MOHIT DIAMONDS P.LTD,MUMBAI vs. ADDL CIT 5(2), MUMBAI

This is an appeal by the assessee against the order dated 16th February 2012, passed by the learned Commissioner (Appeals)–9, Mumbai, sustaining the penalty imposed under section 271(1)(c) of Mohit Diamonds Pvt. Ltd. 2 the Income Tax Act, 1961 (for short "the Act") for the assessment year 2005–06.

Briefly the facts are the assessee is a company engaged in the business of import and export of diamond and studded jewellery. For the assessment year under consideration, the assessee filed its return of income on 30th October 2005, declaring total income of ` 9,71,76,944. During the assessment proceeding, the Assessing Officer noticed that the assessee has advanced loans to its sister concern Emaar Diamonds Ltd. and as on 1st April 2004, the opening balance was ` 2,33,26,000. He, therefore, called upon the assessee to furnish the confirmation from the concerned debtor. On verifying the loan confirmation, it was noticed that the assessee had credit balance in respect of Emaar Diamonds Ltd. for the financial year 2004–05. When this fact was brought to the notice of the assessee with a query as to why it should not be treated as deemed dividend under section 2(22)(e) of the Act as the said company is a shareholder, the assessee in letter dated 26th December 2008, replied that the advances given by the assessee to the sister concern cannot be considered as deemed dividend under section 2(22)(e). The Assessing Officer, however, did not find merit in the submissions of the assessee. The Assessing Officer observed, though the provisions of deemed dividend is not applicable in case of loan advanced by the assessee to Emaar Mohit Diamonds Pvt. Ltd. 3 Diamonds Ltd. but the provisions of deemed dividend is attracted in relation to credit balance in the hands of the assessee outstanding towards M/s. Emaar Diamonds Ltd. He observed, out of the total loan advanced, the assessee received payment from M/s. Emaar Diamonds Ltd. on various dates and on 27th September 2004, it received payment of ` 1.50 crores from M/s. Emaar Diamonds Ltd., as a result of which on the particular date the assessee had credit balance of ` 42,74,000. The Assessing Officer observed that as the assessee is having more than 10% share in M/s. Emaar Diamonds Ltd., provisions of section 2(22)(e) is attracted. He, therefore, treating the amount of ` 42,74,000, as deemed dividend added back to the return of income. The addition made under section 2(22)(e) was also confirmed by the Commissioner (Appeals). Though, the assessee challenged the addition made under section 2(22)(e) of the Act before the Tribunal, but, as it appears from the material on record the ground raised on the issue before the Tribunal was not pressed at the time of hearing of appeal. Therefore, the addition made under section 2(22)(e) attained finality. On the basis of addition made as aforesaid, proceeding for imposition of penalty under section 271(1)(c) was initiated by the Assessing Officer with issuance of a show cause notice. In response to the show cause notice, assessee in its explanation, objected to the initiation of penalty proceedings under section 271(1)(c) of the Act, but the Mohit Diamonds Pvt. Ltd. 4 Assessing Officer, however, was of the view that as additions made under section 2(22)(e) was accepted by the assessee before the Tribunal it is proved that the assessee by not offering the deemed dividend of ` 42,47,000 as income has furnished inaccurate particulars of income. Accordingly, he proceeded to impose penalty of ` 15,54,083, being 100% of the tax sought to be evaded. Challenging the imposition of penalty, the assessee preferred appeal before the learned Commissioner (Appeals).

The learned Commissioner (Appeals), however, confirmed the imposition of penalty by holding that assessee has furnished inaccurate particulars of income.

The learned Counsel for the assessee, explaining the facts leading to the addition of deemed dividend under section 2(22)(e) of the Act submitted before us that the assessee had advanced loan of ` 2,33,26,000 to M/s. Emaar Diamonds Ltd., in immediately preceding assessment year and the said loan was brought forward and shown as opening balance on 1st April 2004. During the current previous year, M/s. Emaar Diamonds Ltd., started repaying the loan on different dates and on 23rd September 2004, M/s. Emaar Diamonds Ltd., by mistake paid an amount of ` 1.50 crores as a result of which there was a credit balance of ` 42,74,000 against M/s. Emaar Diamonds Ltd. Mohit Diamonds Pvt. Ltd. 5 However, since M/s. Emaar Diamonds Ltd., is based in Surat, immediately after the mistake was noticed, the assessee on 28th September 2004 paid back an amount of ` 50 lakh to the said company. To prove such fact the assessee referred to the statement of account of loan to M/s. Emaar Diamonds Ltd. as submitted in paper book. He, therefore, submitted, only because the assessee has accepted the addition of ` 42,70,000, under section 22(2)(e) in the quantum proceedings that will not automatically lead to imposition of penalty under section 271(1)(c). He submitted, as there is no deliberate attempt by the assessee to furnish inaccurate particulars of income or concealment of particulars of income imposition of penalty under section 271(1)(c) is not justified. In support of his contention, the learned Counsel for the assessee relied upon the following decision. i) Sunilchandra Vohra v/s Asstt. Commissioner of Income Tax, [2009] 32 SOT 365 (Mum.) ii) Gitanjali Ghate v/s Dy. Commissioner of Income Tax, ITA no.6560/Mum./2010, order dated 23rd May 2012; iii) ACIT v/s M/s. Patel Holdings Ltd. ITA no.2199/Mum./2011, order dated 30th May 2012; iv) ITO v/s Paramount Apparels Pvt. Ltd., ITA no.2539/Mum./2011, order dated 31st January 2012; and v) Shri Ulhas S. Sabane v/s ITO, [2007]–(ID2)–GJX–0762–TPUN] dated 30th August 2007.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, there is a credit balance in respect of M/s. Emmar Diamonds Ltd., appearing in the books of the assessee during the relevant financial year. It is also a fact that the assessee is a shareholder in M/s. Emaar Diamonds Ltd. It is also a fact on record that the credit balance appearing in the name of M/s. Emaar Diamonds Ltd. has been treated as a deemed dividend under section 2(22)(e) of the Act and in the quantum of appeal before the Tribunal, the assessee has accepted the addition by not pressing the ground raised