1979 (3) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the IT Act, 1961.
2. Determination of deemed dividend under Section 2(22)(e) of the IT Act.
3. Assessment of gross or willful neglect by the appellant.
4. Applicability of judicial precedents and legal interpretations.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The appellant contested a penalty of Rs. 35,000 levied by the IAC under Section 271(1)(c) of the IT Act, 1961, for alleged concealment of income. The IAC's view was that the appellant was guilty of concealment due to gross negligence by not including deemed dividends in his return.

2. Determination of Deemed Dividend:
The penalty was based on an addition of Rs. 33,153 treated as deemed dividend under Section 2(22)(e) due to the appellant's drawings from M/s Madras Radiators and Pressings Pvt. Ltd. The appellant argued that he had transferred Rs. 28,003 from his credit balance in another company, resulting in a nil balance in the account of M/s Madras Radiators and Pressings Pvt. Ltd. as of 31st March 1973. He contended that whether this amount should be treated as dividend was debatable and involved considerable discussion, referencing the Supreme Court's decision in Smt. Tarulata Shyam and Others vs. CIT.

3. Assessment of Gross or Willful Neglect:
The appellant's counsel argued there was no intention to conceal income, as all relevant account copies were furnished during the assessment proceedings. The IAC's conclusion of gross neglect was challenged, with the appellant asserting he acted under a bona fide impression based on existing legal interpretations, specifically the Madras High Court's decision in CIT vs. K. Srinivasan and Others.

4. Applicability of Judicial Precedents and Legal Interpretations:
The appellant's counsel referenced several judicial decisions, including the Madras High Court's ruling in CIT vs. K. Srinivasan and Others, which influenced the appellant's understanding of deemed dividends. The Revenue argued that the appellant should have disclosed the deemed dividend in his return, despite the absence of a specific provision for such disclosure in the return form. The Tribunal noted that the appellant's actions were influenced by the prevailing legal interpretations and that the Supreme Court's decision in Smt. Tarulata Shyam and Others clarified the matter later.

Tribunal's Findings:
The Tribunal concluded that the appellant had placed all necessary materials before the ITO and had not acted with gross or willful neglect. The Tribunal found the appellant's explanation regarding the taxability of the amount as deemed dividends to be probable and true, given the legal context at the time. The Tribunal held that the appellant had discharged his onus of proof under the Explanation to Section 271(1)(c) and demonstrated no intention to conceal income or furnish inaccurate particulars.

Conclusion:
The Tribunal canceled the penalty of Rs. 35,000 levied by the IAC and directed the ITO to refund the amount if already collected from the appellant. The appeal was allowed, and the Tribunal emphasized that no penalty was exigible under Section 271(1)(c) in this case.