M/s. Sadana Brothers Sales Pvt. Ltd., Indore V. The ACIT., Indore

ITA 204/IND/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9634 (ITAT-INDORE)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MITRA
• Assessee Lawyers: S S DESHPANDE
• Keywords: Deemed dividend
• Section: 271(1)(c); 143(3); 2(22)(e); 27

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.204/IND/2010 A.Y.2006-07 M/S SADANA BROTHERS SALES P. LTD. INDORE PAN AAFCS-3426E APPELLANT VS ASSTT. COMMISSIONER OF INCOME TAX 3(1), INDORE RESPONDENT APPELLANT BY : SHRI S.S. DESHPANDE RESPONDENT BY : SHRI P.K. MITRA O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 15 TH FEBRUARY, 2010. THE SUM AND SUBSTANCE OF THE GROUNDS TAKEN BY THE ASSESSEE IS THAT THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G THE PENALTY OF RS. 19,90,738/- LEVIED BY THE ASSESSING OFFICER U/S 271 (1)(C) OF THE ACT. 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SHRI S .S. DESHPANDE, LD. COUNSEL FOR THE ASSESSEE AND SHRI P. K. MITRA, LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE. BEFORE US, THE LD. COUNSEL FOR THE 2 ASSESSEE, SHRI S.S. DESHPANDE SUBMITTED THAT THE T RANSACTION WAS PURELY A BUSINESS TRANSACTION AND EVEN THE SISTER CONCERNS OF THE ASSESSEE ARE CARRYING ON BUSINESS OF FORWARDING AGE NTS FOR THE STATE OF RAJASTHAN. A STRONG PLEA WAS ALSO RAISED THAT THE ASSESSEE IS TOTALLY AN INDEPENDENT COMPANY AND THE ASSESSEE IS NOT HAVING ANY SHARE HOLDING IN THE SISTER COMPANIES, THEREFORE, I N VIEW OF THE DECISION OF ITAT, BOMBAY SPECIAL BENCH IN THE CASE OF BHAUMI K COLOURS (P) LIMITED; 120 TTJ 865 (SB) (MUMBAI) SUCH RECEIPT OF LOAN CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT THERE IS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IT WAS POINTED OUT THAT THOUGH NO APPEA L WAS FILED BY THE ASSESSEE ON QUANTUM ADDITION BUT SINCE THERE IS NO CONCEALMENT, NO PENALTY SHOULD HAVE BEEN LEVIED. IT WAS, THEREFORE, CLAIMED THAT ALL THE FACTS ARE DULY MENTIONED IN THE TAX AUDIT REPORT. RELIANCE WAS PLACED ON THE DECISION IN 318 ITR 4623 (DEL), 217 CTR 572 ( RAJ.). A STRONG PLEA WAS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE THAT SECTION 2(22)(E) OF THE ACT IS NOT APPLICABLE TO TH E FACTS OF THE PRESENT APPEAL FOR WHICH RELIANCE WAS PLACED ON 181 ITR 410 (M.P.) AND 322 ITR 158 (SC). IT WAS CONTENDED BY THE LD. COUNSEL F OR THE ASSESSEE, SHRI S.S. DESHPANDE, THAT M/S SADANA SALES PRIVATE LIMITED IS NOT HOLDING ANY SHARE OF M/S RISHMON LIQUORS PRIVATE LI MITED, THEREFORE, IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CA SE OF BHAUMIK 3 COLOURS PRIVATE LIMITED (SUPRA), THE SAME CANNOT BE BROUGHT TO TAX NET U/S 2(22)(E) OF THE ACT. HE PLACED ON RECORD THE D ECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF BHAUMIK COLOURS PRIVAT E LIMITED (SUPRA) AND DREW OUR ATTENTION TO THE CONCLUSION DRAWN BY T HE SPECIAL BENCH AFTER CONSIDERING THE LEGISLATIVE INTENT WHILE BRIN GING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT TO THE STATUTE. HE CON TENDED THAT FOR BRINGING THAT LOAN IN THE TAX NET U/S 2(22)(E) OF THE ACT, T HE ASSESSEE SHOULD BE BOTH REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER O F THE LENDER COMPANY. SINCE IN THE INSTANT CASE, THE ASSESSEE IS NOT A RE GISTERED SHAREHOLDER, THEREFORE, THE AMOUNT OF LOAN RECEIVED BY THE ASSES SEE CANNOT BE BROUGHT TO TAX U/S 2(22)(E) OF THE ACT. ACCORDINGL Y, THE IMPOSITION OF PENALTY U/S 271(1) OF THE ACT WITH REGARD TO THE A DDITION MADE BY THE ASSESSING OFFICER U/S 2(22)(E) OF THE ACT WAS NOT J USTIFIED. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY DOING THE BUSINESS O F DISTRIBUTORSHIP AND ACTING AS A C&F AGENT FOR M/S KHODAY (INDIA) LTD., BANGALORE, FOR THE STATES OF M.P. AND CHHATTIRGARH. M/S KHODAY (INDIA) LIMITED IS THE LICENCE HOLDER FOR SUPPLY OF LIQUOR IN THESE TERRIT ORIES. THE SISTER CONCERN OF THE ASSESSEE M/S RISHMAN LIQUORS PRIVATE LIMITED IS A BHOPAL BASED COMPANY AND IS C&F AGENT FOR RAJASTHAN REGION FOR M /S KHODAY (INDIA) 4 LTD. AND ALSO ACTING AS A COLLECTING AGENT AND COLL ECTS MONEY FROM THE RETAILERS AS WELL AS FROM THE GOVERNMENT OF RAJASTH AN. SINCE BOTH THE COMPANIES ARE DISTRIBUTORS AND C&F AGENTS FOR M/S K HODAY (INDIA) LIMITED, AS PER THE ASSESSEE, MANY A TIMES, THE PAY MENTS TO VARIOUS PARTIES, COLLECTIONS, ETC. WERE MADE BY THESE COMPA NIES FOR AND ON BEHALF OF EACH OTHER. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS THE LEARNED ASSESSING OFFICER TREATED THE CREDIT BALANC E APPEARING IN THE ACCOUNTS OF ITS SISTER CONCERN AS A DEEMED DIVIDEND BY VIRTUE OF SECTION 2(22)(E) OF THE ACT AND MADE THE ADDITION OF RS.59, 14,250/-. THE CLAIM OF THE ASSESSEE IS THAT THE CREDIT APPEARING IN THE BOOKS OF ACCOUNTS ARE NEITHER A LOAN NOR ADVANCE AND WERE MERELY ON ACCOU NT OF COLLECTIONS MADE ON BEHALF OF THE SISTER CONCERN. THIS CLAIM O F THE ASSESSEE COULD NOT FIND FAVOUR DURING THE ASSESSMENT PROCEEDINGS A ND CONSEQUENT ADDITIONS WERE MADE. ALTERNATIVELY, IT WAS PLEADED THAT AT MOST IT CAN BE TREATED AS A DEPOSIT FOR WHICH THE PROVISIONS OF SE CTION 2(22)(E) OF THE ACT ARE NOT ATTRACTED AND IT IS MERELY AN INTERPRET ATION OF LAW, THEREFOR, IT CANNOT BE TREATED AS CONCEALMENT OR FURNISHING OF A NY INACCURATE PARTICULARS OF INCOME BECAUSE THE COMPLETED DETAILS WERE SHOWN IN THE BALANCE-SHEET AND IN THE SCHEDULE ANNEXED TO THE TA R. 4. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HA D OBTAINED CUMULATIVE LOAN OF RS.82,24,090/- FROM ITS ASSOCIAT ED CONCERN M/S RISHMON LIQUORS PRIVATE LIMITED. THE ASSESSING OFF ICER EXAMINED THE 5 ACCOUNT OF THE SAID PARTY IN THE BOOKS OF THE ASSES SEE AND NOTED THAT THERE ARE DEBIT AND CREDIT ENTRIES IN THE ACCOUNT A ND AT THE END OF THE PREVIOUS YEAR, THE ACCOUNT WAS SQUARED UP. THE ASS ESSING OFFICER FURTHER NOTED THAT SHRI SURAJ PRAKASH SADANA HELD 6 123 SHARES OUT OF 7072 SHARES OF THE ASSESSEE COMPANY WHICH IN TERMS OF PERCENTAGE WORKS OUT TO 86.57%. HE ALSO HELD 7499 SHARES OUT OF 7677 SHARES OF M/S RISHMON LIQUORS PVT. LTD. WHICH IN TERMS OF PER CENTAGE WORKS OUT TO 97.03%. THE LEARNED ASSESSING OFFICER, THEREFORE, OBSERVED THAT AS PER CLAUSE (B) OF EXPLANATION (3) TO SECTION 2(22)(E) O F THE ACT READ WITH SECTION 2(32), SHRI SURAJ PRAKASH SADANA WAS HAVING SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY AND ALSO IN M/S RI SHMON LIQUORS PVT. LTD. IT WAS ALSO NOTICED THAT M/S RISHMON LIQUORS PVT. LTD. HAD ACCUMULATED PROFIT AS ON 1.4.2005 AND AS ON 31.3.20 06 AT RS. 51,45,197/- AND RS. 61,33,546/- RESPECTIVELY. THE ASSESSEE WAS SPECIFICALLY ASKED TO WORK OUT THE ACCUMULATED PROF IT INCLUSIVE OF CURRENT YEAR PROFIT TO THE EXTENT OF THE QUANTUM OF LOAN IN VIEW OF THE EXPLANATION (2) TO SECTION 2(22)(E) OF THE ACT AFTER GIVING SET OFF OF THE AMOUNT RETURNED TO M/S RISHMON LIQUORS PVT. LTD. AND THE S AME WAS ALSO PROPOSED TO BE TAKEN AS DEEMED DIVIDEND AS PER SECT ION 2(22)(E) OF THE ACT. THE ASSESSING OFFICER, THEREFORE, WORKED OUT T HE CURRENT YEARS PROFIT FOR THE PURPOSE OF COMPUTATION OF DEEMED DIV IDEND UPTO THE DATE OF LOAN AND AMOUNT OF LOAN TAKEN ON PROCEEDINGS RAT A BASIS. 6 ACCORDINGLY, DEEMED DIVIDEND WAS WORKED OUT AT RS. 59,14,250/- AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSES SEE U/S 2(220(E) OF THE ACT. THE ASSESSING OFFICER ALSO INITIATED PEN ALTY PROCEEDINGS U/S 271(1) OF THE ACT ON THIS ISSUE. 5. DURING THE COURSE OF PENALTY PROCEEDINGS THE ASS ESSING OFFICER NOTED THAT BOTH M/S RISHMON LIQUORS PVT. LTD. AND T HE ASSESSEE WERE STOCKIEST AND DISTRIBUTOR OF LIQUOR FOR M/S KHODEY (INDIA) LIMITED, BANGALORE FOR MADHYA PRADESH AND CHHATTISGARH AND T HE REJASTHAN REGION, RESPECTIVELY. THE LEARNED ASSESSING OFFICE R, THEREFORE, ADDED THE SAME AS INCOME OF THE ASSESSEE IN THE ASSESSMEN T MADE U/S 143(3) OF THE ACT AND INITIATED PENALTY PROCEEDINGS U/S 27 1(1) OF THE ACT AND IMPOSED PENALTY OF RS. 19,90,738/-. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE PENALTY LEVIED BY THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPE AL BEFORE US AGAINST LEVY OF PENALTY U/S 271(1) OF THE ACT. 6. AS PER THE REVENUE, SHRI SURAJ PRAKASH SADANA W AS HAVING 6123 SHARES OUT OF 7072 SHARES OF THE ASSESSEE COMPANY W HICH IN TERMS OF PERCENTAGE WORKS OUT TO 86.57% AND ALSO 7499 SHARES OUT OF 7677 SHARES OF M/S RISHMON LIQUORS PRIVATE LIMITED WHICH IN TERMS OF PERCENTAGE WORKS OUT TO 97.03%. THUS, HE IS HAVING SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY AS WELL AS IN M/S RISHMON L IQUORS PRIVATE LIMITED. AS PER THE REVENUE, SECTION 2(22)(E) OF T HE ACT IS APPLICABLE 7 AND THE ASSESSING OFFICER HAS CORRECTLY LEVIED THE PENALTY FOR THE ADDITION MADE U/S 2(22)(E) OF THE ACT. NOW THE QUES TION ARISES AS TO WHETHER PENALTY WAS CORRECTLY LEVIED BY APPLYING SE CTION 2(22)(E) OF THE ACT. 7. FOR IMPOSING PENALTY U/S 27 1(1) EITHER THERE SHOULD BE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. IN THE PRESENT APPEAL, THE ASSESSEE COMPANY HAD NEI THER CONCEALED ITS INCOME NOR FURNISHED THE INACCURATE PARTICULARS OF INCOME. INSOFAR AS THE ASSESSEE HAS DISCLOSED ALL THE PARTICULARS OF TRANSACTIONS WITH THE SISTER CONCERN IN THE AUDITED ACCOUNTS AS WELL AS I N THE RETURN OF INCOME , THEREFORE, IT IS NOT A GOOD CASE FOR IMPOSING PEN ALTY U/S 271(1) OF THE ACT. SINCE THE QUANTUM APPEAL IS NOT PENDING BEFOR E US, THEREFORE, WE ARE REFRAINING OURSELVES TO MAKE ANY COMMENT ON THE ISSUE OF QUANTUM ADDITION MADE BY THE LOWER AUTHORITIES U/S 2(22)(E) OF THE ACT. IN THE PRESENT APPEAL, COMPLETE DETAILS WERE DISCLOSED IN THE BALANCE-SHEET AND IN THE SCHEDULE ANNEXED TO TAX AUDIT REPORT, ME ANING THEREBY THAT ALL MATERIAL FACTS WERE DISCLOSED TO THE DEPARTMENT BY THE ASSESSEE AND THE ADDITIONS HAVE BEEN MADE ON LEGAL INTERPRETATION OF LAW. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SKY LINE AUTO PRODUCTS PRIVATE LTD., 271 ITR 335 (MP) EVEN WENT TO THE EXT ENT THAT WHEN MISTAKE IS BONAFIDE, NO PENALTY IS IMPOSABLE U/S 27 1(1) OF THE ACT. THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSITION THAT FINDING IN THE 8 ASSESSMENT PROCEEDINGS ARE NOT CONCLUSIVE FOR DETER MINING THE IMPOSITION OF PENALTY. THUS, WHILE IMPOSING PENALT Y, THE ENTIRETY OF CIRCUMSTANCES MUST REASONABLY POINT TO THE CONCLUSI ON THAT THERE IS A CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS . AFTER GOING THROUGH THE ORDERS OF THE LOWER AUTHORITIES, THE UNDISPUTED FACTS OF THE CASE EMERGE AS UNDER I. THE ASSESSEE IS A LIMITED COMPANY AND IT HAS TAK EN LOAN FROM THE M/S RISHMON LIQUORS PRIVATE LIMITED, WHICH HAS BEEN BROUGHT TO TAX BY THE ASSESSING OFFICER UNDER THE P ROVISIONS OF SECTION 2(22)(E) OF THE ACT. II. RISHMON LIQUORS PRIVATE LIMITED IS ALSO A LIMIT ED COMPANY WHO HAS GIVEN LOAN TO THE ASSESSEE COMPANY WHICH HAS BE EN TREATED AS INCOME OF THE ASSESSEE COMPANY U/S 2(22) (E) OF THE ACT. III. THE ASSESSEE COMPANY M/S. SADANA BROTHERS SALE S PRIVATE LIMITED IS NOT HOLDING ANY SHARES OF M/S RISHMON LI QUORS PRIVATE LIMITED IV. THE DIRECTORS OF BOTH THE COMPANIES ARE COMMON AND HOLDING MAJORITY OF SHARES IN BOTH THESE COMPANIES. IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE COMPAN Y IS NEITHER HOLDING ANY SHARES NOR IT IS A REGISTERED SHARE HOL DER OF M/S RISHMON LIQUORS PRIVATE LIMITED WHO HAS GIVEN LOAN TO THE A SSESSEE COMPANY. 9 THE ISSUE WITH REGARD TO TAXABILITY OF SUCH LOAN U/ S 2(22)(E) OF THE ACT IN THE HANDS OF A CONCERN WHICH IS NOT A REGISTERED SHAREHOLDER OF LENDER COMPANY HAS BEEN ELABORATELY DISCUSSED BY TH E ITAT, SPECIAL BENCH, IN THE CASE OF BHAUMIK COLOUR (P) LIMITED; 1 20 TTJ 865 WHEREIN AFTER DISCUSSING THE INTERPRETATION OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT VIS--VIS THE LEGISLATIVE INTEN T TO INTRODUCE SECTION 2(22)(E) OF THE ACT, IT WAS HELD THAT DEEMED DIVIDE ND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHA REHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTH ER THAN A SHAREHOLDER. IT WAS FURTHER OBSERVED THAT THE PROVI SIONS OF SECTION 2(22)(E) DO NOT SPELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OR A CONCERN (NON-SHAR EHOLDER). THE PROIVISIONS ARE AMBIGUOUS, IT WAS, THEREFORE FELT N ECESSARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF SEC TION 2(22)(E). THE INTENTION BEHIND ENACTING PROVISIONS OF SECTION 2(2 2)(E) IS THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEM BERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTR IBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED IT HAD TO PAY DIVIDEND DISTRIBUTION TAX AND THE DIVIDEND INCOME WOULD BECO ME TAXABLE INCOME IN THE HANDS OF THE SHAREHOLDERS. INSTEAD O F DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, SUCH COMPANIES USE TO DISTRIBUTE 10 THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONC ERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHA REHOLDER. IN SUCH AN EVENT, BY ENACTING THE DEEMING PROVISIONS, SUCH PAY MENT BY THE COMPANY WAS TREATED AS DIVIDEND INCOME IN THE HANDS OF SHAREHOLDERS. THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDER. TH E DEEMING PROVISION AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL IN TEREST IS BASED ON THE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULT IMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTION OF THE LEGISLATURE IS, THER EFORE, TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF SUCH CONCERN. THE BASIS OF BRINGING IN THE AMENDMENT TO SECTION 2(22)(E) BY THE FINANCE ACT,1987 WITH EFFECT FROM ASSESSMENT YEAR 1988-89 IS TO ENSURE THAT PERSONS WHO CONTROL THE AFFAIRS OF A COMPANY AS WELL AS THAT OF A FIRM CAN HAVE THE PAYMENT MADE TO A CO NCERN FROM THE COMPANY AND THE PERSON WHO CAN CONTROL THE AFFAIRS OF THE CONCERN CAN DRAW THE SAME FROM THE CONCERN INSTEAD OF THE C OMPANY DIRECTLY MAKING PAYMENT TO THE SHAREHOLDER AS DIVIDEND. THE SOURCE OF POWER TO CONTROL THE AFFAIRS OF THE COMPANY AND THE CONCE RN IS THE BASIS ON WHICH THESE PROVISIONS HAVE BEEN MADE. IT IS, THERE FORE, PROPER TO 11 CONSTRUE THOSE PROVISIONS AS CONTEMPLATING A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF A NON-SHAREHOLDER VIZ. CONCERN. SUCH LOAN OR ADVANCE RECEIVED BY A C ONCERN IS NOT IN THE NATURE OF INCOME. IN OTHER WORDS, THERE IS A D EEMED ACCRUAL OF INCOME EVEN UNDER SECTION 5(1)(B) OF THE ACT IN TH E HANDS OF THE SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE PAYEE VIZ. THE NON- SHAREHOLDER (CONCERN). THE PROVISIONS OF SECTION 5( 1)(A) CONTEMPLATE THAT THE RECEIPT OR DEEMED RECEIPT SHOULD BE IN THE NATURE OF INCOME. THEREFORE, THE DEEMING FICTION CAN BE APPLIED ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT THE NON-SHAREHOLDER VIZ. THE CO NCERN. THE CBDT CIRCULAR NO. 495 DATED 22 ND SEPTEMBER, 1987, TO THE EXTENT NOT BENEVOLENT IS NOT BINDING. IN THE EVENT OF THE PAY MENT OF LOAN OR ADVANCE BY A COMPANY TO A CONCERN BEING TREATED AS DIVIDEND AND TAXED IN THE HANDS OF THE CONCERN THEN THE BENEFIT OF SET OFF AS PER SECTION 2(22)(E) CANNOT BE ALLOWED TO THE CONCERN B ECAUSE THE CONCERN CAN NEVER RECEIVE DIVIDEND FROM THE COMPANY WHICH IS ONLY PAID TO THE SHAREHOLDER, WHO HAS SUBSTANTIAL INTERE ST IN THE CONCERN. IT WAS FURTHER OBSERVED THAT THE PROVISIONS OF SUB- CLAUSE (III) OF SECTION 2(22)(E) ALSO CONTEMPLATE DEEMED DIVIDEND B EING TAXED IN THE HANDS OF A SHAREHOLDER ONLY. ON THE BASIS OF THE ABOVE OBSERVATIONS, IT WAS CON CLUDED BY THE SPECIAL BENCH THAT FOR PURPOSE OF INVOKING SECTION 2(22)(E) SUCH 12 SHAREHOLDER IN THE CONCERN TO WHICH LOAN IS ADVANC ED MUST BE BOTH A REGISTERED SHAREHOLDER AS WELL AS BENEFICIAL SHAREH OLDER. THE UNDISPUTED FACTS IN THE INSTANT CASE ARE THAT THE A SSESSEE COMPANY, M/S SADANA BROTHERS SALES PRIVATE LIMITED IS NOT A REGISTERED SHAREHOLDER OF M/S. RISHMON LIQUORS PRIVATE LIMITED WHO HAS GIVEN LOAN/ADVANCE TO THE ASSESSEE COMPANY. THE ASSESSIN G OFFICER HAS LEVIED PENALTY WITH REFERENCE TO THE ADDITION MADE ON ACCOUNT OF LOANS/ADVANCES RECEIVED BY THE ASSESSEE COMPANY FRO M RISHMON LIQUORS PRIVATE LIMITED, BY BRINGING SUCH LOANS AND ADVANCES UNDER THE PURVIEW OF SECTION 2(22)(E). WHILE LEVYING THE PENALTY, THE DEEMING PROVISIONS CAN BE APPLIED TO A LIMITED EXTE NT AND HERE WE ARE CONCERNED WITH THE IMPOSITION OF PENALTY U/S 27 1(1), WHICH IS NOT SUSTAINABLE IN VIEW OF THE DECISION OF THE SPECIAL BENCH AS NARRATED ABOVE INSOFAR AS THE ASSESSEE COMPANY IS NOT A REGI STERED SHAREHOLDER OF RISHMON LIQUORS PRIVATE LIMITED WHO HAS GIVEN LOAN/ADVANCE TO THE ASSESSEE COMPANY. THE PRECISE CONCLUSION OF THE SPECIAL BENCH, AFTER DISCUSSING THE ABOVE THINGS, READS AS UNDER :- TO ATTRACT THE FIRST LIMB OF THE PROVISIONS OF SEC TION 2(22)(E) OF SECTION 2(22)(E), THE PAYMENT MUST BE T O A PERSON WHO IS A NREGISTERED HOLDER OF SHARES, THE CONDITION UNDER THE 1922 ACT AND THE 1961 ACT REGARDING THE PAYEE BEING A SHAREHOLDER REMAINS THE SAME AND IT IS THE CONDITION THAT SUCH SHAREHOLDER SHOULD BE BENEFICIAL OWNER OF THE SHARES AND THE 13 PERCENTAGE OF VOTING POWER THAT SUCH SHAREHOLDER SHOULD HOLD THAT HAS BEEN PRESCRIBED AS AN ADDITION AL CONDITION UNDER THE 1961 ACT. IT IS A PRINCIPLE OF INTERPRETATION OF STATUTES THAT WHERE ONCE CERTAIN WORDS IN AN ACT HAVE RECEIVED A JUDICIAL CONSTRUCTI ON IN ONE OF THE SUPERIOR COURTS, AND THE LEGISLATURE HAS REPEATED THEM IN A SUBSEQUENT STATUTE, THE LEGISLATURE MUST BE TAKEN TO HAVE USED THEM ACCORDING TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION HAS GIVEN THEM. IN THE 1961 ACT, THE WORD SHAREHOLDER IS FOLLOWED BY THE FOLLOWING WORDS BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES. THIS EXPRESSION USED IN SECTION 2(22)(E) BOTH IN 1961 ACT AND IN THE AMENDED PROVISIONS W.E.F. IST APRIL, 1988 ONLY QUALIFIES THE WORD SHAREHOLDER AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERE D SHAREHOLDER. THESE PROVISIONS ALSO DO NOT SUBSTITU TE THE AFORESAID REQUIREMENT TO A REQUIREMENT OF MEREL Y HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE EXPRESSIO N SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN THE FIRST LILMB OF SECTION 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSO N IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LI MB OF PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. RECENTLY HON'BLE SUPREME COURT IN THE CASE OF RELIA NCE PETRO PRODUCTS PRIVATE LIOMITED; 322 ITR 156 WHILE DELETI NG THE PENALTY IMPOSED U/S 271(1) OF THE ACT, AFTER CONSIDERING THE PROPOSITION OF LAW LAID DOWN IN THE CASE OF DILIP N.SHROFF 291 I TR 519 (SC) AND DHARMENDER TEXTILE PROCESSORS 306 ITR 277 (SC), H ELD AS UNDER: - A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINAB LE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULAR S REGARDING THE 14 INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RET URN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDI TURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVEN UE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDE R SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CAS E OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING O FFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECT ION 271(1)(C). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SIDDHARTHA ENTERPRISES 322 ITR 80 WHILE COUNTERING THE DEPAR TMENTS CONTENTION THAT EVEN IF CLAIM FOR SET OFF OF CAPITAL LOSS AGAI NST PROFIT OF BUSINESS WAS BY THE NEGLIGENCE OR BY MISTAKE, THE FACT REMAINS T HAT THE PARTICULARS OF INCOME FURNISHED WERE NOT CORRECT AND WILLFUL CONCE ALMENT NOT BEING AN ESSENTIAL REQUIREMENT FOR LEVY OF PENALTY U/S 271(1 ) OF THE IT ACT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF DH ARMENDRA TEXTILE PROCESSORS (SUPRA), THE PENALTY COULD NOT BE DELETE D, THE HONBLE HIGH COURT OBSERVED AS UNDER :- WE ARE UNABLE TO ACCEPT THE SUBMISSION. THE JUDGM ENT OF THE HON'BLE SUPREME COURT IN DHARMENDRA TEXTILE PROCESSORS [200 8] 306 ITR 277 CANNOT BE READ AS LAYING DOWN THAT IN EVERY CASE WH ERE PARTICULARS OF INCOME ARE INACCURATE, PENALTY MUST FOLLOW. WHAT H AS BEEN LAID DOWN IS THAT QUALITATIVE DIFFERENCE BETWEEN CRIMINAL LIABIL ITY UNDER SECTION 276C AND PENALTY UNDER SECTION 271(1)(C) HAD TO BE KEPT IN MIND AND APPROACH ADOPTED TO THE TRIAL OF A CRIMINAL CASE NEED NOT BE ADOPTED WHILE CONSIDERING THE LEVY OF PENALTY. EVEN SO, THE CONC EPT OF PENALTY HAS NOT UNDERGONE CHANGE BY VIRTUE OF THE SAID JUDGMENT. P ENALTY IS IMPOSED ONLY WHEN THERE IS SOME ELEMENT OF DELIBERATE DEFAU LT AND NOT A MERE MISTAKE. THIS BEING THE POSITION, THE FINDING HAVI NG BEEN RECORDED ON FACTS THAT THE FURNISHING OF INACCURATE PARTICULARS WAS SIMPLY A MISTAKE AND NOT A DELIBERATE ATTEMPT TO EVADE TAX, THE VIEW TAKEN BY THE TRIBUNAL CANNOT BE HELD TO BE PERVERSE. HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN STEE LS 83 ITR 26 OBSERVED THAT PENALTY WILL NOT BE IMPOSED MERELY BECAUSE IT WAS LAWFUL TO DO SO. WHETHER PEN ALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTOR Y OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORI TY TO BE 15 EXERCISED JUDICIOUSLY AND ON CONSIDERATION OF ALL T HE RELEVANT CIRCUMSTANCES. EVEN IF MINIMUM PENALTY IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE THE PENALTY WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE A BREACH FLOWS FROM A BONA-FIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN A MANNER PRESCRIBED BY THE STATUTE. IN VIEW OF THE ABOVE, IT IS NOT A FIT CASE FOR LEV Y OF PENALTY U/S 271(1) OF THE ACT IN RESPECT OF LOANS RECEIVED BY THE ASSESSEE COMPANY FROM RISHMON LIQUORS PRIVATE LIMITED WHICH WAS BROUGHT TO TAX NET BY INVOKING THE DEEMING PROVISIONS OF SECTI ON 2(22)(E) OF THE ACT. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 3 RD FEB. 2011. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 RD FEB. 2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE DN/-