2016 (8) TMI 406 - AT - Income Tax

Tribunal cancels penalty under Income Tax Act, citing assessee's bona fide explanation

Taher Afsar Ali Versus Income Tax Officer 24 (1 (2), Mumbai

The Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty under section 271(1)(c) of the Income Tax Act. The Tribunal held ... Penalty levied by AO u/s 271(1)(c) on the deemed dividend income - addition made u/s 2(22)(e) - Held that:- In the case before us, the assessee has declared full facts qua the loan raised from a company in which he has substantial shareholding and the explanation offered by the assessee was bonafide and not false and therefore the penalty cannot be levied in such a case. The FAA has confirmed the action of AO just on the basis that quantum was confirmed by predecessor CIT(A), which is not correct and proper. In our view the addition made u/s 2(22)(e) under the deeming provisions of Act is made and confirmed by the ld. CIT(A), in that case the penalty is not attracted specially when the assessee has offered an explanation which is bonafide and has disclosed full facts in the return of income qua the said unsecured loans raised from the sister concern in which the assessee has substantial interest. In view of the above facts, we set aside the order of ld. CIT(A) and direct the AO to delete the addition. - Decided in favour of assessee. Issues Involved:1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.2. Deemed dividend under section 2(22)(e) of the Income Tax Act.3. Disclosure of facts and particulars of income.4. Interpretation of legal provisions and bona fide explanations.5. Applicability of penalty in cases of deemed income.Detailed Analysis:1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act:The assessee appealed against the confirmation of a penalty of Rs. 2,09,100/- imposed by the Assessing Officer (AO) under section 271(1)(c) for the assessment year 2009-10. The penalty was levied for allegedly filing inaccurate particulars of income and concealing income in respect of deemed dividend.2. Deemed Dividend under Section 2(22)(e) of the Income Tax Act:The case facts reveal that the assessee filed a return declaring NIL income, which was initially processed under section 143(1). Subsequently, the case was reopened under sections 147 and 148. The AO found that the assessee held substantial interest in M/s ZAN Engg (India) Pvt Ltd and had raised unsecured loans from the company amounting to Rs. 21,57,903/-, with Rs. 8,50,000/- received during the year. The AO treated this amount as deemed dividend under section 2(22)(e) and added it to the income.3. Disclosure of Facts and Particulars of Income:The assessee argued that the loan was properly disclosed in the balance sheet and that there was no concealment of facts. The AO's penalty was based on the assertion that the assessee failed to discharge the burden of proving non-concealment and accurate particulars of income. The assessee contended that the loan was repaid during the year and that all facts were fully disclosed.4. Interpretation of Legal Provisions and Bona Fide Explanations:The assessee provided a detailed explanation opposing the penalty, citing various grounds, including the bona fide nature of the loan transaction, the disclosure in the balance sheet, and the absence of mens rea (guilty mind). The assessee relied on several judicial precedents to support the claim that the penalty was not warranted.5. Applicability of Penalty in Cases of Deemed Income:The Tribunal considered the rival contentions and found that the assessee had disclosed full facts regarding the loan and its repayment. The Tribunal observed that the penalty was confirmed by the CIT(A) without a speaking order and merely based on the confirmation of the addition in quantum proceedings. The Tribunal cited the case of Mahavir Irrigation Pvt Ltd vs CIT, emphasizing that penalty is not an automatic consequence of an addition and that the assessee had not concealed particulars of income nor furnished inaccurate particulars.The Tribunal also referred to the judgment in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., which clarified that a mere incorrect claim does not amount to furnishing inaccurate particulars. The Tribunal concluded that the addition under section 2(22)(e) was made under a deeming provision, and such provisions should not automatically extend to penalty imposition.Conclusion:The Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty, holding that the assessee had offered a bona fide explanation and disclosed all relevant facts. The appeal of the assessee was allowed, and the penalty under section 271(1)(c) was deleted.Order Pronounced:The appeal was allowed, and the order was pronounced in the open court on 22.6.2016.