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TMI Blog2017 (8) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee filed SLP which was admitted by the Hon’ble Supreme Court [2012 (2) TMI 619 - SUPREME COURT] saying Pending appeal, there shall be stay as far as penalty or interest is concerned. In the present case, it is clear that the issue relating to the additions on the basis of which the impugned penalty was levied by the AO is highly debatable. In the present case also the issue relating to the additions on the basis of which the penalty u/s 271(1)(c) of the Act was levied by the Act was debatable. - Levy of penalty deleted - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(e) of the Act and treated the loan to the extent of ₹ 21,95,21,000/- as deemed dividend and added the same to the assessee's total income under the head "income from other sources". 5. Being aggrieved the assessee carried the matter to the ld. CIT(A) who vide order dated 11.09.2006 deleted the said addition by holding that the assessee firm was not a shareholder as per law and therefore, the loan received by it from M/s Jetair Pvt. Ltd. could not have been treated as deemed dividend within the meaning of Section 2(22)(e) of the act. Against the said order of the ld. CIT(A), the department filed an appeal before the ITAT wherein the order of the ld. CIT(A) in deleting the addition was confirmed vide order dated 31.03.2009 by holding that the assessee firm could not have been regarded as a registered shareholder. Against the order of the ITAT, the department filed an appeal before the Hon'ble High court wherein vide order dated 11.07.2011, the issue was decided in favour of the department by holding that a partnership firm was allowable to be treated as shareholder and it was not necessary that it has to be a registered shareholder. Consequent upon the order of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial question of law cannot attract penalty under section 271(1)(c) of the I. T. Act."" The reliance was placed on the following case laws: CIT Vs P.H.I. Seeds India Ltd. reported in 159 Taxman 9 (Del.) M/s Nayan Builders & Developers Pvt. Ltd. Vs ITO in ITA No. 2379/Mum/2009 ITO Vs Roborant Investments (P) Ltd. reported in 7 SOT 181 (Mum) 2006) 7. The assessee vide letter dated 16.02.2012 further submitted to the AO as under: "Hence, aggrieved with the Hon'ble Delhi High Court's order dated 11.7.2011, the assessee has filed an appeal before the Hon'ble Supreme Court and considering the fact that conflicting judgements have been passed by High Court on the issue of deemed dividend under Sec. 2(22)(e) of the I.T. Act, the Hon'ble Supreme Court has admitted that assessee's appeal alongwith the appeals of various other appellants filed on the issue of interpretation of the provisions of deemed dividend. Since a substantial question of law is involved in the assessee's appeal, the Hon'ble Supreme Court vide order dated 13.2.2012, has also granted stay on the penalty and interest till the pendency of the assessee's appeal before the Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 271(1)(c) of the Act, the onus to establish that explanation offered was bonafide and all the facts relating to the same and material to the computation of income have been disclosed was on the assessee and if he fails to discharge that burden, the presumption that he had concealed income or furnished inaccurate particulars thereof was available to be drawn. The AO was of the view that the presumption would not stand rebutted merely by furnishing any general or routine explanation by the assessee, the explanation should be based on cogent and relevant material. He also observed that in a case where there has been an omission, the department cannot ignore the material collected at the assessment stage and it is no longer necessary that the department must go further and establish that there was a conscious concealment of particulars of income or a deliberate failure to furnish inaccurate particulars. The reliance was placed on the following case laws: CIT Vs Anwar Ali 76 ITR 696 (SC) B.A. Balasubramanian & Bros. Co. Vs CIT 236 ITR 977 (SC) CIT Vs Indian Metals & Ferro Alloys Ltd. (1994) 117 CTR 378 (Ori.) Addl. CIT Vs Jeevan Lal Shah 205 ITR 244 (SC) CIT Vs Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial owner of shares "not being share entitled to a fixed rate of dividend whether with or without a right to participate in profits" holding not less than 10% of the voting power. It was stated that for the applicability of Section 2(22)(e) of the Act, the shareholder has to be both a registered shareholder and beneficial shareholder but the assessee was undoubtedly a beneficial holder of not less than 10% of the voting power, however, it was not a registered shareholder of M/s Jetair Pvt. Ltd. and thus, the provisions of Section 2(22)(e) of the Act were not applicable on the assessee firm. The reliance was placed on the following case laws: CIT Vs Martin Burn Ltd. 136 ITR 805 CIT Vs C.P. Sarathy Mudaliar 83 ITR 170 Rameshwarlal Sanwarmal Vs CIT 122 ITR 1 (SC) Harish Chand Golecha Vs CIT 132 ITR 30 (Raj.) ACIT Vs Bhaumik Colour Pvt. Ltd. 313 ITR 146 12. It was further submitted that the Hon'ble Delhi High Court vide order dated 11.07.2011 has held that the outcome of the appeals by the revenue depends on the following question of law: "(1) To attract the first limb of section 2(22)(e) of the Act, is it necessary that the person who has received the advance or loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment years 2003-04 to 2006-07 and by considering the applicability of Section 2(22)(e) of the Act in assessee's case involving substantial question of law wherein two legal opinions exist and that the conflicting judgments had already been passed on this issue by the same Bench of the Hon'ble Delhi High Court, the Hob'ble Supreme court vide order dated 13.02.2012. It was further submitted that the Hon'ble Supreme Court not only admitted the appeals of the assessee but also granted a stay on income tax demand as far as interest and penalty was concerned. Therefore, the penalty u/s 271(1)(c) of the Act was totally unwarranted. The reliance was placed on the following case laws: CIT Vs P.H.I. Seeds India Ltd. 301 ITR 13 (Del.) M/s Nayan Builders & Developers Pvt. Ltd. Vs ITO in ITA No. 2379/Mum/2009 ITO Vs Roborant Investments (P) Ltd. reported in 7 SOT 181 (Mum) (2006) CIT Vs Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (2010) (SC) Dilip N. Shroff Vs JCIT 291 ITR 519 (2007) (SC) DCIT Vs Integrated Master Securities (P.) Ltd. in ITA No. 2645/Del/2012 CIT Vs M/s Adonis Electronics Pvt. Ltd. (2013) TIOL-147-HC-MUM-IT 14. The submissions of the assessee in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to ₹ 28,52,41,516/- during the relevant assessment year from JAPL has also been specifically disclosed in Annexure N of the Tax Audit Report of the relevant assessment year (Copy of the Audited Financial Statements and Tax Audit Report for the relevant assessment year is attached as Annexure G). During the course of assessment proceedings, the then A.O. vide questionnaire dated 18.07.2005 directed the appellant to furnish shareholding pattern of the appellant and its partners in private limited companies and the appellant in due compliance to the then A.O.'s direction, furnished the relevant details vide submission dated 26.08.2005. The said facts have also admitted by the then A.O. in his assessment order dated 21.03.2006. The same is also reproduced below for your honour's ready reference (Page 2, Para 2 & 2.1):- "2.The audit report filed by the assessee alongwith its return of income showed that during the relevant year, the assessee had taken loans totaling to ₹ 28,52,41,516/- from M/s Jetair Pvt. Ltd. (PAN-AAACJ0121C), Jetair House, 13, Community Centre, Yusuf Sarai, New Delhi. The assessee, vide questionnaire dated 18.07.2005, was directed to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year the assessee had accepted loan amounting to ₹ 28,52,41,516/-from M/s Jetair Pvt. Ltd." Thereafter as per assessment order dated 21.03.2006, the then A.O. issued a notice u/s 133(6) of the I.T. Act on 30.11.2005 to the Registrar of Companies (ROC) for obtaining certain information and on 02.12.2005, the ROC provided a certified copy of the annual return of JAPL for the relevant assessment year. From the details furnished by the ROC in the form of copy of the Annual Return of JAPL, the then A.O. again came to the same conclusion that the appellant firm was the beneficial owner of share holding not less than 10% of voting power in JAPL. Moreover, it is nowhere alleged by the then A.O. in his entire assessment order that the details / documents provided by the appellant during the course of assessment proceedings were incorrect, inaccurate or false. In view of the above facts, the A.O. is absolutely wrong in stating that it was the then A.O. who detected that the appellant had procured a loan from JAPL since the said fact was already disclosed in the TAR of the relevant assessment year. Further, it was after furnishing of all the relevant details /documents by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every possible explanation has been provided and it has no where been proved that the explanation is false and every explanation has also been substantiated. Therefore, the A.O. is completely unjustified in levying penalty u/s 271(1)(c) based on Explanation 1 to section 271 of the I.T. Act. In view of the above, it is apparently clear that the appellant during the course of assessment proceeding, has neither concealed any particulars of income nor furnished inaccurate particulars of income and had provided all the documents / details I information called for by the then A.O. during the course of assessment proceedings. Therefore, penalty u/s 271(1)(c) of the I.T. Act cannot be levied in the appellant's case. c. In this regard, it is submitted that the appellant also agrees with the A.O.'s contention that assessment proceedings and the penalty proceedings are two separate and independent proceedings. Further, the appellant also agrees to the fact that presence of mens-rea is not required to be established to levy penalty u/s 271(1)(c) of the I.T. Act. In fact, the appellant has nowhere contented that penalty should not be levied since presence of mens-rea has not been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff vs. Jt. CIT & Anr. (supra) was upset. In Union of India vs. Dharamendra Textile Processors (cited supra), after quoting from s. 271 extensively and also considering s. 271(1)(c), the Court came to the conclusion that since s. 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of s. 271(1)(c) r/w Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under s. 276C of the Act. The basic reason why decision in Dilip N. Shroff vs. Jt. CIT & Anr. (cited supra) was overruled by : this Court in Union of India vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between s. 271(1)(c) and s. 276C of the Act was lost sight of in case of Dili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the language of section 2(22)(e) of the I.T. Act by enlarging its scope and held that for the purpose of section 2(22)(e) of the I.T. Act, partnership firm is to be treated as the shareholder even if it is not a registered shareholder. Thus, it is crystal clear that the said judgement of Hon'ble Gujarat High Court is in no way applicable to the case of appellant. e. In the case of Zoom Communications (P) Ltd., the Hon'ble Delhi High Court held that if the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such claim is found to be not bonafide, he would be liable to penalty :u/s 271(1)(c) of the I.T. Act. In this regard, it is submitted that firstly, the appellant has not made any claim which is apparently incorrect in law. Secondly, the contention of the appellant as regard to nonapplicability of provisions of section 2(22)(e) of the I.T. Act in the appellant's case is also not without any basis or explanation. Finally, all the explanations or contentions put forth by the appellant were not only bonafide but the same were supported by various judgements of the Hon'ble & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 'dividend'. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to 'shareholder'. ...The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction." Thus, the Hon'ble Delhi High Court held that shareholder u/s. 2(22)(e) meant both a "registered" as well as "beneficial" shareholder. It is appreciated that in its later judgment in the case of the appellant firm, Hon'ble Delhi High Court has diluted its earlier strict interpretation of Section 2(22)(e) made in the case of Ankitech Pvt. Ltd. (supra) and has enlightened us further by making an interpretation of Section 2(22)(e) in the light of legislative intent and thereby holding that the appellant firm, being "beneficial owner" of shares, was also hit by the deeming provision of section 2(22)(e) of the Act. It is also noteworthy, that Hon'ble Supreme Court of India, acknowledging that a question of interpretation of law was involved in this particular case, has not only admitted the SLP filed by the appellant firm, but, has also in its wisdom, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, these two words are the two sides of the same coin and relief should not be allowed u/s 271(1)(c) of the Act, even if these words had not been used judiciously by the AO while initiating proceedings or while passing order u/s 271(1)(c) of the Act. It was further submitted that the ld. CIT(A) was not justified in deleting the penalty on the basis that it had been imposed on legal grounds under deeming provision. It was stated that even if the Section 68 of the Act is also a deeming provision, the penalty u/s 271(1)(c) of the Act in view of infringement committed by the assessee u/s 68 of the Act is leviable. The reliance was placed on the following case laws: Chuharmal Vs CIT 172 ITR 250 (SC) CIT Vs Aboo Mohmed 160 CTR 128 (Kar.) Union of India Vs Dharmendra Textile Processors 306 ITR 277 (SC) Guljag Industries Ltd. Vs CTO 293 ITR 584 (SC) 18. It was further submitted that as on date the Hon'ble High Court has held that the assessee is hit by the provisions of Section 2(22)(e) of the Act and the order dated 11.07.2011 of the ITAT had been reversed. Therefore, whether an issue is debatable or not, hardly matters as far as imposition of penalty u/s 271(1)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars of income. Therefore, the penalty u/s 271(1)(c) of the Act was liable to be quashed. The reliance was placed on the following case laws: CIT Vs M/s SSAS Emerald Meadows in ITA No. 380 of 2015 (Kar. HC) CIT Vs M/s SSAS Emerald Meadows, SLP (Civil) 23272 of 2016 CIT & Anr. Vs Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Kar. HC) Ideal Unemployed Engineers Co-operative Society Ltd. Vs DCIT (2016) 47 CCH 219 (Kol. Trib.) 20. It was further submitted that the aforesaid error in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act was not rectifiable and it vitiated the entire initiation itself and that even the provisions of Sections 292/292BB of the Act cannot cure the defect in the penalty notice. The reliance was placed on the decisions of the ITAT Mumbai Benches in the following cases: ACIT Vs Dipesh M Panjwani & Anr. in ITA Nos. 6330, 5878, 6328, 6188/Mum/2012 order dated 18.03.2016 Dr. Sarita Milind Davare & Anr. Vs ACIT in ITA No. 2187/Mum/2014 order dated 21.12.2016 21. It was stated that the additions made by the AO were deleted by the ld. CIT(A) whose order was upheld by the ITAT. However, on appeal of the department, the Hon'ble Delhi High court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ₹ 28,52,41,516/- as loan and advances from M/s Jetair Pvt. Ltd. The said addition was challenged by the assessee before the ld. CIT(A) who vide order dated 11.09.2006 deleted the addition. The said order of the ld. CIT(A) was challenged by the department before the ITAT wherein the view taken by the ld. CIT(A) was affirmed by passing the order dated 31.03.2009. Against the said order, the department preferred an appeal to the Hon'ble Jurisdictional High Court wherein vide order dated 11.07.2011, the order of the ITAT was reversed and the addition made by the AO was restored. On that basis, the AO initiated the penalty proceedings u/s 271(1)(c) of the Act. It is well settled that the penalty u/s 271(1)(c) of the Act may be levied, if it is found that the assessee concealed the income or furnished inaccurate particulars of such income. In other words, the provisions envisaged by the legislature u/s 271(1)(c) of the Act has two limbs, both the limbs are independent to each other and any one of the ingredients may be the cause for imposition of the penalty u/s 271(1)(c) of the Act, in one limb, the concealment may exist whereas in another there may be furnishing of inaccurate p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions for the levy, imposition and collection of penalty. The general principles relating to penalty or concealment of income are: (a) penalty under section 271(1)(c) is a civil liability; (b) mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities; (c) willful concealment is not an essential ingredient for attracting civil liability; (d) existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings under section 271; (e) the existence of such conditions should be discernible from the assessment order or order of the appellate authority or revisional authority; (f) even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and (B) should be discernible from the order which would by legal fiction constitute concealment because of deeming provision." It has further been held as under: "taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law." 27. In the present case also, as we have already pointed out in the former part of this o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.02.2012 (copy of which is placed at page nos. 219 & 220 of the assessee's paper book), the special leave was granted and penalty or interest was stayed. The said fact clearly shows that the issue was highly debatable since both CIT(A) as well as the ITAT have set aside the additions made by the AO but the Hon'ble Jurisdictional High Court not only admitted the appeal of the department but also framed the questions of law on the issues which were decided against the assessee and the addition made was confirmed. Thereafter, the Hon'ble Jurisdictional High Court admitted the SLP against the order of the Hon'ble Supreme Court which shows that the grounds on which additions had been made are debatable wherein two different views are possible. 31. On a similar issue the Hon'ble Jurisdictional High Court in the case of CIT Vs Liquid Investment & Trading Co. (supra) held as under: "Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment where under d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on Assessee's Appeal in Quantum proceedings and the substantial questions of law which have been framed therein. We have also perused that order dated 27th September 2010 admitting Income Tax Appeal No. 2368 of 2009. In our view, there was no case made out for imposition of penalty and the same was rightly set aside. The Appeal raises no substantial question of law, it is dismissed. No costs." 34. In the present case also as we have already pointed out that the additions on the basis of which the penalty was levied by the AO u/s 271(1)(c) of the Act was deleted by the ld. CIT(A) and the ITAT upheld the order of the ld. CIT(A). Thereafter, the department preferred an appeal before the Hon'ble Delhi High court wherein the appeal was admitted and a substantial question of law was framed which was decided against the assessee and in favour of the department. Against the said order of the Hon'ble Jurisdictional High Court, the assessee filed SLP which was admitted by the Hon'ble Supreme Court vide order dated 13.02.2012, copy of which is placed at page nos. 219 & 220 of th ..... 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