Case Note & Summary
The Revenue appealed against the order of the Income Tax Appellate Tribunal which had deleted a penalty of Rs.10,08,400/- imposed under Section 271(1)(c) of the Income Tax Act, 1961. The assessee, Alkesh K. Patel, was a partner in a real estate firm, Dharti Estate, and a director and major shareholder (holding more than 25% equity) of Dharti Builders and Developers Private Limited. The firm had advanced a loan of Rs.3.45 crores to the company, and the company had advanced Rs.1.31 crores to the assessee. The Assessing Officer treated the amount received by the assessee as deemed dividend under Section 2(22)(e) and added Rs.25,21,000/- to the assessee's income. Consequently, a penalty was levied for concealment of income. The Commissioner of Income Tax (Appeals) deleted the penalty, and the Tribunal confirmed the deletion, holding that the assessee was not aware of the provisions of Section 2(22)(e) and had committed a bona fide mistake. The High Court found that the Tribunal's reasoning was insufficient, as ignorance of law cannot be a valid defence for a businessman and major shareholder. The Court set aside the Tribunal's order and remanded the matter back to the Tribunal for fresh consideration on merits, directing the Tribunal to decide the appeal afresh in accordance with law.
Headnote
A) Income Tax - Penalty under Section 271(1)(c) - Deemed Dividend under Section 2(22)(e) - Ignorance of Law - The assessee, a partner in a real estate firm and a major shareholder of a private limited company, claimed ignorance of Section 2(22)(e) as a defence against penalty for concealment of income. The Tribunal deleted the penalty solely on the ground of bona fide mistake. Held that ignorance of law is not a sufficient ground to delete penalty, especially when the assessee is a businessman and major shareholder; the matter requires reconsideration by the Tribunal on merits. (Paras 1-5)
Issue of Consideration
Whether on the facts and circumstances of the case and in law, the CIT (A) and Tribunal were justified in deleting the penalty of Rs.10,08,400/- under Section 271(1)(c) read with Explanation (1) of the Income Tax Act, 1961, without appreciating the facts brought on record by the Assessing Officer.
Final Decision
The appeal is allowed. The order of the Tribunal dated 28th July 2006 is set aside. The matter is remanded back to the Tribunal for fresh consideration on merits. The Tribunal shall decide the appeal afresh in accordance with law.
Law Points
- Penalty under Section 271(1)(c) of Income Tax Act
- 1961
- ignorance of law is not a valid defence for deletion of penalty
- deemed dividend under Section 2(22)(e)
- burden of proof on assessee to show bona fide mistake
- mens rea not required for penalty under Section 271(1)(c) in certain cases
Case Details
2010 LawText (BOM) (03) 83
Income Tax Appeal No.24 of 2007
Dr. D.Y. Chandrachud, J.P. Devadhar
Mr. N.A. Kazi for the appellant, Mr. Anil Mishra i/by PKP Legal Solutions for the respondent
Commissioner of Income Tax – Range 25, C11, Pratyakshakar Bhavan, Bandra Kurla Complex, Mumbai – 51
Alkesh K. Patel, B2/401, Kamla Nagar, M.G. Road, Kandivali (West), Mumbai
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Nature of Litigation
Appeal by Revenue against deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
Remedy Sought
Revenue sought restoration of penalty of Rs.10,08,400/- imposed under Section 271(1)(c).
Filing Reason
The assessee failed to disclose deemed dividend income under Section 2(22)(e) in his return, leading to penalty for concealment.
Previous Decisions
Assessing Officer imposed penalty; CIT (Appeals) deleted penalty; Tribunal confirmed deletion.
Issues
Whether the Tribunal was justified in deleting the penalty solely on the ground that the assessee was not aware of the provisions of Section 2(22)(e) and committed a bona fide mistake.
Submissions/Arguments
Revenue argued that ignorance of law is not a sufficient ground to delete penalty, especially when the assessee is a businessman and major shareholder.
Assessee contended that the mistake was bona fide and he was unaware of the deeming provision.
Ratio Decidendi
Ignorance of law is not a valid defence for deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961, particularly when the assessee is a partner in a real estate firm and a major shareholder of a private limited company. The Tribunal must consider all facts and circumstances before deleting a penalty.
Judgment Excerpts
There is merit in the submission which has been urged on behalf of the Revenue that the ground that the assessee was not aware of the provisions of Section 2(22)(e) can hardly be regarded as sufficient in itself to order the deletion of the penalty in a case such as present, where the assessee is a partner in a partnership firm engaged in the business of real estate and was also a major shareholder of a private limited company.
In the circumstances, we are of the view that the order of the Tribunal would have to be set aside and the matter remanded back to the Tribunal for a fresh consideration on merits.
Procedural History
Assessee filed return on 31st March 1997; processed under Section 143(1); rectified on 5th February 1998; notice under Section 148 on 28th March 2002; assessment order under Section 143(3) read with Section 147 on 19th March 2003; penalty imposed by Assessing Officer; appeal to CIT (A) allowed; Revenue appealed to Tribunal; Tribunal confirmed deletion on 28th July 2006; Revenue filed appeal under Section 260A to High Court.
Acts & Sections
- Income Tax Act, 1961: 2(22)(e), 143(1), 143(3), 147, 148, 260A, 271(1)(c)
