2010 (3) TMI 416 - HC - Income Tax

Penalty-Concealment of Income- The assessee was a director and shareholder of the company and also partner in a firm. The firm had advanced a loan to a company in the amount of Rs. 3.45 crores, against which the company had advanced a sum of Rs. 1.31 crore to the assessee. The Assessing officer made an addition on account of deemed dividend and impose penalty. The Commissioner (Appeals) delete the penalty on the ground that the assessee had acted on bonafide belief that all the loans and advances obtained from the company were disclosed in the return of income and that the assessee had already been subjected to the demand of tax as well as interest. The Tribunal upheld the order of Commissioner (Appeals). Held that- all the circumstances relied upon in the order of the Assessing Officer in the first instance and in appeal by the appellate authority, ought to have been but had not been evaluated by the Tribunal. Hence the matter remanded for fresh decision.

Summary

Issues:
- Whether the deletion of penalty under section 271(1)(c) of the Income-tax Act was justified without appreciating the facts brought on record by the Assessing Officer.
- Whether the Tribunal erred in setting aside the penalty based on the assessee's alleged lack of awareness of the provisions of section 2(22)(e) of the Income-tax Act.

Issue 1: Deletion of Penalty under Section 271(1)(c):
The case involved an appeal by the Revenue under section 260A of the Income-tax Act, 1961, regarding the deletion of a penalty of Rs. 10,08,400 imposed by the Assessing Officer. The penalty was related to deemed dividend under section 2(22)(e), where the assessee, a partner in a real estate firm, had received a loan from a private limited company. The Commissioner of Income-tax (Appeals) and the Tribunal had both ordered the deletion of the penalty. The Tribunal's basis for setting aside the penalty was the assessee's alleged lack of awareness of the provisions of section 2(22)(e), which the Revenue contended was not sufficient to justify penalty deletion. The High Court noted that all circumstances should have been evaluated before deciding on the penalty deletion. Consequently, the High Court remanded the proceedings back to the Tribunal for a fresh decision, setting aside the impugned order of the Tribunal.

Issue 2: Lack of Awareness of Provisions of Section 2(22)(e):
The Tribunal had set aside the penalty primarily on the ground that the assessee was not aware of the provisions of section 2(22)(e) of the Income-tax Act, suggesting a bona fide mistake. However, the High Court found this reasoning insufficient, especially considering the assessee's significant interests in the partnership firm and the private limited company. The Assessing Officer had highlighted various circumstances indicating the assessee's involvement and benefits received from the transactions. The Commissioner of Income-tax (Appeals) had accepted the assessee's contention of acting under a bona fide belief that all transactions were disclosed. The High Court emphasized that the Tribunal should have evaluated all material facts and circumstances before deciding on the penalty deletion. Therefore, the High Court remanded the case for a fresh decision, without expressing an opinion on the merits of the rival contentions.

In conclusion, the High Court disposed of the appeal without answering the question of law framed, as the case was remanded for a fresh decision by the Tribunal. The court clarified that it had not expressed any opinion on the merits of the case and set aside the impugned order, restoring the appeal to the Tribunal for further proceedings.