Penalty u/s 271(1)(c) on account of deemed dividend addition u/s 2(22)(e) cannot be imposed

Penalty u/s 271(1)(c) on account of deemed dividend addition u/s 2(22)(e) deleted. Penalty cannot be imposed in a debatable issue where assessee had furnished complete details of the transaction.

ABCAUS Case Law Citation:
ABCAUS 2960 (2019) (05) ITAT

Important Case Laws Cited/relied upon by the parties:
James vs. ACIT
Reliance Petroproducts Limited
Sadhna Bros vs ACIT (2011) 46 SOT 1 (Ind)(URO)

The appellant assessee/company had challenged the order of CIT(A) in upholding the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961 (the Act).

The assessment of the appellant company was completed u/s 143(3) of the Act and an addition was made as deemed dividend u/s 2(22)(e) of the Act on the amount claimed as loan from a sister concern. In view of the above, the penalty was imposed u/s 271(1)(c) of the Act.

The matter was carried to CIT(A), who dismissed the appeal of the assessee by holding that the assessee was not able to prove that the transaction was on account of trading transaction between the parties and therefore, the Assessing Officer had rightly made the addition and therefore, he upheld the penalty.

Before the Tribunal, the assessee submitted that that the company could not be said to have concealed its income or have furnished wrong particulars of income as all the necessary details were filed with the return of income and were explained to the Assessing Office.

It was stated that during the assessment proceedings and from the records of the assessee itself, the Assessing Officer came to the conclusion that the transaction of loan taken by the assessee was deemed dividend. Therefore, it was prayed that the penalty cannot be imposed as there was no concealment of income or no wrong particulars of income were filed and it was only because of the opinion of the Assessing Officer that the addition was made .

It was argued that the assessment of deemed dividend is highly debatable and on a debatable issue, the penalty u/s 271(1)(c) cannot be imposed. It was further argued that Hon’ble Supreme Court has also clarified that penalty u/s 271(1)(c) cannot be imposed for a wrong claim.

It was stated that the amount on which the penalty had been imposed was at best a case of deemed addition and would be the matter of interpretation, the penal provisions of section 271(1)(c) were not attracted, the penalty imposed was bad in law.

The Tribunal noted that it was undisputed fact that the amount of loan was disclosed by the assessee in its balance sheet as loan and from the copy of balance sheet itself, the Assessing Officer further enquired about the nature of the transaction.

Therefore, the Tribunal opined that it could not be said that the assessee had furnished wrong particulars of income or had concealed any income. The penalty had been imposed only on account of difference of opinion between the Assessing Officer and the assessee.

The Tribunal pointed out that the assessee held it to be a loan taken from a sister concern whereas the Assessing Officer had treated it as deemed dividend.

The Tribunal opined that in a debatable issue and in a case like this where the assessee had furnished complete details of the transaction, the penalty cannot be imposed as has been held by various decisions.

In view of the above, the penalty sustained by the CIT(A) was deleted by the Tribunal.

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