GHANSHAM J. SHEWAKRAMANI,MUMBAI vs. ACIT 16(1), MUMBAI

The aforesaid appeal has been filed by the assessee against impugned order dated 12.08.2013, passed by CIT(A)-27, Mumbai in relation to the penalty proceedings u/s 271(1)(c) for the assessment year 2007-08. The assessee has challenged the levy of penalty with regard to the following additions :- a. Addition of Rs. 23,36,720/- as deemed dividend; b. Addition of Rs. 7,69,627/- on account of interest payment; c. Addition of Rs. 22,500/- on account of deemed rent.

At the outset, the Ld. Counsel submitted that in so far as addition of Rs. Of Rs. 7,69,627/- on account of interest payment is concerned, the same has been deleted by the CIT(A) and this 2 Shri Ghansham J Shewakramani matter has attained finality, therefore, penalty levied on such an addition should also be deleted. Accordingly, we direct the deletion of penalty on the addition of Rs. 7,69,627/-.

Regarding levy of penalty on account of ‘deemed dividend’ and ‘deemed rent’, the facts in brief are that the assessee had filed its return of income on 31.03.2008 declaring total income of Rs. 16,96,974/-. The assessee has shown income from ‘salary’, ‘income from house property’ and ‘income from other sources’. On examination of the details of income from house property, the Ld. AO noted that, assessee has a flat at ‘Garima Apartment’ but the same was not offered for income as ‘deemed rent’. Accordingly, the AO adopted value at Rs. 27,500/- as ALV. Further perusal of the Balance sheet, AO noted that the assessee has taken huge amount of loans and advances as on 31.03.2007 from various companies (as per the details given at page 2 of the assessment order). When the assessee was issued show cause notice as to why on such loans and advances received from the said 14 companies where the assessee has interest of more than 10 per cent should not be treated as “deemed dividend” u/s 2(22)(e), the assessee submitted that, from the Returns of 7 companies in which assessee was a shareholder it is evident that he did not own more than 10% of its shares. The AO thereafter got further information about the shareholding percentage of the assessee in a Company known as “Billimoria Marbles and Stones Pvt Ltd” which was at 38% and for financial year 2005-06 the assessee was holding more than 60% of the shareholding in such company, which assessee reported less than 10%. Thus, he submitted that genuineness of the said return filed by the assessee subsequently is not correct. Later on, the assessee vide letter dated 28.12.2009 admitted that, in some of the companies, the assessee had shareholding of more than 10%, which fact has been noted by the AO at page 4 of the assessment order. Accordingly, he treated the entire loans and advances

From the stage of first appeal, such an addition which was substantially reduced to Rs. 23,36,270/- after actual verification.

The penalty has been levied by the AO on such disallowances which after detailed discussion CIT(A) too has confirmed the said penalty.

After hearing both the parties and on perusal of impugned order and material on record, we find that at the assessment stage, the addition on account of deemed divided was made at Rs. 491,27,257/-. Such an addition was reduced to Rs. 71,54,961/- by the CIT(A) vide order dated 08.11.2010. Subsequntly, the assessee filed a rectification application u/s 154 pointing out certain mistakes, in response to which, the Ld. CIT(A) vide order dated 4th August, 2004 passed u/s 154, restricted the addition on account of deemed dividend at Rs. 23,36,720/- since balance dividend income has already been taxed in the hands of the assessee in the AY 2005-06. The assessee’s explanation had been that, it has disclosed all the facts of the loans taken from various companies, however material fact relating to percentage of holding in certain companies, which has changed frequently from time to time could not be properly reported. Since assessee had disclosed all the loans and advances, then even if the addition has been confirmed by invoking the deeming provision, that too which has verified from assessment stage to appellate stage, we are of the opinion that it does not amount to furnishing of inaccurate particulars so as to attract penalty u/s 271(1)(c). Further, when the addition itself has been made under the deeming provisions and there is no failure on the part of the assessee to furnish all the particulars of income, then in our opinion, penalty cannot be levied

As regard, the levy of penalty on ‘deemed rent’ of Rs. 22,500/-, the same is again on deemed ALV because admittedly the assessee had not actually rented the house. Thus, on this addition also no penalty is warranted. Accordingly, penalty levied by the AO and confirmed by the CIT(A) on this score stands deleted.

In the result, appeal of the assessee stands allowed. Order pronounced in the open court on 30th October, 2015.