TAHER AFSAR ALI,MUMBAI vs. ITO 24(1)(2), MUMBAI

The only issue raised by the assessee in the grounds of appeal is against the confirmation of penalty of Rs.2,09,100/- by the ld.CIT(A) as imposed by the AO u/s 271(1)(c ) of the Act on the deemed income.

The facts of the case are that the assessee filed return of income on 29.3.2007 declaring a total income at NIL. The returned was processed under section 143(1) of the Act accepting the returned income. Thereafter the case was re-opened u/s 147 read with section 148 of the Act and accordingly a notice u/s 148 dated 9.2.2009 was issued to the assessee and served upon him. Thereafter, a statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the AO found that the assessee was holding substantial interest in M/s ZAN Engg (India) Pvt Ltd. and also raised unsecured loan from the said company which were outstanding as on 31.3.2006 to the tune of Rs.21,57,903/- out of which a sum of Rs.8,50,000/- was received by the assessee during the year Rs.2,50,000/- on 14.12.2005 and Rs.6,00,000 on 2.3.2006. The AO after issuing show cause notice to the assessee and after considering the reply of the assessee came to the conclusion that Rs.8,50,000/- was deemed dividend u/s 2(22)(e) of the Act and finally framed the assessment u/s 143(3) r.w.s.147 of the Act vide order dated 30.10.2009 making the addition on account of deemed dividend u/s 2(22)(e) of the Act of Rs.8,50,000/-.

The ld.CIT(A) also confirmed the addition made by the AO vide order No.CIT(A)-34/IT 195/2009-10 dated 9.11.2010 and by dismissing the appeal

The AO finally after considering the submissions, rejected the contentions of the assessee and came to the conclusion that the assessee has failed to discharge the burden of proving the concealment of income and furnishing inaccurate particulars of income within the meaning of Explanation (1) to section 271(1)( c ) of the Act and finally levied the minimum penalty at the rate of 100 % of the tax sought to be evaded by imposing a penalty of Rs.2,09,100/- u/s 271(1)( c) of the Act. Aggrieved by the order of AO, the assessee preferred an appeal before the first appellate authority (FAA) who also confirmed the action of the AO by observing and holding as under :

The ld. Counsel of the assessee submitted before us that the burden cast upon the assessee by Explanation (1) to section 271(1)(c) has been fully discharged by the assessee by submitting that the assessee has not concealed any particulars of income in respect of Rs.8,50,000/- or furnished any inaccurate particulars of income. The ld. Counsel submitted that the assessee has fully disclosed the fact of having borrowed the money from the said concern in the balance sheet and thus, there was no question of filing either inaccurate particulars of income or concealment of particulars of income. In view of this facts, the ld. Counsel prayed that the penalty imposed by the AO u/s 271(1)(c) and confirmed by the ld.CIT(A) without properly appreciating the facts of the assessee and in a mechanical manner and in the light of fact of the case to be deleted. Per contra, the ld. DR supported the orders of authorities below.

We have considered the rival contentions and perused the material placed before us including the case laws relied upon by the assessee. During the course of hearing it was brought to our notice by the ld.counsel that 7 7577/Mum/2013 during the year the assessee raised a total sum of Rs.8,50,000/- from of M/s ZAN Engg (India) Pvt Ltd. out of which Rs.8,15,000/- was repaid during the year. We further find that the assessee has fully disclosed full facts qua raising money and repayment thereof in the return of income filed with the department. We find that the impugned penalty was imposed by the AO for furnishing inaccurate particulars of income and also for concealing the particulars of income which was confirmed by the ld. CIT(A) without passing any speaking order and just confirmed the penalty mentioning that the predecessor CIT(A) vide order in appeal order No.CIT(A)-34/IT 195/2009-10 dated 9.11.2010 for the assessment year 2006-07 dismissed the quantum appeal of the assessee and hence penalty levied by the AO confirmed by the ld.CIT(A). In our view, the penalty is not an automatic consequence of confirmation of addition. In the case of Mahavir Irrigation Pvt Ltd vs CIT (2009) 314 ITR (AT) 150 (Del) it has been held

This would amply demonstrate that the assessee had not concealed the particulars of his income nor it is a case where the assessee deliberately furnished inaccurate particulars of such income. This would also demonstrate that two views were possible and the claim of the assessee was bona fide.

We may add at this stage that some of the observations of the Tribunal in the impugned order relating to interpretation of the clauses of the MOU may not be correct. This is more so when this Court also, while dismissing the quantum appeal of the assessee, interpreted these very clauses. Therefore, we may not entirely agree with the observations of the ITAT occurring in paras 19 to 22. However, still in view of the position explained by us in the foregoing paras, we are inclined to accept the conclusion of the Tribunal that the claim of the assessee about the amount in question being security deposit was bona fide as it was based on the possible interpretation of relevant clauses of the MOU. This is more so when the amount of Rs.3 crores in question paid to the assessee was not treated as income even by M/s. DMIL and this position was found to be correct by the Assessing Officer on inquiry made on M/s. DMIL. It may be that the claim of the assessee was not found to be acceptable in quantum proceedings on merits. However, as it was not a case of concealment, the provisions of Section 9 7577/Mum/2013 271(1)(c) attracting levy of penalty would not be applicable more so when all material facts relevant to the said claim were duly furnished by the assessee before the Assessing Officer.

We may usefully refer to the judgment of the Apex Court in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., [2010] 322 ITR 158 (SC). After taking note of various earlier pronouncements on the subject and reiterating that for imposition of penalty conditions stated inSection 271(1)(c) must exist. The Court explained the terms "concealment of income" and "furnishing inaccurate particulars" in the following manner:- ..... We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as: "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars."

As a result, the question is answered in the negative, that is in favour of the assessee and against the Revenue and this appeal is dismissed.‟ Therefore, we are of the considered view that the order of ld CIT(A) is wrong to that extent. In this case, the income has been assessed under the 10 7577/Mum/2013 deeming provisions of section 2(22)(e) which was confirmed by the ld. CIT(A) vide above referred order in the case of S V Kalyanam V/s ITO (2010) 327 ITR 477 (Mad) wherein it has been held: “ that addition made under a deeming provision like section 69, could not be extended to penalty provision. In the instant case, addition was made u/s 68 which is a deeming provision. Thus, deeming provision cannot be extended for levy of penalty.“ 8. In the case before us, the assessee has declared full facts qua the loan raised from a company in which he has substantial shareholding and the explanation offered by the assessee was bonafide and not false and therefore the penalty cannot be levied in such a case. The FAA has confirmed the action of AO just on the basis that quantum was confirmed by predecessor CIT(A), which is not correct and proper. In our view the addition made u/s 2(22)(e) under the deeming provisions of Act is made and confirmed by the ld. CIT(A), in that case the penalty is not attracted specially when the assessee has offered an explanation which is bonafide and has disclosed full facts in the return of income qua the said unsecured loans raised from the sister concern in which the assessee has substantial interest. In view of the above facts, we set aside the order of ld. CIT(A) and direct the AO to delete the addition.

In the result, the appeal of the assessee is allowed.