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TMI Blog2017 (11) TMI 1820X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for the reason that deeming fiction provided u/s 2(22)(e) for making addition towards loans and advances from a closely held company in the hands of the directors cannot be considered as furnishing of inaccurate particulars of income; despite the assessee has disclosed borrowings from the company in its balance-sheet. AO has made addition for the first time in the financial year under consideration - explanation offered by the assessee that no penalty can be levied towards addition made by invoking deeming provisions for levying penalty appears to be bonafide. - Decided in favour of assessee. - I.T.A No.982/Mum/2015 - - - Dated:- 22-11-2017 - Shri Saktijit Dey (JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER) For the Appellant : None For the Respondent : Shri Pujat Mittal ORDER Per G Manjunatha, AM : This appeal filed by the assessee is directed against the order of the CIT(A)-23, Mumbai dated 14-11-2014 and it pertains to AY 2010-11. The assessee has raised the following grounds of appeal:- a. There is no -Finding in the Assessment Order / Penalty order that any details supplied by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Factory ( Karnataka ) 359 ITR 565 2. The brief facts of the case are that the assessee had filed his return of income for the assessment year 2010-11 on 01-10-2010 declaring total income at ₹ 1,02,38,142. Subsequently the case has been reopened u/s 147 on the basis of information gathered during the course of scrutiny proceedings for the assessment year 2008-09 that the assessee had taken loan from a company in which he was a beneficial shareholder with a share holding of more than 10% and such loan and advance from the company is taxable as deemed dividend u/s 2(22)(e) of the Act. Thereafter the assessment was completed u/s 143(3) r.w.s. 147 making addition for ₹ 78,08,433 u/s 2(22)(e) of the Act, 1961. The AO initiated penalty proceedings u/s 271(1)(c) of the Act, for furnishing inaccurate particulars of income. During the course of penalty proceedings, the assessee was called upon to explain as to why penalty shall not be levied in respect of deemed dividend u/s 2(22)(e) for furnishing inaccurate particulars of income. In response to show cause notice, the assessee submitted that the assessment for the assessment year in question was reopened on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of CIT(A) is extracted below:- 2.9 I have considered the above contention of the assessee. However, the same cannot be accepted for the reason that the assessee has not furnished either before the Assessing Officer or before me any material to show the basis for holding the bonafide belief that no addition u/s 2(22)(e) was required to be made in its case. It is not the case of the assessee that the income remained to be disclosed due to ignorance of law or due to the fact that there were different opinions on this issue. The basis for holding the bonafide belief that the provisions relating to deemed income was not applicable to its case has not been explained by the assessee. Hence, the assessee has not substantiated its contention that the income was not offered to tax because of any bonafide belief./ The Assessing Officer, in the penalty order, has clearly stated that the assessee has not been able to substantiate the explanation offered by him and has not shown that the explanation offered by him is bonafide and has also not shown that all the facts relating to the same and material to the computation of his total income have been disclosed by him and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed on the basis of self assessment u/s. 143(1) and even if their case is selected for scrutiny, they can get away merely by payment the tax, which in any case, was payable by them. The consequence would be that the pet-sons who made claims of this nature, actuated by a malafide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their, cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have. 2.11 In view of the aforesaid reasons, I am of the opinion that the case of the assessee is strictly covered by the provisions of section 271(1)(c). The action of the Assessing Officer of levying the penalty under the said section being as per law is upheld. The ground of appeal filed by the assessee is dismissed. Aggrieved by the order of CIT(A), assessee is in appeal before us. 4. None appeared for the assessee. We have heard the Ld.DR, perused the material available on record and gone through the orders of authorities below. The AO levied penalty u/s 271(1)(c) towards addition made on account of deemed dividend u/s 2(22)(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of income; despite the assessee has disclosed borrowings from the company in its balance-sheet. We further observe that the AO has made addition for the first time in the financial year under consideration. Therefore, we are of the considered view that the explanation offered by the assessee that no penalty can be levied towards addition made by invoking deeming provisions for levying penalty appears to be bonafide. We further observe that whether the provisions of section 2(22)(e) is applicable or not to a particular loan and advance from a company in the hands of the director is a debatable issue and there is a possibility of two views. The AO has taken a view to bring it to tax loans and advances under the provisions of section 2(22)(e) of the Income-tax Act, 1961. Such deeming fiction provided u/s 2(22)(e) cannot be considered as furnishing of inaccurate particulars of income. We further observe that the ITAT, Indore Bench in the case of Sadhna Bros vs ACIT (2011) 46 SOT 1 (Ind)(URO) held that penalty u/s 271(1)(c) in respect of loans received by the assessee from a company in which he was holding beneficial shareholding which was brought to tax by invoking deeming ..... X X X X Extracts X X X X X X X X Extracts X X X X
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