2015 (6) TMI 52 - AT - Income Tax

Tribunal deletes penalty for deemed dividend, emphasizing evidence in penalty proceedings

The Tribunal upheld the deletion of the penalty imposed under section 271(1)(c) for A.Y. 2006-07 related to deemed dividend u/s 2(22)(e) of a specific ... Penalty u/s 271(1)(c) - deemed dividend u/s 2(22)(e) - CIT(A) deleted penalty levy - Held that:- The assessee’s explanation that the money received from these companies were in the nature of refundable security deposits received by the assessee in lieu of letting of the properties owned by her has not been found to be false and in fact has been substantiated by the evidence in the form of internal bank vouchers and the entries in the books of account of the assessee as well as of the companies. The revenue has no material to rebut such an evidence or that the assessee’s explanation is false based on material on record. The assessee’s onus in the penalty proceedings stands fully discharged. Once, it has been shown that the amount has been received not as loan but as deposits, the deeming fiction of 2(22)(e) cannot be stretched to hold that the payment made by a company to a shareholder by way of deposit in lieu of usage of property for its business purpose is in the nature of loan. It is a trite law that the deeming fiction has to be strictly construed and such legal fiction cannot be extended for any kind of payment by a company to its shareholder. Thus, on the facts and circumstances of the case, we find that the reasons recorded by the Ld. CIT(A) for deleting the penalty is legally and factually correct and accordingly the same is affirmed. - Decided in favour of assesse. Issues:- Deletion of penalty under section 271(1)(c) for A.Y. 2006-07 related to deemed dividend u/s 2(22)(e) of a specific amount.Detailed Analysis:1. Quantum Proceedings:The appeal was filed by the Revenue against the deletion of penalty of Rs. 33,99,660/- imposed for deemed dividend u/s 2(22)(e) of Rs. 1,01,00,000/- for A.Y. 2006-07. The AO treated the amount received from 3 companies by the assessee as a loan/advance, leading to the penalty proceedings under section 271(1)(c). The CIT(A) and Tribunal upheld the addition as deemed dividend as the conditions of section 2(22)(e) were fulfilled.2. Penalty Proceedings:The assessee contended that the amount received was refundable security deposits for properties let out to the companies, supported by bank payment vouchers. The AO, relying on the quantum findings, levied the penalty, stating inadequate particulars were furnished. The assessee argued that such deposits are not loans under section 2(22)(e) and provided evidence to support the claim.3. Appellate Tribunal's Decision:The CIT(A) deleted the penalty after considering all evidence, including bank vouchers, and the explanation provided by the assessee. The Tribunal noted that the deposits were for letting commercial properties to the companies, not loans. The Tribunal emphasized that findings in quantum proceedings do not automatically justify a penalty under section 271(1)(c). The assessee's explanation was found to be substantiated, and the penalty was deleted.4. Final Decision:The Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty. It was concluded that the assessee's explanation, supported by evidence, regarding the nature of deposits received was valid. The Tribunal highlighted that the deeming fiction of section 2(22)(e) cannot be extended to classify property usage deposits as loans. The penalty was rightly deleted based on the evidence presented and the legal interpretation of the provisions.In conclusion, the Tribunal upheld the deletion of the penalty, emphasizing the distinction between quantum findings and penalty proceedings, and the need for evidence to substantiate claims under section 271(1)(c).