TaxTMI 
TaxTMI 
2013 (10) TMI 1540
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....cing the quantum of addition made u/s 2(24)(iv) of Income-tax Act, 1961, in the assessment year 2003-04. Assessing Officer has also levied penalty u/s 271(1)(c) in the assessment years 2005-06 & 2006-07 with respect to addition so made, ld. CIT(A) had deleted the same against which Revenue is in appeal before us. 3. The Rival contentions have been heard and records perused. Facts in brief are that the assessee is an individual deriving income from salary as Director of M/s.Mechman & Feb Industries, share of profit from firm and interest income. There was search u/s 132(1) on 16.9.2005. During the course of search no incriminating material was found relating to payments made by Mechman Motors Private Limited to assessee. However, while framing assessment u/s 153A, the Assessing Officer made addition on account of loan amount received by the assessee from Mechman Motors Private Limited u/s 2(22)(e) and also taxed notional interest on such loan u/s 2(24)(iv) of the Income-tax Act, 1961. The ld. Authorized Representative placed reliance on the decision of Hon'ble Rajasthan High Court in the case of Jai Steels (India), 259 CTR 281, in support of proposition that no addition u/s 153....
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....r making of requisition and which would also necessary support the interpretation that for the compacted assessment the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents." 5. The ld. Authorized Representative also placed reliance on the following judicial pronouncements in support of the proposition that in the absence of incriminating material, no addition is warranted while framing assessment u/s 153A/153C :- (i) Alcargo Global Logistics Ltd. Vs. DCIT (2012) 137 ITD 287 (Mum) Special Bench, (ii) MGF Automobiles Ltd VS. ACIT Cent Circle-7, New Delhi ITA Nos.4212 & 4213/Del/2011 order dated 28.06.2013. (iii) Arun Sehlot ,Bhopal Vs. ACIT, 3(1), Bhopal IT(SS) A.Nos. 186 to 192/Ind/2012 order dated 30th April, 2013. (iv) Gurinder Singh Bawa DCIT , ITA Nos. 2075 & 2669 (MUM.) of 2010 order dated 16.11.2012. (v) ACIT(CC)-45, Mumbai Vs. M/s Pratibha Industries Ltd, Mumbai ITA Nos. 2197 to 2199/Mum/2008 order dated 19.12.2012. (vi) Shree Yamuna Proteins, Dahod Vs. ACIT, CC-1, Baroda IT(SS) A Nos.227 to 232/Ahd/2010 order dated 18.10.2012. (vii) ACIT Central Circle XXVII, Kolkata VS. Hindustan Storage ....
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....rch nor any evidence relating to the advance taken from Mechmen Motors Pvt. Ltd. was found during the course of search. It is settled law that where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed. Items of regular assessment cannot be added back in the proceedings u/s. 153C when no incriminating documents were found in respect of the addition disallowance amounts in the search proceeding. 9. As per ld. Authorized Representative no assessment proceeding in relation to the assessment year 2004-05 was pending on the date of search i.e. 16/09/2005 which will be more clear from the followings:- Sr. No. Particulars Remark (i) Date of search 16/09/2005 (ii) Date of filing of return 02/12/2004 (iii) Date up to which case could be selected for scrutiny 31/12/2005 (iv) Whether any notice u/s 142(1) of 143(2) received prior to search No 10. The ld. Authorized Representative further contended that the addition made without referring to the any incriminating document/loose paper is liable to be deleted in view of detailed argument made for the assessment year 2003-04. 11. On merit, it....
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....#39;ble Courts held as under:- "Ordinary, it is for the assessee to decide whether any expenditure should be incurred in the course of its or his business, and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction therefore under section 37(1) even though there was no compelling necessity to incur such expenditure". 15. As per ld. Authorized Representative , during the year, the company has started keeping its vehicles on the said land and building construction thereon for which no rent is paid by the company to the assessee. Thus, the advance was given for the business purpose of the company and not for the benefit of the assessee. As per ld. Authorized Representative, the assessee has also created mortgage on the said land for the purpose of raising loan by the company from State Bank of India and ICICI Bank Limited and finally with UCO Bank. The said land is still mortgaged with the Bank in respect of loan taken by the company. The contention of the ld. Authorized Representative was that since amount was given for the purpose of acquiring the land for construction of the building, which was effectively used by the company, the....
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....dering the advance given to other Directors comes to negative figure in respect of which no addition can be made u/s 2(22)(e). As per ld. Authorized Representative, deemed dividend is to be worked out on accumulated profit at the beginning of the year for which reliance was placed on the decision in the case of Rajesh P. Ved, 126 TTJ 711 and B. M. Stock Holding Private Limited, 75 TTJ 898. As per ld. Authorized Representative, adjustment of depreciation in computing accumulated profit for the purpose of Section 2(22)(e) is to be made in view of decision in the case of Yasin Hotels Private Limited, 121 TTJ 713, Jamunadas Khimji Kothari, 92 ITR 105 (Bom) and Navneetlal C. Zaveri, 80 ITR 582 (Bom). Our attention was also invited to the chart prepared after adjustment of depreciation and the addition made on account of deemed dividend in case of other Directors. 17. The ld. Authorized Representative also drew our attention to the accumulated profit of the company after adjustment of depreciation and the addition made in the hands of other Directors, negative balance of profit works out, on which no addition was warranted u/s 2(22)(e). On the other hand, the ld. CIT DR relied on orders....
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....ed out of the advances without any lease rent or any rent, in this process all the land which were purchased has been mortgaged with the bank from where the company has raised various loan like working capital and term loan. "The appellant has already created mortgage on the above land for the purpose of raising loan for the company. Initially it was offered to State Bank of India, and then the same was mortgaged with ICICI Bank Limited. Finally, the same is mortgaged with UCO Bank, which is still mortgaged." Further, it is respectfully submitted that the entire advance which has been obtained by the appellant has been fully utilized for the use of the company. The company is now running its show room constructed on the land purchase out of the advances given by the company, without paying any rent or any consideration for the same. It is clearly stated in the agreement entered Until full consideration in any form. As the advance given is against purchase of property and has been utilized for the purpose of company without any personal benefit to the Director, therefore, the provisions of Section 2(22)(e) is not attracted towards the advances given to the Director." However, t....
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....t of some benefit or perquisite. However, in the instant case before us, the assessee was not in receipt of any benefit or perquisite in the ay A .Y. 200506 and 2006-07 in so far as amount in question was paid to the assessee for the purpose of purchase of land, which was to be used by the company for its business for which no rent was payable by the company to the assessee. Thus, it was not a gratuitous loan, but was given to assessee for purchase of land to be used by company for the purposes of its business. Fact that assessee has not charged any rent from the company for use of land by the company is also not in dispute. Thus, amount of notional interest on such loan is fully compensated by rent which the company did not pay to assessee. Accordingly, there was no benefit or perquisite to assessee in these years, therefore, addition u/s 2(24)(iv) in these assessment years 2005-06 & 2006-07 are not sustainable. 22. Addition u/s 2(22)(e) on account of deemed dividend is warranted when amount is received by the assessee in the form of loan without any purpose and only because of assessee having substantial share holding in the company. However, when the amount is paid to the asses....
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....ls Private Limited, 121 TTJ 713, Jamunadas Khimji Kothari, 92 ITR 105 (Bom) and Navneetlal C. Zaveri, 80 ITR 582 (Bom). During the course of hearing, our attention was also invited to the chart prepared after adjustment of depreciation and the addition made in the hands of other Directors on account of deemed dividend, no profit was left out for the purpose of making addition in the hands of assessee u/s 2(22)(e). The I.T.A.T., Coordinate Bench in the case of Prashant Agarwal, another Director in the same company in its order dated 7th December, 2010, taken the view that a deemed dividend is to be worked out on the basis of accumulated profit arrived at after allowing claim of depreciation as per Income Tax Rules and it is not the profit shown in the company's balance sheet. The term "accumulated profit" for the purpose of arriving at deemed dividend have been judiciously dealt with by the Hon'ble Bombay High Court in the case of Jamunadas Khimji Kothari (supra), wherein the distinction has been made between the profit as disclosed in the company's balance sheet vis-à-vis the profit after making adjustment on account of depreciation eligible to the assessee at the rate p....
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....y is certainly involved in the case of both the said sections and may involve debatable issues with divergent views on the same set of facts. There may be divergent views as regards applicability of said sections at all or quantification of the amount of deemed income. The said sections bring within their ambit deemed income which is different from real income. I am of the considered opinion that no penalty is leviable in case of such deemed income. So far as addition of ₹ 10,32,000/on account of investment in plot is concerned, I am convinced with the submission of the appellant that the addition has not been made on the basis of statement of the seller. The addition has been made on the basis of sale agreement and registered deed has been disregarded. In other words, the A.O has given weighed sale agreement over registered sale deed. It was incumbent upon the A.O. to record the statement of the seller or make some field enquiry so as to substantiate the act of concealment of income. I find that the addition on account of unexplained investment in construction of boundary wall has been made on the strength of the Valuation Report. It is a matter of common knowledge that ever....
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....ition that penalty could not be imposed since the impugned addition ultimately sustained was based merely on estimate, finds further support from the decision of the P&H High Court in Harigopal Singh v. CIT (2002) 258 ITR 85 (P&H). 8. Penalty proceedings are not mechanical but the same were quasi-criminal and hence, penalty could not be levied in case of estimation of income. The AO had nor brought any evidence on record to prove conscious concealment on the part of the appellant nor had he brought any evidence to justify that the appellant furnished inaccurate particulars of its income. In the given facts and circumstances of the case, respectfully following the decision in Nai Dunia v , ACIT (2008) 10 IT1 162 (ITAT Indore), the impugned penalty imposed by the AO is held unsustainable. 9. It is undisputed that penalty proceedings are distinct from assessment proceedings and is such, before imposing penalty u/s 271 (l)(c), a heavy burden was cast upon the AO to conclusively prove beyond all shadows of doubt that the addition ultimately sustained on estimations, with reference to which the impugned penalty was imposed, was the income earned by the appellant during the relevant p....
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....llant owned and concealed the amount in question. In Dy. CIT v. Royal Metal Printers P. Ltd. (2005) 93 TTJ (Mum.) 119, the penalty imposed u/s 271 (1)( c) was held not justified. Reliance was placed on the decision of the IT A T Bangalore Bench in Bangalore Steel Distributors v. ITO (1995) 124 Taxman 94 (Bang. Trib.), wherein it was held that though addition made in the assessment order constituted material for the purpose of penalty proceedings, for the imposition of penalty, the AO is required to bring cogent material on record on the basis of which it could be established that the appellant had concealed the particulars of income or had furnished inaccurate particulars thereof. No such material had been brought on record to justify the imposition of penalty u/s 271 (1)( c) in the present case. Hence. the levy of penalty was held unjustified. 12. Mere addition to the appellant's income could not by itself prove concealment of income by the appellant and the Revenue could not impose penalty without proving the concealment of income by the appellant. CIT vs. Steel Rolling Mills of Hindustan (P) Ltd. (1983) 143 ITR 933 (Cal.);CIT vs. Murlidhar Chiranjilal, (1980) 121 ITR 528. ....
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....ecting the explanation, no material is brought in evidence by the AO to prove concealment, it was to be held that the onus resting on the Department has not been discharged. 14. As the proceedings for imposition of penalty and assessment proceedings are two separate and independent proceedings, separate and distinct provisions have been enacted in the Statute for initiation of the same. Therefore, the findings recorded by the authorities in the quantum appeal cannot be said to be decisive and conclusive factor in the penalty proceedings [CIT v. J.K. Synthetics Ltd. (1966) 219 ITR 267,270 (Del.)]. 15. Even under Explanation I, initial burden is on the Department to prima facie record concealment - As per Explanation I, if the assessing authority or the concerned authority, on the material before it, finds that the explanation offered by the appellant is false, then penalty can be levied on the amount which is found to be concealed. Therefore, the whole idea behind the Explanation I is that the assessing authority has to first record reasons for arriving at a conclusion that there is a failure on the part of the appellant, Hence, after seeking an explanation if the authority come....
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....not be imposed merely because it is lawful to do so unless the contumacious conduct on the part of the appellant is established beyond all shadows of doubt. In the instant case, under consideration, the impugned penalty was imposed simply because the addition was upheld in quantum appeal without proving contumacious conduct on the part of the appellant. The word "concealment" as appearing in section 271 (1)( c) inherently carries with it the element of mens rea, as held by the All. HC in Bharat Rice Mill v. CIT (2005) 278 ITR 599 (All.). In the case of the appellant, under consideration, the impugned penalty was imposed without establishing mens rea. Hence the same is unsustainable on facts and in law. l8. In CIT vs. V.S.K. Adi Chetty Suravel Chetty (2002) 254 ITR 633 (Mad.), it was held that the AO.has discretion u/s 271(\)(c) whether or not to initiate penalty proceedings. The word used in the section is "may" and not "shall" and hence significant amount of discretion is vested in the AO, which should be judiciously exercised. (SC decision in 237 ITR 570) in CIT v. Smt. P. K. Noorjahan. The SC in the case of Hindustan Steel Ltd. v. State of Orissa ....
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....ITR 83 (SC). The sum and substance of these precedents is that the concept a stands restored as a pre-requisite for jurisdiction. Explanation to section 271(1)(c), it may be pointed out, it not adverse to this inference, but only strengthens it inasmuch as penalty will be exigible under this provisions, where there is no explanation at all or explanation furnished is false. Even where appellant was not able to substantiate his explanation, penalty will not be exigible under the Explanation, if appellant's explanation is bona fide and appellant places all the facts and material available with him before the AO. In the case of the appellant, under consideration, the bona fide explanation submitted with circumstantial evidence was not proved as false. Before imposition of the impugned penalty, mens rea which was a pre-requisite for assumption of jurisdiction was not established on the strength of evidence brought on record against the appellant. 21. The law that assessments and penalty proceedings are difference and that penalty does not become exigible, merely because the addition was partly sustained or had become final is well-settled. It was in this context, the High Court i....
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....offered by the assessee. Even that during course of assessment proceedings, the assessee has requested to summon Brijesh Kumar Shukla to confirm the fact, but the Assessing Officer has not acceded to assessee's request. In view of the judicial pronouncements that no penalty is leviable under section 271(1)(c), where the explanation offered by the assessee is not found to be false by the Department, Assessing Officer was not justified in levying the penalty and the CIT(A) after discussing the issue in detail recorded finding to the effect that it was not a fit case for levy of penalty. Our view is supported by the decision of Hon'ble Supreme Court in the case of Dilip and Shroff, 291 ITR 519, CIT vs. Outdoor Publicity, 296 ITR 520 (Ker), BTX Chemicals Pvt.Limited, 288 ITR 196 (Guj). Accordingly, CIT(A) was justified in deleting the penalty imposed u/s 271(1)(c) of the Act. 27. On merits, we have already deleted additions made u/s 2(24)(iv) and 2(22)(e) in terms of our observations contained herein above. Since the additions itself have been deleted, penalty imposed thereon has no legs to stand. Accordingly, we confirm the action of the ld. CIT(A) for cancelling the penalty. 28....