49,717, leading to the conclusion of concealment of income.

2. The case involved the detection of deemed dividend amounts during a survey, which the appellant failed to disclose in the original return. The CIT(A) upheld the penalty, but the ITAT considered the legal fiction created by section 2(22)(e) where loans/advances can be deemed as taxable income. The ITAT noted that the provision is a deeming provision and not substantive, and since there were no mala fides and a debatable issue regarding the applicability of section 2(22)(e), the penalty was deleted based on a similar precedent.

3. The ITAT referred to a previous judgment where penalties on similar loans and advances were deleted, emphasizing that the issue of penalty imposition under section 271(1)(c) on deemed income under section 2(22)(e) is not straightforward. Considering the legal fiction aspect and lack of mala fides, the ITAT ruled in favor of the appellant, deleting the penalties in all five appeals based on the precedent set by the previous judgment.

This comprehensive analysis highlights the legal arguments, interpretation of relevant sections, and the basis for the ITAT's decision to delete the penalties in the context of the issues raised in the judgment.