NAURATA RAM KARTA OF HUF vs. CIT LUDHIANA ETC.

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ITA/2/1999HC Punjab & HaryanaPHHC01038312199924 October 2013Author: MR. JUSTICE DR. BHARAT BHUSHAN PARSOON,MR. JUSTICE RAJIVE BHALLA4 pages
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What did the High Court hold?

The Tribunal held that the penalty is not legally sustainable. It reiterated the legal principle that penalty does not automatically follow the rejection of a claim. A penalty is penal in nature and requires proof of inaccurate particulars and mens rea. The absence of a finding of inaccurate particulars or guilt based on relevant facts vitiates a penalty order. The Tribunal referred to the Supreme Court judgment in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd. ([2010] 322 ITR 158 (SC)), which held that making an incorrect claim in law does not amount to furnishing inaccurate particulars and that mens rea is necessary for penalty under Section 271(1)(c), as 'inaccurate' signifies a deliberate act or omission. The assessee had disclosed the compensation receipt in assessment year 1991-92, and the Assessing Officer was aware of this. The mere fact that the amount was not shown in the return for assessment year 1993-94 or was subsequently disallowed would not infer mens rea to conceal income sufficient to invite penalty. The question of law was answered in favour of the assessee.

What were the facts?

The appeal concerns the assessment year 1993-94. The assessee (Naurata Ram Karta, now represented by LRs) is challenging a penalty imposed by the Assessing Officer, which was affirmed by the Income Tax Appellate Tribunal. The penalty arose from the assessment order for assessment year 1991-92, which referred to the receipt of compensation by the assessee. The assessee's counsel argued that the Assessing Officer was aware of the compensation receipt, as it was mentioned in the assessment order for 1991-92 and the account statement contained full disclosure. The revenue contended that the return for assessment year 1993-94 did not refer to enhanced compensation, indicating inaccurate particulars with mens rea to evade tax.

What were the issues?

1. Whether, in the facts and circumstances of the case, the order of the ITAT levying penalty is legally sustainable, especially when there was no mens rea for concealment or in fact there was no willful concealment of income at all? (Question of law) Assessee's contentions: - The Assessing Officer was aware of the compensation receipt as it was mentioned in the assessment order for assessment year 1991-92 and the account statement provided full disclosure. - The absence of any finding of mens rea renders the penalty illegal and void. Revenue's contentions: - The return filed for assessment year 1993-94 did not refer to the receipt of enhanced compensation, thus furnishing inaccurate particulars with mens rea to evade tax. - The order passed by the Assessing Officer and affirmed by the ITAT is legal and valid.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: October 24, 2013. Naurata Ram Karta dead (through LRs) ... Appellant v. Commissioner of Income Tax, Ludhiana and another ... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Shri Aalok Mittal, Advocate, for the appellant. Ms. Savita Saxena, Advocate for the respondents. Rajive Bhalla

, J. (Oral): The controversy in this appeal, falls within a narrow compass, namely, whether the Assessing Officer was justified in imposing penalty. Counsel for the appellant submits that the Assessing Officer was aware that the appellant has received compensation as receipt of compensation is referred to in assessment order for assessment year 1991-92. Even otherwise, the impugned assessment order which led to imposition of penalty itself makes reference to receipt of compensation in the year 1991-92. It is further submitted that the account statement contained full disclosure of the appellant's accounts, including the amount received as compensation. The absence of any mens rea much Kadyan Vinod Kumar 2013.11.15 17:37 integrity of this document Chandigarh less a finding recorded in respect thereof, renders the penalty imposed upon the appellant, illegal and void. Counsel for the revenue submits that the return filed by the appellant for assessment year 1993-94 does not refer to receipt of enhanced compensation thereby clearly furnishing inaccurate particulars with mens-rea to evade payment of tax. The order passed by the Assessing Officer affirmed by the Income Tax Appellate Tribunal is, therefore, legal and valid.

We have heard counsel for the parties. The substantial question of law that arises for adjudication reads as follows:- “Whether in the facts and circumstances of the case, the order of ITAT levying penalty is legally sustainable especially when there was no mens rea for concealment or in fact there was no willful concealment of income at all?” It is trite law, repeatedly reiterated by the Hon'ble Supreme Court as well as by this Court, that penalty does not necessarily follow rejection of a claim. A penalty is by its very nature penal in consequence and, therefore, must be preceded by proof of inaccurate particulars and mens rea. The absence of a finding of inaccurate particulars or a finding of guilt based upon relevant facts, would necessarily vitiate an order imposing penalty. A reference in this regard may be made to a judgment of the Supreme Court in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., Kadyan Vinod Kumar 2013.11.15 17:37 integrity of this document Chandigarh [2010] 322 ITR 158 (SC) may be made:- “... We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:- “13. It goes without saying that for applicability of Section 271(1) (c), conditions stated therein must exist.”

8.

Therefore, it is obvious that it must be shown that the conditions Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms “concealment of income” and “furnishing inaccurate particulars”. The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word “inaccurate” signified a deliberate act or omission on behalf of the assessee. ... Xxx xxx xxx xxx ... 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. Such claim made in the Return cannot amount to the inaccurate particulars.” A perusal of the above extracts reveals that it is not every rejection of a claim for exemption or deduction that invites penalty but Kadyan Vinod Kumar 2013.11.15 17:37 integrity of this document Chandigarh only such claims as are based upon inaccurate particulars furnished with intent to evade tax as are incorrect to the knowledge of the assessee. The assessee had already disclosed receipt of compensation in assessment year 1991-92. The Assessing Officer was aware of the return filed in 1991-92. The mere fact that this amount was not shown in the return or was subsequently disallowed by the Assessing Officer would not raise inference of mens-rea to conceal income, sufficient to invite penalty. The question of law is consequently answered in favour of the assessee and against the revenue and the appeal is disposed of accordingly.

[ Rajive Bhalla ]

Judge

[Dr. Bharat Bhushan Parsoon] October 24, 2013. Judge kadyan Kadyan Vinod Kumar 2013.11.15 17:37 integrity of this document Chandigarh

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