ITA No. 661 to 665 & 468/JP/2011, ITA No. 667/JP/2011, ITA No. 668/JP/2011, ITA No. 666/JP/2011

SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM

Shri Rajeev Sogani (C.A) and Shri Rohan Sogani (C.A.) For The Assessee :
Shri O.P. Bateja (Addl. CIT) For The Revenue :

ORDER

All the assessees are in appeal against the order of ld. CIT (A), Central, Jaipur dated 09.05.2011, 06.05.2011, 17.03.2011 for the A.Y. 2002-03, 03-04, 04-05, 05-06, 06-07, 07-08 & 08-09. The sole ground in all the appeals is against confirming the penalty under section 271(1)(c) of the I. T. Act.

2. The A.O. in all the penalty orders has observed that M/s. Trimurty Buildcon Pvt. Ltd., Geeta Mishra (B), Abhishek Estate Pvt. Ltd. (C) and Trimurty Farms & Retreats (D) which are part of Udaikant Mishra Group were searched on 03.05.2007. In this case assessment was made under section 143(3) of the I.T. Act. The AO made addition on account of deemed Dividend / Penalty u/s 271(1)(c) as under :-

Before imposing penalty under section 271(1)(c) of the IT Act, the AO gave reasonable opportunity of being heard to all the assessees. The Director of the Company Shri Abhishek Mishra vide written submission dated 08.05.2009 had admitted that the intra group fund transfers were falling within the ambit of section 2(22)(e) of the IT Act. Thus additions in all the cases were made on account of deemed dividend. The assessee had not preferred appeal before appellate authority that the amount had been advanced in the normal course of business and are not per se within this section. The assessee even had surrendered income to buy peace and avoid prolonged litigation. Surrender of income and non-filing of appeal do not mean concealment of income. Mens rea is an active element in the imposition of penalty and that is lacking in this case. The ld. AO held that even advances made during the course of business do not absolve from the application of section 2(22)(e) of the IT Act. The section does not distinguish an advance into a business advance or any other kind. In taxation law, the meaning understood in the plain reading has to be accepted. One cannot import words to suit one’s convenience into a legal provision when it is absent. This is the supreme principle of cassus omissus, which has been reiterated in various judgments and thus firmly established in the legal lexicons. The AO further relied on the case of Padma Sundra Rao vs. State of Tamil Nadu, 255 ITR 147 (SC), Brittania Industries vs. CIT, 278 ITR 546 (SC). The AO further observed that there were intra group money transfers on a large scale. In most companies, the board of directors comprised members of the family in one way or the other. This led to the suspicion that they were also substantial shareholders in the company. Taking that queue, the website of the Registrar of Companies was accessed and the share holding pattern was seen. The suspicion proved right and the shareholding pattern was taken down from the website. The AO has found out the details of advances/loans, accumulated profits. Accordingly this group has offered Rs. 39.29 lacs under section 2(22)(e) of the Act. There was no voluntary surrender of the assessee but this was due to investigation made by the AO. The assessee filed first return under section 139 and thereafter second return filed under section 153A. But in both the returns, the assessee had not disclosed deemed income in the computation of income. He further relied on the case of CIT vs. Dr. R.C. Gupta & Co., 122 ITR 567 (Raj.) wherein it has been held that where the assessee himself had admitted that the amount in question represented his income, no further evidence would be necessary to show that it was the amount which represented his income and/that it represented his concealed income. He further relied on the case of Union of India vs. Dharmendra Textiles Processors & Others, 306 ITR 277 (SC) for mens rea, Union of India vs. Rajasthan Spinning & Weaving Mills (2009) 180 Taxman 609 (SC) for penalty is compensatory in nature. Thereafter, he relied on the case of Atul Bindal,317 ITR 1 (SC) wherein the Apex Court has equated civil liability with a strict liability. After considering the explanation-1 to section 271(1)(c), the AO imposed penalty in A.Y. 2008-09 at Rs. 12,14,066/- which is 100% of tax sought to be evaded. Similar penalty was also imposed by the AO from A.Y. 2002-03 to 04-05 and A.Y. 2006-07 to 07-08, but amount penalty vary to year to year, the findings of the AO are the same.

3. Being aggrieved by the order of AO, assessee carried the matter before ld. CIT (A) who had confirmed the addition after considering the assessee’s reply and held that assessee’s claim that these were the business transactions between the group companies were not supported by facts, figures and details. He further held that even these advances were for business purposes, which are not differentiated under section 2(22)(e) of the Act. The assessee’s action was also not voluntary as the AO had gathered these evidences from ROC and quantum of advances/loans were worked out for seven years from A.Y. 2002-03 to 08-09. These facts were confronted with the appellant. Thereafter he surrendered the income which was not disclosed by it in the return filed under section 139 or 153A. He further considered various decisions quoted by the ld. A/R of the assessee in the cases of Dharmendra Textiles Processors & Others (supra), Dilip N. Shroff vs. JCIT, 291 ITR 519 (SC), Atul Mohan Bindal (supra) which are not squarely applicable in the case of assessee. He further considered the Hon’ble Supreme Court decision in the case of CIT vs. Reliance Petroproductrs P. Ltd., 322 ISTR 158 9SC) which was also held not applicable in the case of the assessee. He further distinguished case laws cited by the ld. A/R in the matter of CIT vs. Rajiv Garg, 313 ITR 256 (P&H), CIT vs. Haryana Warehousing Corporation, 314 ITR 215 (P&H), CIT vs. VIP Industries Ltd., 21 DTR 153 (ITAT Mumbai). He further held that Hon’ble Mumbai High Court on the issue of penalty under section 271(1)(c) on addition of income under section 2(22)(e) in case of CIT vs. Alkesh K. Patel, 325 ITR 118, has not found favour with the ITAT decision of confirming the order of ld. CIT (A) deleting the penalty. In view of the above decision of Hon’ble High Court in the case of Alkesh K. Patel (supra), the decision of ITAT cited by the ld. A/R of the appellant, namely Shri Ulhas Sabane vs. ITO, vide ITA No. 190/PN/2006 and A.P. Madhavan vs. ITO, 008-TTJ-0343 – TMAD of no help to the appellant. Accordingly, he confirmed the penalty in all the years by following the decision given in penalty appeal for A.Y. 2008-09.

4. Now the assessee is before us.
4.1. It is submitted that assessee is engaged in the business of real estate development and part of Udaikant Mishra group whom were searched on 03.05.2007. Thereafter assessment was completed under section 153A of the IT Act. During these years assessee company raised loans from its sister concerns Trimurty Landcon (India) Pvt. Ltd., Abhishek Finlease Pvt. Ltd., Abhishek Estate Pvt. Ltd. and Trimurty Colonisers & Builders Pvt. Ltd. These loans received were offered for tax as Deemed Dividend during the course of assessment proceedings and were accordingly taxed. The assessee had not filed any appeal. During the course of penalty proceedings, assessee submitted that amounts were offered for tax voluntarily. These loans received for business purposes, all group companies are engaged in similar line of real estate business and that Deemed Dividend law is not applicable on business advances. The loans were re-paid back. On business advances made by the company to its shareholders for business purposes are held by various courts that such advances are not covered under section 2(22)(e) of the Act as deemed dividend. This issue is debatable, the assessee at the time of assessment proceedings as well as penalty proceedings had raised this issue before the AO which was not considered by both the AO. Even at the time of imposing the penalty under section 271(1)(c) of the Act, both the authorities i.e. AO as well as ld. CIT (A) has held that section 2(22)(e) does not differentiate between advances claimed to be business advance or any other type of advance. The assessee submitted before the AO that the funds received by the assessee company were used for acquiring development rights in land at Tehsil Phagi, Jaipur for their real estate township project and that such fund was on several occasions given back to the other group companies. The ld. CIT (A) was also not justified by holding that assessee had not supported these advances for business purposes by facts, figures and details, but all details were submitted before the AO during the course of assessment proceedings which is evident from the assessment order that AO asked to supply the information from the assessee. The ld. A/R further relied on the Hon’ble Delhi High Court decision in case of Creative Dyeing & Printing (P) Ltd. (2009) 318 ITR 0476 (Del.) wherein it has been held that section 2(22)(e) can be applied to ‘loans’ or ‘advances’ simplicitor and not to those transactions carried out in course of business as such as these advances were given in mutual interest. There is no legal bar in having such transaction. The purpose of the advances is to be ascertained. He further relied on the case of CIT vs. Ambassador Travels Pvt. Ltd., 318 ITR 0376 (Delhi) and CIT vs. Raj Kumar, 318 ITR 461 (Delhi). The issue of business advances is not liable to be deemed dividend even if not accepted in quantum proceedings, is undisputedly a debatable one as various courts have decided this issue in favour of the assessee. The assessee was having bonafide belief that these business advances are not under the purview of section 2(22)(e) of the Act. He further relied on the case of Reliance Petroproducts (supra) and CIT vs. Raj Overseas, 336 ITR 261 (P&H) and argued that assessee has disclosed full particulars of income in the return about shareholding pattern, loans and advances & accumulated profit. Therefore, there is no concealment of any particulars of income. He further argued that these advances were repaid by the assessee company in subsequent year. For voluntary disclosure, he placed reliance on the case of CIT vs. D&H Secheron Electrodes Ltd., 296 ITR 193 (MP). Further, he argued that there was no malafide intention of the assessee to evade tax. He further argued that even Hon’ble Supreme Court has held that this is a civil liability but it has character of penal. The onus is on the revenue to prove that assessee had intentionally evaded the tax. He further argued that no penalty can be imposed where addition is based on deeming provision, for which he relied on the following decisions :-

S.V. Kalyanam v. ITO (2010) 327 ITR 477 (Mad.)
Renu Hingorani vs. ACIT, (ITA No. 2210/Mum/2010)
Shri chimanlal Manilal Patel vs. ACIT, Circle-6, (ITA No. 508/Ahd/2010)
ACIT vs. Mrs. N. Meenakshi (2009) 319 ITR (AT) 262 (Chennai)

He argued that deeming provisions are technical in nature and which should be applied only for some definite purposes for which fiction was created and not to be extended beyond that legitimate. He further argued that Hon’ble Mumbai High Court decision in the case of Alkesh K. Patel (supra) is not applicable in the case of the assessee as Hon’ble High Court has not expressed any view in this judgment as matter was restored back to the ITAT. The deeming law is a complex law even specialist cannot calculate income correctly. Finally, he summarized his argument as under :-

“ In view of the above, to summarize, penalty confirmed by the ld. CIT (A) deserves to be reversed for the following reasons –

1. The advances have not been disputed to be business advances. Business Advances do not attract provision of Section 2(22)(e) is supported by the judicial pronouncements. Thus it is a possible view and a debatable one. Where two views are possible no penalty can be imposed.
2. The transaction in reality was a loan repayable contractually and the lender by force of law could recover it back and the same have been repaid back. It is only a deeming fiction which has made a loan to be an income. Lapse on deeming fiction cannot lead to penalty.
3. The offering for tax is voluntary and therefore penalty my not be imposed.
4. All the facts were on record and there was no guilty mind and therefore penalty cannot be imposed.
5. No penalty can be imposed where addition is based on deeming provision.
6. Complex tax laws related to deeming fiction – can get skipped by assessee.
In view of the above, penalty confirmed by the ld. CIT (A) deserves to be reversed.”

4.2. At the outset, the ld. D/R vehemently supported the order of ld. CIT (A) and argued that assessee has not disclosed deeming dividend income in the computation of income in the return filed under section 139, even in return filed under sec. 153A of the IT Act. The AO made investigation on this point and had come to the conclusion that assessee has violated section 2(22)(e) of the Act. The disclosure was not voluntary. He further relied on the case of Mak Data Pvt. Ltd. vs. CIT, (2013) 38 Taxmann.com 448 (SC) wherein it has been held that voluntary disclosure does not release assessee from mischief of penal proceedings under section 271(1)(c). He further relied on the case of CIT vs. Alkesh K. Patel (2010) 195 Taxman 338 (Bombay) wherein this issue has been considered by the Hon’ble High Court. He further relied on the case of Smt. Shantidevi Mahavir Prasad Gupta vs. ITO, (2014) 43 Taxmann.com 325 (Mumbai – Trib.) wherein assessee claimed these advances for the purpose of business. However, ITAT held these advances as deemed dividend under section 2(22)(e) of the Act. In case of DCIT vs. Sushma Devi Agarwal, (2011) 16 Taxmann.com 68 (Kol.)(TM) wherein assessee disclosed income in the revised return and held penalty u/s 271(1)(c) is leviable by the ITAT. Therefore, he requested to confirm the order of ld. CIT (A).

4.3. We have heard rival contentions and perused the material on record. The assessee filed the return under section 139 for all the years and disclosed the particulars of shareholding pattern, advances taken and given by the assessee company/individual in return itself. The accumulated profit also has been disclosed. Thereafter assessee filed return under section 153A of the IT Act wherein also all the detailed facts and figures were disclosed in the return. The assessee’s case is auditable. The assessee at the time of quantum addition as well as at the time of penalty proceedings has reiterated that these advances are in the course of regular business. It is a running account, said advances later on repaid. This issue is debatable and various courts particularly in the case of Creative Dyeing & Printing (P) Ltd. (supra) wherein it has been held that business transaction is not covered under section 2(22)(e) of the Act. Various other case laws cited by the assessee has also made this issue debatable. The case relied on by the AO i.e. Mak Data P. Ltd. is not applicable as assessee at every stage had filed the explanation before the AO as well as CIT (A) i.e. these transactions were made for the purpose of business and commercial expediency, is bonafide. Penalty imposed by the AO and confirmed by ld. CIT (A) are not justified. Accordingly we delete the penalty in all the cases.

5. In the result, all the appeals of the assessee are allowed.

The order pronounced in the open court on 12/02/2016.