2023 (7) TMI 686 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition u/s 2(22)(e) - Deemed dividend - assessee contended that deeming fiction provided u/s 2(22)(e) for the purpose of making addition towards loans and advances borrowed from a company in the hands of the director cannot be extended to penalty provisions provided u/s 271(1)(c) to hold that non disclosure of deeming dividends in the return of income would amount to furnishing of inaccurate particulars of income - HELD THAT - While levying the penalty the deeming provisions can be applied to a limited extent and instant case was concerned with the imposition of penalty under section 271(1)(c) which was not sustainable in so far as the assessee-company was not a registered shareholder of loan advancing company who had vien loan / advance to the assessee-company. As decided in the case of Shri P.James 2017 (11) TMI 1820 - ITAT MUMBAI penalty cannot be levied u/s 271(1)(c) towards addition made for loans and advances by invoking deeming provisions of section 2(22)(e) of the Act. Therefore we direct the AO to delete penalty levied u/s 271(1)(c) - Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act for not reporting deemed dividend under Section 2(22)(e).

Summary:

Issue 1: Confirmation of Penalty under Section 271(1)(c)

The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi, which confirmed the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed for furnishing inaccurate particulars of income by not reporting deemed dividend under Section 2(22)(e) amounting to Rs. 19,99,999/-. The AO had initially determined the total income of the assessee as Rs. 66,81,067/- and made an addition of Rs. 50,96,573/- on account of deemed dividend. The Ld.CIT(A) later restricted this addition to Rs. 19,99,999/-.

The assessee contended that the penalty under Section 271(1)(c) should not be levied for additions made by invoking deemed provisions, arguing that the non-disclosure of deemed dividends did not amount to furnishing inaccurate particulars of income. The assessee, being a doctor, claimed a bonafide belief that the deeming fiction under Section 2(22)(e) could not extend to penalty provisions under Section 271(1)(c).

The Tribunal reviewed various judicial precedents, including the cases of M/s Narayan Institute of Management Studies Pvt. Ltd., P. James, and Prakash Narain Singh, where penalties under similar circumstances were deleted. The Tribunal noted that the AO's addition was based on information gathered during the assessment proceedings and that the assessee had disclosed the loan in the balance sheet. The Tribunal emphasized that the deeming fiction under Section 2(22)(e) could not be extended to penalty provisions under Section 271(1)(c) for furnishing inaccurate particulars of income.

Respecting the view taken by the coordinate benches, the Tribunal concluded that penalty under Section 271(1)(c) could not be levied for additions made by invoking the deeming provisions of Section 2(22)(e). Consequently, the Tribunal directed the AO to delete the penalty levied under Section 271(1)(c) and allowed the appeal filed by the assessee.

Order pronounced in the open court on 14th July 2023.