CHANDRA RAMESH,CHENNAI vs. ACIT(OSD), CHENNAI

आदेश /O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The assessee filed this appeal against the order of Commissioner

of Income Tax (Appeals)-2, Chennai in ITA No. 105/CIT(A)-2/15-16 dated

01.12.2016 passed u/s. 271(1)(c) for assessment year 2007-08.

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CR Finance and Securities Pvt Ltd., a company of which the assessee is

shareholder having substantial interest, as security deposit for the building

belonging to the assessee which has been let out to the company for its

business. In the assessment made for assessment year 2007-08 u/s. 143(3)

r.w. 147, the Assessing Officer added Rs. 46,81,475/- towards deemed

dividend which was equivalent to the accumulated profit of the company as

on 31.03.2006. Against the assessment order the assessee filed an appeal

before the CIT(A), who dismissed the appeal. The assessee’s appeal before

the Hon’ble ITAT was dismissed, in limine, for non-prosecution as the

assessee did not appear before the ITAT for hearing. Thereafter, the

Assessing Officer initiated penalty proceedings u/s. 271(1)(c), heard the

assessee’s contentions and after considering them the AO was satisfied to

levy penalty u/s. 271(1)(c). He found that the minimum and the maximum

penalty imposable worked out at Rs. 18,20,012/- and Rs. 54,60,036/-,

respectively. Considering the facts and circumstances of the case he levied

the penalty at Rs. 20 lakhs u/s. 271(1)(c). Aggrieved against the order, the

assessee filed an appeal before the CIT(A). The CIT(A) confirmed the levy

and dismissed the appeal. Against the order of the CIT(A), the assessee filed

this appeal pleading that the Ld. CIT(A) has erred in concluding that the

assessee has concealed income/furnished inaccurate particulars of income,

when the assessee was under bonafide belief that the renting out of her

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property to CR Finance and Securities was a bonafied business transaction

and hence did not attract the provisions of section 271(1)(c). Furhter, the

CIT(A) has not considered the fact that the transaction was covered by the

ITAT decision in C.K Ranganathan vs ITO, and that where two views are

possible, there cannot be a levy of penalty u/s. 271(1)(c) etc.

from business of share broking, trading in shares, professional income, leased

her property at T.Nagar to her company CR Finance and Securities Pvt Ltd.,

carrying on business of stock broking. The assessee had received one crore

as security deposit for the premises besides a rent of Rs. 5,000 per month.

Invoking the provisions of section 2(22)(e), the AO held that Rs. 46,81,470/-

was taxable. Before the CIT(A), the assessee relied on the Madras ITAT

decision in the case of C K Raganathan vs ITO in ITA No. 2041/Mds/2011 and

Harshad Doshi vs ITO was not accepted by the CIT(A). The assessee could

not pursue the appeal in the ITAT on account of her ill-health and hence the

ITAT dismissed the appeal for want of appearance. In this case, the assessee

in fact has not hidden any income or any particulars of income. The amount

received as security deposit was on the higher side as a huge antenna was

installed on top of the premises for receiving signals from the NSE, as all the

transactions are electronically done. This might cause damage to the building

structure and hence the higher deposit was taken. Both the security deposit

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and the rent received have been duly reflected in the return. In fact, based

upon this disclosure only, the Assessing Officer re-opened the assessment u/s.

transaction and there was no intention to defraud the Revenue. The penalty

proceedings are separate proceedings, the AO could not mechanically

concluded that merely because there are additions to the returned income,

the assessee concealed the particulars of income. Relying on the ITAT

decision in the case of C K Raganathan vs ITO, wherein, the Company

advanced money to its director C K Raganathan for construction of a guest

house which was used by the company for rental basis, this was held to be a

business transaction. The Madras High Court in the case of Caplin Point

Laboratory Ltd., 293 ITR 524 (Mad), wherein the assessee had claimed that

the interest income eligible for exemption u/s. 80HHC and 80I, which was

disallowed and penalty was levied for concealment of this issue. Madras High

Court held that there is no case of concealment as the assessee was under

bonafide belief that he was entitled to the exemption and hence claimed the

same. In spite of pointing out the facts and the ratios, the Ld. CIT(A)

unfortunately confirmed the appeal. Further, the AR relied on the decisions of

the CIT vs Fortune Hotels and Estates Pvt Ltd, 232 Taxman 481 (Bom) and V

Kalyanam vs ITO 327 ITR 477 (mad) for the proposition relied that the mere

rejection of assessee’s explanation would not be a ground for levying penalty.

Relying on this tribunal decision in the case of ITO, Company Ward IV(1) vs

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Late Dr. Shamsheer, Director of M/s. Medimark Consultants (India) Pvt Ltd., in

ITA No. 564/Mds/2011 for assessment year 2005-06 dated 31.01.2013, the

AR submitted that this tribunal deleted penalty levied u/s. 271(1)(c) on the

deemed dividend relying on the Gujarat High Court decisions in 221 ITR 66,

257 ITR 355 (Guj) and hence, the AR submitted that neither there is

concealment nor the assessee has furnished inaccurate particulars and hence,

the penalty levied may be deleted. Per contra, the DR supported the orders

of the lower authorities and relied on the decision of the Bombay High Court

in the case of CIT vs Alkes K Patel 325 ITR 118 (Bom) and CIT vs P.K.

Abubucker 259 ITR 507 (Mad) and submitted that impugned transaction

clearly falls within the scope of section 2(22)(e).

The fact remains that the assessee has disclosed the receipt of rent and the

security deposit from the company in the return, on the basis of which the

Assessing Officer has re-opened the assessment and proceeded to determine

the deemed dividend. The assessee has also disclosed bonafide belief that

the impugned transactions had happened in the ordinary course of business,

relying on the ITAT decision. In such facts and circumstances and on the

ratios on which this tribunal deleted the addition in the case of ITA

564/Mds/2011, supra, the penalty levied by the AO and confirmed by the

CIT(A) is not justified and hence deleted.

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Order pronounced on Monday, the 23rd day of April, 2018 at Chennai.

Sd/- Sd/- (एसजयरामन) (धु�वु आर.एलरे"डी) (S. JAYARAMAN) (DUVVURU RL REDDY) लेखासद%य/Accountant Member $या�यकसद%य/JUDICIAL MEMBER

चे�नई/Chennai, 1दनांक/Dated: 23rd April, 2018 JPV आदेशक(+�त3ल4पअ5े4षत/Copy to: 1. अपीलाथ'/Appellant 2. +,यथ'/Respondent 3. आयकरआयु6त (अपील)/CIT(A) 4. आयकरआयु6त/CIT 5. 4वभागीय+�त�न�ध/DR 6. गाड9फाईल/GF