2019 (8) TMI 286 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition of deemed dividend u/s 2(22)(e) - HELD THAT - The true nature of the amount was not income, but loan/advance. It was only deemed to be in the nature of dividend on account of fulfillment of conditions specified u/s 2(22)(e). The assessee is an individual who, unlike corporate, is generally not guided and assisted by professionals in tax matters, which, as is evident from the issue before us, are highly complex taxing even receipts which are not in the nature of income. In such circumstances, it cannot be said that having disclosed all particulars of the deemed income, the assessee had intentionally not returned it to tax. The bonafides of the assessee therefore cannot be doubted. The fact that the ITAT held the explanation of the transaction being commercial in nature for purchase of property, as an after thought and sham, makes no difference, since the ITAT also held that the explanation in any case was of no help to the assessee and did not save it from the rigors of section 2(22)(e). The ITAT held that merely because an advance is received in a commercial transaction does not suffice to exempt it from being treated as deemed dividend, unless and until the advance is received in the course of money lending business of the company giving the advance. Therefore the explanation did not save it from the rigors of 2(22)(e), and therefore if the same was found false, it could not be said that the assessee had malafidely not returned the deemed income to tax. We set aside the order of the Ld.CIT(A) and hold that no penalty is exigible in the present case. The penalty so levied is directed to be deleted - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 on deemed dividend under section 2(22)(e) - Challenge on merits and legal grounds - Admission of additional ground - Bonafides of the assessee in disclosing particulars - Argument of false explanation by the assessee - Adjudication on levy of penalty - Deletion of penalty and allowance of appeal.

Detailed Analysis:

1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the penalty under section 271(1)(c) of the Income Tax Act, 1961, on the addition made to the income of the assessee due to treating loans/advances as deemed dividend under section 2(22)(e) of the Act. The assessee challenged the order on both merits and legal grounds.

2. The assessee contended that all material facts regarding the impugned transaction were truly and completely disclosed, indicating a mere mistake in not treating the advance as deemed dividend. The bonafides of the assessee were emphasized, arguing against the levy of penalty. Various case laws were cited to support the contentions made.

3. The Departmental Representative supported the order of the CIT(A), stating that the explanation provided by the assessee to escape the deeming provisions of section 2(22)(e) was false. Contradictory facts were pointed out between the explanation given by the assessee and the documents submitted.

4. The Tribunal considered the issue of penalty under section 271(1)(c) for concealing or furnishing inaccurate particulars of income. It was noted that the assessee had correctly disclosed all particulars related to the deemed income, which was treated as dividend due to specific conditions being met. The bonafides of the assessee were upheld, and it was concluded that no penalty was justified in this case.

5. The Tribunal set aside the order of the CIT(A) and directed the deletion of the penalty, allowing the appeal on merits. The legal grounds were deemed academic and not addressed. Consequently, the appeal of the assessee was partly allowed.

This detailed analysis covers the issues involved in the legal judgment, the arguments presented by both parties, the Tribunal's adjudication on the levy of penalty, and the final decision to delete the penalty and allow the appeal on merits.