P. JAMES, MUMBAI V. ASST CIT 12(1), MUMBAI

ITA 982/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8282 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUJAT MITTAL
• Keywords: Bonafide belief; Deemed dividend; Ignorance of law
• Section: 143(3); 147; 148

Judgement Text

1 ITA NO.982 /MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.982/MUM/2015 (ASSESSMENT YEAR: 2010-11) SHRI P JAMES 203, GULAB BUILDING P.DMELLO ROAD, MUMBAI PAN : AACFP3866F VS ACIT-12(1), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY NONE RESPONDENT BY SHRI PUJAT MITTAL DATE OF HEARING 09-11-2017 DATE OF PRONOUNCEMENT 22-11-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE CIT(A)-23, MUMBAI DATED 14-11-2014 AND IT PERTAINS TO AY 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- A. THERE IS NO -FINDING IN THE ASSESSMENT ORDER / PENA LTY ORDER THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE OR INAC CURATE PARTICULARS HAVE BEEN FURNISHED. B. THE PENALTY ORDER HAS JUST REITERATED THE FACTS AND JUSTIFIED THE LEVY OF TAX ON DEEMED DIVIDEND. 2 ITA NO.982 /MUM/2015 C. WE WERE UNDER THE BONAFIDE BELIEF THAT THE ADVANCE TREATED AS DEEMED DIVIDEND U/S 2(22 ) (E) IS AND WA S A LOAN TAKEN IN THE NORMAL COURSE OF BUSINESS WHICH HAS BE EN REPAID AS AND WHEN FUNDS ARE / WERE AVAILABLE. D. THERE WAS NO COLUMN IN THE RETURN OF INCOME FILED F OR A.Y.2010-11 TO SHOW THE SHARE HOLDING PATTERN IN TH E COMPANY AS MENTIONED BY CIT ( A ) 23 MUMBAI AS ONE OF THE REASONS FOR JUSTIFYING THE PENALTY LEVIED AS IN PAR A 2.9 ON PAGE 6 OF CIT ( A ) 23 MUMBAI. SHARE HOLDING PATTERN OF COMPANY WAS DISCLOSED DURI NG THE ASSESSMENT PROCEEDINGS BEFORE AU ACIT 12 ( 1 ) AS R EITERATED IN PARA 2.2 ON PAGE 62 OF CIT ( A ) 23 MUMBAI WHICH HA S BEEN REPRODUCED AD VERBATIM FROM PENALTY ORDER OF ACIT 1 2 ( 1 ) MUMBAI. E. ADDITION ON A/C OF DEEMED DIVIDEND WAS ACCEPTED TO BUY PEACE WITH THE DEPARTMENT AND AVOID LITIGATION AS R EITERATED IN ASSESSMENT ORDER FOR A.Y.2009-10 PARA 6.2 ON PAGE 3 OF WHICH IS REPRODUCED AD VERBATIM VIDE ORDER SHEET NOTING DATED 10.10.2011 THE ASSESS E HAS AGREED TO PAY TAXES ON THE ABOVE TWO ADDITIONS. F. BASED ON FINDINGS OF A.Y.2009-10 WHEREIN DEEMED DIVIDEND WAS TAXED FOR THE FIRST TIME ASSSESSMENT W AS REOPENED U/S 148 FOR A.Y.2008-09 AND A.Y.2010-11. G. OUR BELIEF THAT TAX WAS NOT PAYABLE U/S 2 ( 22 ) ( E ) WAS ACCEPTED BY THE AO ACIT 12(1) MUMBAI IN A.Y.2008-09 AND A.Y.2009-10 AND PENALTY PROPOSED TO BE LEVIED U/S 2 71(1)(C) WAS NOT LEVIED. H. ON SIMILAR FACTS / FINDINGS PENALTY IS LEVIED ONCE AGAIN. I. 1. THE INCOME DEPARTMENT WAS ITSELF AWARE AND KNOWING THIS ISSUE OF TAXABILITY OF DEEMED DIVIDEND BASED ON ASS EESSMNET ORDER PASSED U/S 143(3) IN A.Y.2009-10 WAS THERE EARLIER IN A.Y.2008-09 AND SUBSEQUENTLY IN A.Y.2010-11 FROM THE SUBMISSIONS FI LED BY US IN A.Y.2009-10. J. J. NOTICE UNDER SECTION 274 OF THE ACT DOES NOT SPE CIFICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(L)(C), I .E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORREC T PARTICULARS OF 3 ITA NO.982 /MUM/2015 INCOME K. ONLY PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED HAS BEEN SENT. L. REF CIT VS MANJUNATHA COTTON & GINNING FACTORY ( KA RNATAKA ) 359 ITR 565 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AD FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 01-10-201 0 DECLARING TOTAL INCOME AT RS.1,02,38,142. SUBSEQUENTLY THE CASE HAS BEEN REOPENED U/S 147 ON THE BASIS OF INFORMATION GATHERED DURING THE COURSE OF SCRUTINY PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 THAT THE ASSESSEE HAD TAKEN LOAN FROM A COMPANY IN WHICH HE WAS A BENEFICIAL SHAREHOLDER WITH A SHARE HOLDING OF MORE THAN 10% AND SUCH LOAN AND ADVANCE FROM THE COMPANY IS TAXAB LE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THEREAFTER THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 MAKING ADDITION FOR RS.78,08,433 U/S 2(2 2)(E) OF THE ACT, 1961. THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF T HE ACT, FOR FURNISHING INACCURATE PARTICULARS OF INCOME. DURING THE COURS E OF PENALTY PROCEEDINGS, THE ASSESSEE WAS CALLED UPON TO EXPLAIN AS TO WHY P ENALTY SHALL NOT BE LEVIED IN RESPECT OF DEEMED DIVIDEND U/S 2(22)(E) FOR FURNISH ING INACCURATE PARTICULARS OF INCOME. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSE SSEE SUBMITTED THAT THE ASSESSMENT FOR THE ASSESSMENT YEAR IN QUESTION WAS REOPENED ON THE BASIS OF SCRUTINY ASSESSMENT PROCEEDINGS FOR AY 2008-09 ON T HE BASIS OF FINANCIAL STATEMENTS OF THE ASSESSEE WHEREIN HE HAD DISCLOSED NECESSARY PARTICULARS OF 4 ITA NO.982 /MUM/2015 LOANS TAKEN FROM THE COMPANY WHERE HE WAS HOLDING B ENEFICIAL INTEREST IN SHARES. THE ASSESSEE FURTHER SUBMITTED THAT ADDITI ON ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E)| WAS MADE FOR THE FIRST TIME FOR AY 2010-11 AND THE FINDINGS OF THE AO IS BASED ON BALANCE-SHEET FILED BY THE ASSESSEE WHICH MEANS THAT HE HAD DISCLOSED THE FACT OF DISCLOSING THE SA ME IN THE BALANCE-SHEET. THEREFORE, THERE IS NO CONCEALMENT OF INCOME OR FUR NISHING OF INACCURATE PARTICULARS OF INCOME WHICH WARRANTS LEVY OF PENALT Y U/S 271(1)(C) OF THE ACT THE AO, AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE AND ALSO RELYING UPON THE DECISION OF HONBLE RAJASTHAN HIGH COURT I N THE CASE OF CIT VS HOTEL HILL TOP (2009) 313 ITR 116 (RAJ) OBSERVED THAT THE ASSESSEE HAS FAILED TO OFFER AN EXPLANATION WITH REGARD TO THE NON DISCLOSURE OF DEEMED DIVIDEND TOWARDS LOANS BORROWED FROM A COMPANY, IN WHICH HE WAS A BE NEFICIAL SHAREHOLDER, IN THE RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YE AR. THE ASSESSEE ALSO FAILED TO PROVE THE EXPLANATION OFFERED BY HIM IS B ONA FIDE. THEREFORE, HE OPINED THAT THE ASSESSEE HAS FURNISHED INACCURATE P ARTICULARS OF INCOME IN RESPECT OF DEEMED DIVIDEND ASSESSABLE U/S 2(22)(E) WHICH WARRANTS LEVY OF PENALTY U/S 271(1)(C) AND ACCORDINGLY LEVIED PENALT Y OF RS.24,12,806. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT A) AND REITERATED HIS SUBMISSIONS MADE BEFORE THE AO. THE ASSESSEE FURTH ER SUBMITTED THAT FACT OF TAKING LOAN FROM THE COMPANY WAS DISCLOSED IN THE B ALANCE-SHEET AND THE 5 ITA NO.982 /MUM/2015 ADDITION TOWARDS DEEMED DIVIDEND U/S 2(22)(E) WAS M ADE FOR THE FIRST TIME. THEREFORE, PENALTY CANNOT BE LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INCOME IN RESPECT OF AN ADDITION MADE BY INVOKING D EEMING PROVISIONS OF THE ACT. IN THIS REGARD, HE RELIED UPON THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS P 322 ITR 158 (SC) AND THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF GITANJALI GHAT E VS DCIT ITA NO.6560/MUM/2010. THE CIT(A), AFTER CONSIDERING RE LEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO RELYING UPON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATION LTD 327 ITR 510 (DEL) CO NFIRMED PENALTY LEVIED BY THE AO U/S 271(1)(C). RELEVANT PORTION OF THE O RDER OF CIT(A) IS EXTRACTED BELOW:- 2.9 I HAVE CONSIDERED THE ABOVE CONTENTION OF THE A SSESSEE. HOWEVER, THE SAME CANNOT BE ACCEPTED FOR THE REASON THAT THE ASSESSEE HAS NOT FURNISHED EITHER BEFORE THE ASSESSING OFFIC ER OR BEFORE ME ANY MATERIAL TO SHOW THE BASIS FOR HOLDING THE B ONAFIDE BELIEF THAT NO ADDITION U/S 2(22)(E) WAS REQUIRED TO BE MA DE IN ITS CASE. IT IS NOT THE CASE OF THE ASSESSEE THAT THE INCOME REM AINED TO BE DISCLOSED DUE TO IGNORANCE OF LAW OR DUE TO THE FAC T THAT THERE WERE DIFFERENT OPINIONS ON THIS ISSUE. THE BASIS FO R HOLDING THE BONAFIDE BELIEF THAT THE PROVISIONS RELATING TO DEE MED INCOME WAS NOT APPLICABLE TO ITS CASE HAS NOT BEEN EXPLAINED B Y THE ASSESSEE. HENCE, THE ASSESSEE HAS NOT SUBSTANTIATED ITS CONTE NTION THAT THE INCOME WAS NOT OFFERED TO TAX BECAUSE OF ANY BONAFI DE BELIEF./ THE ASSESSING OFFICER, IN THE PENALTY ORDER, HAS CL EARLY STATED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE EXPLANATION OFFERED BY HIM AND HAS NOT SHOWN THAT THE EXPLANATI ON OFFERED BY 6 ITA NO.982 /MUM/2015 HIM IS BONAFIDE AND HAS ALSO NOT SHOWN THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM AND, THEREFORE, THE CASE OF THE ASSESSEE WAS COVERED BY THE PROVISIONS OF SECTION 271(1)(C). )THE ASSESSEE HAS CONTENDED THAT THE FACT OF TAKING THE LOAN FROM THE COMPANY WAS DISCLOSED IN THE BALANCE SHEET. HOWEVER, THE ASSESS EE HAS NOT SHOWN BEFORE ME THAT THE FACT OF THE SHARE HOLDING PATTERN IN THE COMPANY WAS ALSO DISCLOSED IN THE RETURN OF INCOME FILED BY IT. UNLESS AND UNTIL THIS WAS ALSO SHOWN, IT CANNOT BE HELD THAT ALL FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCO ME OF THE ASSESSEE HAS BEEN DISCLOSED BY IT. IN VIEW OF THE A FORESAID FACT, THE DECISION OF THE HON'BI,E ITAT IN THE CASE OF GITANJ ALI GHATE RELIED UPON BY THE ASSESSEE IS DISTINGUISHABLE. 2.10 FROM THE ABOVE FACTS, IT IS CLEAR THAT ALTHOUG H THE AMOUNT OF DEEMED DIVIDEND OF RS.78,08,433/- WAS REQ UIRED TO BE DECLARED BY THE ASSESSEE AS ITS INCOME, IT DID N OT DISCLOSE THE SAME IN THE RETURN OF INCOME FILED BY HER. THIS FAC T WAS DISCOVERED ONLY BY THE ASSESSING OFFICER WHO INITIA TED THE PROCEEDINGS U/S 147 OF THE I.T. ACT, 1961 AND BROUGHT THE SAME TO TAX. OTHERWISE, THIS INCOME WOULD HAVE ESCAPED TAXATION. HENCE, IN VIEW OF THE DECISION IN RELIANCE PETROPRODUCT P. LTD IT IS WITHOUT DOUBT CLEAR THAT THE DETAILS SUPPLIED IN TH E RETURN WERE NOT ACCURATE NOR EXACTLY CORRECT, NOT ACCORDING TO THE TRUTH. IN THE OF ZOOM COMMUNICATION LTD. 327 ITR 510, THE HON'BLE DE LHI HIGH COURT HAS, AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LT D., HELD AS FOLLOWS:- 'THE COURT CANNOT OVERLOOK THE FACT THAT ONLY A SMA LL PERCENTAGE OF THE IT RETURNS ARE PICKED UP FOR SCRU TINY. IF THE ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORR ECT IN LAW BUT IS ALSO WHOLLY WITHOUT ANY BASIS AND THE EXPLAN ATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOU ND TO BE BONAFIDE, IT WOULD BE DIFFICULT TO SAY THAT HE WOUL D STILL NOT 7 ITA NO.982 /MUM/2015 BE LIABLE TO PENALTY U/S.271(1)(C). IF ONE TAKES TH E VIEW THAT A CLAIM WHICH IS WHOLLY UNTENABLE IN LAW AND H AS ABSOLUTELY NO FOUNDATION ON WHICH IT COULD BE MADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENAL TY, EVEN IF HE WAS NOT ACTING BENAFIDE WHILE MAKING A C LAIM OF THIS NATURE, THAT WOULD GIVE A LICENSE TO UNSCRU PULOUS ASSESSEES TO MAKE WHOLLY UNTENABLE AND UNSUSTAINABL E CLAIMS WITHOUT THERE BEING ANY BASIS FOR MAKING THE M, IN THE HOPE THAT THEIR RETURN WOULD NOT BE PICKED UP F OR SCRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF ASSESSMENT U/S. 143(1) AND EVEN IF THEIR CASE IS SE LECTED FOR SCRUTINY, THEY CAN GET AWAY MERELY BY PAYMENT THE T AX, WHICH IN ANY CASE, WAS PAYABLE BY THEM. THE CONSEQU ENCE WOULD BE THAT THE PET-SONS WHO MADE CLAIMS OF THIS NATURE, ACTUATED BY A MALAFIDE INTENTION TO EVADE TAX OTHER WISE PAYABLE BY THEM WOULD GET AWAY WITHOUT PAYING THE T AX LEGALLY PAYABLE BY THEM, IF THEIR , CASES ARE NOT PICKED UP FOR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT , WHICH THESE PENALTY PROVISIONS IN THE ACT HAVE.' 2.11 IN VIEW OF THE AFORESAID REASONS, I AM OF THE OPINION THAT THE CASE OF THE ASSESSEE IS STRICTLY COVERED BY THE PROVISIONS OF SECTION 271(1)(C). THE ACTION OF THE ASSESSING OFFI CER OF LEVYING THE PENALTY UNDER THE SAID SECTION BEING AS PER LAW IS UPHELD. THE GROUND OF APPEAL FILED BY THE ASSESSEE IS DISMISSED . AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS IN AP PEAL BEFORE US. 4. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD THE LD.DR, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE O RDERS OF AUTHORITIES BELOW. THE AO LEVIED PENALTY U/S 271(1)(C) TOWARDS ADDITIO N MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. ACCORDING TO THE AO, THE ASSESSEE HAS FAILED TO OFFER ANY EXPLANATION FOR NOT DISCLOSING LOANS AND ADVANCES RECEIVED FROM A COMPANY IN WHICH HE WAS A BENEFICIAL SHAREHO LDER UNDER THE PROVISIONS 8 ITA NO.982 /MUM/2015 OF SECTION 2(22)(E) OF THE ACT. IT IS THE CONTENTI ON OF THE ASSESSEE THAT PENALTY CANNOT BE LEVIED U/S 271(1)(C) TOWARDS ADDITION MAD E BY INVOKING DEEMING PROVISIONS PROVIDED UNDER THE ACT. THE ASSESSEE FU RTHER CONTENDED THAT THE AO HAS MADE ADDITION U/S 2(22)(E) FOR THE FIRST TIM E IN THE IMPUGNED ASSESSMENT YEAR AND SUCH ADDITION WAS MADE ON THE B ASIS OF INFORMATION GATHERED DURING THE COURSE OF ASSESSMENT PROCEEDING S OF AY 2008-09 FROM THE FINANCIAL STATEMENT FILED BY THE ASSESSEE. THE ASS ESSEE HAS DISCLOSED LOAN BORROWED FROM THE COMPANY, IN HIS BALANCE-SHEET. T HE ASSESSEE FURTHER CONTENDED THAT DEEMING FICTION PROVIDED UNDER THE P ROVISIONS OF SECTION 2(22)(E) CANNOT BE EXTENDED TO THE PROVISIONS OF SE CTION 271(1)(C) TO HOLD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS O F INCOME, DESPITE DETAILS OF LOAN HAS BEEN DISCLOSED IN THE BALANCE-SHEET FILED FOR THE RELEVANT ASSESSMENT YEAR. 5. THE AO HAS LEVIED PENALTY ON THE BASIS OF INFORMATI ON GATHERED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2008-09 WHICH REVEALED THAT THE ASSESSEE HAS BORROWED LOAN FROM A COMPANY FOR RS.78 ,08,433 IN WHICH HE WAS A BENEFICIAL SHAREHOLDER. THE SAID INFORMATION HAS BEEN GATHERED FROM THE FINANCIAL STATEMENT OF THE ASSESSEE. THE ASSESSEE HAS DISCLOSED LOAN BORROWED FROM THE COMPANY IN HIS BALANCE-SHEET. WE FURTHER NOTICE THAT THE AO HAS MADE ADDITION U/S 2(22)(E) FOR THE ASSESSMENT YEAR 2009-10 FOR THE FIRST TIME. 9 ITA NO.982 /MUM/2015 NO SUCH ADDITION HAS BEEN MADE IN THE PRECEDING FIN ANCIAL YEARS. THE ASSESSEE CLAIMS THAT HE WAS UNDER A BONAFIDE BELIEF THAT DEE MING FICTION PROVIDED U/S 2(22)(E) FOR THE PURPOSE OF MAKING ADDITION TOWARDS LOANS AND ADVANCES BORROWED FROM A COMPANY IN THE HANDS OF THE DIRECTO R CANNOT BE EXTENDED TO PENALTY PROVISIONS PROVIDED U/S 271(1)(C) TO HOLD T HAT NON DISCLOSURE OF DEEMING DIVIDENDS IN THE RETURN OF INCOME WOULD AMO UNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT DEEMING FICTION PROVID ED U/S 2(22)(E) FOR MAKING ADDITION TOWARDS LOANS AND ADVANCES FROM A CLOSELY HELD COMPANY IN THE HANDS OF THE DIRECTORS CANNOT BE CONSIDERED AS FURNISHING OF INACCURATE PARTICULARS OF INCOME; DESPITE THE ASSESSEE HAS DISCLOSED BORROWIN GS FROM THE COMPANY IN ITS BALANCE-SHEET. WE FURTHER OBSERVE THAT THE AO HAS MADE ADDITION FOR THE FIRST TIME IN THE FINANCIAL YEAR UNDER CONSIDERATION. TH EREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE EXPLANATION OFFERED BY THE ASSESSEE THAT NO PENALTY CAN BE LEVIED TOWARDS ADDITION MADE BY INVOKING DEE MING PROVISIONS FOR LEVYING PENALTY APPEARS TO BE BONAFIDE. WE FURTHER OBSERVE THAT WHETHER THE PROVISIONS OF SECTION 2(22)(E) IS APPLICABLE OR NOT TO A PARTICULAR LOAN AND ADVANCE FROM A COMPANY IN THE HANDS OF THE DIRECTOR IS A DEBATABLE ISSUE AND THERE IS A POSSIBILITY OF TWO VIEWS. THE AO HAS TA KEN A VIEW TO BRING IT TO TAX LOANS AND ADVANCES UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX 10 ITA NO.982 /MUM/2015 ACT, 1961. SUCH DEEMING FICTION PROVIDED U/S 2(22) (E) CANNOT BE CONSIDERED AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE FURTHER OBSERVE THAT THE ITAT, INDORE BENCH IN THE CASE OF SADHNA BROS VS AC IT (2011) 46 SOT 1 (IND)(URO) HELD THAT PENALTY U/S 271(1)(C) IN RESPE CT OF LOANS RECEIVED BY THE ASSESSEE FROM A COMPANY IN WHICH HE WAS HOLDING BE NEFICIAL SHAREHOLDING WHICH WAS BROUGHT TO TAX BY INVOKING DEEMING PROVIS IONS OF SECTION 2(22)(E) CANNOT BE A GROUND FOR IMPOSING PENALTY. THE RELEV ANT PORTION OF THE ORDER IS EXTRACTED BELOW:- FOR IMPOSING A PENALTV UNDER SECTION 271(1)(C) EITH ER THERE SHOULD BE CONCEALMENT OF INCOME OR FURNISHING OF IN ACCURATE PARTICULARS OF INCOME. IN THE INSTANT APPEAL, THE A SSESSEE COMPANY HAD NEITHER CONCEALED ITS INCOME NOR FURNIS HED THE INACCURATE PARTICULARS OF INCOME. INSOFAR AS THE AS SESSEE HAD DISCLOSED ALL THE PARTICULARS 0/TRANSACTIONS WITH T HE SISTER CONCERN IN THE AUDITED ACCOUNTS AS WELL AS IN THE RETURN OF INCOME, THEREFORE IT WAS NOT A GOOD CASE FOR IMPOSING PENALTY UNDER SECT ION 271(1)(C). IN THE INSTANT CASE, COMPLETE DETAILS WERE DISCLOSE D IN THE BALANCE- SHEET AND IN THE SCHEDULE ANNEXED TO TAX AUDIT REPO RT, MEANING THEREBY THAT ALL MATERIAL FACTS WERE DISCLOSED TO T HE DEPARTMENT BY THE ASSESSEE AND THE ADDITIONS HAD BEEN MADE ON LEG AL INTERPRETATION OF LAW. THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSITION THAT FINDING IN THE ASSESSMENT PROCEEDINGS ARE NOT CONCLUSIVE FOR D ETERMINING THE IMPOSITION OF PENALTY. THUS, WHILE IMPOSING PEN ALTY, THE ENTIRETY OF CIRCUMSTANCES MUST REASONABL Y POINT TO THE CONCLUSION THAT THERE IS A CONCEALMENT OR FURNISHIN G OF INACCURATE PARTICULARS. IT WAS APPARENT FROM THE RECORD THAT THE ASSESSEE-C OMPANV WAS NEITHER HOLDING ANY SHARES NOR IT WAS A REGISTERED SHARE HOLDER OF 'R' LTD. WHO HAD GIVEN LOAN TO THE ASSESSEE-COMPANY. 11 ITA NO.982 /MUM/2015 THE ASSESSING OFFICER HAD LEVIED PENALTY WITH REFER ENCE TO THE ADDITION MADE ON ACCOUNT OF LOANS/ADVANCES RECEIVED BY THE A SSESSEE COMPANY FROM 'R' LTD., BY BRINGING SUCH LOANS AND ADVANCES UNDER THE PURVIEW OF SECTION 2(22)(E). WHILE LEVYING THE PENALTY, THE DEEMING PROVISIONS CAN HE APPLIED TO A LIMITED EXTE NT AND INSTANT CASE WAS CONCERNED WITH THE IMPOSITION OF PENALTY U NDER SECTION 271(1)(C), WHICH WAS NOT SUSTAINABLE INSOFA R AS THE ASSESSEE-COMPANY WAS NOT A REGISTERED SHAREHOLDER O F 'R' LTD. WHO HAD GIVEN LOAN/ADVANCE TO THE ASSESSEE-COMPANY. IN VIEW OF THE ABOVE, IT WAS NOT A FIT CASE FOR LEV Y OF PENALTY UNDER SECTION 271(I)(C) IN RESPECT O/LOANS RECEIVED B Y THE ASSESSEE COMPAN Y FROM 'R' LTD. WHICH WAS BROUGHT TO TAX NET BY INVO KING THE DEEMING PROVISIONS OF SECTION 2(22)(E). 6. IN THIS VIEW OF THE MATTER AND BEING CONSISTENT WIT H THE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE VIEW THAT P ENALTY CANNOT BE LEVIED U/S 271(1)(C) TOWARDS ADDITION MADE FOR LOAN S AND ADVANCES BY INVOKING DEEMING PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THEREFORE, WE DIRECT THE AO TO DELETE PENALTY LEVIED U/S 271(1)(C ) OF THE ACT. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOVEMBER, 2017. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 22 ND NOVEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI