Article:Penalty u/s 271(1)(c) :Supreme Court Sets 4 Major Principles !

[girish kulkarni]

Penalty:Supreme Court Sets 4 Major Principles !

Penalty:Supreme Court Sets 4 Major Principles !Reviewed by Admin on May 19.Rating: Supreme Court , through its various decisions , has sets in good principles for imposition of penalty u/s 271(1)(c) of the Income Tax Act

Penalty u/s 271(1)© of the Income Tax Act is initiated  by assessing officer , usually when he makes addition while computing total income in an assessment proceeding u/s 143(3) .The proceeding u/s 271(1)© is challenged more than the assessment by A.O because while the additions are done on technical grounds , many time , the A.O also initiates the penalty very casually and almost as an after effect of his addition to the income of the assessee. This article attempts to provide latest 10 case laws from Supreme Court and High Courts on various issues related to penalty proceeding u/s 271(1)© of the Income Tax Act

Penalty u/s 271(1)© does not depend on return income

Supreme Court in case of  JCIT, Surat vs Saheli Leasing & Industries Ltd  [2010] 191 TAXMAN 165 (SC) held that even if return is NIl and after addition , there is no tax payable , the penalty u/s 271(1)© lies . In words of Supreme Court

The purpose behind section 271(1)(c ) is to penalise the assessee for : 

(a )concealing particulars of income and/or

(b )furnishing inadequate particulars of such income. [Para 23]

Whether income returned was a profit or loss, was really of no consequence. Therefore, even if no tax was payable, the penalty was still leviable. Even prior to the amendment, it could not be read to mean that if no tax was payable by the assessee due to filing of the return disclosing loss, the assessee was not liable to pay penalty even if it had concealed and/or furnished inadequate particular

Penalty cannot be imposed just for making incorrect claim

Supreme Court judgment in CIT vs Reliance Petroproducts Pvt Ltd [2010] 322 ITR 158 is path breaking judgment specially the tendency of the income tax officers to initiate penalty proceeding for any claim by assessee which is not as per law. In this judgment, the Supreme Court also defined what is the meaning of “furnishing incorrect particulars of income”

The word ‘particulars’ must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.

The Apex Court dismissed the petition on following grounds

The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income.

Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature

Mens Rea Not Necessary For Imposing Penalty u/s 271(1)©

Apex Court in case of Union of India vs Dharmendra Textile [2008] 166 TAXMAN 65 (SC ) held that the penalty u/s 271(1)© is a civil liability and it is not necessary for revenue authorities to prove that the assessee has deliberately did the error or intention of the assessee was to evade tax. This judgment also questioned earlier order of Supreme Court in Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218   and held “

Therefore, in our view, the judgment in the case of Dilip N. Shroff (supra) needs consideration by the larger Bench of this Court particularly when it has ramifications not only regarding provisions of the Income-tax Act but also with regard to the provisions of sections 3A and 11AC of the Central Excise Act and rule 96ZQ(5) of the Central Excise Rules

Four major principles out of Apex Court’s Judgments

1. Penalty u/s 271(1)© can not be imposed merely because additions have been made.

2. A.O must prove that

There was concealment of income or

The return of income furnished by assessee or documents submitted by assessee during scrutiny proceeding is based on incorrect fact , falsity and untruth.

3. For imposing penalty , the A.O need not prove the mental status of assessee. In other words , A.O need not prove that the assessee intentionally claimed incorrectly or submitted false information or filed incorrect details in return of income.

4.Imposition of penalty u/s 271(1)©

does not depend on the issue whether the return pertains to income or loss . So even if there is loss return and no tax was levied after dis allowance, penalty u/s 271(1)© sustains.

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