2016 (6) TMI 1475 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - deemed dividend addition u/s 2(22)(e) - Debatable issue - HELD THAT - As decided in Trimurty Buildcon Pvt. Ltd. 2016 (4) TMI 71 - ITAT JAIPUR assessee at the time of quantum addition as well as at the time of penalty proceedings has reiterated that these advances are in the course of regular business. It is a running account, said advances later on repaid. This issue is debatable and various courts particularly in the case of Creative Dyeing Printing (P) Ltd. 2009 (9) TMI 43 - DELHI HIGH COURT wherein it has been held that business transaction is not covered u/s 2(22)(e) of the Act. Various other case laws cited by the assessee has also been made this issue debatable. The case relied on by the AO i.e Mak Data P. Ltd. 2013 (11) TMI 14 - SUPREME COURT is not applicable as assessee at every stage had filed the explanation before the AO as well as CIT(A) i.e. these transactions were made for the purpose of business and commercial expediency is bonafide. Penalty imposed by the AO and confirmed by the CIT(A) are not justified. Accordingly we delete the penalty in all the cases. Undisputedly the facts pattern in the impugned matters are similar to the facts before Co-ordinate Bench in respect of assessee s group companies wherein the penalty on addition on account of deemed dividend u/s 2(22)(e) was deleted. Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under section 271(1)(c) for deemed dividend addition.

Analysis:
The case involved two appeals by the assessee challenging the penalty imposed under section 271(1)(c) for deemed dividend additions. The assessee contended that the penalty was erroneously confirmed by the Ld. CIT(A) and provided grounds for appeal. The facts revealed that the assessee company, part of a group, had raised loans from sister concerns which were treated as deemed dividends during assessments. The penalties imposed on these deemed dividends were the subject of the present appeals.

The assessee argued that the Hon'ble ITAT, Jaipur Bench, in similar cases concerning other group companies, had recently deleted penalties on deemed dividends under section 2(22)(e). The assessee emphasized that the advances were business-related and not disputed to be business advances. It was asserted that business advances do not fall under section 2(22)(e) as supported by judicial pronouncements. The transaction was characterized as a loan repayable contractually, and the deeming fiction of the law should not attract penalties. The voluntary offering for tax and absence of a guilty mind were highlighted to argue against the imposition of penalties based on deeming provisions.

The Co-ordinate bench's consolidated order dated 12.02.2016 was referenced, where it was held that the assessee had disclosed all relevant details in returns and reiterated that the advances were part of regular business operations. The issue was deemed debatable, with case laws supporting the assessee's position. The penalty imposed by the AO and confirmed by the CIT(A) was considered unjustified, leading to the deletion of penalties in similar cases. Consequently, based on the precedent set by the Coordinate Bench, the penalties in the present appeals were also deleted.

In conclusion, both appeals filed by the assessee were allowed, and the penalties under section 271(1)(c) for deemed dividend additions were deleted. The decision was pronounced in the open court on 29/06/2016.