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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
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 dated 01.12.2016 passed u/s. 271(1)(c) for assessment year 2007-08.
Smt. Chandra Ramesh, the assessee, received Rs. One crore, from M/s.
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 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.
The AR submitted that the assessee, an individual, deriving income 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 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 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.
The assessee was under the bonafide belief that this was a business 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 Late Dr. Shamsheer, Director of M/s. Medimark Consultants (India) Pvt Ltd., in 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).
We heard the rival submissions and gone through the relevant material.
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.
In the result, the assessee’s appeal is allowed.
Order pronounced on Monday, the 23rd day of April, 2018 at Chennai.