THE DCIT, CIRCLE-2(1)(2), AHMEDABAD vs. SHRI KISHORECHAND KAKARAM BANSAL, AHMEDABAD

Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-2, Ahmedabad dated 24.07.2018 passed for the Asstt.Year 2005-06 under section 271(1)(c) of the Income Tax Act, 1961 by which the ld.CIT(A) has deleted penalty imposed by the Assessing Officer of Rs.52,32,351/-

Brief facts necessary for the adjudication this issue is that the assessee is an individual and earning income from salary and capital gain. Assessee filed return of income on 29.7.2005 declaring income of Rs.58,57,960/-. The return processed under section 143(1) was selected for scrutiny assessment by issuance of notice under section 143(2) of the Act. While passing order under section 143(3) of the Act, the AO noticed that an amount of Rs.79,29,156/- was shown as debit balance in the capital account of the assessee as appearing in the books of accounts of one Mahavir Rolling Mills Ltd., in which the assessee is a director having 20% of share. According to the AO, this company was a company, in which public are not substantially interested as per the meaning of section 2(18) of the Income Tax Act. Since this amount represented loans and advances received by the assessee from the said company, the ld.AO made an addition of Rs.79,29,156/- on account of deemed dividend under section 2(22)(e) of the Act. This addition was challenged before the ld.first appellate authority without success. Assessee went in appeal before the ITAT in and the Tribunal vide order dated 8.5.2013 has set aside order of the CIT(A) and restored the matter to his file for fresh consideration. In the set aside proceedings before the ld.CIT(A), the issue was decided in favour of the assessee, and the addition was deleted.

Dissatisfied with the action of the ld.CIT(A) in the second round of appellate proceedings, the Revenue went in appeal before the Tribunal. However, dismissed the appeal of the Revenue in limine on the ground that tax effect by virtue of addition made by the Revenue was less than Rs.50 lakhs, and therefore, by virtue of CBDT Circular dated 8th August, 2019 wherein it is stipulated that the department would not to file appeal before the Tribunal where tax effect is below Rs.50 lakhs. This circular is applicable to the pending cases also. In the meanwhile, department levied a penalty of Rs.52,32,351/- under section 271(1)(c) of the Act on the addition of Rs.79,29,156/-. This penalty was also cancelled by the ld.CIT(A) vide order dated 24.7.2018 by holding that since his predecessor has deleted addition of Rs.79,29,156/- made by the AO under section 2(22)(e) of the Act, there is no basis for the AO to impose the impugned order. He accordingly, deleted the impugned penalty. The Revenue is now challenging deletion of the impugned penalty before the Tribunal.

Before us, the ld.DR supported the order of the AO, whereas the ld.counsel for the assessee placed on record copy of the order of the Tribunal dated 14.8.2019, vide which, the Tribunal has, in a special drive, in pursuance of CBDT circular dated 8.8.2019 disposed of a large number cases, including that of the assessee in the present case, by holding that all these appeals are hit by the above CBDT circular, and therefore not maintainable.

On due consideration of the above facts, it emerges out from the record that quantum addition of Rs.79,29,156/- added by the AO with aid of section 2(22)(e) of the Act on account of deemed dividend was deleted by the ld.CIT(A) in the second round of litigation. Against this order of the ld.CIT(A), the appeal filed by the Revenue was dismissed by the ITAT on the ground that tax effect involved in this appeal was less than Rs.50 lakhs. Thus the addition for which the assessee is being visited with penalty stands deleted by the ld.CIT(A) and confirmed by the ITAT on the ground that appeal is not maintainable. But one fact is clear that the addition stands deleted by the ld.CIT(A).

On due consideration of the above facts and circumstances, we find that sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is depended upon the addition made to the income of the assessee. Since in the present case, basis for visiting the assessee with penalty has been extinguished by deleting addition by the ld.CIT(A) vide order dated 24.7.2018, and the Tribunal has dismissed the appeal of Revenue vide order dated 14.8.2019 the impugned penalty has no leg to stand. In other words, there is no room for the Revenue to impose penalty under section 271(1)(c) in this case. The ld.DR has not disputed the factual position of the case. Therefore, we uphold order of the ld.CIT(A) and reject Revenue’s appeal.

In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 15th February, 2021 at Ahmedabad.