TMI Blog2013 (1) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The brief facts of the case are that the assessee filed return of income for assessment year 2005-06 on 16.9.2005 declaring a total income of ₹ 2,98,613/-. The assessee was a Director of M/s Medimark Consultants (India) Pvt. Ltd. During the course of assessment proceedings, the Assessing Officer found that the company, M/s Medimark Consultants (India) Pvt. Ltd, during the assessment year 2005-06 had received unsecured loan of ₹ 1,50,00,000/- from the assessee and repaid the said loan within the same financial year. The Assessing Officer, therefore, made addition of ₹ 1,05,12,028/- as deemed dividend u/s 2(22)(e) of the Act. Thereafter, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) r.w.s 274 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accumulated profits. vi. The Deemed Dividend is a fiction created by law. It has been held in the case of CIT Vs Baroda Tin works [221 ITR 66 [GuJ] that the fiction of Deemed income is not acceptable to penalty proceedings so as to raise a presumption about concealment of such income . vii. The Appellant submits that he is under bonafide belief that no income has actually accrued and therefore no penalty is leviable. This has been held in the case of Sarabhai Chemicals Pvt Ltd., Vs CIT [257 ITR 355 [GuJ] and the same is extracted as under:- The deeming fiction that the added/ disallowed amounts represent the income in respect of which particulars have been concealed contained in Explanation 1 will not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid in same financial year and, consequently, factum of taking loan did not figure in final balance sheet filed along with return of income. Assessing Officer, in course of assessment proceedings, found that assessee had obtained loan from closely held company and, thus, he was liable to pay tax on deemed dividend by virtue of section 2(22)(e). Accordingly, assessment was completed by bringing to tax dividend income. Thereafter, penalty proceedings under section 271 (1)(c) were initiated on ground that assessee had furnished inaccurate particulars of income by not disclosing deemed dividend assessable to tax. Assessee replied that he, being an engineer by profession, was not conversant with provisions of Act and, hence, he was filing return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Penalty Order of the Assessing Officer. I have also gone through the decisions of judicial pronouncements cited by the Appellant. In the case of Sarabhai Chemicals India Pvt Ltd Vs CIT [257 ITR 355 [Guj] , the Hon'ble Gujarat High Court held that if the Assessee is under bonafide belief that no income has actually accrued and therefore no penalty is leviable. 8. In view of the decision rendered by the Hon'ble Supreme Court in the case of Dhilip N Shroff Vs JCIT reported in 291 ITR 519 wherein the Apex Court held that imposition of penalty is not automatic. The levy of penalty is not only discretionary in nature, but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings. I have gone through the decision relied upon by the Appellant in the case of ITAT Mumbai E' Bench in the case of Sunilchandra Vohra Vs ACIT reported in ITA 4963/Mumbai/2006 and the same is read as under:- The tax laws in this Country are so complex and complicated that even a person specializing in this field, including tax administrators, may not understand the law in the correct perspective or a particular provision may go unnoticed because of number of amendments made to the tax enactments from year to year. 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 awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention to conceal the income and therefore the penalty is not leviable. Further, the income was not actually accrued to the appellant and only because of the deeming provision it was treated as income. Considering that the Appellant/assessee had declared the income in his return in response to notice under section 148 and paid the entire tax, the Appellant/Assessee had not concealed willfully any income liable to tax and that the levy of penalty is not exigible. Hence, the penalty levied by the A.O under section 271(1)(c) of the I.T.Act of ₹ 35,38,348/- is deleted. 6. The CIT/DR relied on the order of the Assessing Officer whereas the A.R of the assessee supported the order of the CIT(A). 7. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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