ITO, Chandigarh V. Quixotic Healthcare, Chandigarh

ITA 163/CHANDI/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95450 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Keywords: Bonafide belief; Deemed to accrue or arise in india; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO.163/CHD/2015 ASSESSMENT YEAR: 2007-08 THE ITO VS. M/S QUIXOTIC HEALTHCARE WARD 1(2) # 784, INDL. AREA CHANDIGARH PHASE 2, CHANDIGARH PAN NO. AAAFQ1947N (APPELLANT) (RESPONDENT) APPELLANT BY : DR. AMARVEER SINGH RESPONDENT BY : SH. TEJ MOHAN SINGH DATE OF HEARING : 29/07/2015 DATE OF PRONOUNCEMENT : 06/08/2015 ORDER PER BHAVNESH SAINI, J.M. THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 11/11/2014 PASSED BY THE CIT(A), CHANDIGARH. 2. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUND: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS & C ONTRARY TO FACTS & LAW. 2. WHETHER ON FACTS AND CIRCUMSTANCES THE LD. CIT(A ) IS JUSTIFIED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE AC T, BY HOLDING THAT THE ASSESSEE HAD DECLARED ALL THE MATERIAL FACTS OF BOR ROWING IN ITS BALANCE SHEET, WITHOUT APPRECIATING THE FACT THAT THE TRUE PARTICULARS OF INCOME WERE NOT FURNISHED BY THE ASSESSEE IN ITS RETURN. . 3. WHETHER ON FACTS AND CIRCUMSTANCES THE LD. CIT(A ) IS JUSTIFIED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE AC T, WHEN THE ASSESSEE, BEING A CORPORATE ENTITY HAVING ACCESS TO EXPERT AD VICE SHOULD HAVE INCLUDED THE DEEMED INCOME IN ITS ITR AS THE PROVIS IONS OF SECTION 2(22)(E) ARE VERY CLEAR IN THIS REGARD AND BY NOT DOING SO T HE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME. 4. WHETHER ON FACTS AND CIRCUMSTANCES THE LD. CIT(A ) IS JUSTIFIED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE AC T, BY HOLDING THAT THE ASSESSEE HAD DECLARED ALL THE MATERIAL FACTS OF BOR ROWING IN ITS BALANCE 2 SHEET, WITHOUT APPRECIATING THAT THE MERE INCLUSION OF A LOAN TRANSACTION IN THE BALANCE SHEET DOES NOT ABSOLVE THE ASSESSEE OF THE LIABILITY TO PAY TAX ON THE CORRESPONDING DEEMED INCOME WHICH THE AS SESSEE SHOULD HAVE INCLUDED IN ITS INCOME SUO MOTU. 3. THE ONLY EFFECTIVE GROUND OF APPEAL IN THIS CASE IS AGAINST THE DELETION OF PENALTY OF RS. 4,61,465/- LEVIED UNDER SECTION 271( 1)(C) OF THE INCOME TAX ACT, 1961. 4. BRIEF FACTS OF THE CASE ARE THAT ,THE ASSESSE IS A PARTNERSHIP CONCERN OF FOUR PARTNERS ,SANJEEV SINGAL, HARPREET SINGH, HIMJYOTI DHIR AND SATISH KUMAR .THESE FOUR PERSONS ARE ALSO SHAREHOLDERS OF 85.79% SHARE S IN M/S PREET REMEDIES (P) LTD..FOR THE YEAR UNDER REFERENCE IT WAS NOTICED TH AT M/S PREET REMEDIES (P) LTD. HAD ADVANCED A LOAN AMOUNTING TO RS. 13 LACS TO TH E ASSESSEE I.E.; M/S QUIXOTIC HEALTHCARE. THE AO TREATING THE SAME AS DE EMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961, MADE AN ADDITION OF RS. 13 LACS IN THE HANDS OF THE ASSESSE. AGGRIEVED WITH THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO VIDE HIS ORDER DT. 01/09/2011 IN THE APPEAL NO. 482/2009-10, CONFIRMED THE ADDITION OF RS. 13 LACS MADE BY THE AO AGAINST WHICH THE ASSESSEE DID NOT PREFER ANY FU RTHER APPEAL BEFORE THE ITAT. 5. PENALTY PROCEEDINGS WERE INITIATED UNDER SECTION 271(1)(C) OF THE ACT ON THIS ADDITION. IN THE PENALTY PROCEEDINGS THE ASSE SSE ARGUED THAT THERE WAS NO CONCEALMENT OF INCOME.THE ASSESSE FURTHER STATED TH AT SINCE IT WAS NOT A REGISTERED SHAREHOLDER OR BENEFICIAL SHAREHOLDER IN M/S PREET REMEDIES PVT. LTD. THE DEEMED DIVIDEND COULD NOT BE ASSESSED IN ITS HA NDS. THE AO ,IN HIS PENALTY ORDER, HELD THAT THE ASSESSE HAD NOT GIVEN A CONVI NCING AND PLAUSIBLE REASON IN SUPPORT OF ITS CONTENTION THAT THERE WAS NO CONCEAL MENT OF INCOME. INTERPRETING THE PROVISIONS OF SECTION 2(22)(E) HE HELD THAT DIV IDEND INCLUDES ANY PAYMENT BY 3 A COMPANY ,NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED,BY WAY OF LOAN OR ADVANCE TO ANY CONCERN IN WHICH A SHAREHOLDER OF THE COMPANY ,HOLDING SUBSTANTIAL INTEREST, IS A PARTNER AND I N WHICH ALSO HE HAS SUBSTANTIAL INTEREST. THEREFORE AS PER THE AO THE ADVANCE GIVEN BY THE COMPANY TO THE FIRM SQUARELY QUALIFIED AS DEEMED DI VIDEND UNDER SECTION 2(22)(E) OF THE ACT.THE ASSESSE HAVING NOT RETURNED THE SAME IN HIS RETURN OF INCOME HAD FURNISHED INACCURATE PARTICULARS OF INCO ME AND WAS THEREFORE LIABLE TO PENALTY U/S 271(1) OF THE ACT .THE A.O. LEVIED A PENALTY OF RS. 4,61,465/- UNDER SECTION 271(1)(C) OF THE ACT. 6. THE LD. CIT(A) CANCELLED THE PENALTY VIDE HIS O RDER DATED 11/11/2014 ON THE GROUND THAT THE ASSESSEE HAD DISCLOSED THE FAC T OF BORROWING IN ITS BALANCE SHEET AND HAD NOT CONCEALED ANY MATERIAL FACTS. THE LD. CIT(A) FURTHER HELD THAT THE FACTUAL INFORMATION GIVEN BY THE ASSESSEE HAD N OT BEEN FOUND TO BE INCORRECT. HE FURTHER RELIED ON THE VIEW TAKEN BY H ONBLE ITAT, MUMBAI IN THE CASE OF ITO 9(2)(4) MUMBAI VS. M/S PARAMOUNT APPA RELS PVT. LTD., MUMBAI VIDE ORDER DT. 31/01/2012 IN ITA NO. 2539/MUM/2011 AND H ONBLE ITAT, DELHI VIDE ORDER DT. 22/11/2013 IN ITA NO. 2691/DEL/2013, AND ACCORDINGLY CANCELLED THE PENALTY . 7. AGGRIEVED AGAINST THE AFORESAID ORDER THE REVENU E HAS FILED THIS PRESENT APPEAL. 8. BEFORE US THE AR REPEATED HIS ARGUMENTS MADE BEF ORE THE AO AND RELIED UPON THE ORDER OF THE LD. CIT(A). THE AR ARGUED THA T THERE WAS NO CONCEALMENT OF INCOME.THE AR FURTHER STATED THAT SINCE THE ASSE SSEE WAS NOT A REGISTERED SHAREHOLDER OR BENEFICIAL SHAREHOLDER IN M/S PREET REMEDIES PVT. LTD. THE DEEMED DIVIDEND COULD NOT BE ASSESSED IN ITS HANDS. THE AR PLACED RELIANCE ON 4 THE JUDGEMENT OF THE ITAT MUMBAI BENCH IN THE CASE OF ACIT VS V. BHAUMIK COLOUR (P) LTD.313 ITR 146 (MUM)(SB) IN THIS REGARD .THE AR FURTHER ARGUED THAT SINCE THE ADDITION MADE WAS SOLELY ON ACCOUNT OF DI FFERENCE OF VIEW TAKEN ON THE SAME SET OF FACTS,IT HAD NOTHING TO DO WITH THE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME.THE AR ARGUED THAT THE ADDITION TO INCOME WAS MADE UNDER THE DEEMING PROVISIONS OF THE ACT AND AS SUCH PENALTY WAS NOT LEVIABLE AS HELD BY THE ITAT MUMBAI G BENCH IN THE CASE OF RAJESH L DURGANI VS ACIT CIRCLE 18(3) MUMBAI .RELY ING UPON THE DECISION OF THE APEX COURT IN RELIANCE PETRO PRODUCTS THE AR ARGUED THAT PENALTY COULD NOT BE LEVIED FOR A MERE DISALLOWANCE OF A CLAIM IN THE AS SESSMENT PROCEEDINGS .THE REVENUE ON THE OTHER HAND PLACED RELIANCE ON THE O RDER OF THE AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE DOCUMENTS PLACED BEFORE US AS WELL AS THE ORDERS OF THE LOWER AUTHOR ITIES. 10. THE ONLY ISSUE BEFORE US IS WHETHER NOT TREATIN G THE ADVANCE RECEIVED BY THE ASSESSE OF RS.13 LACS FROM M/S PREET REMEDIES P VT. LTD. AS INCOME IN THE NATURE OF DEEMED DIVIDEND, WOULD ATTRACT PENALTY UN DER SECTION 271(1) AND ALSO WHETHER THE CIT(A) HAS RIGHTLY CANCELLED THE S AME. 11. THAT THE ASSESSE, A PARTNERSHIP CONCERN, HAS RE CEIVED AN ADVANCE OF RS. 13 LACS FROM M/S PREET REMEDIES PVT. LTD., A COMPAN Y IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED ,IS AN UNDISPUTED FACT. T HAT THE ASSESSE IS NOT A SHAREHOLDER IN M/S PREET REMEDIES PVT. LTD IS ALSO AN UNDISPUTED FACT.FURTHER IT IS ALSO UNDISPUTED THAT THE FACTUM OF RECEIVING THE AD VANCE OF RS.13 LACS WAS DULY DISCLOSED IN THE BALANCE SHEET OF THE ASSESSE FIRM. IN THE LIGHT OF THE ABOVE FACTS THE ISSUE OF LEVY OF PENALTY AND ITS CANCELLATION THEREAFTER HAS TO BE ADJUDICATED UPON. 12. PENALTY U/S 271(1) IS LEVIED FOR CONCEALING OR FURNISHING INACCURATE PARTICULARS OF INCOME. EXPL 1 TO SECTION 271(1) FU RTHER CLARIFIES THAT WHERE IN 5 RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCOME ,ANY PERSON EITHER FAILS TO OFFER AN EXPLANATION OR OFFERS AN E XPLANATION WHICH IS FOUND TO BE FALSE OR IS UNABLE TO SUBSTANTIATE AN EXPLANATION , THEN THE ADDITION OR DISALLOWANCE MADE TO HIS TOTAL INCOME AS A RESULT T HEREOF SHALL BE TREATED AS INCOME WHOSE PARTICULARS HAVE BEEN CONCEALED. 13. IN THE PRESENT CASE IT IS EVIDENT THAT THE ASSE SSE HAS MADE FULL DISCLOSURE OF THE ADVANCE OF RS. 13 LACS RECEIVED FROM M/S PREET REMEDIES PVT. LTD. THE SAME HAS BEEN DULY DISCLOSED IN THE BALANCE SHEET OF THE ASSESSE ,AS HAS BEEN STATED BY THE CIT(A) AT PARA -5 OF HIS ORDER WHEREIN HE S TATES ; THE FACT OF LOAN TAKEN BY THE APPELLANT COMPANY FRO M M/S PREET REMEDIES (P) LTD. CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER FROM THE BALANCE SHEET FILED BY THE APPELLANT IT HAS NOW TO BE SEEN WHETHER THE ASSESSE HAS DISPL ACED THE PRESUMPTION RAISED AGAINST IT BY THE EXPL TO SECTION 271(1) OF THE AC T.IT IS THE CASE OF THE ASSESSE THAT HE WAS UNDER A BONAFIDE IMPRESSION THAT SINCE IT(PARTNERSHIP FIRMM/S QUIXOTIC HEALTHCARE)WAS NOT A SHAREHOLDER IN M/S PR EET REMEDIES PVT. LTD,THE ADVANCE GIVEN BY M/S PREET REMEDIES PVT. LTD, COULD NOT BE TREATED AS DEEMED DIVIDEND IN ITS HANDS U/S 2(22)(E) OF THE AC T..THIS BELIEF WAS BASED ON DECISIONS OF THE ITAT IN THE CASE OF ACIT VS V. BHA UMIK COLOUR (P) LTD 313 ITR 146 (MUM)(SB).IN OUR VIEW THIS SUBMISSION OFFERED BY T HE ASSESSE HAD CONSIDERABLE FORCE SINCE THERE WERE ALSO DECISIONS BY THE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH P. LTD. 340 ITR 14 AND THE RAJASTHAN H IGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP, 313 ITR 116 WHICH HELD THAT TO BRING TO TAX ANY AMOUNT AS DEEMED DIVIDEND AS PER THE PROVISIONS OF SECTION 2(22)(E) ,IT IS ESSENTIAL THAT THE RECIPIENT OF THE AMOUNT MUST BE A SHAREHOLDER OF THE COMPANY. MOREOVER THE AO HAS NOT STATED AS TO WHY THE RATIO PROMULGATED IN THE CASE REFERRED TO BY THE ASSESSE WOULD NOT APPLY TO THE HIM. WE ARE THEREFOR E SATISFIED THAT THE ASSESSES 6 EXPLANATION IN REGARD TO TAXABILITY OF THIS AMOUNT IN ITS HANDS IS PROBABLE AND TRUE. IT IS THE ARGUMENT OF THE REVENUE THAT THE ASSESSE SHOULD HAVE DISCLOSED THIS AMOUNT IN HIS RETURN OF INCOME.THIS ARGUMENT IS UN TENABLE IN VIEW OF THE LEGAL POSITION PREVAILING AT THAT TIME AS LAID DOWN BY TH E DELHI HIGH COURT AND THE RAJASTHAN HIGH COURT REFERRED TO ABOVE.WE THEREFORE HOLD THAT THE EXPLANATION OF THE ASSESSE THAT HE HAD NO INTENTION TO EITHER C ONCEAL OR FURNISH INACCURATE PARTICULARS OF INCOME IS QUITE PROBABLE AND TRUE IN THE STATE OF LAW SET OUT ABOVE. THE ASSESSE HAS ,TH EREFORE, DISCHARGED HIS ONUS OF PROOF UNDER EXPLANATION 1 TO SECTION 271(1) OF THE ACT AND SHOWN THAT THERE WAS NO WILLFUL OR GROSS NEGLECT ON HIS PART IN RETU RNING THE CORRECT INCOME.WE ARE ALSO SATISFIED THAT THE ASSESSE HAD DISCLOSED ALL R ELEVANT PARTICULARS RELATING TO HIS INCOME AND THERE WAS NEITHER ANY CONCEALMENT OF INC OME NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. ADDITION MADE APP LYING DEEMING PROVISIONS WOULD NOT DISCLOSE IT TO BE A CASE OF FILING INACCU RATE PARTICULARS OF INCOME. 14. IN ANY CASE ,WITHOUT PREJUDICE TO WHAT HAS BEEN STATED ABOVE, THE DISPLACEMENT OF PRESUMPTION RAISED AGAINST THE ASSE SSE BY THE EXPL. 1 TO SECTION 271(1) AMOUNTS TO CONCEALING PARTICULARS OF INCOME. THE AO IN THE PRESENT CASE HAS LEVIED PENALTY FOR FURNISHING INACCURATE PARTICULARS OF INCOME . THE AO THEREFORE IS APPARENTLY SATISFIED THAT THE EXPL 1 T O SECTION 271(1) IS NOT ATTRACTED IN THE ASSESSES CASE FOR THE LEVY OF PENALTY. 15. FURTHER,THE APEX COURT IN HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 26 HAS HELD THAT : AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDINGS, AND PENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACT ED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED ME RELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE T O PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORI TY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCE S. EVEN IF A MINIMUM PENALTY 7 IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE TH E PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNIC AL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT, OR WHERE THE BREACH FLOWS FR OM A BONAFIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRI BED BY THE STATUTE. MOREOVER, HONBLE SUPREME COURT IN CIT VS. RELIA NCE PETROPRODUCTS PVT. LTD. (SLP(C) NO. 27161 OF 2008) HAS HELD THAT DISALLOWAN CE OF THE CLAIM IN THE ASSESSMENT PROCEEDINGS COULD NOT BE THE SOLE BASIS FOR LEVYING OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 16. WE THEREFORE CONCUR WITH THE VIEW OF THE CIT( A) AND ARE SATISFIED THAT NO PENALTY IS EXIGIBLE IN THE PRESENT CASE UNDER SECTI ON 271(1)(C) OF THE ACT. THE FINDINGS GIVEN SHALL HAVE NO BEARING ON QUANTUM ADD ITION. IN RESULT WE UPHOLD THE CANCELLATION OF PENALTY OF RS.4,61,465/ BY THE CIT(A). ACCORDINGLY THE DEPARTMENT APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/08/2015. SD/- SD/- (T.R. SOOD) (BHAVNESH SAI NI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 06/08/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR