2016 (5) TMI 36 - AT - Income Tax

Tribunal overturns penalty for share application money sourced from Directors, citing Supreme Court precedent.

Mahavir Ispat Private Ltd. Versus The Income Tax Officer, Hyderabad

The Tribunal allowed the appeal, setting aside the penalty imposed under section 271(1)(c) of the Income Tax Act. The decision was based on the finding ... Penalty u/s. 271(1)(c) - undisclosed share application money introduced - Held that:- As can be seen from the order of the AO as well as CIT(A) in the assessment proceedings, the entire share application money in this Private Limited company was from the Directors or from their minor children. The proceedings were also consequent to search operations conducted in that group. Still AO records that assessee has not proved the genuineness of creditors, identity and creditworthiness while making the addition. Ld. CIT(A) gave relief to the extent of the investments made by the Director as they are Income tax assessees’, who also confirmed the investment made in the name of minor children. As pointed out by the Ld. Counsel, assessee did not prefer an appeal due to smallness of the tax involved. That does not mean that there is concealment of income, more so, by way of furnishing of inaccurate particulars so as to attract penalty u/s. 271(1)(c) of the Act. Mere disallowance in assessment or addition by invoking the deeming provisions does not automatically attract the provisions of Section 271(1)(c), unless the conditions thereon are satisfied. The facts of the case does not fall either under the head ‘concealment of income’ or under the head ‘furnishing of inaccurate particulars’. All the necessary details were furnished by assessee and there is no furnishing of inaccurate particulars in this case. - Decided in favour of assessee Issues:- Appeal against penalty u/s. 271(1)(c) of the Income Tax Act.Analysis:1. The appeal was filed against the penalty imposed by the Commissioner of Income Tax (Appeals) confirming the penalty u/s. 271(1)(c) of the Income Tax Act. The assessee, engaged in the business of manufacturing and selling MS steel ingots, had a search and seizure operation conducted under section 132 of the Act. The Assessing Officer made an addition of a specific amount related to share application money introduced in the company. The CIT(A) confirmed part of the addition, which led to the penalty imposition.2. The CIT(A) upheld the penalty stating that the appellant failed to satisfactorily explain the sources of the funds. The appellant contested that there were no inaccurate particulars of income furnished and that the minors involved had sufficient sources. The penalty order was based on the grounds of furnishing inaccurate particulars of income, which the appellant disputed.3. The Tribunal considered the facts and contentions presented. It was noted that the share application money in the company was from the Directors or their minor children. The CIT(A) provided relief concerning the investments made by the Directors, who were income tax assessees, including the investments in the names of minor children. The Tribunal agreed with the appellant that the case did not fall under 'concealment of income' or 'furnishing of inaccurate particulars'. The Tribunal referenced the Supreme Court case of CIT Vs. Reliance Petro products P. Ltd., emphasizing that the mere addition of share capital from minor children does not warrant a penalty under section 271(1)(c).4. Consequently, the Tribunal allowed the appeal of the assessee, setting aside the orders of the AO and CIT(A) levying the penalty under section 271(1)(c) of the Income Tax Act. The decision was based on the lack of furnishing inaccurate particulars and the absence of concealment of income.