While scrutinizing the balance sheet of the assessee, during the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has taken loan of Rs. 3,57,428/- from M/s. Third Eye Qualitative Researchers Pvt. Ltd. of which she is a director having substantial interest. Accordingly, the said loan of Rs. 3,57,428/- was added as deemed dividend u/s. 2(22)(e) of the I.T. Act. The AO sought explanation u/s. 271(1)(c) r.w. Explanation-1. The assessee furnished detailed reply dt. 6.3.2009. The explanation of the assessee was rejected by AO who levied minimum penalty of Rs. 1,20,310/-.
We have perused the orders of lower authorities. It is not in dispute that the fact of the loan taken by the assessee from the company came within the knowledge of AO from the balance sheet filed by the assessee which means that the assessee has disclosed the fact of borrowing in her balance sheet. We agree with the Counsel that assessee had no malafide intention to conceal the fact. So long as assessee has not concealed any material fact or any factual information given by her has not been found to be incorrect, she should not be liable to imposition of penalty u/s. 271(1)(c).
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA No. 6560/Mum/2010 – Assessment Year-2006-07
Gitanjali Ghate Vs. DCIT
Date of pronouncement: 23.05.2012
O R D E R
PER N.K. BILLAIYA (AM):
By way of this appeal, the assessee has called into question the correctness of the CIT(A)’s Order dt. 23.7.2010 for assessment year 2006-07.
2. The only grievance of the assessee is that the authorities below erred in levying penalty u/s. 271(1)(c) on deemed dividend u/s. 2(22)(e) of the I.T. Act, 1961.
3. The facts as they were at the stage of the assessment , that while scrutinizing the balance sheet of the assessee, during the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has taken loan of Rs. 3,57,428/- from M/s. Third Eye Qualitative Researchers Pvt. Ltd. of which she is a director having substantial interest. Accordingly, the said loan of Rs. 3,57,428/- was added as deemed dividend u/s. 2(22)(e) of the I.T. Act.
4. The matter went up to the stage of ITAT but without any success. Penalty proceedings were initiated and accordingly notices were issued and served upon the assessee.
5. The AO sought explanation u/s. 271(1)(c) r.w. Explanation-1. The assessee furnished detailed reply dt. 6.3.2009 which reads as under:
“With reference to above and under instructions of our client, further to our submissions dt. 25th February, 2009, we submit as under:
1. The assessee had a debit balance in the books of accounts of Third Eye Qualitative Researchers Pvt. Ltd.
2. The debit balance occurred due to some payments made by the company which were not allowable in the hands of the company. As such these payments were debited to Ms. Gitanjali Ghat’s account.
3. As a result of such debits, such account of Ms. Ghate had a debit balance.
4. The assessee was not aware of the provisions of Sec. 2(22)(e) of the I.T. Act, 1961.
5. In the following year, dividend declared by the company was credited to Ms. Ghat’s account, thereby resulting the account have a Credit balance.
6. (1972) 83 ITR 26(SC) Hindustan Steel Ltd. It was held that no penalty can be levied if the assessee has acted in bonafide belief that the law was not applicable to him/her. Taking the above submissions into account, it is prayed that the penalty proceedings be dropped.”
The explanation of the assessee was rejected by AO who levied minimum penalty of Rs. 1,20,310/-.
