ITO, CHENNAI V. Dr.Shamsheer, Director of M/s.Medimark Consultants (India) P. Ltd., CHENNAI

ITA 564/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0903 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-01-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 29-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA MS PREMALATHA
• Assessee Lawyers: LHS MRS KHAMAR SHAMSHEER
• Keywords: Unexplained cash credit; Bonafide belief; Deemed to accrue or arise in india; Deemed dividend; Ignorance of law
• Section: 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.564/MDS/2011 ASSESSMENT YEAR : 2005-06 THE INCOME TAX OFFICER COMPANY WARD IV(1) CHENNAI VS (LATE)DR. SHAMSHEER DIRECTOR OF M/S MEDIMARK CONSULTANTS(INDIA) PVT. LTD BY L/HS MRS KHAMAR SHAMSHEER & SHRI QUIZAR SHAIK NO.54, L.B.ROAD ADYAR, CHENNAI - 20 [PAN ABJPS 9879B] (APPELLANT) (RESPONDENT) APPELLANT BY : DR. S. MOHARANA, CIT/DR RESPONDENT BY : MS. PREMALATHA, ADVOCATE DATE OF HEARING : 30-01-2013 DATE OF PRONOUNCEMENT : 31-01-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-V, CHENNAI, DATED 16.12.2010. 2. THE SOLE ISSUE INVOLVED IN THE PRESENT APPEAL OF TH E REVENUE IS THAT THE CIT(A) ERRED IN DELETING THE PENALTY O F ` 35,38,34/- LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE ACT. I.T.A.NO. 564/11 :- 2 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2005-06 ON 16.9.2005 DECLARING A TOTAL INCOME OF ` 2,98,613/-. THE ASSESSEE WAS A DIRECTOR OF M/S MEDIMARK CONSULTANTS (INDIA) PVT. LTD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE COMPANY, M/S MEDIMARK CONSULTANTS (INDIA) PVT. LTD, DURING THE ASSESSMENT YEAR 2005-06 HAD RECEIVED UNSECURED LOAN OF ` 1,50,00,000/- FROM THE ASSESSEE AND REPAID THE SAI D LOAN WITHIN THE SAME FINANCIAL YEAR. THE ASSESSING OFFICER, THEREF ORE, MADE ADDITION OF ` 1,05,12,028/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THEREAFTER, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) R.W.S 274 OF THE ACT. SINCE HE WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, HE LEVIED PENALTY U/ S 271(1)(C) OF THE ACT OF ` 35,38,348/- BEING 100% OF THE TAX SOUGHT TO BE EVA DED FOR CONCEALMENT OF PARTICULARS OF INCOME BY THE ASSESS EE. 4. THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND CO NTENDED AS UNDER: I. THE APPELLANT HAD NO INTENTION TO CONCEAL THE INCOME AS THE APPELLANT WAS WRONGLY ADVISED BY THE CONSULTANT THA T THE LOAN TRANSFERRED FROM THE COMPANY OUT OF SALE PROCEEDS O F AGRICULTURAL LANDS WILL NOT AMOUNT TO DEEMED DIVIDE ND SINCE THE LOAN WAS TRANSFERRED FROM THE EXEMPTED INCOME OF TH E COMPANY. II. THE APPELLANT SUBMITS THAT HE IS NOT AWARE OF THE TECHNICAL PROVISIONS OF THE ACT. THE APPELLANT IMM EDIATELY FILED RETURN OF INCOME DISCLOSING THE LOAN AMOUNT RECEIVED FROM THE I.T.A.NO. 564/11 :- 3 -: COMPANY AS DEEMED DIVIDEND WHEN IT WAS POINTED OUT BY A . O . III . THE APPELLANT SUBMITS THAT HE - HAD PAID THE ENTIRE TAX DUES INCLUDING HUGE INTEREST OF RS . 30,29,209/-CHARGED UNDER SEC.234B OF THE I . T . ACT . IV . THE APPELLANT HAS ALREADY REMITTED NEARLY RS . 1 CRORE AS TAX AND HE WILL BE PUT TO MORE FINANCIAL HARDSHIP I F THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT IS NOT C ANCELLED. V. THE APPELLANT SUBMITS THAT THE COMPANY HAS NO ACCUM ULATED PROFITS AS AT THE BEGINNING OF THE PREVIOUS YEAR. H E WAS ADVISED THAT PROFIT ON SALE OF AGRICULTURAL LAND RECEIVED B Y THE COMPANY DURING THE CURRENT FINANCIAL YEAR WILL NOT FORM PAR T OF ACCUMULATED PROFITS. VI . THE DEEMED DIVIDEND IS A FICTION CREATED BY LAW. IT HAS BEEN HELD IN THE CASE OF CIT VS BARODA TIN WORKS [2 21 ITR 66 [GUJ] 'THAT THE FICTION OF DEEMED INCOME IS NOT ACC EPTABLE TO PENALTY PROCEEDINGS SO AS TO RAISE A PRESUMPTION AB OUT CONCEALMENT OF SUCH INCOME'. V II. THE APPELLANT SUBMITS THAT HE IS UNDER BONAFIDE BEL IEF THAT NO INCOME HAS ACTUALLY ACCRUED AND THEREFORE NO PEN ALTY IS LEVIABLE. THIS HAS BEEN HELD IN THE CASE OF 'SARABH AI CHEMICALS PVT LTD., VS CIT [257 ITR 355 [GUJ]' AND THE SAME I S EXTRACTED AS UNDER:- 'THE DEEMING FICTION THAT THE ADDED/ DISALLOWED AMO UNTS REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED CONTAINED IN EXPLANATION 1 WILL NOT APPLY IF THE EXPLANATION THAT WAS GIVEN BY THE ASSESSEE IN T HE QUANTUM PROCEEDINGS WHICH HE COULD NOT SUBSTANTIATE IN THOSE PROCEEDINGS WAS (I) BONA FIDE AND (II) IF HE HAD DISCLOSED ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME. IN CASES WH ERE EXPLANATION WAS OFFERED, BUT WAS REJECTED AS IT COU LD NOT BE SUBSTANTIATED BY THE ASSESSEE, THERE WOULD ARISE NO PRESUMPTION OF CONCEALMENT OF THE PARTICULARS OF I NCOME THAT WAS ADDED OR DISALLOWED AND SUCH ASSESSEE CAN SHOW THAT THE SAID EXPLANATION OFFERED BY HIM WAS A BONA FIDE ONE AND THAT HE HAD DISCLOSED ALL FACTS RELATI NG TO SUCH EXPLANATION AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME DURING THE QUANTUM PROCEEDINGS'. VIII. THE APPELLANT SUBMITS THAT THE TAX LAWS IN THIS COU NTRY ARE SO COMPLICATED THAT EVEN A PERSON SPECIALIZING IN THIS FIELD I.T.A.NO. 564/11 :- 4 -: MAY NOT UNDERSTAND THE LAW IN THE CORRECT MANNER DU E TO THE REASON THAT PARTICULAR PROVISION MAY GO UNNOTICED T O THE ASSESSEE BECAUSE OF NUMBER OF AMENDMENTS MADE FROM YEAR TO YEAR. THE SAME WAS HELD IN THE CASE OF 'ITA T MUMBAI 'E' BENCH IN THE CASE OF SUNILCHANDRA VOHRA VS ACIT REPORTED IN ITA 4963/MUMBAI/2006' AND THE SAME IS EXTRACTED AS UNDER:- 'ASSESSEE WAS ENGAGED IN BUSINESS OF SUPPLY AND REPLACEMENT OF PARTS AND ACCESSORIES OF SHIPS. HE W AS ALSO A 99 PER CENT SHAREHOLDER IN 'M' LTD. DURING R ELEVANT PREVIOUS YEAR HE HAD TAKEN LOAN FROM 'M' LTD. IN OR DER TO ACQUIRE CERTAIN PROPERTY. SAID LOAN WAS REPAID IN S AME FINANCIAL YEAR AND, CONSEQUENTLY, FACTUM OF TAKING LOAN DID NOT FIGURE IN FINAL BALANCE SHEET FILED ALONG WITH RETURN OF INCOME. ASSESSING OFFICER, IN COURSE OF ASSESSMENT PROCEEDINGS, FOUND THAT ASSESSEE HAD OBTAINED LOAN FROM CLOSELY HELD COMPANY AND, THUS, HE WAS LIABLE TO PA Y TAX ON DEEMED DIVIDEND BY VIRTUE OF SECTION 2(22)(E). ACCORDINGLY, ASSESSMENT WAS COMPLETED BY BRINGING T O TAX DIVIDEND INCOME. THEREAFTER, PENALTY PROCEEDING S UNDER SECTION 271 (1)(C) WERE INITIATED ON GROUND T HAT ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF IN COME BY NOT DISCLOSING DEEMED DIVIDEND ASSESSABLE TO TAX. ASSESSEE REPLIED THAT HE, BEING AN ENGINEER BY PROFESSION, WAS NOT CONVERSANT WITH PROVISIONS OF A CT AND, HENCE, HE WAS FILING RETURNS BY TAKING ASSISTANCE O F C.A. BUT AT NO STAGE SAID C.A. BROUGHT TO HIS NOTICE POS SIBILITY OF APPLICABILITY OF SECTION 2(22)(E) IN RESPECT OF SAID LOAN TRANSACTION. HOWEVER, ASSESSING OFFICER REJECTED ASSESSEE'S EXPLANATION AND IMPOSED PENALTY BY INVOK ING EXPLANATION 1 TO SECTION 271 (1)(C). IT WAS FOUND T HAT LIABILITY TO PAY TAX UNDER SECTION 2(22)(E) AROSE F OR FIRST TIME IN ASSESSEE'S CASE AND THAT TAX AUTHORITIES HA D NOT DISPUTED, IN PRINCIPLE, ABOUT INCORRECT GUIDANCE BY C:A. TO ASSESSEE. ON FACTS AND CIRCUMSTANCES, EXPLANATION O F ASSESSEE WAS BONA FIDE AND, HENCE, CASE FELL OUTSID E AMBIT OF EXPLANATION 1 TO SECTION 271 (1(C), THEREF ORE, PENALTY LEVIED BY ASSESSING OFFICER WAS TO BE CANCE LLED'. IX. THE APPELLANT RELIED UPON THE JUDGMENT REND ERED BY THE APEX COURT IN THE CASE OF 'DHILIP N SHROFF VS JCIT' REPORTED IN 291 ITR 519 WHEREIN THE HON'BLE COURT HELD THAT 'LE VY OF PENALTY IS NOT AUTOMATIC, THE ASSESSING OFFICER SHOULD BE F AIR AND OBJECTIVE'. I.T.A.NO. 564/11 :- 5 -: X. THE APPELLANT SUBMITS THAT HE HAS ONLY RECEIVED THE LOAN FROM THE COMPANY AND HE IS BOUND TO DISCHARGE THE LOAN. THERE WAS NO ACTUAL INCOME RECEIVED OR ACCRUED TO THE APPELLA NT. THEREFORE THE PENALTY UNDER SECTION 271 [1] [C] IS NOT LEVIAB LE IN THE CASE OF THE APPELLANT. 5. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, DELETED THE PENALTY BY OBSERVING AS UNDE R: 7. I HAVE GONE THROUGH THE FACTS OF THE CASE, SUBM ISSIONS MADE BY THE APPELLANT/ASSESSEE AND THE PENALTY ORDER OF THE ASSESSING OFFICER. I HAVE ALSO GONE THROUGH THE DEC ISIONS OF JUDICIAL PRONOUNCEMENTS CITED BY THE APPELLANT. IN THE CASE OF 'SARABHAI CHEMICALS INDIA PVT LTD VS CIT [257 ITR 3 55 [GUJ]', THE HON'BLE GUJARAT HIGH COURT HELD THAT 'IF THE AS SESSEE IS UNDER BONAFIDE BELIEF THAT NO INCOME HAS ACTUALLY ACCRUED AND THEREFORE NO PENALTY IS LEVIABLE. 8. IN VIEW OF THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF 'DHILIP N SHROFF VS JCIT' REPORTED I N 291 ITR 519' WHEREIN THE APEX COURT HELD THAT IMPOSITION OF PENA LTY IS NOT AUTOMATIC. THE LEVY OF PENALTY IS NOT ONLY DISCRETI ONARY IN NATURE, BUT SUCH DISCRETION IS REQUIRED TO BE EXERCISED ON THE PART OF THE ASSESSING OFFICER KEEPING THE RELEVANT FACTORS IN M IND. THE APPROACH OF THE ASSESSING OFFICER MUST BE FAIR AND OBJECTIVE. 9. FURTHER, THE DISCUSSIONS OF THE CASE LAWS OF 221 ITR 66(GUJ) IN THE CASE OF CIT VS BARODA TIN WORKSWHEREIN IT W AS HELD THAT DEEMED DIVIDEND IS A FICTION CREATED BY LAW AND TH E SAME IS NOT ACCEPTABLE TO PENALTY PROCEEDINGS SO AS TO RAISE A PRESUMPTION ABOUT CONCEALMENT OF INCOME AND THE SAME IS READ AS UNDER: ' IN OUR OPINION , NO DISTINCTION CAN ALSO BE FOUND ABOUT TH E D E E M ING PROVISIONS FOR TREATING UNEXPLAINED CASH CREDIT INVES T MENT OR EXP E NDITU R E, ETC ., AS INCOME CHARGEABLE TO TAX BY TREATING THE SAME AS INCOME OF THE ASSESSEE OF T HE PREVIOUS YEAR IN THEIR APPLICATION TO PENALTY PROCE EDINGS, AS SOUGHT TO BE DRAWN BY LEARNED COUNSEL FOR THE REVEN UE TO DISTINGUISH THE AFORES A ID DECISION OF THIS COURT, ON THE GROUND THAT THE PRINCIPLE WAS LAID D O WN WITH REF E RENCE TO SECTION 69A AND NOT W I TH REFERENCE TO SECTION 68 . IN VIEW OF THE DISCUSS I ON , OUR ANSWER TO QUESTIONS NOS . 1 AND 2 IS IN THE AFFIRMATIVE, THAT IS TO SAY , IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE' . I.T.A.NO. 564/11 :- 6 -: 10. THE APPELLANT SUBMIT THAT HE WAS NOT ADVISED PROPER LY BY THE TAX CONSULTANT ABOUT INCLUSION OF LOAN RECEIVED FROM THE COMPANY AS DEEMED DIVIDEND IN HIS RETURN UNDER SECT ION 2 (22) (E) OF THE I.T. ACT 1961. HE FURTHER STATE THAT HE HAD NO INTENTION TO CONCEAL THE INCOME SINCE HE INCLUDED THE SAME IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT, WHEN THE SAME WAS POINTED OUT BY THE A.O IN THE COURSE OF ASSESSMENT PROCEEDI NGS. I HAVE GONE THROUGH THE DECISION RELIED UPON BY THE APPELL ANT IN THE CASE OF 'ITAT MUMBAI 'E' BENCH IN THE CASE OF SUNILCHANDRA VOHRA VS ACIT REPORTED IN ITA 4963/MUMBAI/2006' AND THE SAME IS READ AS UNDER:- 'THE TAX LAWS IN THIS COUNTRY ARE SO COMPLEX AND CO MPLICATED THAT EVEN A PERSON SPECIALIZING IN THIS FIELD, INCL UDING TAX ADMINISTRATORS, MAY NOT UNDERSTAND THE LAW IN THE C ORRECT PERSPECTIVE OR A PARTICULAR PROVISION MAY GO UNNOTI CED BECAUSE OF NUMBER OF AMENDMENTS MADE TO THE TAX ENACTMENTS FROM YEAR TO YEAR. UNDER THESE CIRCUMSTANCES, IT WOULD BE A T RAVESTY OF TRUTH AND JUSTICE TO HOLD THAT AN ASSESSEE OUGHT TO HAVE KNOWN THE CORRECT LAW AND COMPLY THEREWITH, EVEN THOUGH H E WAS NOT AWARE OF THE PROVISIONS. THE BENCH OBSERVED THAT PL EA OF IGNORANCE OF LAW CAN BE TREATED AS A PROPER EXPLANA TION. IT COULD THUS BE SEEN THAT THE ASSESSEE TENDERED AN EXPLANAT ION WHICH WAS SUBSTANTIATED AND THUS THE BURDEN IS CAST UPON THE REVENUE TO PROVE THAT THE EXPLANATION IS FALSE, SO AS TO IN VOKE EXPLANATION 1 TO SECTION 271 (1) (C) OF THE ACT . EXCEPT MERELY . STATING THAT THE ASSESSEE OUGHT TO HAVE FURNISHED THE LOAN PARTI CULARS VOLUNTARILY, ALONG WITH RETURN OF INCOME, NO OTHER REASON WAS ASSIGNED BY THE TAX AUTHORITIES DISPUTE THE BONAFIDE OF THE EXPLANATION. UNDER THE PECULIAR FACTS AND CIRCUMST ANCES AND IN THE LIGHT OF THE DECISION CITED BY THE LEARNED COUN SEL FOR THE ASSESSEE, WE ARE OF THE VIEW THAT THE EXPLANATION O F THE ASSESSEE IS BONAFIDE AND HENCE THE CASE FALLS OUTSI DE THE AMBIT OF EXPLANATION 1 TO SECTION 271 (1) (C) OF THE ACT. IN OTHER WORDS, NO CASE WAS MADE OUT BY THE TAX AUTHORITIES TO LEVY PENALTY UNDER SECTION 271 (1) (C) OF THE ACT'. ON CAREFUL CONSIDERATION OF THE ABOVE SAID JUDGMENT CITED BY THE APPELLANT, I AM OF THE OPINION THAT THE FACTS AND C IRCUMSTANCES INVOLVED IN THE CASE ARE SIMILAR TO THE APPELLANT'S CASE, SINCE THE APPELLANT WAS NOT ADVISED PROPERLY BY THE TAX CONSU LTANT ABOUT INCLUSION OF LOAN AS DEEMED DIVIDEND IN THE RETURN OF INCOME FILED AND THE SAME WAS SUBSEQUENTLY INCLUDED IN THE RETURN FI LED BY HIM IN RESPONSE TO NOTICE UNDER SECTION 148 WHEN IT WAS PO INTED OUT BY A.O. HENCE, IT IS VERY CLEAR THAT THE APPELLANT HAD NO INTENTION TO CONCEAL THE INCOME AND THEREFORE THE PENALTY IS NOT LEVIABLE. I.T.A.NO. 564/11 :- 7 -: FURTHER, THE INCOME WAS NOT ACTUALLY ACCRUED TO TH E APPELLANT AND ONLY BECAUSE OF THE DEEMING PROVISION IT WAS TREATED AS INCOME. CONSIDERING THAT THE APPELLANT/ASSESSEE HAD DECLAR ED THE INCOME IN HIS RETURN IN RESPONSE TO NOTICE UNDER SECTION 148 AND PAID THE ENTIRE TAX, THE APPELLANT/ASSESSEE HAD NOT CONCEALED WILLF ULLY ANY INCOME LIABLE TO TAX AND THAT THE LEVY OF PENALTY IS NOT E XIGIBLE. HENCE, THE PENALTY LEVIED BY THE A.O UNDER SECTION 271(1)(C) O F THE I.T.ACT OF ` 35,38,348/- IS DELETED. 6. THE CIT/DR RELIED ON THE ORDER OF THE ASSESSING OFF ICER WHEREAS THE A.R OF THE ASSESSEE SUPPORTED THE ORDE R OF THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THAT IN THE INSTANT CASE, ADDITION OF ` 1,05,12,028/- CAME TO BE MADE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AS THE ASSESSEE HAD RECEIVED THIS SUM FROM THE COMPANY, M/S MEDIMARK CO NSULTANTS (INDIA) PVT. LTD. WHERE THE ASSESSEE WAS A DIRECTO R, AS LOAN DURING THE YEAR. WE FIND THAT ON THE ABOVE FACTS, THE CI T(A)S ORDER HAS BEEN PASSED AFTER FOLLOWING THE DECISION OF THE HON 'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS BARODA TIN WORKS(SUPRA) AND THE ORDER OF THE ITAT, MUMBAI, E' BENCH, IN THE CASE OF SUNILCH ANDRA VOHRA VS ACIT, IN I.T.A.NO. 4963/MUMBAI/2006. THE CIT/DR CO ULD NOT POINT OUT AS TO WHY THE AFORESAID DECISIONS OF THE HON'BL E GUJARAT HIGH COURT AND THE TRIBUNAL ARE NOT APPLICABLE IN THE INSTANT CASE. NO SPECIFIC ERROR IN THE ORDER OF THE CIT(A) COULD BE POINTED O UT BY THE CIT/DR. WE, THEREFORE, DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE I.T.A.NO. 564/11 :- 8 -: WITH THE ORDER OF THE CIT(A) WHICH IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON THURSDAY, THE 31 ST OF JANUARY, 2013, AT CHENNAI. SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 31 ST JANUARY, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR