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2015 (9) TMI 436 - ITAT MUMBAI

2015 (9) TMI 436 - ITAT MUMBAI - TMI - Levy of penalty u/s.271(1)(c) - default u/s. 2(22)(e) - Held that:- Ignorance of law is no excuse, even as clarified in CIT vs. Alkesh K. Patel [2010 (3) TMI 416 - BOMBAY HIGH COURT] wherein the assessee-respondent pleaded similarly, admitting to a bona fide mistake in view of his being not aware of the relevant provision of law, being, in fact, the provision under reference, i.e., section 2(22)(e). The Hon’ble Court discountenanced the plea of a bona fide .....

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have to be examined on its merits.

The assessee in the instant case himself admits to have realized his mistake, implying of his knowledge of having, perhaps inadvertently, violated the law in-asmuch as he could not, as a substantial shareholder, have, except by way of dividend, diverted the profits of a company in which public is not substantially interested, for his personal purposes. Precisely what we are saying, i.e., that the assessee having realized his mistake well in time, wit .....

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ing section 2(22)(e). It is though doubtful if this would have served the purpose in-as-much as the assessee himself admits to have realized his mistake, i.e., having become aware of the position of law, and which gets established by his ‘immediate’ returning the funds back to the company. The same, however, would have provided scope for consideration of the assessee’s explanation, which we find as absent in the instant case. In short, the assessee has no explanation for his conduct in not retur .....

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y stated that the assessee having been allowed part relief by the tribunal, sustenance of penalty on the same is untenable, so that we direct its deletion to that extent. - Decided partly in favour of assessee. - I.T.A. No. 5896/Mum/2012 - Dated:- 5-8-2015 - BEFORE SHRI D. MANMOHAN AND SHRI SANJAY ARORA, JJ. For The Appellant : Shri N. H. Gajria For The Respondent : Shri Asghar Zain ORDER Per Sanjay Arora, A. M.: This is an Appeal by the Assessee agitating the confirmation of the levy of penalty .....

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any, Gallant Freight and Travels Private Limited ( GFTPL or the company hereinafter), in which he was a director, holding 37% shares. The company had accumulated profits exceeding the said amount, so that the provision of section 2(22)(e) stood attracted. The assessee, on being show caused in the matter, explained that the company required liquidity and, therefore, as per its usual practice, made investment in a Mutual Fund, though in his name in-as-much as the same could not, for technical reas .....

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was again not a criterion for the attraction of the said provision, so that the fact that it stood returned subsequently, or was not outstanding as at the year-end, was of little consequence. The addition was upheld in principle, relying on the decisions in the case of Tarulata Shyam vs. CIT [1977] 108 ITR 345 (SC) and P. Sarada v. CIT [1998] 229 ITR 444 (SC), also reproducing from the latter (ITA No. 1663/Mum/2011 dated 13.02.2015/copy on record). The tribunal, however, restricted the addition .....

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statement/copy on record). The same, however, did not find favour with the Revenue in-as-much as a willful default or mens rea was not an ingredient for the levy of penalty u/s. 271(1)(c), which was levied, as well as confirmed, relying on the decisions in the case of Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC) and CIT vs. Nathulal Agarwala & Sons [1985] 153 ITR 292 (Pat)(FB). Per the latter decision, it stood clarified that it is not that the moment an unaccepta .....

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o be made on the company s behalf, though came to be made in his name for technical reasons. The same could not though be substantiated, which led to the confirmation of the addition in-as-much as all the ingredients of the deeming provision of section 2(22)(e) stood satisfied. The explanation in fact has several infirmities. Even considering that the investment in a Mutual Fund (MF) could not be made in the company s name, it would only be aware of the same; it being its usual practice to park .....

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capacity (as regards the investment) as a director/trustee of the company and, further, debiting the same in its accounts - which are presumably audited, to the assessee s account, disproves the explanation. In fact, the assessee s stating in the appellate proceedings that he reversed the transaction as soon as he realized his mistake, itself belies his earlier explanation. If the funds were released to the assessee s bank account for investment on behalf of the company, what, we wonder, is the .....

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on/s by a person not holding beneficial interest in any share, while sections 153B and 187B are with regard to the declaration in respect of shares in a company held in trust. 3.3 We may next examine the assessee s modified - in-as-much as we observe it to have undergone a qualitative change over time, explanation, i.e., that the investment, though made by him by drawing on the funds, representing the profits of the company, were not intended to be so diverted, which occurred on account of a bon .....

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promptly return the advance by encashing the investment. The explanation, which is borne out by the facts, though appealing at first blush, would also not help the assessee. This is as, firstly, ignorance of law is no excuse, even as clarified by the Hon ble jurisdictional High Court in CIT vs. Alkesh K. Patel [2010] 325 ITR 118 (Bom), wherein the assessee-respondent pleaded similarly, admitting to a bona fide mistake in view of his being not aware of the relevant provision of law, being, in fac .....

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ing all the material facts and circumstances. The matter of bona fide belief, or a mistake on its basis, would thus have to be examined on its merits. The assessee in the instant case himself admits to have realized his mistake, implying of his knowledge of having, perhaps inadvertently, violated the law in-asmuch as he could not, as a substantial shareholder, have, except by way of dividend, diverted the profits of a company in which public is not substantially interested, for his personal purp .....

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same time, however, the provision having been attracted, which fact comes to his knowledge well before the filing of his return of income for the year, it was incumbent on him to include the same as his income per the return of income. The explanation, it needs to be appreciated, that the assessee is required to furnish is toward not offering the said sum as his income in accordance with the law, i.e., for not returning the income by way of deemed dividend per his return of income. This is in f .....

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said income in-asmuch as he has no reason for not so doing, preferring instead not to return his income - in the admitted facts of the case, in accordance with law. He could have, at least, while not returning the same, narrated the sequence of events leading to the attraction of the provision of section 2(22)(e), besides the subsequent events, pleading to an indulgence in non-invoking section 2(22)(e). It is though doubtful if this would have served the purpose in-as-much as the assessee himsel .....

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