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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ NEW DELHI
Before: SHRI J. S. REDDY & SHRI C. M. GARG
PER CHANDRAMOHAN GARG, JUDICIAL MEMBER
This appeal by the assessee has been preferred against the order of the CIT(A)-XXVI, New Delhi dated 3.10.2013 in Appeal No. 17/2012-13 for AY 2007-08. However, the assessee has raised as many as six grounds in this appeal but except ground no. 1, other grounds are argumentative and supportive to the main ground which reads as under:-
I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in levying penalty of Rs. 13,50,000/- u/s 271(1 )(c) and that too without assuming jurisdiction as per law and without appreciating the facts and circumstances of the case”
Brief facts as noted by the CIT(A) read as under:-
“2. The brief facts of the case relevant for deciding this appeal is that the appellant's assessment for the relevant AY was completed u/s 143(3) on income of Rs. 54,42,550/- as against the returned income of Rs. 9,42,550/-. The appellant, as one of the partners, derives income from the partnership firm M/s Chopra Properties. In the Return of Income (ROI) of the Levant AY, Capital Gains ontransfer of shares, dividend and interest income have also been shown. During the assessment proceedings, the AO came to know that the appellant was having substantial interest In M/s Beacon Logicwares Pvt. Ltd. (BLPL for short) and M/s SKVR Software Solutions Pvt. Ltd. (SKVR for short). The AO, on perusal of the Balance Sheets of these two companies; M/s BLPL and M/s SKVR, found that M/s BLPL has given loan and advance of Rs. 45,00,000/- to M/s SKVR, therefore, she issued a so-cause notice to the appellant that why not the sum of Rs. 45,00,000/- should be charged to tax u/s 2(22)(e) in the hands of the appellant. In response to the so- cause notice, the appellant tried to explain that the loan and advance of Rs.000/- given by M/s BLPL to M/s SKVR was actually share application money and therefore, the provisions of section 2(22)(e) are not attracted. However, the explanation of the appellant was found incorrect after in-depth investigation as demonstrated and mentioned in the assessment order. The AO therefore, placing reliance on the decisions of the Hon'ble Supreme Court in the cases of Durga Prasad more; 82 ITR 540 and Sumati Dayal; 214 ITR 801, taxed the sum of Rs. 000/- u/s 2(22)(e) in the hands of the appellant. The penalty proceedings u/s 271(l)(c) for concealment of income and furnishing inaccurate particulars of income initiated in respect of the sum of Rs. 45,00,000/- charged to tax u/s 2(22)(e) by the AO were concluded vide impugned order”
I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 3. Finally, the Assessing Officer passed penalty order u/s 271(1)(c) of the Income Tax Act, 1961 (for short the Act) on 30.3.12 and imposed penalty of Rs.13,50,000 by holding that he is satisfied that the assessee has concealed the income and furnished inaccurate particulars of income and it is a fit case for levy of penalty u/s 271(1)(c) of the Act r/w Explanation 1. The aggrieved assessee preferred an appeal before the CIT(A) which was also dismissed by passing the impugned order. Now, the empty handed assessee is before the Tribunal in the second appeal with the main grounds as reproduced hereinabove. Learned counsel of the assessee submitted that the assessee filed return on 29.10.07 and the Assessing Officer made addition of Rs. 45 lakh u/s 2(22)(e) of the Act by following the deeming provisions of the Act. Learned counsel of the assessee further submitted that as per dicta laid down by Hon'ble Supreme Court in the case of Brij Mohan vs CIT 120 ITR 01(S.C.), if there is any change in law operating at the time of assessment proceedings, then the law applicable and operating on the date when return was filed has to be considered while dealing with the issue of imposition of penalty u/s 271(1)(c) of the Act. Learned counsel of the assessee further submitted that in view of decision of ITAT Mumbai in the case of West Coast Industries vs ACIT in for assessment year 2001-02 dated 7.4.2009 wherein it was held that where the assessee bonafidely believes that a sum is not chargeable to tax and subsequent orders of the appellate authority show that such a stand was a justifiable one, then it cannot be deemed as a case 3 I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 of concealment or furnishing of inaccurate particulars of income just because the assessee could not offer explanation referring to the case laws in the exact manner and it would not make any significant difference in the state of law as it existed at the time of filing the return.
The second proposition placed by the learned counsel of the assessee is that for attracting provisions of section 2(22)(e) of the Act, there has to be a payment of loans or advance and that too out of accumulated profits. Ld. Counsel further pointed out that in the given case, the amount was paid by M/s Beacon Logicwares Pvt. Ltd. to M/s SRVR Software Solutions Pvt. Ltd. and assessee was nowhere involved in the said transaction, therefore, it would be far stretched to expect the assessee to know while filing return of her income on 29.10.2007 that some advances or loans have been given by M/s Beacon Logic waves Pvt. Ltd. to SRVR Software Solutions Pvt. Ltd. and M/s Beacon Logicwares Pvt. Ltd. has accumulated profits in order to attract said deeming provision which may treat the amount of loan as deemed dividend in the hands of assessee u/s 2(22)(e) of the Act and consequently making the assessee liable to tax on account of deemed dividend. Learned counsel of the assessee pointed out that merely because addition has been confirmed, levy of penalty is unjustified and bad in law. Reliance has been placed on the decision of ITAT Mumbai in the case of Sunilchandra Vohra vs ACIT reported in 127 TTJ 100(Mumbai).
I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 5. The third and last submission of the assessee is that deeming dividend is a fiction created by law and the same is not acceptable to levy penalty so as to raise a presumption about concealment of income and to support this proposition, reliance has been placed on the judgment of Hon’ble Gujarat High Court in the case of CIT vs Baroda Tinworks 221 ITR 661 (Guj).
Ld. DR supported the penalty order as well as order of the first appellate authority and submitted that a few cases are selected for scrutiny and where the claim made in the return appears to be ex facie bogus, then it would be treated as a case of concealment or furnishing of inaccurate particulars and penalty proceedings would be justified.
On careful consideration of above submissions of both the sides, from the penalty order, we note that the Assessing Officer levied impugned penalty on the assessee with following observations and conclusion:-
“The amounts of Rs.44,00,000/- during F. Y. 2005-06 and Rs.45,00,000/- during F. Y. 2006-07 have been extended by M/s Beacon Logic Waves to M/s SKVR as “unsecured loans” which has been deliberately disguised as “share application money” so as to avoid the application of Section 2(22)(e). The garb of‘share application money’ is merely a colorable device to defraud the Revenue. The blank columns against the heading “share application money (pending allotment) in the balance sheet of M/s SKVR and the appearance of the said amount under the category of “unsecured loans payable” is ample indicator of intention of parties vis-a-vis the amount extended and its true nature . it is equally not worthy that while the authorize share capital is only Rs.l lac which is fully subscribed, where is the 5 I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 possibility of any other entity being allotted 8,90,000 shares a fact which was fully in the knowledge of Suit. Rita Chopra in her dual capacity as director of both companies.” In view of the above undersigned is satisfied that the assessee has concealed the income and furnished inaccurate particulars of income and it is fit case for levy of penalty u/s 271(1)(c) read with explanation 1 to section 271(1).”
From above observations of the Assessing Officer in the penalty order, it is clear that the Assessing Officer has alleged against the assessee that the assessee has concealed the income and has furnished inaccurate particulars of income, therefore, the penalty is leviable on the assessee u/s 271(1)(c) of the Act, however, in the beginning of this operative part of the penalty order, the Assessing Officer has noted that the impugned amount has been extended by M/s Beacon Logicwares Pvt. Ltd. to SRVR Software Solutions Pvt. Ltd. as unsecured loan and alleged transaction was held between two companies wherein the assessee was a director of both the companies. Before the Assessing Officer, the assessee submitted vide submission dated 22.12.09 wherein she explained that the share application money deposited by one company is neither a loan nor advance and more so, since both the companies have their individual identities, PANs, registration number issued by the Ministry of Corporate Affairs, Govt. Of India. A corporate entity is an artificial person created by law and is capable of doing everything in business with the only difference it is represented by the directors or other human beings. It was also accepted that once an amount is held to be neither loan nor I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 advance, it cannot be held to be within the purview of section 2(22)(e) of the Act.
Learned counsel of the assessee further pointed out that the assessee’s submissions before the CIT(A) that share application money forms were duly filled and signed along with Annexure B and as per extract of the minutes of the investee company i.e. M/s Beacon Logicwares Pvt. Ltd. for investment in share application money is further clear from Annexure C. Before the CIT(A) it was also accepted that the entire impugned alleged transaction of share application money was well explained with evidence during assessment proceedings, then how any question of concealment or furnishing of inaccurate particulars of income arises, especially when the assessee was not recipient of money from M/s Beacon Logicwares Pvt. Ltd. and there was no receipt or payment of the money by the assessee, there cannot be furnishing of inaccurate particulars of income or concealment of income. Undisputedly, the addition was made u/s 2(22)(e) of the Act which is a deeming provision and on this basis, penalty cannot be levied u/s 271(1)(c) of the Act unless and until the facts and circumstances of the case reveal conscious and malafide act of the assessee towards furnishing of inaccurate particulars of income or concealment of income .
I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 10. At this juncture, we respectfully take cognizance of the decision of ITAT Mumbai in the case of West Coast Industries vs ACIT (supra) wherein in the similar set of acts and circumstances, it was held thus:-
Thus, there is no doubt that there could have been two opinions regarding taxability of deemed dividend vis-a-vis a firm i.e. whether to be done in the hands of the firm or to be done in the hands of the partners of the firm. In this case, there is no doubt that the shares in M/s. Aagam Design Broderies Pvt. Ltd. were held by the partners and not bythe firm. In fact, the assessment order itself, at para 15 states that it was partner of the firm Smt Saumilya Shah who was having a shareholding in M/s. Aagam Design Broderies Pvt. Ltd. Even if we hold assessee firm to be a beneficial holder it is not admittedly the registered owner of the shares. Hence assessee had reasonable justification for not showing any deemed dividend in it's hands. We cannot say that there was any concealment of any particulars of it's income. Neither can it be said that assessee had furnished any inaccurate particulars of income. As regards contention of the Learned DR that assessee had not offered any explanation before the Ld. CIT(A) or the AO we find from the penalty order that assessee had vide it's letter dt. 03.04.2004 given explanations vis-a-vis the deemed dividend. However, Learned AO had proceeded to levy the penalty based on the Tribunal order upholding the addition of deemed dividend. No doubt, as per law laid down by the Hon'ble Apex Court in Dharmendra Textile Processors case (supra), levy of penalty is a culmination of civil proceedings and such penalty is only compensatory in nature, and there is not question of any element of mensrea. But where an assessee bonafide believes a sum as not chargeable to tax and subsequent orders of the appellant authority show that such a stand was a justifiable one, in our opinion, it cannot be deemed as a case of concealment or furnishing inaccurate particulars. Just because an assessee could not offer explanation referring to the concerned case laws in an exact manner, it would not make any significant difference in the state of law as it existed at the time of filing the return. Therefore, in our opinion, this was not a fit case for levy of penalty, and the penalty which was levied on a mere addition would not stand. In the result, appeal of the assessee stands allowed.
We further take cognizance of the decision of ITAT, Kolkata as relied by the learned counsel of the assessee in the case of ACIT vs Hrishikesh Kundu (supra) wherein it was held that in respect of addition on account of deemed dividend, no penalty u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income or concealment of income is warranted. In this order, the ITAT Kolkata has further referred the order of ITAT Mumbai in the case of I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 Sunil Chandra Vohra vs ACIT (supra) wherein it was that ignorance of the provisions of section 2(22)(e) of the Act was held to be a reasonable cause for deleting penalty. The relevant operative part of the judgment of ITAT Kolkata reads thus:-
“4. The assessee is a Managing Director of Hi-tech Graphic Private Ltd. (HGPL) and assessee claimed in response to penalty notice that as per agreement with the HGPL, assessee is entitled to commission and in lieu of that assessee received advance of Rs.80 lacs i.e. commission receivable on the condition that commission payable would be adjusted against this sum. It was explained that when this advance of Rs.80 lacs was taken it was estimated that the assessee would be entitled to a commission of about Rs. 80 lacs, hence, the company agreed to make advance but with a condition that the said amount would be adjusted with the commission paid. The assessee further explained that as many of the major contracts for which assessee was working on behalf of the company did not materialize and as a result the commission payable was only to the extent of Rs.23,93,830/- in place of the total advance payable against commission at Rs.80 lacs. The assessee explained that the net amount of Rs.56,06,165/- stood to the credit of the company in the books of the assessee on account of advance commission payment. The assessee during the course of penalty proceedings explained that he was soliciting business for the company against which the company paid commission and in fact commission to the extent of Rs.23,93,830/- was paid during the current assessment year and the said amount was adjusted from the advance of Rs.80 lacs, which is not in dispute. According to assessee, the advance taken by the assessee was purely for a business connection and not with any intention to violate the provisions of section 2 (22)(e) of the Act. The Ld. counsel for the assessee before us also argued that the issue is covered by Hon'ble jurisdictional High Court in the case of Dr. Minati Chakraborty in of 2009 dated 16.07.2010 wherein following question of law was referred:
I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 "Whether, on the facts and in the circumstances of the case, the Income- tax Appellate Tribunal is correct in deleting penalties of Rs. 15,05,548/- and Rs.3,33,802/- imposed under section 271(l)(c) with reference to non-inclusion of the interest free advances of Rs. 27,50, 162/- and Rs. 11,00,000/- received as interest free advances in the period relevant to the assessment years 2001-02 and 2002-03, respectively from Nitrile India Pvt. Ltd., in which she had substantial interest in terms of provisions of section 2(22)(e) of the Income-tax Act, 1961, to the effect that the amounts would be deemed to be dividend and would be includible in the income of the recipient, in view of the decision of the decision of the Hon'ble Supreme Court in case of Union of India v. Dharmendra Textile processor 306 ITR 277 to the effect that the penalty is in the nature of a civil liability?"
Ld. counsel for the assessee stated that the jurisdictional High Court dismissed the appeal of revenue and confirmed the order of ITAT wherein it is held that in respect of addition on account of deemed dividend no penalty u/s. 271(l)(c) of the Act for concealment or furnishing inaccurate particulars of income is warranted. Ld. counsel for the assessee also relied on the coordinate Bench decision in the case of Sunil Chandra Vohra Vs. ACIT (2009) 32 SOT 365 (Mum) wherein the ignorance of the provisions of section 2(22)(e) of the Act was held to be reasonable cause for deleting the penalty. The Tribunal held as under:
"the tax laws in this country are so complex and complicated that even a person specializing in this field, including tax administrators, may not understand the law in the correct perspective or a particular provision may go unnoticed because of the number of amendments made to the tax enactments from year to year. Under these circumstances, it would be a travesty of truth and justice to hold that an assessee ought to have known the correct law and comply therewith, even though he was not aware of the provisions. In the case of Kaushal Diwan vs. ITO (1983) 3 ITD 432 (Del) (TM), the learned AM observed, on an analogous situation, that the tax provisions are so complex that even he was not aware of the provision in question till the matter was placed before the Bench. Similar view was taken in the case of WTO vs S. P. Jayakumar (1983) 3 ITD 221 (Mad). The Bench observed that the plea of ignorance of law can be treated as a I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 proper explanation. Such explanation can be said to have been substantiated when it is shown that: (a) he was assisted by a professional chartered accountant who has not brought to his notice the applicability of provisions of s. 2(22)(e) of the Act and (b) by making a statement that this is the first year in which these provisions came to be applied in assessee s case. It could thus be seen that the assessee tendered an explanation which was substantiated and thus the burden is cast upon the Revenue to prove that the explanation is false so as to invoke Expln. 1 to s. 271 (l)(c) of the Act. Except merely stating that the assessee ought to have furnished the loan particulars voluntarily, along with the return of income, no other reason was assigned by the tax authorities to dispute the bona fides of the explanation. Under the peculiar facts and circumstances and in the light of decisions cited by the learned counsel for the assessee, we are of the view that the explanation of the assessee is bonafide and hence the case falls outside the ambit of Expln. 1 to s. 271(1) (c) of the Act. In other words, no case was made out by the tax authorities to levy penalty under s. 271(l)(c) of the Act. We, therefore, set aside the orders of the tax authorities and cancel the penalty levied by the AO. In the result, appeal filed by the assessee is allowed." From the above, it seems that the issue is squarely covered in favour of the assessee and against the revenue by the jurisdictional High Court decision in the case of Dr. Minati Chakraborty, supra and the decision of Coordinate Bench of Mumbai Tribunal in the case of Sunil Chandra Vohra, supra. Respectfully following all the propositions stated above, we confirm the order of CIT(A) deleting the penalty levied u/s. 271(l)(c) of the Act. Appeal of revenue is dismissed.”
In view of above, we are inclined to hold that the in the present case, the alleged amount was given from M/s Beacon Logicwares Pvt. Ltd. to SRVR Software Solutions Pvt. Ltd. and the assessee was neither the recipient nor the payer of the money and since there was no receipt of payment of the money by the assessee, the conscious act of furnishing of inaccurate particulars of income or concealment of income cannot be attributed to the assessee, specially when I.T.A. 6815/D/2013 ASSESSMENT YEAR 2007-08 the addition u/s 2(22)(e) was made under the deeming provision. The case of the assessee is squarely covered by the judgment of Coordinate Bench of ITAT Mumbai in the case of West Coast Industries vs ACIT (supra) and by the order of ITAT Kolkata in the case of ACIT vs Hrishikesh Kundu (supra). Thus, we have no hesitation to hold that the Assessing Officer imposed penalty against the well-settled proposition on this issue and the assessee cannot be held responsible for furnishing of inaccurate particulars of income or concealment of particulars of her income which attracts penalty u/s 271(1)(c) of the Act. Accordingly, main ground of the assessee is allowed and the Assessing Officer is directed to delete the penalty.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 23.10.2015.