Citation Codes

Neutral Citations

2010 DHC 4479-DB

Equivalent Citations

citation codes

Case Number

ITA 912/2010

Attorney(S)

Mr. N.P Sahni, Adv.
Mr. B. Gupta with Mr. R.K Chawla, Advs.

Judges

Chief Justice
Manmohan, J.

Acts

INCOME TAX ACT 1961
U/s 80 IA of the Income Tax Act
clause (iii) of section 271(1)(c)
Section 143(3) on 28
section 271(1)(c),

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Smart Summary

Structured Summary of the Opinion (Dipak Misra, CJ; September 13, 2010)

Factual and Procedural Background

This appeal was filed under Section 260A of the Income Tax Act, 1961 by the Revenue challenging the order dated 13 February 2009 of the Income Tax Appellate Tribunal, Delhi Bench “B” (ITA No. 2299.Del/2007) for the assessment year 2001-02. The Revenue raised multiple substantial questions of law arising from the Tribunal's deletion of a penalty imposed under Section 271(1)(c).

The assessee filed its return of income on 31 October 2001 declaring total income as nil. At the relevant time the assessee was engaged in the manufacture of flavoured chewing tobacco and kiwam, with manufacturing units at Barotiwala (Himachal Pradesh) and Agartala. Deductions were claimed under Sections 80-1A and 80-IB of the Act. An assessment under Section 143(3) was completed on 28 February 2004 determining the income at Rs. 25,14,97,714. The Assessing Officer disallowed the claimed deductions and computed penalty at Rs. 51,14,309 under Section 271(1)(c).

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], which reduced the allocation of expenses to Rs. 44,68,845. In penalty proceedings the Assessing Officer had rejected the assessee's show cause explanation and imposed penalty; the CIT(A) accepted the assessee's explanation and deleted the penalty. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal, stating that allocation of expenses between the head office and the unit is a debatable issue and referring to earlier authority. The Revenue then preferred the present appeal under Section 260A.

Legal Issues Presented

Whether the Income Tax Appellate Tribunal was correct in law and on facts in deleting the penalty of Rs. 20,22,944/-, imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act?
Whether or not the findings recorded by the Income Tax Appellate Tribunal in its order are perverse in law, in as much as it has disregarded the relevant material and evidence placed on record and submissions made by the appellant?
Whether in view of the facts and under the circumstances of the case the Tribunal was legally correct in dismissing the appeal of the department on the ground that “allocation of expenses between the head office and the unit would always be a debatable issue”?
Whether the ITAT was legally correct to follow the decision of ITAT Jaipur Bench in the case of Harshvadhan Chemicals and Minerals Ltd. v. DCIT (1991) 58 Taxman 234 which was based on sections 80 HH and 80 I of the Income Tax Act?
Whether the ITAT was correct in law in not agreeing with the view of Assessing Officer that claiming expenses which would not have been debitable to the units in respect of which deduction U/s 80 IA of the Income Tax Act has been claimed and that it was a case of furnishing inaccurate particulars of income which attracts penalty U/s 271(1)(c).
The appellant craves leave to add, alter or modify any question of law at the time of admission of appeal.

Arguments of the Parties

Appellant (Revenue) / Assessing Officer

The Assessing Officer rejected the assessee's explanation in penalty proceedings and levied penalty under Section 271(1)(c).
The Assessing Officer denied deductions claimed under Sections 80-1A and 80-IB and computed penalty accordingly.
It was contended that claiming expenses which would not have been debitable to the units (for which Section 80 IA deductions were claimed) amounted to furnishing inaccurate particulars of income attracting penalty under Section 271(1)(c).
An argument invoking Section 14A was raised to the effect that certain deductions were excluded in relation to income not forming part of total income (as summarized in the opinion).
Implicit in the Revenue's position was that the Tribunal's acceptance of the CIT(A)'s view was incorrect and that the Tribunal disregarded relevant material and submissions of the appellant.

Respondent (Assessee)

The assessee filed a show cause and argued that amounts disallowed qualified for deduction under Sections 80-1A and 80-IB, and that its explanation was bona fide.
The assessee asserted that it had disclosed all material facts pertaining to computation of deduction admissible under Sections 80-1A and 80-IB.
It was contended that directors' remuneration had been debited to the Head Office and no amount allocated towards the units.
The assessee maintained that interest earned and interest paid had a direct nexus to business activities and thus deduction was admissible.
The assessee denied any deliberate attempt to conceal particulars of income; the CIT(A) accepted the assessee's explanation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Harshvardhan Chemicals & Minerals v. DCIT, 58 Taxman 234 (ITAT Jaipur)	Holds that penalty under Section 271(1)(c) would not be imposable where computation of deduction admissible under specific sections is a debatable issue.	The Tribunal relied on this decision to support its conclusion that allocation of expenses between head office and unit is a debatable issue and thus penalty should not be imposed; the present Tribunal's order followed that reasoning.
Commissioner Of Income Tax, Ahmedabad v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC)	Explains that conditions under Section 271(1)(c) must exist before penalty is imposed; discusses the meaning of "concealment" and "furnishing inaccurate particulars"; reviews mens rea debate and the difference between Section 271(1)(c) and penal provisions.	The Court referred with profit to this decision and its exegesis on Section 271(1)(c), concluding that where details supplied in the return are not incorrect or erroneous, penalty under Section 271(1)(c) is not attracted. This reasoning formed part of the basis for dismissing the appeal.
Dilip N. Shroff v. Joint CIT, [2007] 6 SCC 329	Explained "concealment of income" and "furnishing inaccurate particulars"; had held that mens rea was necessary (a position subsequently discussed and displaced in other authority).	The opinion recounts the explanation given in this case about meanings of terms but notes that the mens rea aspect in Dilip N. Shroff was ultimately disturbed by later authority; the case was discussed for the legal exposition of terms.
Union of India v. Dharamendra Textile Processors	Held that Section 271(1)(c) indicates strict liability for concealment or giving inaccurate particulars and that mens rea is not necessary; distinguished Section 271(1)(c) from Section 276C.	The opinion notes that Dilip N. Shroff's mens rea requirement was overruled by this decision and that Union of India v. Dharamendra Textile Processors considered Section 271(1)(c) as imposing objective/civil liability for loss of revenue.
Hindustan Steels Ltd. (Supreme Court) (cited in the CIT(A)'s order)	The CIT(A) found support from this Supreme Court decision for the proposition that the Assessing Officer may not levy penalty upon an assessee where a satisfactory explanation is given (as recounted in the opinion).	The CIT(A) relied on this decision in concluding that the assessee's explanation could negate the levy of penalty; the Tribunal noted the CIT(A)'s reliance on Hindustan Steels Ltd.

Court's Reasoning and Analysis

The Court framed the core issue as whether the Tribunal correctly declined to interfere with the CIT(A)'s deletion of the penalty imposed under Section 271(1)(c). The Court proceeded by:

Reciting the factual matrix: return declared nil income (filed 31 October 2001), manufacturing activity and locations, deductions claimed under Sections 80-1A and 80-IB, assessment under Section 143(3) determining substantial income and computing penalty, and the CIT(A)'s reduction of allocation of expenses.
Reviewing the Tribunal's reasoning which relied on the CIT(A)'s finding and on decisions (including Harshvardhan Chemicals) that computation of deduction and allocation of expenses between head office and unit is a debatable issue; on that basis the Tribunal dismissed the Revenue's appeal against deletion of penalty.
Referring with approval to the Supreme Court's decision in Commissioner of Income Tax, Ahmedabad v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC), and summarizing its holdings: (a) conditions under Section 271(1)(c) must exist before penalty is imposed; (b) particulars in the return must be inaccurate or erroneous to attract penalty; (c) the jurisprudence on mens rea (including the treatment of Dilip N. Shroff and Union of India v. Dharamendra Textile Processors) was reviewed, but the present case did not require determination on mens rea.
Applying the legal principle: the Court observed there was no finding in the present case that any details supplied by the assessee in its return were incorrect, erroneous or false. The Court emphasized the passage from the Apex Court's decision that a mere claim which is not sustainable in law does not by itself amount to furnishing inaccurate particulars. The Court noted that the Assessing Officer must prove that the assessee's explanation was not bona fide and that material facts were not disclosed; those requirements were not satisfied on the record.
Addressing the Revenue's submissions (including reliance on Section 14A and the contention that claiming excessive deductions knowing them to be incorrect amounted to concealment), the Court reiterated the principle that the fact that an Assessing Officer does not accept a claim does not automatically attract penalty under Section 271(1)(c) where particulars were furnished and not shown to be inaccurate.
Concluding that in view of the Apex Court law and the factual matrix discussed by the Tribunal, no substantial question of law arises for consideration in the appeal.

Holding and Implications

Holding: The appeal is dismissed. The Court held that there is no substantial question of law arising from the impugned Tribunal order which had upheld the CIT(A)'s deletion of penalty under Section 271(1)(c).

Implications:

The immediate consequence is that the Tribunal's order dismissing the Revenue's appeal (and upholding deletion of the penalty) stands affirmed; the appeal is dismissed without any order as to costs.
The Court's reasoning adheres to the Supreme Court precedent summarized in the opinion: penalty under Section 271(1)(c) requires that particulars supplied in the return be shown to be inaccurate, and a mere claim not accepted by the revenue does not itself constitute inaccurate particulars. The opinion notes that no new precedent was laid down by the Court: it found no substantial question of law for consideration and disposed of the appeal on the basis of existing jurisprudence.

Disposition: Appeal dismissed (no order as to costs).

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Commissioner Of Income Tax-Iv v. M/S Dharampal Premchand Ltd.

DIPAK MISRA, CJ

In this appeal preferred under Section 260A of the Income Tax Act, 1961 (for brevity ‘the Act’) assailing the order dated 13th February, 2009 passed by the Income Tax Appellate Tribunal, Delhi Bench “B” New Delhi (for short ‘the tribunal’) in ITA No. 2299.Del/2007 pertaining to the assessment year 2001-02 the revenue has raised the following substantial question of law:-

1. Whether the Income Tax Appellate Tribunal was correct in law and on facts in deleting the penalty of Rs. 20,22,944/-, imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act?

2. Whether or not the findings recorded by the Income Tax Appellate Tribunal in its order are perverse in law, in as much as it has disregarded the relevant material and evidence placed on record and submissions made by the appellant?

3. Whether in view of the facts and under the circumstances of the case the Tribunal was legally correct in dismissing the appeal of the department on the ground that “allocation of expenses between the head office and the unit would always be a debatable issue”

4. Whether the ITAT was legally correct to follow the decision of ITAT Jaipur Bench in the case of Harshvadhan Chemicals and Minerals Ltd. v. DCIT (1991) reported in 58 Taxman 234 which was based on sections 80 HH and 80 I of the Income Tax Act.

5. Whether the ITAT was correct in law in not agreeing with the view of Assessing Officer that claiming expenses which would not have been debitable to the units in respect of which deduction U/s 80 IA of the Income Tax Act has been claimed and that it was a case of furnishing inaccurate particulars of income which attracts penalty U/s 271(1)(c).

6. The appellant craves leave to add, alter or modify any question of law at the time of admission of appeal.

2. We have heard Mr. N.P Sahni, learned senior standing counsel for the revenue and Mr. B. Gupta with Mr. R.K Chawla, learned counsel for the Assessee.

3. At the very outset, we may state with profit that though number of substantial questions have been raised yet the real crunch of the matter is whether the tribunal has correctly declined to interfere with the appeal preferred by the revenue against the order of the CIT(A), who had expressed the view that the penalty proceedings under Section 271(1)(c) was unwarranted and, accordingly, deleted the penalty imposed on the assessee.

4. Presently to the factual setting. The assessee-respondent filed its return of income on 31st October, 2001 declaring the total income as nil. At the relevant time, the assessee was engaged in the manufacture of flavoured chewing tobacco and kiwam. The manufacturing units are located at Barotiwala (HP) and Agartala. Deduction was claimed under Sections 80-1A and 80-IB of the Act. Eventually, an assessment order was framed under Section 143(3) on 28 February, 2004 determining the income of the assessee at Rs. 25,14,97,714/-. The penalty was computed at Rs. 51,14,309/- as the deduction claimed under Sections 80-1A and 80-IB was not allowed.

5. Being dissatisfied with the said order, the assessee preferred an appeal before the CIT(A) and the CIT(A) reduced the allocation of expenses to Rs. 44,68,845/-.

6. In the penalty proceeding, the assessee had filed its show cause contending, inter alia, that in its opinion the amounts that were disallowed did qualify for deduction under Sections 80-1A and 80-IB of the Act but the said explanation of the assessee was rejected and penalty was levied.

7. Before the CIT(A), it was contended that the assessee had disclosed all material facts pertaining to the computation of deduction admissible under Sections 80-1A and 80-IB. It was also contended that the directors' remuneration had been duly debited in the Head Officer and no amount was allocated towards the units. It was urged that the assessee was of the opinion that the interest earned on banks and interest paid to the others had a direct nexus to the business activities and, therefore, deduction of said amount would be admissible to the assessee. It was also put forth that there was no deliberate attempt on the part of the assessee to conceal the particulars of the income. The CIT(A) has elaborately dealt with the same and accepted the explanation proffered by the assessee. The tribunal referred to the order passed by the CIT(A) and thereafter has held as follows:-

“6….. On seeing the explanation of the assessee, the Assessing Officer may not levy the penalty upon an assessee. For such a view, learned CIT(Appeals) found support from the decision of Hon'ble Supreme Court in the case of Hindustan Steels Ltd. (supra). The CIT(Appeals) further relied upon the order of the ITAT, Jaipur Bench rendered in the case of Harshvardhan Chemicals & Minerals v. DCIT 58 Taxman 234. In that case also, the deduction admissible under sec. 80-HH and 80-I was reduced by the Assessing Officer. The ITAT observed that penalty under sec. 271(1)(c) would not be imposable upon the assessee in such situation because computation of deduction admissible under those provisions was a debatable issue. Similar are the facts before us. Allocation of expenses between the head office and the unit would always be a debatable issue. After considering the detailed order of the learned CIT(Appeals), we do not see any reason to interfere in it. Thus, the appeal filed by the revenue is dismissed.”

8. In this context, we may refer with profit a recent decision of the Apex Court in Commissioner Of Income Tax, Ahmedabad v. Reliance Petroproducts Private Limited, (2010) 322 ITR 158 (SC) wherein it has been held 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 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.

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.”

9. In view of the aforesaid law laid down by the Apex Court and the factual matrix which has been adverted to by the tribunal, we do not perceive any substantial question of law being involved in this appeal.

10. In the result, the appeal, being devoid of merit, stands dismissed without any order as to costs.

CHIEF JUSTICE

MANMOHAN, J

SEPTEMBER 13, 2010

Commissioner Of Income Tax-Iv v. M/S Dharampal Premchand Ltd.

Structured Summary of the Opinion (Dipak Misra, CJ; September 13, 2010)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant (Revenue) / Assessing Officer

Respondent (Assessee)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income Tax-Iv v. M/S Dharampal Premchand Ltd.

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