Non-Disclosure of Shareholding Structures as u/s 92E of Income Tax Act: Delhi HC upholds Penalty [Read Order]

The Delhi High Court upheld the penalty as there was non-disclosure of the shareholding structures as under Section 92E of the Income Tax Act, 1961.

The only issue which arose for consideration before the Tribunal was whether or not the penalty order, passed under Section 271AA of the Income Tax Act, 1961 should be sustained. The record showed that the Commissioner of Income Tax (Appeals) [“CIT(A)”] had confirmed the penalty order. The respondent in the present case is MS L and T SUCG JV CC27.

The record also showed that the penalty was imposed on the respondent/assessee on the basis of the fact that it had neither reported the transaction concerning the purchase of equipment from an entity going by the name Shanghai Pudong Machinery Complete Equipment Co. Ltd. [“SPMCECL”] as required under Section 92E of the Income Tax Act, nor maintained a record of the transaction, as per the provisions of Section 92D of the Income Tax Act.

Although during scrutiny assessment several additions were made to the declared income of the respondent/assessee, which was Rs. 8.11 crores, the aspect concerning the transactions entered into with SPMCECL qua purchase of the tunnel boring machine turned in favour of the respondent/assessee, inasmuch as it was held by the Tribunal in the quantum proceedings that the transaction was at arm’s length. Thus, the addition concerning the purchase of a tunnel-boring machine was deleted.

The Assessing Officer (AO), however, based on the shareholding structure of the respondent/assessee, concluded that the assessee had not made disclosures, as required under Section 92E of the Income Tax Act. The Tribunal, in our opinion, while examining the veracity of the view taken both by the AO and the CIT(A), has adopted the correct approach.

A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “Section 273B of the Income Tax Act, which refers to various penalty provisions, [including Section 271AA] clearly provides that no penalty is imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions, if he proves there was a reasonable cause for the said failure. As indicated above, the Tribunal, in our opinion, has taken recourse to the correct approach.”

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