Addition made on basis of deeming provisions of Section 2(22)(e) of Income Tax Act is for Estimating Income and not for Inaccurate Particulars of Income: ITAT deletes penalty u/s 271(1)(c) of Income Tax Act [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench, held that the addition made on the basis of the deeming provisions of section 2(22)(e) of the Income Tax Act, 1961, is for estimating income and not for inaccurate particulars of income. Therefore, the bench deleted the penalty imposed under section 271(1)(c) of the Income Tax Act.

The assessee, Manoj Mittal, is an individual who filed his return of income by declaring income of Rs. 47,28,153. Under Section 143(3) of the Act, the assessment was completed, and an addition of Rs. 18,42,000 was made in light of the loan that the assessee had received, which was considered a dividend under Section 2(22)(e) of the Act.

Aggrieved by the order, the assessee filed an appeal before the CIT(A) and the tribunal. The tribunal restricted the addition towards deemed dividend u/s 2(22)(e) to Rs. 4,73,526, being the accumulated profits of the company M/s Mittal Construction and Real Estate Pvt. Ltd. as of the date of the transfer of the loan, as the assessee had more than 10% of the shareholding of that company.

Subsequently, the Assessing Officer passed an assessment under section 143(3) read with section 254 of the Act in accordance with the Tribunal's ruling, adding Rs. 4,73,526 under section 2(22)(e) of the Act. Further, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act and levied a penalty.

Against the penalty order, the assessee filed an appeal before the CIT(A), who upheld the penalty proceedings. Then the assessee moved to file a second appeal before the tribunal.

During the proceedings, Neelesh Kumar Jain, Counsel for the assessee, relied upon the decision of the Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd., submitted that mere making of a claim which is not sustainable in law cannot lead to the levy of a penalty u/s 271(1)(c) of the Act.

Therefore, during the financial year under review, the appellant, a beneficial stakeholder in M/s Mittal Construction & Real Estate Company Private Limited, took out loans and advances of Rs. 18,42,000 and did not conceal or provide any false or erroneous information.

Vipul Kashyap, Counsel for Revenue, supported the orders of the authorities below.

It was observed by the tribunal that, by way of deeming provision, the Assessing Officer made an addition of Rs. 18,42,000, being the loan taken by the assessee from the company in which he was a substantial shareholder, which addition was ultimately reduced to the accumulated profits of the lender company at Rs. 4,73,526 by the Tribunal.

After reviewing the facts and records, the two-member bench of M. Balaganesh (Accountant member) and Chandra Mohan Garg (Judicial Member) held that no concealment of particulars of income by the assessee occurred so as to attract a penalty u/s 271(1)(c) of the Act.

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