TMI Blog2017 (8) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... aying Pending appeal, there shall be stay as far as penalty or interest is concerned. In the present case, it is clear that the issue relating to the additions on the basis of which the impugned penalty was levied by the AO is highly debatable. In the present case also the issue relating to the additions on the basis of which the penalty u/s 271(1)(c) of the Act was levied by the Act was debatable. - Levy of penalty deleted - Decided in favour of assessee. - ITA No. 1605, 1610, 1611/Del/2014 - - - Dated:- 8-8-2017 - Sh. N. K. Saini, AM and Smt. Beena A. Pillai, JM Assessee by : Sh. K. K. Sharma, Adv. Sh. Pratap Gupta, FCA Revenue by : Sh. Rajesh Kumar, Sr. DR ORDER Per Bench These three appeals by the department are directed against the consolidated order dated 30.12.2013 of ld. CIT(A)- XXIII, New Delhi for the assessment years 2003-04, 2005-06 and 2006-07. 2. The common grounds raised in these appeals read as under: 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty for AY 2003-04, 2005-06 and 2006-07, whereas the Hon ble Delhi High Court has already confirmed the quantum addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22)(e) of the Act and treated the loan to the extent of ₹ 21,95,21,000/- as deemed dividend and added the same to the assessee s total income under the head income from other sources . 5. Being aggrieved the assessee carried the matter to the ld. CIT(A) who vide order dated 11.09.2006 deleted the said addition by holding that the assessee firm was not a shareholder as per law and therefore, the loan received by it from M/s Jetair Pvt. Ltd. could not have been treated as deemed dividend within the meaning of Section 2(22)(e) of the act. Against the said order of the ld. CIT(A), the department filed an appeal before the ITAT wherein the order of the ld. CIT(A) in deleting the addition was confirmed vide order dated 31.03.2009 by holding that the assessee firm could not have been regarded as a registered shareholder. Against the order of the ITAT, the department filed an appeal before the Hon ble High court wherein vide order dated 11.07.2011, the issue was decided in favour of the department by holding that a partnership firm was allowable to be treated as shareholder and it was not necessary that it has to be a registered shareholder. Consequent upon the order of the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee involving substantial question of law cannot attract penalty under section 271(1)(c) of the I. T. Act. The reliance was placed on the following case laws: CIT Vs P.H.I. Seeds India Ltd. reported in 159 Taxman 9 (Del.) M/s Nayan Builders Developers Pvt. Ltd. Vs ITO in ITA No. 2379/Mum/2009 ITO Vs Roborant Investments (P) Ltd. reported in 7 SOT 181 (Mum) 2006) 7. The assessee vide letter dated 16.02.2012 further submitted to the AO as under: Hence, aggrieved with the Hon'ble Delhi High Court's order dated 11.7.2011, the assessee has filed an appeal before the Hon'ble Supreme Court and considering the fact that conflicting judgements have been passed by High Court on the issue of deemed dividend under Sec. 2(22)(e) of the I.T. Act, the Hon'ble Supreme Court has admitted that assessee's appeal alongwith the appeals of various other appellants filed on the issue of interpretation of the provisions of deemed dividend. Since a substantial question of law is involved in the assessee's appeal, the Hon'ble Supreme Court vide order dated 13.2.2012, has also granted stay on the penalty and interest till the pendency of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the provisions contained in explanation to Section 271(1)(c) of the Act, the onus to establish that explanation offered was bonafide and all the facts relating to the same and material to the computation of income have been disclosed was on the assessee and if he fails to discharge that burden, the presumption that he had concealed income or furnished inaccurate particulars thereof was available to be drawn. The AO was of the view that the presumption would not stand rebutted merely by furnishing any general or routine explanation by the assessee, the explanation should be based on cogent and relevant material. He also observed that in a case where there has been an omission, the department cannot ignore the material collected at the assessment stage and it is no longer necessary that the department must go further and establish that there was a conscious concealment of particulars of income or a deliberate failure to furnish inaccurate particulars. The reliance was placed on the following case laws: CIT Vs Anwar Ali 76 ITR 696 (SC) B.A. Balasubramanian Bros. Co. Vs CIT 236 ITR 977 (SC) CIT Vs Indian Metals Ferro Alloys Ltd. (1994) 117 CTR 378 (Ori.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of receipts which may not be otherwise included there. It was further stated that as per the provisions of Section 2(22)(e) of the Act, there must be an advance of loan to a shareholder being a person who is the beneficial owner of shares not being share entitled to a fixed rate of dividend whether with or without a right to participate in profits holding not less than 10% of the voting power. It was stated that for the applicability of Section 2(22)(e) of the Act, the shareholder has to be both a registered shareholder and beneficial shareholder but the assessee was undoubtedly a beneficial holder of not less than 10% of the voting power, however, it was not a registered shareholder of M/s Jetair Pvt. Ltd. and thus, the provisions of Section 2(22)(e) of the Act were not applicable on the assessee firm. The reliance was placed on the following case laws: CIT Vs Martin Burn Ltd. 136 ITR 805 CIT Vs C.P. Sarathy Mudaliar 83 ITR 170 Rameshwarlal Sanwarmal Vs CIT 122 ITR 1 (SC) Harish Chand Golecha Vs CIT 132 ITR 30 (Raj.) ACIT Vs Bhaumik Colour Pvt. Ltd. 313 ITR 146 12. It was further submitted that the Hon ble Delhi High Court vide order dated 11.07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not to the deeming shareholder, as per the judgment by the Hon ble High court in the case of CIT Vs Anitech Pvt. Ltd. (supra). It was submitted that the assessee filed the SLP against the judgment of the Hon ble Delhi High Court for the assessment years 2003-04 to 2006-07 and by considering the applicability of Section 2(22)(e) of the Act in assessee s case involving substantial question of law wherein two legal opinions exist and that the conflicting judgments had already been passed on this issue by the same Bench of the Hon ble Delhi High Court, the Hob ble Supreme court vide order dated 13.02.2012. It was further submitted that the Hon ble Supreme Court not only admitted the appeals of the assessee but also granted a stay on income tax demand as far as interest and penalty was concerned. Therefore, the penalty u/s 271(1)(c) of the Act was totally unwarranted. The reliance was placed on the following case laws: CIT Vs P.H.I. Seeds India Ltd. 301 ITR 13 (Del.) M/s Nayan Builders Developers Pvt. Ltd. Vs ITO in ITA No. 2379/Mum/2009 ITO Vs Roborant Investments (P) Ltd. reported in 7 SOT 181 (Mum) (2006) CIT Vs Reliance Petroproducts Pvt. Ltd. 322 ITR 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready explained in detail above, the appellant has suo moto disclosed in Schedule 7 - Long term Investments of the Audited Financial Statements of the relevant assessment year that it holds 1,43,980 equity shares of JAPL. Moreover, the fact that appellant has received loan amounting to ₹ 28,52,41,516/- during the relevant assessment year from JAPL has also been specifically disclosed in Annexure N of the Tax Audit Report of the relevant assessment year (Copy of the Audited Financial Statements and Tax Audit Report for the relevant assessment year is attached as Annexure G). During the course of assessment proceedings, the then A.O. vide questionnaire dated 18.07.2005 directed the appellant to furnish shareholding pattern of the appellant and its partners in private limited companies and the appellant in due compliance to the then A.O.'s direction, furnished the relevant details vide submission dated 26.08.2005. The said facts have also admitted by the then A.O. in his assessment order dated 21.03.2006. The same is also reproduced below for your honour's ready reference (Page 2, Para 2 2.1):- 2.The audit report filed by the assessee alongwith its return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s Jetair Pvt. Ltd. for AY 2003-04 it was noted that during the relevant year the company had accumulated profits being reserve surplus amounting to ₹ 21,95,21,000/- as on 31.3.2003. It was also admitted by the assessee vide the same letter dated 23.11.2005 that during the year the assessee had accepted loan amounting to ₹ 28,52,41,516/-from M/s Jetair Pvt. Ltd. Thereafter as per assessment order dated 21.03.2006, the then A.O. issued a notice u/s 133(6) of the I.T. Act on 30.11.2005 to the Registrar of Companies (ROC) for obtaining certain information and on 02.12.2005, the ROC provided a certified copy of the annual return of JAPL for the relevant assessment year. From the details furnished by the ROC in the form of copy of the Annual Return of JAPL, the then A.O. again came to the same conclusion that the appellant firm was the beneficial owner of share holding not less than 10% of voting power in JAPL. Moreover, it is nowhere alleged by the then A.O. in his entire assessment order that the details / documents provided by the appellant during the course of assessment proceedings were incorrect, inaccurate or false. In view of the above facts, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the aforesaid judgement is not applicable in the appellant's case. Further, as regard the Explanation 1 to section 271 reproduced by the A.O. which is an automatic way of imposing penalty, it is submitted that the said explanation does not apply in case of appellant since every possible explanation has been provided and it has no where been proved that the explanation is false and every explanation has also been substantiated. Therefore, the A.O. is completely unjustified in levying penalty u/s 271(1)(c) based on Explanation 1 to section 271 of the I.T. Act. In view of the above, it is apparently clear that the appellant during the course of assessment proceeding, has neither concealed any particulars of income nor furnished inaccurate particulars of income and had provided all the documents / details I information called for by the then A.O. during the course of assessment proceedings. Therefore, penalty u/s 271(1)(c) of the I.T. Act cannot be levied in the appellant's case. c. In this regard, it is submitted that the appellant also agrees with the A.O.'s contention that assessment proceedings and the penalty proceedings are two separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff vs. Jt. CIT Anr. (supra) was upset. In Union of India vs. Dharamendra Textile Processors (cited supra), after quoting from s. 271 extensively and also considering s. 271(1)(c), the Court came to the conclusion that since s. 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of s. 271(1)(c) r/w Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under s. 276C of the Act. The basic reason why decision in Dilip N. Shroff vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant. However, since the Hon'ble Court was of the opinion that literal meaning as adopted by the appellant would produce unjust results which according to the court, have not been intended by the Legislature, the Hon'ble Court modified the language of section 2(22)(e) of the I.T. Act by enlarging its scope and held that for the purpose of section 2(22)(e) of the I.T. Act, partnership firm is to be treated as the shareholder even if it is not a registered shareholder. Thus, it is crystal clear that the said judgement of Hon'ble Gujarat High Court is in no way applicable to the case of appellant. e. In the case of Zoom Communications (P) Ltd., the Hon'ble Delhi High Court held that if the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such claim is found to be not bonafide, he would be liable to penalty :u/s 271(1)(c) of the I.T. Act. In this regard, it is submitted that firstly, the appellant has not made any claim which is apparently incorrect in law. Secondly, the contention of the appellant as regard to nonapplicability of provisions of section 2(22)(e) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble ITAT, Mumbai Special Bench in the case of Bhaumik Color Pvt. Ltd. (supra), in its judgment in the case of Ankitech Pvt. Ltd. (supra), wherein the Hon'ble High Court had held that ...We have to keep in mind that this legal provision relates to 'dividend'. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to 'shareholder'. ...The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. Thus, the Hon'ble Delhi High Court held that shareholder u/s. 2(22)(e) meant both a registered as well as beneficial shareholder. It is appreciated that in its later judgment in the case of the appellant firm, Hon'ble Delhi High Court has diluted its earlier strict interpretation of Section 2(22)(e) made in the case of Ankitech Pvt. Ltd. (supra) and has enlightened us further by making an interpretation of Section 2(22)(e) in the light of legislative intent and thereby holding that the appellant firm, being beneficial owner of shares, was also hit by the deeming provision of section 2(22)(e) of the Act. It is also noteworthy, that H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould represent income in respect of which particulars have been concealed or inaccurate particulars have been furnished. As the ITAT Mumbai Bench C had used both the words, concealed income or inaccurate particulars of income, therefore, these two words are the two sides of the same coin and relief should not be allowed u/s 271(1)(c) of the Act, even if these words had not been used judiciously by the AO while initiating proceedings or while passing order u/s 271(1)(c) of the Act. It was further submitted that the ld. CIT(A) was not justified in deleting the penalty on the basis that it had been imposed on legal grounds under deeming provision. It was stated that even if the Section 68 of the Act is also a deeming provision, the penalty u/s 271(1)(c) of the Act in view of infringement committed by the assessee u/s 68 of the Act is leviable. The reliance was placed on the following case laws: Chuharmal Vs CIT 172 ITR 250 (SC) CIT Vs Aboo Mohmed 160 CTR 128 (Kar.) Union of India Vs Dharmendra Textile Processors 306 ITR 277 (SC) Guljag Industries Ltd. Vs CTO 293 ITR 584 (SC) 18. It was further submitted that as on date the Hon ble High Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct did not specify on the basis of which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated. In other words, it was not clear as to whether it was issued for concealment of particulars of income or furnishing inaccurate particulars of income. Therefore, the penalty u/s 271(1)(c) of the Act was liable to be quashed. The reliance was placed on the following case laws: CIT Vs M/s SSAS Emerald Meadows in ITA No. 380 of 2015 (Kar. HC) CIT Vs M/s SSAS Emerald Meadows, SLP (Civil) 23272 of 2016 CIT Anr. Vs Manjunatha Cotton Ginning Factory (2013) 359 ITR 565 (Kar. HC) Ideal Unemployed Engineers Co-operative Society Ltd. Vs DCIT (2016) 47 CCH 219 (Kol. Trib.) 20. It was further submitted that the aforesaid error in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act was not rectifiable and it vitiated the entire initiation itself and that even the provisions of Sections 292/292BB of the Act cannot cure the defect in the penalty notice. The reliance was placed on the decisions of the ITAT Mumbai Benches in the following cases: ACIT Vs Dipesh M Panjwani Anr. in ITA Nos. 6330, 5878, 6328, 6188/Mum/2012 order dated 18.03.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Section 2(22)(e) of the Act to the extent of reserves surplus of M/s Jetair Pvt. Ltd., by considering the same to be accumulated profits and the assessee being beneficial owner of 48.18% shares which were duly registered in the names of the partners of the assessee firm who had received ₹ 28,52,41,516/- as loan and advances from M/s Jetair Pvt. Ltd. The said addition was challenged by the assessee before the ld. CIT(A) who vide order dated 11.09.2006 deleted the addition. The said order of the ld. CIT(A) was challenged by the department before the ITAT wherein the view taken by the ld. CIT(A) was affirmed by passing the order dated 31.03.2009. Against the said order, the department preferred an appeal to the Hon ble Jurisdictional High Court wherein vide order dated 11.07.2011, the order of the ITAT was reversed and the addition made by the AO was restored. On that basis, the AO initiated the penalty proceedings u/s 271(1)(c) of the Act. It is well settled that the penalty u/s 271(1)(c) of the Act may be levied, if it is found that the assessee concealed the income or furnished inaccurate particulars of such income. In other words, the provisions envisaged by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of income while the penalty u/s 271(1)(c) of the Act was levied for concealment of income. 26. On a similar issue, the Hon ble Karnataka High Court in the case of CIT Anrs. Vs Manjunatha Cotton and Ginning Factory 359 ITR 565 (supra) held as under: Chapter XXI of the Income-tax Act, 1961, enacts provisions for the levy, imposition and collection of penalty. The general principles relating to penalty or concealment of income are: (a) penalty under section 271(1)(c) is a civil liability; (b) mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities; (c) willful concealment is not an essential ingredient for attracting civil liability; (d) existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings under section 271; (e) the existence of such conditions should be discernible from the assessment order or order of the appellate authority or revisional authority; (f) even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and (B) should be discernible from the order which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT. However, the Hon ble Jurisdictional High Court reversed the view taken by the ld. CIT(A) which was affirmed by the ITAT and restored the addition made by the AO. Against the said order dated 11.07.2011 of the Hon ble Jurisdictional High Court, the assessee preferred SLP before the Hon ble Supreme court wherein vide order dated 13.02.2012 (copy of which is placed at page nos. 219 220 of the assessee s paper book), the special leave was granted and penalty or interest was stayed. The said fact clearly shows that the issue was highly debatable since both CIT(A) as well as the ITAT have set aside the additions made by the AO but the Hon ble Jurisdictional High Court not only admitted the appeal of the department but also framed the questions of law on the issues which were decided against the assessee and the addition made was confirmed. Thereafter, the Hon ble Jurisdictional High Court admitted the SLP against the order of the Hon ble Supreme Court which shows that the grounds on which additions had been made are debatable wherein two different views are possible. 31. On a similar issue the Hon ble Jurisdictional High Court in the case of CIT Vs Liquid Investment Trading Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that no substantial question of law arose in the appeal and their lordships held as under: 1. Having heard Mr Ahuja, learned counsel appearing on behalf of the Appellant, we find that this Appeal cannot be entertained as it does not raise any substantial question of law. The imposition of penalty was found not to be justified and the Appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on Assessee s Appeal in Quantum proceedings and the substantial questions of law which have been framed therein. We have also perused that order dated 27th September 2010 admitting Income Tax Appeal No. 2368 of 2009. In our view, there was no case made out for imposition of penalty and the same was rightly set aside. The Appeal raises no substantial question of law, it is dismissed. No costs. 34. In the present case also as we have already pointed out that the additions on the basis of which the penalty was levied by the AO u/s 271(1)(c) of the Act was deleted by the ld. CIT(A) and the ITAT upheld the order of the ld. CIT(A). Thereafter, the department preferred an appeal before the Hon ble Delhi High court wherein the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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