COMMISSIONER OF INCOME TAX vs. RAJEDEV SINGH & CO.

IN THE HIGH COURT OF DELHI AT NEW DELHI #2 . ITA 1459/2010 . . COMMISSIONER OF INCOME TAX ..... Appellant Through Mrs. Prem Lata Bansal, Adv. . versus . . RAJEDEV SINGH and CO. ..... Respondent Through None . . CORAM: HON?BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN . O R D E R 27.09.2010 . The present appeal is directed against the order dated 11th September, 2009 passed by the Income Tax Appellate Tribunal, Delhi Bench ?C? (for short ?the tribunal?) in ITA No. 1287/Del/2008 pertaining to the assessment year 1997- 98 whereby the tribunal has given the stamp of approval to the order passed by the CIT (A) whereby the first appellate authority has set aside the order passed by the Assessing Officer under Section 271(1)(c) of the Act on many a ground. . ITA No.1459/2010 page 1 of 7 . . We have heard Mrs. Prem Lata Bansal, learned counsel for the revenue on the question of admission. It is submitted by Mrs. Bansal that the first appellate authority as well as the tribunal has gone wrong by expressing the opinion that there has been no submission of inaccurate particulars by the assessee. To appreciate the aforesaid submission of Mrs. Bansal, we have carefully perused the orders passed by the CIT(A) and that of the tribunal. On scrutiny of the order of the CIT(A) it is noticeable that the first appellate authority had taken note of the submission canvassed by the assessee that it had explained in detail the terms of the agreement that it had entered into with the labour union on 7th August, 1997, the backlog of the arrears of wages from the period from 1st January, 1996 to 31st March, 1997 and the factum that the Assessing Officer had allowed the claim of deduction amounting to Rs.22.75 lakhs in the assessment order framed under Section 143(3) of the Act. The first appellate authority has held that all the information was supplied and the Assessing Officer had applied its mind to the settlement arrived at between the labour union and the workmen and further the Assessing Officer had accepted the explanation but thereafter reopened the assessment under Section 148 of the Act. In this background, the CIT(A) has held that though the first appellate authority on earlier . ITA No.1459/2010 page 2 of 7 occasion had concurred with the order passed by the Assessing Officer which disallowed the claim of Rs.22.75 lakhs in quantum appeal but the same could not be a ground to impose penalty. We think it appropriate to reproduce a passage from the order passed by the CIT(A) ? ?Every income which has escaped assessment cannot attract provisions of Section 271(1)(c). In fact the AO had initiated proceedings u/s 154 which clearly show that he had arrived at a considered conclusion that the matter lies within the ambit of rectification. The addition made by the AO and its subsequent confirmation by the CIT(A) does not change the fact that the appellant had disclosed all the relevant facts in their notes to the balance sheet also during the course of assessment proceedings vide their letter dated 19.1.2000. On the above circumstances it cannot be said that the appellant had furnished inaccurate particulars of income, or had concealed particulars of income. Therefore, imposition of penalty u/s 271(1)(c) cannot be upheld. Therefore, the AO is directed to delete the penalty.? . The said passage has been adequately dealt with by the tribunal and given acceptance. In this regard, we may profitably refer to the decision in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) wherein the Apex Court has held thus ? ?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 . ITA No.1459/2010 page 3 of 7 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 . ITA No.1459/2010 page 4 of 7 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 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 reasoning 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. . 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 or transcript.? . 11. We have already seen the meaning of 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 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. . . ITA No.1459/2010 page 5 of 7 12 It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be 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. We do not agree, 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, in our opinion, attract the penalty under section 271 (1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.? . In our considered opinion, if the obtaining fact situation is tested on the anvil of the aforesaid enunciation of law, we have no trace of doubt that the assessee had disclosed the amount in entirety, produced the books . ITA No.1459/2010 page 6 of 7 of accounts and claimed deduction which was allowed and thereafter there was a re-assessment. If the totality of facts are taken into consideration then imposition of penalty is not justified and, therefore, the forums below have interfered. In view of the aforesaid, we do not perceive any substantial question of law being involved in the appeal and, accordingly, the appeal stands dismissed in limine. . . CHIEF JUSTICE . . . SEPTEMBER 27, 2010 MANMOHAN, J kapil . . . . . . . . . . . . . . . . . . ITA No.1459/2010 page 7 of 7