The Commissioner Of Income Tax vs Alkesh K. Patel on 30 March, 2010

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                  IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                         ORDINARY ORIGINAL CIVIL JURISDICTION




                                                                                    
                                                            
                          INCOME TAX APPEAL NO.24 OF 2007




                                                           
    The Commissioner of Income Tax -
    Range 25, C11, Pratyakshakar Bhavan,
    Bandra Kurla Complex, Mumbai - 51                                ......Appellant




                                               
                  V/s.        
     
    Alkesh K. Patel
    B-2/401, Kamla Nagar,
                             
    M.G. Road, Kandivali (West),
    Mumbai                                                           ......Respondent.
           
        



    Mr.N.A. Kazi for the appellant.

    Mr.Anil Mishra i/by PKP Legal Solutions for the respondent.





                                              CORAM : Dr.D.Y. Chandrachud &
                                                        J.P. Devadhar, JJ.   

DATE : 30th March 2010.

ORAL JUDGMENT (Per Dr.D.Y. Chandrachud, J.)

1. The appeal by the Revenue under Section 260A of the Income

Tax Act, 1960 arises out of an order passed by the Income Tax Appellate

Tribunal on 28th July 2006 for assessment year 1995-1996. Though the

appeal was admitted on two questions of law, the learned Counsel appearing

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on behalf of the Revenue and the learned Counsel appearing on behalf of the

assessee are agreed in stating before the Court that basically the following

question of law would be sufficient for the purposes of formulation :

“Whether on the facts and the circumstances of the case and in
law, the learned CIT (A) and Tribunal were justified in deleting the

penalty of Rs.10,08,400/- contravening the provisions of
explanation (1) to section 271(1)(c) of the Income Tax Act,
without appreciating the facts brought on record by the Assessing
Officer in his order dated 19-3-2003 ?

2.

The assessee is a partner in a real estate firm by the name of

Dharti Estate. According to the assessee, the aforesaid firm had advanced a

loan to Dharti Builders and Developers Private Limited in the amount of Rs.

3.45 crores, against which the company had advanced a sum of Rs.1.31

crores to the assessee. The assessee was a director and shareholder of the

company and held in excess of 25 per cent of the equity capital. The assessee

filed a return of income on 31st March 1997 declaring an income of Rs.

4,14,270/-. The return was processed under Section 143(1). The assessment

was subsequently rectified by an order dated 5th February 1998. A notice was

issued to the assessee under Section 148 on 28th March 2002, in pursuance of

which an order of assessment was passed under Section 143(3) read with

Section 147 on 19th March 2003. By the order of the Assessing Officer, total

income was computed at Rs.30,12,440/- after making an addition of Rs.

25,21,000/- on account of deemed dividend under Section 2(22)(e). A

notice to show-cause was issued to the assessee for imposition of a penalty

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under Section 271(1)(c). The Assessing Officer imposed a penalty in the

amount of Rs.10,08,400/-, following which an appeal was filed by the

assessee. The Commissioner of Income Tax (Appeals) allowed the appeal and

ordered deletion of the penalty. The Tribunal confirmed the order of the

Appellate Authority by its order dated 28th July 2006, which is impugned in

this appeal.

3. The only ground which has weighed with the Tribunal in setting

aside the penalty is that prima facie it appears that the assessee was not

aware of the provisions contained in Section 2(22)(e) of the Income Tax Act,

1960 and in view of this the assessee has committed a bona fide mistake,

which cannot be penalised by levy of a penalty under Section 271(1)(c).

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. According to the

assessee, the partnership firm had advanced a loan of Rs.3.45 crores to the

private limited company and the company had in turn advanced a loan of Rs.

1.31 crores to the assessee. The Assessing Officer had adverted to several

circumstances in para 9 of his order, which reads as follows :

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“9. —-

1) The assessee has a substantial interest in the company.

2) The company is a company in which public are not
substantially interested.

3) The assessee is a major shareholder in the company.

4) The withdrawals made by the assessee from the
company amounted to grant of loan or advance by the
company to the shareholder since the assessee did not
have any credit balance with the said company at the

material time.

5)

The company had sufficient accumulated profit.

6) The credit balance of the firm was not debited at all

and the amounts are shown as outstanding as against
the Directors in the accounts of the company.

7) The advances / loans received by the assessee during

the year 1994-95 i.e. Asstt. Year 1995-96 to the tune
of Rs.74,37,000/- has been utilised by the assessee for

the benefit of his relatives, wife, children and
associated concerns by way of advance / loans and
investments in shares.”

4. The Commissioner of Income Tax (Appeals), while ordering the

deletion of the penalty accepted the contention of the assessee that he had

acted under a bona fide belief that all the loans and advances obtained from

the company were disclosed in the return of income and that the assessee

had already been subjected to the demand of tax as well as interest. All the

circumstances, which have been relied upon in the order of the Assessing

Officer in the first instance and in Appeal by the Appellate Authority, ought to

have been but have not been evaluated by the Tribunal. In these

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circumstances, since the Tribunal, as an Appellate Authority, ought to have

evaluated all the material facts and circumstances before arriving at a

decision as to whether the deletion of the penalty should or should not be

sustained, we are of the view that it would be appropriate to remand the

proceedings back to the Tribunal for a fresh decision. Since we are inclined

to remand the proceedings, it would be appropriate to set aside the

impugned order of the Tribunal, clarifying at the same time that this Court

has not expressed its opinion, one way or the other, on the merits of the rival

contentions. To facilitate a fresh order being passed on remand, we set aside

the impugned order dated 28th July 2006 passed by the Tribunal and restore

Income Tax Appeal No.1462/Mum/2004 to the file of the Tribunal for a fresh

decision.

5. In view of the aforesaid directions, it is not necessary for this

Court for the purposes of this appeal to answer the question of law as

framed. The appeal is accordingly disposed of. There shall be no order as to

costs.

                   (J.P. Devadhar, J.)                           (Dr.D.Y. Chandrachud, J.)




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