S M SARAF vs. C I T and ORS

PDF · subscribers
ITA/149/2003HC RajasthanRJHC02032561200207 September 20165 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal in favour of the assessee and against the Department. The Court took into consideration the decision of the Hon'ble Supreme Court in CIT vs. Reliance Petro Products Pvt. Ltd. (supra). The Supreme Court in that case had observed that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to inaccurate particulars. Therefore, the High Court found that the Assessing Officer and the Tribunal committed an error in imposing the penalty. The view taken by the CIT (Appeals) was affirmed, and the substantial question of law was answered in favour of the assessee.

What were the facts?

The assessee, Shri S.M. Saraf, filed an appeal before the Rajasthan High Court challenging the Income Tax Appellate Tribunal's order. The Tribunal had allowed the Department's appeal, reversing the order of the CIT (Appeals). The dispute pertains to the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961, following additions made by the Assessing Officer. The CIT (Appeals) had previously deleted the penalty, holding that the disallowance was due to a difference of opinion and not concealment of income or furnishing of inaccurate particulars. The assessee contended that the additions were based on differing views and that there was no concealment.

What were the issues?

1. Whether the mere sustenance of additions can be the basis for the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961, and whether the Tribunal was justified in directing the Assessing Officer to recalculate the penalty on account of estimated marriage and household expenses, irrespective of the fact that penalty is not automatic and mandatory? Assessee's contentions: The assessee argued that the order of the CIT (Appeals) was just and proper. The disallowance made by the Assessing Officer was solely due to a difference of opinion on the same set of facts, not concealment or inaccurate particulars. Mere disallowance cannot be the sole basis for penalty. The assessee relied on the Supreme Court decision in CIT vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (SC), which held that a mere claim not sustainable in law does not amount to furnishing inaccurate particulars. Revenue's contentions: The revenue contended that the CIT (Appeals), Tribunal, and High Court ignored the positive language of Section 271(1)(c). The claim for interest expenditure was without legal basis and made with mala fide intentions. The claim was not accepted by the assessing authority or CIT (Appeals), indicating it had no basis. The revenue also argued that the expenditure on interest could not be claimed under Section 36(1)(iii) as it was not in respect of capital borrowed for business purposes, and referred to Section 14A and Section 10(33).

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 143(3),Section 36(1)(iii),Section 14A,Section 10(33)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No. 149/2003 Shri S.M. Saraf vs. Commissioner of Income Tax, NCRB & Anr. DATE OF ORDER ::: 07.09.2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE Banwari Lal Sharma Mr. P.K. Kasliwal for the appellant. Mr. O.P. Pareek for the respondents. *****

1.

By way of this appeal, the assessee has challenged the judgment & order of the Income Tax Appellate Tribunal allowing the appeal preferred by the Department, reversing the order of the CIT (Appeals).

2.

This Court while admitting the appeal framed following substantial questions of law:- “Whether, merely sustenance of additions can be the basis for imposition of penalty u/s 271(1)(c) of I.T. Act, 1961 and the Tribunal was justified in directing to the Assessing Officer to recalculate the penalty on account of estimated marriage and household expenses, irrespective of the fact that penalty is not an automatic and mandatory one?”

3.

Counsel for the appellant has contended that the order of CIT (Appeals) is just & proper. CIT (Appeals) in paragraph 5 & 6 observed as under:- “5. By way of response to the show- cause notice regarding the penalty in the reply dated March 22, 2006, the 2 assessee claimed that all the details given in the return were correct, there was no concealment of income, nor were any inaccurate particulars of such income furnished. It was pointed out that the disallowance made by the assessing authority in the assessment order under Section 143(3) of the Act was solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income. It was claimed that mere disallowance of the claim in the assessment proceedings could not be the sole basis for levying penalty under section 271(1)(c) of the Act. It was submitted specifically that it was an investment company and in its own case for the assessment year 2000-01 the Commissioner (Appeals) had deleted the disallowance of interest made by the Assessing Officer and the Tribunal has also confirmed the stand of the Commissioner (Appeals) for that year and, therefore, it was on the basis of this that the expenditure was claimed. It was again reiterated that there was absolutely no concealment, nor were any inaccurate particulars ever submitted by the assessee-company.

6.

Shri

Bhattacharya,

learned Additional Solicitor-General submits that the Commissioner (Appeals), the Tribunal as well as the High Court have ignored the positive language of section 271(1)(c) of the Act. He pointed out that the claim of the 3 interest expenditure was totally without legal basis and was made with the mala fide intentions. It was further pointed out that the claim made for the interest expenditure was not accepted by the assessing authority nor by the Commissioner (Appeals) and, therefore, it was obvious that the claim for the interest expenditure did not have any basis. He further pointed out that the contention about the earlier claims being finalized was also not correct as the appeal was pending before the High Court against the order of the Tribunal for the year 2000-01. According to the learned Additional Solicitor-General, even otherwise, the expenditure on interest could not have been claimed in law, as under section 36(1)(iii), only the amount of interest paid in respect of capital borrowed for the purposes of the business or profession could have been claimed and it was clear that the interest in the present case was not in respect of the capital borrowed. Our attention was also invited to section 14A of the Act, which provides that no deduction could be allowed in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. The learned Additional Solicitor-General also invited our attention to the provision of section 10(33) to show that the income arising from the transfer of a capital asset could not be reckoned as an income which can form part of the total income. In short, the contention was that the assessee in this case had 4 made a claim which was totally unacceptable in law and thereby had invited the provisions of section 271(1)(c) of the Act and had, therefore, exposed itself to the penalty under that provision.

4.

Assessing Officer & Tribunal committed error in reported in (2010) 322 ITR 158 (SC); where the Supreme Court has laid down the guidelines for levying the penalty under Section 271 (1)(c) and observed in paragraph 10 & 11 as under:- “10. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given

inaccurate

particulars.

In Webster's

Dictionary,

the word “inaccurate” has been defined as: “ not accurate, not exact or correct; not according to truth; erroneous' as an inaccurate

statement,

copy

of transcript.”

11.

We have already seen the meaning the word “particulars” in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details

5 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) of the Act. 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.”

6.

We have heard the learned counsel for the appellant and learned counsel for the respondents.

7.

Taking into consideration the decision of the Hon'ble Supreme Court in case of CIT vs. Reliance Petro products Pvt. Ltd. (supra), the appeal is liable to be allowed. The view taken by CIT (Appeals) is required to be affirmed. Therefore, we answer the question raised in the present appeal in favour of the Assessee and against the Department.

8.

Ordered accordingly. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. A.Sharma/98

More judgments on Section 271(1)(c)

All 25,141 judgments and leading authorities on Section 271(1)(c) →

Recent GST High Court judgments

Search GST case law →