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TMI Blog2011 (2) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is totally an independent company and the assessee is not having any share holding in the sister companies, therefore, in view of the decision of ITAT, Bombay Special Bench in the case of Asstt. CIT v. Bhaumik Colour (P.) Ltd. [2009] 118 ITD 1 such receipt of loan cannot be taxed in the hands of the assessee company. It was submitted that there is no concealment of income or furnishing of inaccurate particulars of income. It was pointed out that though no appeal was filed by the assessee on quantum addition but since there is no concealment, no penalty should have been levied. It was, therefore, claimed that all the facts are duly mentioned in the tax audit report. Reliance was placed on the decision in CIT v. Rajkumar [2009] 318 ITR 462 , CIT v. Hotel Hilltop [2008] 217 CTR (Raj.) 527. A strong plea was raised by the ld. Counsel for the assessee that section 2(22)(e) of the Act is not applicable to the facts of the present appeal for which reliance was placed on J.K. Jajoo v. CIT [1990] 181 ITR 410 (M.P.) and CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158. It was contended by the ld. Counsel for the assessee, Shri S.S. Deshpande, that M/s Sadana Sales Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the credit appearing in the books of account are neither a loan nor advance and were merely on account of collections made on behalf of the sister concern. This claim of the assessee could not find favour during the assessment proceedings and consequent additions were made. Alternatively, it was pleaded that at most it can be treated as a deposit for which the provisions of section 2(22)(e) of the Act are not attracted and it is merely an interpretation of law, therefor, it cannot be treated as concealment or furnishing of any inaccurate particulars of income because the completed details were shown in the balance-sheet and in the Schedule annexed to the tar. 4. The Assessing Officer noted that the assessee had obtained cumulative loan of Rs. 82,24,090 from its associated concern M/s Rishmon Liquors Private Limited. The Assessing Officer examined the account of the said party in the books of the assessee and noted that there are debit and credit entries in the account and at the end of the previous year, the account was squared up. The Assessing Officer further noted that Shri Suraj Prakash Sadana held 6123 shares out of 7072 shares of the assessee company which in terms of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of M/s Rishmon Liquors Private Limited which in terms of percentage works out to 97.03 per cent. Thus, he is having substantial interest in the assessee company as well as in M/s Rishmon Liquors Private Limited. As per the revenue, section 2(22)(e ) of the Act is applicable and the Assessing Officer has correctly levied the penalty for the addition made under section 2(22)(e) of the Act. Now the question arises as to whether penalty was correctly levied by applying section 2(22)(e) of the Act. 7. For imposing penalty under section 271(1)(c) either there should be concealment of income or furnishing of inaccurate particulars of income. In the present appeal, the assessee company had neither concealed its income nor furnished the inaccurate particulars of income. Insofar as the assessee has disclosed all the particulars of transactions with the sister concern in the audited accounts as well as in the return of income, therefore, it is not a good case for imposing penalty under section 271(1)(c) of the Act. Since the quantum appeal is not pending before us, therefore, we are refraining ourselves to make any comment on the issue of quantum addition made by the lower authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in the hands of a person other than a shareholder. It was further observed that the provisions of section 2(22)(e) do not spell out as to whether the income has to be taxed in the hands of the shareholder or a concern (non-shareholder). The provisions are ambiguous, it was, therefore felt necessary to examine the intention behind enacting the provisions of section 2(22)(e ). The intention behind enacting provisions of section 2(22)(e) is that closely held companies (i.e., companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed it had to pay dividend distribution tax and the dividend income would become taxable income in the hands of the shareholders. Instead of distributing accumulated profits as dividend, such companies use to distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by enacting the deeming provisions, such payment by the company was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) also contemplate deemed dividend being taxed in the hands of a shareholder only. On the basis of the above observations, it was concluded by the Special Bench that for purpose of invoking section 2(22)(e) "such shareholder" in the concern to which loan is advanced must be both a registered shareholder as well as beneficial shareholder. The undisputed facts in the instant case are that the assessee company, M/s Sadana Brothers Sales Private Limited is not a registered shareholder of M/s. Rishmon liquors Private Limited who has given loan/advance to the assessee company. The Assessing Officer has levied penalty with reference to the addition made on account of loans/advances received by the assessee company from Rishmon liquors Private Limited, by bringing such loans and advances under the purview of section 2(22)(e ). While levying the penalty, the deeming provisions can be applied to a limited extent and here we are concerned with the imposition of penalty under section 271(1)(c), which is not sustainable in view of the decision of the Special Bench as narrated above insofar as the assessee company is not a registered shareholder of Rishmon Liquors Private Limited who has give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature." Hon'ble Punjab & Haryana High Court in the case of CIT v. Sidhartha Enterprises [2010] 322 ITR 80 while countering the department's contention that even if claim for set off of capital loss against profit of business was by the negligence or by mistake, the fact remains that the particulars of income furnished were not correct and wilful concealment not being an essential requirement for levy of penalty under section 271(1)(c) of the IT Act as held by the Hon'ble Supreme Court in the case of Dharamendra Textile ..... X X X X Extracts X X X X X X X X Extracts X X X X
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