Case Law Details

Case Name : Gitanjali Ghate Vs. DCIT (ITAT Mumbai)
Appeal Number : ITA No. 6560/Mum/2010
Date of Judgement/Order : 23/05/2012
Related Assessment Year : 2006-07
Courts : All ITAT (4339) ITAT Mumbai (1440)

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/-.

7. The matter was taken up before the Ld. CIT(A). However, the assessee failed to convince the Ld. CIT(A) who confirmed the penalty holding that the ratio laid down by the Hon’ble Supreme Court in the case of CIT Vs Atul Mohan Bindal 317 ITR 01 (SC) squarely applied on the facts of the case.

8. Aggrieved by the order of Ld. CIT(A), assessee is in appeal before us.

9. The Ld. Counsel appearing for the assessee argued that the assessee was not aware of the provisions of Sec. 2(22)(e) of the I.T. Act. The Counsel further argued that in the normal provision, loan taken from a company cannot be income, it is only because of the deeming provision that the said loan has been taxed as income u/s. 2(22)(e). It was contended by the Counsel that the assessee acted in a bonafide belief that the law was not applicable to her. The Ld. Counsel further relied on the decision of the ITAT Mumbai ‘E’ Bench in the case of Sunilchandra Vohra Vs ACIT, Circle 20(3) (2009) 32 SOT 365 wherein on similar facts and circumstances the Tribunal cancelled the penalty levied on the additions made u/s. 2 (22)(e) of the Act.

10. The Departmental Representative strongly supported the orders of lower authorities and contended that the penalty levied is the minimum penalty under the provisions of Act and it should be confirmed.

11. 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).

12. On the facts of the case, we find that placing reliance by Ld. CIT(A) on the ratio laid down by the decision of Hon’ble Supreme Court in the case of CIT Vs Atul Mohan Bindal (supra) is misplaced. Considering the facts in totality, we hold that this is not a fit case for levy of penalty u/s. 271(1)(c) of the Act. The AO is directed to cancel the penalty so levied.

13. In the result, the appeal filed by the assessee is allowed.

Order pronounced on this 23rd day of May, 2012

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Category : Income Tax (25337)
Type : Judiciary (10111)
Tags : ITAT Judgments (4519) section 271(1)(c) (305)

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