Gopal Das Khandelwal. Concealed Income. Sec 271.

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Ravk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

Jh Vh-vkj-ehuk] ys[kk lnL; ,oa Jh yfyr dqekj] U;kf;d lnL; ds le{k
BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM

vk;dj vihy la-@ ITA No. 807/JP/2012
fu/kZkj.k o”k Z@Assessment Year : 2005-06

M/s Gopal Das Khandelwal, cuke Assistant Commissioner
P/o- M/s. Sumangal Gems, Vs. of Income Tax,
1839, Bara Gangore Ka Rasta, Circle-1,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ADRPK 5823 F
vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri G.G. Mundra (CA)
jktLo dh vksj ls@ Revenue by : Shri Ajay Malik (Addl.CIT)

lquokbZ dh rkjh[k@ Date of Hearing : 17/03/2016.
mn?kks”k .kk dh rkjh[k@ Date of Pronouncement : 31/03/2016.

vkns’k@ ORDER

concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividendconcealed income, Sec 271(1)(c), deemed dividendvconcealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend

concealed income, Sec 271(1)(c), deemed dividendconcealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividendconcealed income, Sec 271(1)(c), deemed dividendconcealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividendconcealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend

PER T.R. MEENA, A.M.
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend

concealed income, Sec 271(1)(c), deemed dividendconcealed income, Sec 271(1)(c), deemed dividend
concealed income, Sec 271(1)(c), deemed dividend
This is an appeal filed by the assessee against the order dated

21/09/2012 of the learned C.I.T.(A)-I, Jaipur for A.Y. 2005-06. The sole

effective ground of appeal is as under:-

“1. That on the facts and in the circumstances of the case
the ld CIT(A) is wrong, unjust and has erred in law in
confirming penalty imposed by the Assessing Officer
U/s 271(1)(c) of the I.T. Act, 1961 on alleged
———————Page 2———————

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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

furnishing of inaccurate particulars of income in
respect of deemed dividend of Rs. 50,00,000/-
assessed U/s 2(22)(e) in the hands of assessee.”

2. The sole ground of the appeal is against confirming the penalty on

addition of Rs. 50,00,000/- imposed U/s 271(1)(c) of the Income Tax

Act, 1961 (in short the Act). The assessee is having income from

business. The case for A.Y. 2005-06 was scrutinized U/s 143(3) of the

Act. The income was assessed at Rs. 37,58,830/-. During assessment

proceedings, the ld Assessing Officer had noticed from perusal of the

bank account of Smt. Vimala Devi Sonkia, wife of the assessee in ICICI

bank that out of sums received from M/s Vasant Vatika P. Ltd., sum of

Rs. 62,00,000/- were transferred to the assessee’s account. Smt. Vimala

Devi Sonkia on receipt of cheque from M/s Vasant Vatika P. Ltd.,

deposited in her account and in turn she issued cheques in favour of the

assessee. The assessee is beneficial owner of share with not less than

10% of voting power in the said company i.e. M/s Vasant Vatika P. Ltd.,

and company had reserves of Rs. 2.16 crores. The assessee routed funds

through account of his wife Smt. Vimala Devi Sonkia as a conduit for his

individual benefit. The amount given by wife from her bank account to

the assessee was considered as deemed dividend in the hands of the
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

assessee out of accumulated profit of the company within the meaning of

Section 2(22)(e) of the Act and accordingly addition of Rs. 62,00,000/-

was made. The ld Assessing Officer relied upon the decision of Hon’ble

Supreme Court in the case of CIT Vs Mukund Ray K. Shah (2007) 290

ITR 433 (SC) as well as Kalyan M. Gupta Vs. JCIT 293 ITR (AT) 249

(Mum). This addition has been confirmed by the ld CIT(A) as well as the

Hon’ble ITAT. The ld Assessing Officer initiated penalty proceedings U/s

271(1)(c) of the Act for concealment of income/filing of inaccurate

particulars of income.

2.1 The ld Assessing Officer before imposing the penalty has given

show cause notice to the assessee. After considering the assessee’s

reply, the ld Assessing Officer held that the assessee received cheque

through his wife Smt. Vimala Devi Sonkia from the company and within a

short span of time, part of it was given to the assessee by way of issuing

cheques. Thus, there was a direct nexus between the funds of the

company borrowed by Smt. Vimala Devi Sonkia and funds received by

the assessee. Therefore, wife of assessee became conduit to obtain loan

from the company. The assessee had not received loan/advances directly

from the company as who is beneficial share holder but had received

funds through his wife Smt. Vimala Devi Sonkia. Therefore, it is a
———————Page 4———————

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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

violation of Section 2(22)(e) of the Act and these loans are deemed

dividend under this Section. Accordingly, she imposed minimum penalty

at Rs. 20,82,787/-, which is 100% of tax sought to be evaded.

3. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the ld CIT(A), who had dismissed the

assessee’s appeal by observing as under:-

I have perused the case laws relied on by the AR of the

assessee and find that they are distinct on facts from the

case of the assessee. In CIT V/s Raj Overseas it was

observed by the Hon’ble Court that the issue was debatable

and so penalty u/s 271(1)(c) could not be imposed on it.

Similarly in the case of CIT V/s Reliance Petroproducts it was

observed that making an incorrect claim in law would not

tantamount to furnishing inaccurate particulars of income.

However, the facts of the case of the assessee are that he

indulged in a deliberate act of commission by making his

wife a conduit for transferring of the accumulated profits of

the Company, M/s Vasant Vatika Pvt. Ltd. where he was a

major shareholder, to his account for his benefit. Direct

nexus between the transfer of these funds from the

company through his wife to his account was brought on

record. Therefore, unlike the case of Reliance Petroproducts

Ltd. it is not a case of a simple incorrect claim of expenditure
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

but a deliberate act of siphoning of the accumulated profits

of the company through his wife for his own benefit. The

Hon’ble ITAT Jaipur Bench has also given a finding of fact

that the funds were routed through Smt. Vimla Devi

Sonkhiya wife of the assessee for his benefit. The Hon’ble

Apex Court has emphasized in LIC V/s Escorts Ltd. (1986) 59

Comp Cas 548 (SC); AIR 986 SC 1370 (paras 90-91) “that

regard must be had to the substance and not the form of a

transaction. The corporate veil may be lifted where a statute itself

contemplates lifting the veil, or fraud or improper conduct is

intended to be prevented, or a taxing statute or a beneficent

statute is sought to be evaded or where associated companies

are inextricably connected as to be, in reality, part of one

concern. ”

In the case of the assessee during the course of assessment

proceedings the substance of these transactions were

unveiled to establish that the assessee had deliberately

adopted the device of advancing the accumulated profits of

the company in which he was 50% shareholder to his wife

who was a conduit for transfer of the funds from the

company for his own benefit with the object of evading

payment of taxes on accumulated profits by the company.

Thus the facts of case are not covered by the judicial

pronouncement of the Apex Court in the case of Reliance

Petroproducts Pvt. Ltd because it was not a simple matter of

making an incorrect claim but performing an act of
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

commission for manipulating the funds of the company

through his wife for his benefit and not declaring these

transactions u/s 2(22)(e).

Similarly, the reliance of the AR on the finding of the High

Court in the case of Raj Overseas (2011) 366 ITR 261 that

penalty cannot be imposed when prima facie the issue is

debatable is also not applicable to the facts of the case of

assessee because as discussed above the matter is not

debatable at all. In fact the case of the assessee is clearly

covered by finding of the Hon’ble Madras High Court in the

case of CIT V/s L. Alagusundaram Chettiar, (1977) 109 ITR

508, 512 (Mad).

It has been held by the Hon’ble Delhi High Court in the case

of CIT v/s Splendor Construction ITA No. 1977 (2010) that

the Tribunal had side tracked the main issue while deleting

the penalty imposed by the AO u/s 271 (1)(c) on the ground

that the issued was debatable. It was held that when the

order of the AO in quantum proceedings was sustained by all

successive authorities in cannot be said that the issue was

debatable. With these observations the Hon’ble High Court

confirmed the imposition of penalty u/s 271(1)(c). On

perusal of the facts of the case of the assessee it is seen

that in the quantum proceedings the addition u/s 2(22)(e)

made by the AO has been sustained by all the successive

appellate authorities namely CIT (A), Hon’ble ITAT, Jaipur.
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

Therefore it cannot be said that the issue was debatable.

The observations of the Hon’ble Delhi High Court made in

the case of Splendor Construction are therefore applicable to

the facts of the case of the assessee.

In view of the facts of the case of the assessee and the law

applicable to these facts as discussed in detail above, the

penalty u/s 271(l)(c) on the assessee for furnishing

inaccurate particulars of income to the extent of

Rs.50,00,000/- as confirmed by the Hon’ble ITAT is upheld.

The AO is directed to calculate the tax on this income and

minimum penalty u/s 271(l)(c) is directed to be imposed @

100% of the tax sought to be evaded on Rs. 50,00,000/-

being income not declared by assessee u/s 2(22)(e)

4. Now the assessee is in appeal before us. The ld AR of the assessee

has submitted that it will be found from assessment order and appeal

orders that the contention of assessee could not find favour with the A.O.

and appellate authorities due to Hon’ble Supreme Court judgment dated

10-4-2007 in case of CIT Vs. Mukundray K. Shah (2007) 290 ITR 433

(S.C.) and judgment of Hon’ble Madras High Court in case of CIT Vs.

Alagusundaram Chettiar (L) (1977) 109 ITR 508 etc. It is clear that

judgment of Hon’ble Supreme Court was delivered much after the

transactions in case of assessee which took place in financial year 2004-
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

05 and return was also filed prior to the date of said judgment till then

judgment of Hon’ble Calcutta High Court in the case of Mukundray K.

Shah V. CIT (2005) 277 ITR 129 (which later on reversed by Hon’ble

S.C.) was available wherein all the judgment cited by the A.O. or

appellate authorities were considered and issue was decided in favour of

assessee. Thus the interpretation placed by assessee to the said

transactions did not lack bonafides.

He further submitted that the Ld. A.O. in penalty order relied on

judgment in case of Dharmendra Textile Processors & Others (2008) 306

ITR 277 (SC) which is not applicable. In this connection it is submitted

that while the addition is made to the returned income, neither it is

established, or can be reasonably inferred, that the addition made to the

income is on account of contumacious conduct of the assessee nor it is

established, or can be reasonably inferred, that the assessee’s conduct

and explanation is not bona fide, in such a situation, in the light of the

Supreme Court’s judgment in the case of Dilip N. Shroff v. CIT [2007]

291 ITR 11 (SC), penalty under section 271(l)(c) could not have been

levied, since the onus of establishing mens rea on part of the assessee

could not have been discharged by revenue. However, as the law stands

now and in the light of the Supreme Court’s judgment in the case of
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

Union of India v. Dharmendra Textile Processors (supra) , for levying of

penalty under section 271(1)(c) it is not necessary for the tax authorities

to establish mens rea of the assessee. This is the area in which legal

position has changed. But where an addition is made to the income but it

is established, or can be reasonably inferred, that the assessee’s conduct

and explanation is bona fide and if the assessee is able to establish his

innocence neither the penalty was leviable prior to the Supreme Court’s

Judgment in the case of Dilip N. Shroff (supra), nor it is leviable after the

judgment in the case of Dharmendra Textile Processors (supra).

In the light of the above position of law, merely because an

addition is made to the income declared by the assessee, penalty

under section 271(1)(c) cannot be imposed. The Supreme Court’s

judgment in the case of Dharmendra Textile Processors (supra) does

not bring about any radical change in the scheme of section 271 (1)(c),

though it nullifies the earlier decision of the Division Bench of the

Supreme Court in the case of Dilip N. Shroff (supra) to the extent it

held that the onus was on the tax authorities to establish mens rea

before a penalty under section 271(1)(c) can be imposed. The law laid

down in Dilip Shroff (supra) as to the meanings of the words “conceal”

and “inaccurate” continues to be good law because what was overruled
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

in Dharmendra Textile Processors (supra) was only that part in Dilip

Shroff (supra) where it was held that mens rea was an essential

requirement for penalty under section 271(1)(c). Subsequently, the

Apex Court in the case of CIT V. Reliance Petroproducts [2010] 322

ITR 458, made the following observation –

“The argument of the revenue that ‘submitting an incorrect
claim for expenditure would amount to giving inaccurate
particulars of such income’ is not correct. By no stretch of
imagination can the making of an incorrect claim in law
tantamount to furnishing inaccurate particulars. A mere making
of the claim, which is not sustainable in law, by itself, will not
amount to furnishing inaccurate particulars regarding the
income of the assessee. If the contention of the Revenue is
accepted then in case of every return where the claim made is
not accepted by the Assessing Officer for any reason, the
assessee will invite penalty under section 271(l)(c). That is
clearly not the intendment of the Legislature.

It is submitted that assessee was in bonafide belief that loan

advanced by Vasant Vatika P. Ltd. to her wife on interest @ 12% p.a.

which amount she deposited in her Bank Account where her other

business funds are also deposited and from there the assessee received

loans from wife on interest @ 12% p.a. which do not come within the

purview of section 2(22)(e) the Act to be considered as deemed dividend

in his hands. It is held in various judicial decisions that bonafide belief

that on amount is not taxable in law will not attract penalty u/s 271 (1)
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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

(c) as laid down in CIT Vs. Orient Power Cable Ltd. (2008) 303 ITR 49

(Raj.). The assessee relies also on the above said decision of Hon’ble

Supreme Court in case of CIT Vs. Reliance Petro-products Ltd. (2010)

322 ITR 458 and prays that in view of the totality of facts and

circumstances of the case and position of law the assessee is not liable

to any penalty u/s 271(1)(c) of the Act. In following judgments delivered

by Hon’ble ITAT, Mumbai Bench it was held that bonafide ignorance of

the law regarding applicability of Section 2(22)(e) is a valid ground for

not imposing penalty u/s 271(1)(c) of the Act. The assessee relies on

them.

Gitanjali Ghate VS. DCIT – ITA No. 6560/Mum/2010 order dated

23-5-2012

Sunil Chand Vohra Vs. ACIT – ITA No. 4963/Mum/2006 order dated

23-6-09.

The Hon’ble ITAT Delhi Bench in the case of I.T.O. Vs. Shri

Prakash Narain Singh (ITA No. 2691/Del/2013 order dated 22-11-2013)

also held the same view which assessee relies. It is thus submitted that

the Ld. CIT (A) is wrong and has erred in law in confirming penalty of

Rs. 16,83,000/- on the assessee which deserves to be deleted and the

penalty order may kindly be cancelled.
———————Page 12———————

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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

5. At the outset the ld DR has vehemently supported the order of the

ld CIT(A).

6. We have heard the rival contentions of both the parties and

perused the material available on the record. The addition U/s 2(22)(e)

of the Act is always are debatable as the assessee treated this loan and

advances for business purposes. However, on technical ground, the

revenue after verifying the various conditions prescribed U/s 2(22)(e) i.e.

the assessee received any amount by way of advance or loan, he should

be a share holder, holding not less than 10% of voting power, or to any

concern, any payment by any such company on behalf, or for the

individual benefit, of any such share holder and deemed dividend up to

accumulated profits; but dividend does not include any advance or loan

made to a share holder by a company in the ordinary course of its

business where the lending of money is a substantial part of the business

of the company. The assessee always claimed before the lower authority

that he has paid the interest on the borrowings made from his wife which

were her own fund. It is undisputed fact that she has mixed fund in the

same bank account and received loan advances from the company,

thereafter she paid to her husband. Therefore, for quantum addition, the
———————Page 13———————

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ITA No. 807/JP/2012
M/s Gopal Das Khandelwal Vs. ACIT

ld CIT(A)’s finding are relevant but being a debatable issue. The

assessee’s explanation is bonafide. The case laws relied upon by the

assessee are squarely applicable on the facts of the case. Accordingly,

we delete the penalty confirmed by the ld CIT(A).

7. In the result, the assessee’s appeal is allowed.

Order pronounced in the open court on 31/03/2016.

Sd/- Sd/-
¼yfyr dqekj½ ¼Vh-vkj-ehuk½
(Laliet Kumar) (T.R. Meena)
U;kf;d lnL;@ Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@ Jaipur
fnukad@ st
Dated:- 31 March, 2016
Ranjan*
vkns’k dh izfrfyfi vxzsf’kr @ Copy of the order forwarded to:
1. vihykFkhZ @ The Appellant- M/s Gopal Das Khandelwal, Jaipur.
2. izR;FkhZ@ The Respondent- The ACIT, Circle-1, Jaipur.
3. vk;dj vk;qDr @ CIT
4. vk;dj vk;qDr¼vihy½ @ The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj @ DR, ITAT, Jaipur
6. xkMZ QkbZy @ Guard File (ITA No.807/JP/2012)

vkns’kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar

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Ashni Shah is pursuing Chartered Accountancy and is currently engaged as Article Assistant at Rasesh Shah and Associates and can be reached at ashnishah2017@gmail.com. She loves Dancing and Gyming.

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