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2016 (1) TMI 599 - ITAT DELHI

2016 (1) TMI 599 - ITAT DELHI - TMI - Levying penalty u/s 271(1 )(c) - addition u/s 2(22)(e) - Held that:- 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 assess .....

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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. - Decided in favour of assessee - I.T.A. No.6815/DEL/2013 - Dated:- 23-10-2015 - SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SHRI C. M. GARG, JUDICIAL MEMBER For The Appellant : Dr. Rakesh Gupta, Adv. Shri Somil Agarwal For The Respondent by Sh. Amarjeet Singh, Sr. DR ORDER PER CHANDRAM .....

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d. AO in levying penalty of ₹ 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 2. 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 ₹ 54,42,550/- as against the returned income of ₹ 9,42,550/-. The appellant, as one of the .....

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L and M/s SKVR, found that M/s BLPL has given loan and advance of ₹ 45,00,000/- to M/s SKVR, therefore, she issued a so-cause notice to the appellant that why not the sum of ₹ 45,00,000/- should be charged to tax u/s 2(22)(e) in the hands of the appellant. In response to the socause notice, the appellant tried to explain that the loan and advance of ₹ 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 n .....

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f income initiated in respect of the sum of ₹ 45,00,000/- charged to tax u/s 2(22)(e) by the AO were concluded vide impugned order 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 ₹ 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 Ex .....

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e 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 Indu .....

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t make any significant difference in the state of law as it existed at the time of filing the return. 4. 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 nowh .....

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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). 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 pres .....

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and penalty proceedings would be justified. 7. 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 ₹ 44,00,000/- during F. Y. 2005-06 and ₹ 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 s .....

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only Rs.l lac which is fully subscribed, where is the 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). 8. From above observations of the Ass .....

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s 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 enti .....

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g 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 reci .....

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rate particulars of income or concealment of income . 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 c .....

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t'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 .....

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ur 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 sta .....

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(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 ₹ 80 lacs i.e. commission re .....

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did not materialize and as a result the commission payable was only to the extent of ₹ 23,93,830/- in place of the total advance payable against commission at ₹ 80 lacs. The assessee explained that the net amount of ₹ 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 co .....

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igh Court in the case of Dr. Minati Chakraborty in ITA No. 98 of 2009 dated 16.07.2010 wherein following question of law was referred: "Whether, on the facts and in the circumstances of the case, the Income- tax Appellate Tribunal is correct in deleting penalties of ₹ 15,05,548/- and ₹ 3,33,802/- imposed under section 271(l)(c) with reference to non-inclusion of the interest free advances of ₹ 27,50, 162/- and ₹ 11,00,000/- received as interest free advances in the p .....

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alty is in the nature of a civil liability?" 5. 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 (20 .....

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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 WT .....

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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 .....

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