2023 (10) TMI 777 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition on account of loan received by the assessee which was treated as deemed dividend u/s 2(22)(e) - As alleged appellant has furnished inaccurate particulars of income - HELD THAT - We find force in the submission of the assessee. In the case of Tristar Intech Pvt. Ltd. 2015 (10) TMI 810 - ITAT DELHI the Tribunal while dealing with Explanation 1 of Section 271(1)(c) held that penalty can be imposed only for a specific charge. Furnishing inaccurate particulars of income means, when the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas, concealment of particulars of income means, when the assessee has concealed the income and has not shown the income in its return or in its books of accounts. Explanation 1 is a deeming provision and is applicable when an amount is added or disallowed in computation of total income which is deemed to represent the income in respect of which particulars have been concealed. Explanation 1 cannot be applied in a case where the assessee furnishes inaccurate particulars of income. Also observed that by way of deeming provision the Assessing Officer made addition of Rs. 18,42,000/- being the loan taken by the assessee from the company in which he was a substantial shareholder which addition was ultimately reduced to the accumulated profits of the lender company at Rs. 4,73,526/- by the Tribunal vide order in MANOJ MITTAL 2020 (4) TMI 841 - ITAT DELHI There is no concealment of particulars of income by the assessee so as to attract penalty u/s 271(1)(c) - AO is directed to delete the penalty levied u/s 271(1)(c) - Appeal of assessee allowed.

Summary

Issues Involved:
1. Sustaining the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Interpretation and application of Explanation 1 to Section 271(1)(c) of the Act.
3. Whether the assessee furnished inaccurate particulars of income.

Summary:

1. Sustaining the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-24, New Delhi, which sustained the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was originally imposed by the Assessing Officer (AO) following an addition of Rs. 4,73,526/- as deemed dividend under Section 2(22)(e) of the Act.

2. Interpretation and application of Explanation 1 to Section 271(1)(c) of the Act:
The AO imposed the penalty by invoking Explanation 1 to Section 271(1)(c), alleging that the explanation offered by the appellant was not acceptable. However, the Tribunal found that Explanation 1 could only be invoked in cases of concealment of income, not for furnishing inaccurate particulars of income. The Tribunal cited the case of Tristar Intech Pvt. Ltd. vs. ACIT, which held that Explanation 1 is a deeming provision applicable when an amount is added or disallowed in the computation of total income, representing income in respect of which particulars have been concealed.

3. Whether the assessee furnished inaccurate particulars of income:
The Tribunal observed that the assessee had disclosed all relevant details, including the shareholding pattern and the accumulated profits of the lender company. The addition of Rs. 4,73,526/- was made based on deeming provisions and not due to any inaccurate particulars furnished by the assessee. The Tribunal referred to the Supreme Court's decision in CIT vs. Reliance Petro Products Pvt. Ltd., which held that merely making an unsustainable claim does not lead to the levy of penalty under Section 271(1)(c).

Conclusion:
The Tribunal concluded that there was no concealment of particulars of income by the assessee to attract penalty under Section 271(1)(c) of the Act. Consequently, the AO was directed to delete the penalty levied. The appeal of the assessee was allowed, and the order was pronounced in the open court on 16/10/2023.