2014 (5) TMI 4 - AT - Income Tax

Commissioner's Order Set Aside, Penalty Deleted on Deemed Dividend Income Issue

Smt. Neelam Khanna, C/o P. Singh & Co. Versus Income Tax Officer

The Tribunal set aside the Commissioner's order under section 263 of the Income Tax Act, ruling that the Assessing Officer had properly considered the ... Order u/s 263 of the Act – Deemed dividend u/s 2(22)(e) of the Act – Advances made for purchase of FDR or Refund of share application money - Held that:- The company M/s Khanna Plantation Pvt. Ltd. had two shareholders being the assessee and her husband - a share application money of Rs. 20,39,000/- was lying with M/s Khanna Plantation Pvt. Ltd. in the name of assessee’s husband, Inderjeet Khanna against which shares could not allotted - a sum of Rs. 12 lacs being FDR made in the joint name of assessee and her husband was refund against the share application of Rs. 20,39,000 – thus, the sum of Rs. 12 lacs cannot be treated as loans and advance in the hands of the assessee from the company - It was only refund of share application money received by the company from assessee’s husband Sh. Injderjeet Khanna, which was refunded in the joint name of the assessee and her husband – thus, the order u/s 263 is not sustainable – Decided in favour of Assessee. Penalty u/s 271(1)(c) of the Act – Held that:- As the addition had already been set aside - as such there is no basis which remains for the purpose of the penalty – thus, the order of the CIT(A) levying the penalty u/s 271(1)(c) is set aside – Decided in favour of Assessee. Issues:1. Assessment under section 263 of the Income Tax Act regarding deemed dividend income.2. Penalty imposed under section 271(1)(c) of the Income Tax Act.Analysis:1. The first issue pertains to the assessment under section 263 of the Income Tax Act concerning deemed dividend income. The Commissioner of Income Tax found that the Assessing Officer had failed to investigate an advance of Rs. 12,00,000 received by the assessee from a company, which was required to be assessed as deemed dividend income under section 2(22)(e) of the Act. Despite the assessee's submissions, the Commissioner directed the addition of Rs. 10,90,965 as deemed dividend income. The Tribunal noted that the Assessing Officer had already examined the issue and concluded that the deemed dividend did not arise in the hands of the assessee. Considering the facts, including the share application money and FDR transactions, the Tribunal held that the order under section 263 was not sustainable. The Tribunal set aside the Commissioner's order, stating that the Assessing Officer had properly applied his mind, and no addition was warranted as deemed dividend income.2. The second issue involved the penalty imposed under section 271(1)(c) of the Income Tax Act. Following the deletion of the addition made by the Commissioner, the penalty imposed by the CIT(A) was also challenged. The Tribunal, having allowed the appeal on the assessment issue, found no basis for the penalty. Consequently, the Tribunal set aside the penalty imposed by the CIT(A) under section 271(1)(c) of the Act. Both appeals filed by the assessee were allowed, and the penalty was deleted.This comprehensive analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Tribunal's reasoning for its decision on each issue.