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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
O R D E R
Per Shri Duvvuru RL Reddy, Judicial Member :
This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No. ITBA/NFAC/S/250/2022- 23/1043814974(1) dated 12.07.2022, arising out of the assessment order passed by the Assessing Officer (AO) u/s 271(1)(c) of the Income Tax Act, 1961 (in short “Act”) dated 14.02.2022 for the Assessment Year (A.Y.) 2011-12.
Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam
Brief facts of the case are that the assessee, an individual and the Managing Director of M/s Lazarus Hospitals filed his return of income on 31.03.2012, declaring total income of Rs.15,84,494/-. The assessment u/s 143(3) r.w.s. 147 of the Act was completed by the AO on 28.12.2018, determining the total income of Rs.66,81,067/-, wherein, an addition of Rs.50,96,573/- was made on account of deemed dividend u/s 2(22)(e). The AO also initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income. Against the said order, the assessee filed an appeal before the Ld.CIT(A) and the Ld.CIT(A) partly allowed the appeal of the assessee vide order dated 15.09.2020, restricting the addition to Rs.19,99,999/-. Thereafter, the AO issued showcause notice u/s 271(1)(c) dated 28.12.2018 to the assessee asking him to explain as to why penalty u/s 271(1)(c) should not be levied. In response, the assessee submitted his reply on 30.09.2021, which was not accepted by the AO. Subsequently, another showcause notice dated 18.08.2021 was issued to the assessee. However, no compliance was made by the assessee. After due consideration of the facts of the case, the AO concluded that the assessee has furnished inaccurate particulars of income, leading to concealment of income and levied penalty u/s 271(1)(c) of Rs.6,18,000/- @100% of the tax sought on the amount Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam confirmed by the Ld.CIT(A) of Rs.19,99,999/-. Aggrieved by the penalty order, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee.
On being aggrieved, the assessee preferred an appeal before the Tribunal by raising the following grounds of appeal :
The order of the Commissioner of Income Tax (Appeals), Income Tax Department is contrary to the law and facts of the case.
2. The Commissiooner of Income Tax (Appeals), NFAC, Delhi is not justified in confirming the penalty levied u/s 271(1)(c) of the IT Act for not reporting deemed dividend u/s 2(22)(e) of Rs.19,99,999/- while filing return of income. Hence, penalty at 100% of tax sought to be evaded for not reporting the deemed dividend, i.e. Rs. 6,18,000/- has been levied which is ot justified on the part of the Assessing Officer and confirming of the said addition / disallowance by the Commissioer of Income Tax (Appeals) is unwarranted. Hence, the appellant prays the Honourable Income Tax Appellate Tribunal, Visakhapatnam to consder the submission of the appellant in this regard by granting relief. 3. As the income of Rs.19,99,999/- itself is a deemed income u/s 2(22)(e), it is not justified on the part of the Commissioner of Income Tax (Appeals), NFAC to confirm the penalty levied by the Assessing Officer u/s 271(1)(c) of the IT Act for not reporting such income while filing return of income. Hence, the appellant prays for relief. 4. For these and other grounds that may be urged at the time of appeal hearing, the appellant prays for relief. 4. Ground No.1 and 4 are general in nature which do not require specific adjudication.
Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam
5. Ground No.2 and 3 are related to confirmation of penalty levied by the AO u/s 271(1)(c) of Rs.6,18,000/- @100% of tax sought on the amount confirmed by the Ld.CIT(A) of Rs.19,99,999/-. The assessee filed paper book before the Tribunal, containing written submissions and various judicial pronouncements / case laws releid upon by the assessee. With regard to ground No.2 and 3, the assessee submitted that the provisons of section 2(22)(e) of the Income Tax Act speaks about Deemed Dividend. That means the dividend which is not actually paid by the company or received by the Director, but is assumed to be dividend for the purpose of taxation under Income Tax Act. Section 271(1)(c) of the Income Tax Act, 1961 prescribes two faults or omissions which exposes the assessee to concealment penalty. These are concealment of particulars of income and / or furnishing inaccurate particulars of such income. The assessee submitted that penalty cannot be levied u/s 271(1)(c) towards additions made by invoking deemed provisions provided under the Act. The assessee further submitted that he, being a Doctor by profession is not well versed with the provsions of the Income Tax Act. This being the first time in the impugned assessment year and such additon was made on the basis of audit objection raised by IAP from the information submitted by the company during the course of regular Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam assessment, he was under a bonafide belief that deeming fiction provided u/s 2(22)(e) for the purpose of making addition towards loans and advances borrowed from a company in the hands of the director cannot be extended to penalty provisons provided u/s 271(1)(c) to hold that non disclosure of deeming dividends in the return of income would amount to furnishing of inaccurate particulars of income. Hence, submitted that the Ld.CIT(A), NFAC, Delhi is not justified in confirming the penalty levied u/s 271(1)(c) of the IT Act for not reporting deemed dividend u/s 2(22)(e) of the IT , while filing return of income. In this regard, the assessee relied on the following judicial pronouncements, wherein, penalty u/s 271(1)(c) levied on account of deemed dividend u/s 2(22)(e) was deleted by Honnourable Courts.
(i) M/s Narayan Institute of Management Studies Pvt. Ltd. VVs. Income Tax Officer in dated 17.05.2019 (ii) P.James, Mumbai Vs. Asst.CIT – 12(1), Mumbai in ITA No.982/Mum/2015 dated 22.11.2017 (iii) PrakashNarain Singh, New Delhi Vs. Department of Income Tax, ITAT Delhi in ITA No.2691/Del/2013 dated 22.11.2013. The assessee further submitted that there was ambiguity in arriving at the quantum of assessment by the Assessing Authority. Hence, the Ld.CIT(A), Visakhapatnam has reduced the income chargeable as deemed dividend from Rs.50,96,573/- to Rs.19,99,999/-. Therefore, Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam the Ld.CIT(A), NFAC is not justified in upholding the penalty order passed u/s 271(1)(c) by the Assessing Authority as there was ambiguity in arriving at the quantum addition itself. Therefore, he prayed to set aside the order passed by the Ld.CIT(A) and allow the appeal of the assessee.
6. Per contra, the Ld.DR relied on the order of the Ld.CIT(A) and pleaded to uphold the order passed and dismiss the appeal of the assessee.
7. We have heard both the parties, perused the material placed on record and gone through the orders of the lower authorities. In the instant case on hand, according to AO, the assessee has failed to offer any explanation for not disclosing loans and advances received from a company in which he was a managing director and concluded that the assessee has furnished inaccurate particulars of income, leading to concealment of income and levied penalty u/s 271(1)(c) of Rs.6,18,000/-. The assessee contended that deeming fiction provided u/s 2(22)(e) for the purpose of making addition towards loans and advances borrowed from a company in the hands of the director cannot be extended to penalty provisions provided u/s 271(1)(c) to hold that non disclosure of deeming dividends int he return of income would amount to furnishing of Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam inaccurate particulars of income. The assessee relied on various judicial precedents of the coordinate benches of the Tribunal (supra) where similar issue was adjudicated by the Hon’ble Benches of the Tribunal. For the sake of clarity and convenience, we extract relevant part of the order of the Mumbai Tribunal in the case of Shri P.James Vs. ACIT-12(1), Mumbai in I.T.A.No.982/Mum/2015 dated 22.11.2017 as under :
“4. None appeared for the assessee. We have heard the Ld.DR, perused the material available on record and gone though the orders of authorities below. The AO levied penalty u/s 271(1)(c) towards addition made on account of deemed dividend u/s 2(22)(e) of the Act. According to the AO, the assessec has failed to offer any explanation for not disclosing loans and advances received from a company-in i which he was a beneficial shareholder under the provisions of section 2(22)(e) of the Act. It is the contention of the assessee that penalty cannot be levied u/s 271(1)(c) towards addition made by invoking deeming provisions provided under the Act. The assessee further contended that the AO has made addition u/s 2(22)(e) for the first time in the impugned assessment year and such addition was made on the basis of information gathered during the course of assessment proceedings of AY 2008-09 from the financial statement filed by the assessee. The assessee has disclosed loan borrowed from the company, in his balance-sheet. The assessee further contended that deeming fiction provided under the provisions of section 2(22)(e) cannot be extended to the provisions of section 271(1)(c) to hold that the assessce has furnished inaccurate particulars of income, despite details of loan has been disclosed in the balance-sheet filed for the relevant assessment year.
The AO has levied penalty on the basis of information gathered during the course of assessment proceedings for the AY 2008-09 which revealed that the assessee has borrowed loan from a company for Rs.78,08,433 in which he was a beneficial shareholder. The said information has been gathered from the financial statement of the assessee. The assessee has disclosed loan borrowed from the company in his balance-sheet. We further notice that the AO has made addition u/s 2(22)(e) for the assessment year 2009-10 for the first time. No such addition has been made in the preceding financial years. The assessee claims that he was under a bonafide belief that deeming fiction provided u/s Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam 2(22)(e) for the purpose of making, addition towards loans and advances borrowed from a company in the hands of (the director cannot he extended to penalty provisions provided u/s 271 (1)(c) to hold that non disclosure of deeming dividends in the return of income would amount to furnishing of inaccurate particulars of income. We find force in the arguments of the assessee for the reason that deeming fiction provided u/s 2(22)(e) for making addition towards loans and advances from a closely held company in the hands of the directors cannot be considered 'as furnishing of inaccurate particulars of income, despite the assessee has disclosed borrowings from the company in its balance-sheet. We further observe that the AO has made addition for the first time in the financial year under consideration. Therefore, we are of the considered view that the explanation offered by the assessce that no penalty can be levied towards addition made by invoking deeming provisions for levying penalty appears to be bonafide. We further observe that whether the provisions of 2(22)(e) is applicable or not to a particular loan and advance from a company in the hands of the director is a debatable issue and there is a possibility of two views. The AO has 'taken a view to bring it to tax loans and advances under the provisions of section 2(22)(e) of the Income-tax Act, 1961 Such deeming fiction provided 'u/s 2(22)(e) cannot be considered as furnishing of inaccurate particulars or income. We further observe that the ITAT, Indore Bench in the case of Sadhná Bros vs ACJT (2011) 46 SOT 1 (Ind)(URO) held that penalty u/s 271(1)(c) in respect of loans received by the assessee from a company in which he was holding beneficial shareholding which was brought to tax by invoking deeming provisions of section 2(22)(e) cannot be a ground for imposing poaIty. The relevant portion of the order is extracted below :-J “For imposing a penalty under section 271(I)(c) either there should be concealment of income or furnishing of inaccurate particulars of income.In the instant appeal, the asssee company had neither concealed its income nor furnished the inaccurate particulars of income. In so far as the assessee had disclosed all the particulars of transactions with the sister concern in the audited accounts as well as in the return of income, therefore it was not a good case for imposing penally under section 271(1)(c). In instant case, complete details were disclosed in the balance- sheet and in the schedule annexed to tax audit report, meaning thereby that all material facts were disclosed to the department by the assessee and the additions had been made on legal interpretation of law.
There is no dispute to the well settled proposition that finding in the assessment proceedings are not conclusive for determining the imposition of penalty. Thus, while imposing penalty, the entirety of circumstances, must reasonably point to the conclusion that there is a concealment or furnishing of inaccurate particulars.
Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam It was apparent from the record that the assessee-company was neither holding any shares nor it was a registered share holder of “R” Ltd. who had given loan to the assessee company. The Assessing Officer had levied penalty with reference to the additon made on account of loans / advances received by the assessee company from “R” Ltd., by bringing such loans and advances under the purview of section 2(22)(e). While levying the penalty, the deeming provisons can be applied to a limited extent and instant case was concerned with the imposition of penalty under section 271(1)(c), which was not sustainable in so far as the assessee-company was not a registered shareholder of “R” Ltd. who had vien loan / advance to the assessee-company. In view of the above, it was not a fit case for levy of penalty under secton 271(1)(c) in respect of loans received by the assessee company from “R” Ltd. which was brought to tax not by invoking the deeming provisions of section 2(22)(e).”
In this view of the matter and being consistent with the view taken by the co-ordinate bench, we are of the view that penalty cannot be levied u/s 271(1)(c) towards additon made for loans and advances by invoking deeming provisions of section 2(22)(e) of the Act. Therefore, we direct the AO to delete penalty levied u/s 271(1)(c) of the Act.
In the result, appeal filed by the assessee is allowed.” Respectfully following the view taken by the coordinate bench, we are of the view that penalty cannot be levied u/s 271(1)(c) towards addition made for loans and advances by invoking deeming provisions of section 2(22)(e) of the Act. We, therefore, direct the AO to delete the penalty levied u/s 271(1)(c) of the Act.
In the result, appeal filed by the assessee is allowed.
Venkata Rama Satyanarayana Varma Vegesna, Visakhapatnam Order pronounced in the open court on 14th July 2023.
Sd/- Sd/- (एस बालाकृष्णन) (दुव्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER Dated : 14 .07.2023 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– Venkata Rama Satyanarayana Varma Vegesna 10-50-2, Lazarus Bangalow, Waltair Main Road, Visakhapatnam 2. रधजस्व/The Revenue – (i) National e-Assesment Centre, Delhi (ii) The DCIT/ACIT, Circle-3(1), Visakhapatnam 3. The Principal Commissioner of Income Tax, Visakhapatnam 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम DR,ITAT, / Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam