COMMISSIONER OF INCOME TAX Vs. ALKESH K. PATEL

JUDGEMENT

(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 19951996. Though the appeal was admitted on two questions of law, the learned Counsel appearing 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 :

(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 showcause was issued to the assessee for imposition of a penalty 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 :