TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 1127
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....y of the grounds of appeal before or during the course of the hearing of the appeal. It is prayed that the order of the CIT(A) being contrary to the facts on record and the settled position of law, be set aside and that of the assessing officer be restored." 3. From the above grounds, it would be clear that only grievance of the department in these appeals relate to the deletion of penalty levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 4. At the first instance we will deal with the appeal for the assessment year 2003-04. Facts of the case in brief are that the assessee filed the return of income on 27.11.2003 declaring a loss of Rs. 6,69,330/-. Later on, the case was selected for scrutiny. The AO framed the assessment at an income of Rs. 21,90,16,670/- and initiated the proceedings u/s 271(1)(c) of the Act. The AO while framing the assessment noticed that the assessee had procured a loan of Rs. 28,52,41,516/- from its sister concern M/s Jetair Pvt. Ltd. who had accumulated profits being reserves & surplus amounting to Rs. 21,95,21,000/-, as on 31.03.2003. The AO noted that the annual return of M/s Jetair Pvt. Ltd. received from....
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.... as to why penalty u/s 271(1)(c) of the Act for concealment of income should not be imposed. In response, the assessee submitted as under: "Thus as per the provision of section 271(1)(c) of the I.T. Act, penalty can be levied when Assessing Officer is satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. Further, the provisions, of section 273B of the I.T, Act states that no penalty shall be imposed on the assessee if there was a reasonable cause for any failure on the part of the assessee. The assessee during the course of assessment proceeding, has neither concealed any particulars of income nor furnished inaccurate particulars of income and had fully cooperated with the Income Tax Department during the course of assessment proceedings. Your goodself will also appreciate that the Hon'ble ITAT, New Delhi which the highest fact finding authority had decided the matter in favour of the assessee. It is well known that an appeal is admitted for hearing by the Hon'ble Delhi High Court only if a substantial question of law is involved in a matter. Considering that a substantial question of law was involved in t....
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....9;s appeal and the same is pending before the Hon'ble Supreme Court, we request your goodself to kindly keep the penalty proceedings u/s 271(1)(c) of the I.T. Act in abeyance till the pendency of the assessee's appeal before the Hon'ble Supreme Court." 8. However, the AO did not find merit in the submissions of the assessee and held that the assessee concealed its taxable income by observing as under: "6.2 In the instant case, it was the A.O. who detected that the assessee had procured a loan of Rs. 28,52,41,516/- from its sister concern M/s Jetair Pvt. Ltd. which had accumulated profit, being reserves and surplus, amounting to Rs. 21,95,21,000/- as on 31.03.2003. The A.O. conducted further enquires and found out through the annual return of M/s Jetair Pvt. Ltd. filed with the Registrar of Companies that the assessee -firm was the beneficial owner with a share holding of more than 10% of the voting power in M/s. Jetair Pvt. Ltd., and, thus, attracted the provisions of section 2(22)(e) of the Act treating the loan of Rs. 21,95,21,000/- given by M/s Jetair Pvt. Ltd. to the assessee firm as deemed dividend, and added the same to the assessee's total income. It is pa....
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.... 10. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the assessee is a partnership firm and is a beneficial owner of 48.19% shares of M/s Jetair Pvt. Ltd. and that the shares of the assessee firm were being held in the name of its two partners namely, Sh. Naresh Goyal (44.58%) and Sh. Surinder Goyal (3.61%). It was further submitted that the profits of the assessee firm are shared by the three partners in the following proportion: Same of the Firm Name of Partners Profit sharing ratio National Travel Service (Partnership Firm) Mr. Naresh Goyal Mr. Surinder Goyal Jet Enterprises Pvt. Ltd. 35% 15% 50% 11. It was further stated that Mr. Naresh Goyal was a registered shareholder of M/s Jetair Pvt. Ltd. but not the beneficial owner of more than 10% of the voting power, since he was holding 1,33,180 shares beneficially not for himself but for the assessee. Therefore, the beneficial ownership of 44.58% of the shares vests not with Mr. Naresh Goyal but with the assessee firm. Hence, Mr. Naresh Goyal was undoubtedly a registered shareholder but he was not a person who was the beneficial owner of shares holding not less than 10% of t....
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....purchased the shares in the names of the two partners." 13. It was contended that as regards to the 1st question of law, the Hon'ble Delhi High Court held that to attract the provision of Section 2(22)(e) of the Act, the person to whom the loan or advance was made to be a shareholder as well as the beneficial owner and that the Hon'ble Delhi High Court relied upon the judgment of the Hon'ble Supreme court in the case of CIT Vs C.P. Sarathy Mudaliar and Rameshwarlal Sanwarmal Vs CIT wherein it has been held that the word "shareholder" refers to the registered shareholder and not just to the beneficial shareholder. It was further stated that as regards to the second question of law, the Hon'ble Delhi High Court held that for the purpose of Section 2(22)(e) of the Act, partnership firm is to be treated as the shareholder and it is not necessary that it has to be a registered shareholder. It was stated that the Hob'ble Delhi High court in the case of CIT Vs Ankitech Pvt. Ltd. (340 ITR 14) has held that the loan given to a company which is not a shareholder cannot be treated as deemed dividend u/s 2(22)(e) of the Act and that the deeming provisions of Section 2(22)(e) of the Act relat....
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....t. Mrudulaben B. Patel vs. ACIT, the Hon'ble ITAT has given a rationale for introducing of the provisions of section 2(22)(e) of the I.T. Act by stating that various companies instead of distributing their accumulated profits as dividend amongst the shareholders indulged in advancing loans to the shareholders so as to avoid taxation of dividend in hands of shareholders. The Hon'ble ITAT also discussed the correct / proper procedure for initiation of penalty proceedings u/s 271(1)(c) of the I.T. Act and relying on the various judgements held that penalty proceedings should be initiated by the A.O. before the completion of assessment, In this regard, it is submitted that the purpose / rationale for introducing of the provisions of section 2(22)(e) of the I.T. Act has never been challenged by the appellant at any stage. Further, as regard to the correct procedure of initiation of penalty proceedings, it is submitted that it was never the contention of the appellant that proper procedure for initiation of penalty has not been followed in the case of appellant and so, penalty levied on the appellant should be dropped on technical ground. According to the appellant, the appellant....
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.... its enclosures and the appellant in due compliance to the then A.O.'s direction, furnished the copy of return alongwith computation & audited financial statement of JAPL of the relevant assessment year vide submission dated 23.11.2005. It is pertinent to mention here that the appellant in its submission dated 23.11.2005 again submitted the shareholding pattern of the firm and its partners in private limited companies wherein it was clearly mentioned that the appellant is the beneficial owner of 48.19% shares of JAPL through its two partners and Mr. Naresh Goyal (as partner of National Travel Service) holds 44.58% in JAPL and Mr. Surinder Goyal (as partner of National Travel Service) holds 3.61% in JAPL. It is on the basis of details / documents filed by the appellant that the then A.O. became aware that during the relevant assessment year, JAPL had accumulated profits of Rs. 21,95,21,000/- and the appellant firm was the beneficial owner of share holdings not less than 10% of voting power in JAPL. All these abovementioned facts have also been admitted by the then A.O. in Para 2.2 of the assessment order and the same is reproduced below for your honour's ready reference:- ....
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.... appellant to the then A.O., the notice u/s 133(6) of the I.T. Act dated 30.11.2005 to the ROC was probably issued in order to verify the correctness of the details provided by the appellant during the course of assessment proceedings. Moreover, it is nowhere alleged by the then A.O. in his entire assessment order that the detail / documents provided by the appellant during the course of assessment proceedings were incorrect, inaccurate or false on the basis of independent enquires made by the then A.O. Hence, the allegation of the A.O. that the appellant firm has not suo-moto furnished the information in the course of assessment proceedings & has willfully concealed the particulars of income is absolutely wrong, false, inaccurate and baseless and a desperate attempt on the part of the A.O. to justify levying of penalty on the appellant firm. On the contrary, all the relevant detail / documents / information have already been provided by the appellant during the course of assessment proceedings, much before the notice u/s 133(6) of the I.T. Act dated 30.11.2005 was even issued by the then A.O. to the ROC and all these facts are also disclosed by the then A.O. in his assessment orde....
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.... relevant portion of the judgement given in case of Reliance Petroproducts Pvt. Ltd. is reproduced below for your honour's ready reference:- "Therefore, it is obvious that it must be shown that the conditions under s. 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff vs. Jt. CIT & Anr. (2007) 210 CTR (SC) 228 : (2007) 6 SCC 329, this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under s. 271(1)(c), mens-rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that cl. (iii) of s. 271(1) provided for a discretionary jurisdiction upon the assessing authority, in as much as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of inc....
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....ential ingredient for the penalty under s. 271(1)(c) that the decision in Dilip N. Shroff vs. Jt. CIT & Anr. (cited supra) was overruled." Hence, in view of the meaning of 'conceal' and 'inaccurate' given by the Hon'ble Supreme Court in case of Dilip N. Shroff mentioned above, the appellant has neither concealed any particulars of income nor furnished inaccurate particulars of income. The appellant has suo-moto made all the relevant disclosures in the Audited Financial Statements & TAR and had also provided all the documents / details / information called for by the then A.O. during the course of assessment proceedings. d. In the case of CIT vs. Drapco Electric Corporation, the Hon'ble Gujarat High Court held that every assessee is bound to comply with provisions of law and to know consequences of noncompliances. The Hon'ble Court further held that if by gross negligence, the assessee brings about a situation where there is avoidance or evasion of tax, it could be deemed that the assessee is guilty of conscious concealment. In this regard, it is submitted that the appellant has not ignored any provisions of law on account of gross negligence. The app....
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....he case, the law and various judgements cited above, it is crystal clear that no penalty u/s 271(1)(c) of the I.T. Act can be levied on the appellant. Hence, we request your honour to kindly delete the penalty imposed on the appellant u/s 271(1)(c) of the I.T. Act and oblige" 15. The ld. CIT(A) after considering the submissions of the assessee deleted the penalty by observing in para 5 of the impugned order as under: "5. I have carefully considered the assessment orders, the penalty orders and. the submissions filed by the appellant for all the three assessment years. I have also carefully considered the arguments eloquently and forcefully put forth by the Id. AR of the appellant firm. I have also carefully perused the judicial pronouncements quoted by the Id. AR in favour of his client. I am of the considered opinion that there is considerable merit in the arguments put forth by the Id. AR that this is not a fit case for the imposition of penalty u/s. 271(1)(c) of the Act as the disallowances have been made by the Id. AO on legal grounds under a deeming provision. There is merit in the argument that it is a case of difference of opinion between the appellant and the AO with reg....
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....ng penalty on the appellant firm u/s. 271(1)(c) was misconceived. I hereby delete the penalty imposed by the AO u/s 271(1)(c) Rs. 8,06,73,968/- (for A.Y. 2003-04), of Rs. 70,99,310/- (for A.Y. 2005-06) and of Rs. 12,30,610/- (for A.Y. 2006-07). Rest of the grounds of appeal taken by the appellant firm are of consequential nature and do not require specific adjudication." 16. Now the department is in appeal. The ld. DR strongly supported the order of the AO and further submitted that the penalty u/s 271(1)(c) of the Act is leviable, it is immaterial whether the assessee had concealed income or filed inaccurate particulars of income because both situations lead to same conclusion i.e. improper determination of income or evasion of tax and that the penalty u/s 271(1)(c) of the Act is civil liability. Therefore, mens rea is not required to impose penalty. The reliance was placed on the following case laws: Union of India Vs Dharamendra Textile Processors (2008) 306 ITR 277 (SC) Gulraj Industries Ltd. Vs CTO 293 ITR 584 (SC) 17. It was further submitted by the ld. DR that when it had been held by the Hon'ble Supreme Court that mens rea is not applicable in proceedings relating to....
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.....- Trib.) 19. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the order passed by the AO u/s 271(1)(c) of the Act is barred by limitation because the order was required to be passed within six months from the end of the month in which the order passed by the ITAT was received. It was further stated that the penalty proceedings u/s 271(1)(c) of the Act were initiated vide assessment order dated 21.03.2006 u/s 143(3) of the Act for furnishing of inaccurate particulars of income (a reference was made to para 2.9 of the assessment order at page no. 30) whereas the penalty was levied vide order dated 23.03.2012 u/s 271(1)(c) of the Act for concealment of income (a reference was made to para 7 of the penalty order dated 23.03.2012). It was stated that the satisfaction of the AO at the time of initiation in the course of the assessment proceedings is the vital and key stage where the AO has to specify whether penalty is to be initiated either for concealing the particulars of the income or furnishing the inaccurate particulars of income. It was further stated that the aforesaid two charges ....
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.... dated 05.10.2010 CIT Vs Nayan Builders and Developers (2015) 231 Taxman 665 (Mum) (HC) 22. It was submitted that the assessee during the course of assessment proceedings, has neither concealed any particulars of income nor furnished inaccurate particulars of income and suo-moto disclosed in Schedule 7 of the audited financial statement that 1,43,980 equity shares of M/s Jetair Pvt. Ltd. were held as long term investment and moreover, this fact that the assessee had received loan amounting to Rs. 29,89,51,031/- during the relevant year from M/s Jetair Pvt. Ltd. had also been specifically disclosed in Annexure M of the Tax Audit Report of the relevant assessment year. It was further stated that in a case where addition has been made the levy of penalty u/s 271(1)(c) of the Act is not automatic and that the explanation 1 to Section 271 of the Act, which sets a way of imposing penalty, does not apply to the assessee's case since every possible explanation has been provided and it has no where been proved that the explanation was false. Therefore, the ld. CIT(A) was fully justified in deleting the penalty u/s 271(1)(c) of the Act levied by the AO. The reliance was placed on the jud....
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....rm and thus, the loan given by M/s Jetair Pvt. Ltd. to the assessee, to the extent of the accumulated profits amounting to Rs. 21,95,21,000/- is treated as deemed dividend u/s 2(22)(e) in the hands of the assessee. Therefore, the amount of Rs. 21,95,21,000/- is hereby added in the hands of the assessee as deemed dividend assessable under the head 'income from other sources'. Since I am satisfied that the assessee has furnished inaccurate particulars of his income, penalty proceedings u/s 271(1)(c) have been initiated separately." (Emphasis supplied) 24. From the above notings, it is crystal clear that the AO invoked the provisions of Section 271(1)(c) of the Act on the basis that the assessee had furnished inaccurate particulars of income. However, the penalty was levied u/s 271(1)(c) of the Act vide order dated 23.03.2012 on account of willful concealment of income which is evident from para 7 of the aforesaid order dated 23.03.2012 which read as under: "7. Thus, in view of above facts, I am satisfied that the assessee had willfully concealed the income to the extent of Rs. 21,95,21,000/- as discussed above. Therefore, considering all the facts and circumstances of the case I i....
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....s of income, but the final conclusion for levying the penalty was based on a different footing altogether, viz., on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given a reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the Income-tax Officer disappeared when the Appellate Assistant commissioner held that there was no suppression of income by the assessee. The conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty under section 271(1)(c) for concealment of income was correct." 29. In the present case also as we have already pointed out that the AO initiated the penalty proceedings on a particular footing viz., furnishing of inaccurate particulars of income but the final conclusion for levying the penalty was based on different footing altogether viz., on concealment of income. Therefore, the very basis for initiating the penalty proceedings against the assessee by the AO disappeared when the penalty u/s 271(1)(c) of the Act was....
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....spect of which penalty was confirmed have been accepted by the Hon'ble Bombay High Court leading to substantial question of law. When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u/s 271(1)(c) as has been held in several cases including Rupam Mercantile Vs. DCIT [(2004) 91 1TD 237 (Ahd) (TM)] and Smt. Ramila Ratilal Shah Vs. ACIT [(1998) 60 TTJ (Ahd) 171]. The admission of substantial question of law by the Hon'ble High Court lends credence to the bona fides of the assessee in claiming deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred at all, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty. Since the additions, in respect of which penalty has been upheld in the present proceedings, have been held by the Hon'ble High Court to be involving a substantial question of law, in our considered opinion, the penalty is not exigible under this section. We, therefore, order for the d....