CIT vs. SHASHI INTERNATIONAL PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 1081/2010 . . CIT ..... Appellant Through: Ms. Suruchii Aggarwal, Advocate. . versus . . SHASHI INTERNATIONAL PVT LTD ..... Respondent Through: None. . . CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN . . O R D E R 06.08.2010 The present appeal preferred under Section 260A of the Income Tax Act, 1961 (for brevity ?Act?) is directed against the order dated 29th January, 2010 passed by the Income Tax Appellate Tribunal, Delhi Bench ?G?, New Delhi (in short ?ITAT?) whereby the tribunal has settled and dislodged the decision of the Commissioner of Income Tax (Appeals) [in short ?CIT(A)] dated 28th May, 2009 pertaining to the assessment year 2004-2005 wherein the imposition of penalty of Rs.5,13,180/- under Section 271(1)(c) of the Act was affirmed. In the memorandum of appeal, the revenue has raised the following substantial question of law:- 1. Whether the ITAT could have deleted the penalty levied under Section 271(1)(c) on the explanation of the assessee that the claim had duly certified by the Chartered Accountant and therefore the plea of the assessee that the claim was under a bonafide mistake deserves to be accepted and it could not be said that the assessee had furnished inaccurate particulars? . The facts which emerges to be stated are that the respondent- assessee claimed deduction under Section 80HHC of the Act amounting to Rs.14,57,311/-. The Assessing Officer expressed the view that the deduction under said Section was not correct and accordingly the Assessing Officer recomputed the deduction under Section 80HHC by adopting certain methods. While declining the deduction on many a ground, a penalty proceeding was initiated. Eventually, an order was passed imposing penalty and in the said order it was held by the Assessing Officer that the respondent- assessee had claimed bank interest on FDR and other interest as business income whereas it should have been treated as income from other sources. The respondent-assessee offered an . . explanation that the said deduction was claimed on the basis of the certificate issued by the Auditor. That apart, the respondent-assessee also pleaded that his adjustment of losses from business profit for computation of deduction under Section 80HHC was subject matter of litigation in superior forums. The Assessing Officer repelled the said submission and imposed the penalty of Rs.5,13,180/- under Section 271(1)(c) of the Act. On an appeal being preferred before the CIT(A), the first Appellate Authority confirmed the penalty on the foundation that the respondent-assessee had deliberately included the interest income for computation of income under Section 80HHC to enhance the claim under that section. Being dissatisfied, the respondent-assessee preferred an appeal before the tribunal and the tribunal took note of the respective stands and stands put forth by the respondent-assessee and the revenue and came to hold that penalty should not have been imposed ordinarily unless the party obliged either acted deliberty in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious in disregard of the obligation. Being of this view, the tribunal allowed the appeal preferred by the respondent-assessee. It is submitted by Ms. Suruchii Aggarwal, learned counsel for revenue that the finding of the tribunal is vulnerable inasmuch as the respondent- assessee was not able to put proper requisite explanation which would come in the realm of bonafide and, therefore, the explanation 1 to Section 271(c) would get attracted to. Section 271(1)(c) came to be interpreted by the Apex Court in Union of India and Ors. vs. Dharamendra Textile Processors and Ors. (2008) 306 ITR 277 (SC). The three Judge Bench of the Apex Court over-ruled the decision in Dilip N. Shroff vs. Joint CIT (2007) 291 ITR 519 (SC) and approved the decision in Chairman, SEBI vs. Shriram Mutual Fund and Anr. (2006) 5SCC 361. In the said case their Lordships further proceeded to hold that:- ?27. The Explanations appended to section 272(1)(c) of the Income-tax Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The judgment in Dilip N. Shroff?s case [2007] 8 Scale 304 (SC) has not considered the effect and relevance of Section 276C of the Income-tax Act. The object behind the enactment of section 271(1)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability as is the case in the matter of prosecution under Section 276C of the Income-tax Act.? . The aforesaid decision was taken note of in Commissioner of Income Tax vs. Reliance Petroproducts Pvt. Ltd.(2010) 322 ITR 158 (SC). While considering the terms namely concealment of particulars, the Apex Court referred to Section 271 and expressed the view and came to hold as follows:- ?9. 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 CIT [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)(c) 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 Assessing Officer must be found to have failed to prove 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 CIT was upset. In Union of India v. Dharamendra Textile Processors, 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 the 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 CIT was overruled by this Court in Union of India v. Dharamendra Textile Processors, 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 the case of Dilip N. Shroff v. Joint CIT. However, it must be pointed out that in Union of India v. Dharamendra Textile Processors, no fault was found with the rasoning in the decision in Dilip N. Shroff v. Joint CIT, where the court explained the meaning of the terms ?conceal? and ?inaccurate?. It was only the ultimate inference in Dilip N. Shroff v. Joint CIT 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 CIT was overruled???? . Thereafter, so stating their Lordships? proceeded to hold as follows:- ?11. ??.A mere making of the claim, which is not sustainable in law, by itself, will not amount for furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.? . . . After so holding their Lordships opined that assessee has furnished all the details of its expenditure as well as income in its return with details in themselves were not found to be inaccurate as not to be proved solely as income of its part. It is upto the party paying in the return or not and, therefore, merely because the assessee had claimed the expenditure which claim was not accepted or was not acceptable to the revenue with all differences could not in our opinion, attract the penalty under Section 271(1)(c) of the Act. Their Lordships? further proceeded to hold that it is not the intention of the legislature that in case of other return where the claim made is not accepted by the Assessing Officer for any reason, the assessee may revive the penalty under Section 271(1)(c) of the Act. In the case at hand, it is perceptible that the assessee has claimed on the basis of auditor certificate. The said explanation was preferred by the assessee before the Assessing Officer. Quite apart from the above, all the facts pertaining to the claim and deduction were on record. In view of the aforesaid, the tribunal has opined that the assessee cannot be held guilty of furnishing false particular or inaccurate particulars. In view of the aforesaid analysis, we do not consider any merit in this appeal and accordingly the same stands dismissed in limine. . . CHIEF JUSTICE . . MANMOHAN, J AUGUST 06, 2010 js . ITA 1081/2010 Page 1 of 8 . . . . 15 .