NIRMAL KUMAR BARDIA vs. DY COMMISSIONER OF I T CIRCLE-2 JAIPUR

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ITA/50/2016HC RajasthanRJHC02082206201631 October 20176 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal. It held that in view of the well-settled proposition and the decision of the Supreme Court in *Commissioner of Income Tax Vs. Reliance Petro Products (P) LTD.*, the imposition of penalty under Section 271(1)(c) was not justified merely on the basis of additions made during assessment proceedings. The Court found that the facts did not amount to concealment of income. The reasoning was that for a penalty under Section 271(1)(c) to be leviable, there must be either concealment of particulars of income or furnishing of inaccurate particulars. The Supreme Court in the cited case clarified that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars, and the element of mens rea, or a deliberate act or omission, is essential for attracting such penalty, unless the case is strictly covered by the provision. The issue was answered in favour of the assessee against the department. The operative direction was to allow the appeal.

What were the facts?

The appellant, Nirmal Kumar Bardia (M/s Kalpataru Gems), is challenging an order of the Income Tax Appellate Tribunal (ITAT) which dismissed their appeal. The ITAT's decision upheld the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer (AO). The core of the dispute revolves around the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The appellant had received salary income from a foreign country where tax was already paid, but the benefit of capital gains was denied by the accounting scheme. The penalty was imposed based on additions made during assessment proceedings.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in levying a penalty under Section 271(1)(c) of the Income Tax Act, 1961, merely on the basis of additions made during assessment proceedings, without cogent material to show that the appellant had consciously concealed particulars of income or deliberately furnished inaccurate particulars? Assessee's Contention: The appellant argued that the penalty under Section 271(1)(c) should not be levied solely on the basis of additions made during assessment. They relied on Section 271(1)(c) of the Income Tax Act, 1961, and cited several judicial precedents, including *Dilip N. Shiroff vs. Joint Commissioner of Income Tax & Anr.* (SC), *Commissioner of Income Tax Vs. Skyline Auto Products (P) Ltd.* (Mad HC), *Price Waterhouse Coopers Pvt. Ltd. vs. Commissioner of Income Tax* (SC), *Shervani Hospitalities Ltd. vs. Commissioner of Income Tax* (Del HC), *Chandra Pal Bagga vs. Income Tax Appellate Tribunal and Anr.* (Raj HC), *Commissioner of Income Tax vs. Sumerpur Truck Operators Union* (Raj HC), and crucially, *Commissioner of Income Tax Vs. Reliance Petro Products (P) LTD.* (SC). Revenue's Contention: The respondent (Revenue) contended that in view of the concurrent findings of all the authorities, no interference was called for.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 50 / 2016 Nirmal Kumar Bardia, M/s Kalpataru Gems, Ummaid Bhawan, Bara Gangore Ka Rasta, Jaipur ----Appellant Versus Deputy Commissioner of Income Tax, Central Circle-2, Jaipur , New Central Revenue Building Statue Circle, C-scheme, Jaipur 302001. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Gunjan Pathak with Ms. Ishita Rawat For Respondent(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

Judgment 31/10/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the assessee and confirmed the order of the CIT(A) and AO.

2.

This court while admitting the appeal on 02.05.2017 framed the following question of law:- “A. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in levying of Penalty u/s 271(1)(c) of the Act of 1961 merely on the basis of addition made during assessment proceedings without there being any cogent material with the ld. Respondent to show that appellant had consciously concealed the particulars of income or deliberately furnished inaccurate particulars?”

(2 of 6) [ITA-50/2016]

3.

Counsel for the appellant has contended that the assessee has received some amount by way of salary from foreign country where the tax was already paid, whereas he was denied the benefit of capital gain by the accounting scheme. He has taken us through the provision of Section 271(1)(c) of the Income Tax Act which reads as under:- “[Failure to furnish returns, comply with notices, concealment of income, etc. If the [Assessing] Officer or the [Commissioner (Appeals)] [or the [Principal Commissioner or] Commissioner] in the course of any proceedings under this Act, is satisfied that any person— (c) has concealed the particulars of his income or inaccurate particulars of [such income, or]”

4.

He has relied on the following decisions:- (I) Dilip N. Shiroff vs. Joint Commissioner of Income Tax & Anr. (SC) (2007) (291 ITR 0519 (ii) Commissioner of Income Tax Vs. Skyline Auto Products (P) [ITA-50/2016] been held as under:- “7. As against this, Learned Counsel appearing on behalf of the respondent pointed out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under: 271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied

that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income. A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words

(4 of 6) [ITA-50/2016] 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 v. Atul Mohan Bindal MANU/SC/1496/2009 : 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 v. Dharamendra Textile Processors MANU/SC/4448/2008 : 2008 (13) SCC 369 as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills MANU/SC/0786/2009 : 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 under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. MANU/SC/3182/2007 : 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. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove

(5 of 6) [ITA-50/2016] that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. was upset. In Union of India v. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276C of the Act. The basic reason why decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled by this Court in Union of India v. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) and Section 276C of the Act was lost sight of in case of Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra). However, it must be pointed out that in Union of India v. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled.”

6.

Learned Counsel for the respondent contended that in view

(6 of 6) [ITA-50/2016] of concurrent finding of all the authorities, no interference is called for.

7.

We have heard both the parties.

8.

In view of well settled proposition and decision of the Supreme Court in the case of Reliance Petro Products (Supra, this will not amount to concealment. Hence, the issue is answered in favour of the assessee against the department.

9.

The appeal stands allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. B. M. G./Gourav/19

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