THE ACIT -3(1), INDORE vs. M/S. MAYA SPINNERS LTD., INDORE

आदेश / O R D E R

PER KUL BHARAT, J.M: This is an appeal filed by the Revenue against the order of CIT(A)-I, Indore dated 28/02/2017 pertaining to assessment year 1996-97. The Revenue has raised following grounds of appeal:

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“1. Whether on the facts and in the circumstances of the case the Ld. CIT(A) was justified in deleting the penalty levied on the disallowance of expenses on expansion of Rs.2,00,44,282/-. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty u/s 271(1)(c) of the Act without considering the fact that the assessee has not given any reply/explanation regarding the claim made in penalty proceedings as well as in appellate proceedings.”

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On careful consideration of all the material on record it is thus evident that the appellant had made the claim of Rs.20044282/- in the computation of income as the expenses were capitalized. The claim was based on legal interpretation of the concerned sections as applicable for the year under consideration. The claim was detailed in a statement enclosed with the return as seen from the assessment order dated 27.03.2002 and no factual inaccuracy or discrepancy in respect of the claim made has been noted in the assessment order. No finding has been recorded in the original round of assessment that the claim was contumacious of false. The disallowance was on legal grounds regarding the admissibility of the claim in law. This fact is also established from the order of CIT(A) dated 2.6.2004 wherein the CIT(A) has given a categorical finding that; “ Even on merits and on legal grounds, the claim is required to be allowed.” In subsequent assessment and appeal the disallowance has been confirmed only on account of non submission of details. As is evident from record the appellant company has become defunct and has closed and hence compliances were poor and even no compliance has been made in the present appeal proceedings also. Therefore taking note of the fact that the details in respect of the claim of Rs.20044282/- were already placed on record and the disallowance was a legal disallowance penalty u/s 271(1)(c) of the Act was not attracted in view of the observation of the Hon'ble Supreme Court of India in the case of CIT vs. Reliance Petro Products Pvt.

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Ltd. 322 ITR 158 (Hon'ble Supreme Court) wherein it has been held as under: 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 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

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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 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 asses see can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff Vs. Joint 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. 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 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 judgement in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after quoting from Section 271

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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, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra). However, it must be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & 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 Vs. Joint Commissioner of Income Tax, Mumbai & 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 Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled. 9. 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”. We have already seen the meaning of the word “particulars” in the earlier part of this judgement. Reading the words in 6

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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. 10. 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

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is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature. 11. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: “So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant’s account books. Where certain items which are not included in the turnover are disclosed in the dealer’s own account books and the assessing authorities include these items in the dealer’s turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside.” The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return. 12. The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed. In view of the above the AO is directed to deleted the penalty on the disallowance of Rs.20044282/-.”

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that there is non application of mind by the Ld. CIT(A) and has deleted the penalty mechanically. He has taken through the penalty order, assessment order and the impugned order. 6. We have heard the Ld. DR and perused the material on record. The Ld. CIT(A) has deleted the penalty without specifying the legal basis and from the order of the Ld. CIT(A) it is evident that how the claim of the assessee was allowable, legally is not clear. Merely, furnishing of details, in our view would not be sufficient as the penalty is levied if the details so furnished are not accurate. Thus claiming of deduction which is ex- facie is not available tantamount to furnishing of inaccurate particulars. Under these facts the order of the Ld. CIT(A) is set aside and the issue is restored to the Ld. CIT(A) to decide it afresh. 7. In the result, the appeal of the Revenue is allowed for statistical purposes. Order was pronounced in the open court on 03 .08.2018.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; �दनांक Dated : 03/ 08/2018 ctàxÄ? P.S/.�न.स. 9

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Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Private Secretary/DDO, Indore