ORDER

Pramod Kumar, Accountant Member. - This is an appeal filed by the assessee and is directed against the order dated 30-11-2006 passed by the CIT(A)-III Pune, in the matter of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2002-03.

2. Grievance of the assessee is that, on the facts and in the circumstances of the case, the CIT(A) has "erred in confirming the penalty of Rs. 2,00,00,000 under section 271(1)(c) of the Income-tax Act." This penalty is imposed in connection with a claim, made by way of a revised return, claiming a carry forward of loss of Rs. 5,36,27,048 in respect of loss incurred by one of the units and not claiming deduction under section 10A on the aggregate of profits/losses of both the units that the assessee company has, but individually for the unit in which profit was earned. The Assessing Officer rejected this claim, which was made by the assessee by way of filing the revised return, and he also proceeded to impose penalty on the assessee for assessee's having furnished inaccurate particulars of income.

3. Let us set out the material facts in some detail. The assessee before us is a company engaged in the business of development and export of computer software. The assessee has two units eligible for deduction under section 10A - the first one is in sixth year of operation, and the second one was set up during the relevant previous year. In the first unit, the assessee had made profits, while in the second unit, the assessee incurred losses. The assessee set off losses of second unit against profits of first unit, and then claimed admissible deduction under section 10A. The assessee filed its Income-tax return on 31-10-2002, which disclosed a taxable income of Rs. 3,46,758, and it also disclosed, by way of a note, that the assessee had two units eligible for deduction under section 10A, that the second unit was set up during the relevant previous year, that the benefit of section 10A deduction for the Unit II will be claimed from the subsequent assessment year, and that, while in the computation of taxable income, the assessee has set off the loss of the Unit II against profits of Unit I, and, thereafter claimed the deduction under section 10A amounting to Rs. 3,81,85,408. The return so filed by the assessee was revised on 31-3-2004. The reason for this revision of return was stated to be that, by the virtue of Finance Act, 2003, a retrospective amendment with effect from 1-4-2001, has been brought about, in particular in section 10A(6)(i) and (ii), which permitted carry forward of unabsorbed depreciation and business losses. The unabsorbed depreciation and business loss so carried forward, as a result of the amendment, could be carried forward and set off against profits in succeeding years, whereas, since no such benefit was available earlier, the unabsorbed depreciation and business loss had to set off against profits of other units, if any. In the Income-tax return so revised, as a result of set off of Unit II not being set off against profits of Unit I, the assessee claimed a carry forward of unabsorbed depreciation amounting to Rs. 1,97,58,291 and carry forward of business loss amounting to Rs. 3,38,68,757. The total unabsorbed depreciation and business loss thus carried forward was Rs. 5,36,27,048. This revised claim, however, did not impress the Assessing Officer. The Assessing Officer was of the view that while profit of each unit will have to be computed separately for the purposes of computing deduction under section 10A, the deduction will have to be allowed from total income of the assessee which must take into account profits and losses of both the units. In other words, according to the Assessing Officer, the losses incurred in Unit II get set off against profits of Unit I, before deduction under section 10A can be allowed, and, therefore, the assessee cannot carry forward the loss incurred by Unit II. On this basis, the Assessing Officer computed total income of the assessee as follows :

4. The Assessing Officer thus concluded, "the assessee-company is not allowed to carry forward any loss as claimed in the revised return of income filed on 31-3-2004". The assessee accepted this action of the Assessing Officer, and the matter achieved finality at this stage as no appeal was filed. However, the Assessing Officer had also initiated penalty proceedings under section 271(1)(c), for 'furnishing inaccurate particulars of income'. The penalty proceedings thus followed.

5. In the penalty proceedings, the Assessing Officer, to whom case was transferred as per the revised jurisdictions, took note of the fact that in the original return of income filed by the assessee, there was no unit-wise bifurcation of income, and the only categories in the original return of income were of 'domestic income' and 'overseas income'. The Assessing Officer inferred that this clearly showed that profits and losses of both the units were clubbed together before arriving at the income on which section 10A deduction was claimed. It was also noted that the assessee revised the return later and came up with "differentiation between Unit I and Unit II, maintaining that deduction under section 10A is a unit specific deduction and the claim for deduction under section 10A was made with respect to Unit I without considering the losses of Unit II". The Assessing Officer further noted the plea of the assessee "the reference to total income is total income of the undertaking before considering deduction under section 10A, and, therefore, loss of Unit II is not to be set off against the profits of Unit I for the purpose of allowing deduction under section 10A". The Assessing Officer took note of all these claims, and the fact that these claims were rejected by his successor Assessing Officer for the following reasons :

"4. However, the submissions made by the representative of the assessee-company were rejected and the assessment was completed by setting off the losses of Unit II against the profits of Unit I and arriving at an amount of Rs. 3.89 crores. The deduction under section 10A was allowed on this amount and in effect, the total income was assessed at Rs. Nil. No loss, as claimed by the assessee-company vide its revised return filed on 31-3-2004, was allowed to be carried forward, since after setting off the loss of Rs. 5.37 crores of Unit II against the profit of Rs. 9.27 crores of Unit I, there was no more loss remaining to be allowed for carrying forward for subsequent year. The Assessing Officer brought it on record that section 10A in the amended form consists of a phrase "Deduction" and that the provision of section 10A does not have any absurdities and anomalies for computation of deduction as opined by the assessee. Further the Assessing Officer held that the assessee's arguments of "claim of deduction undertaking wise before the computation of total income of the assessee" is not tenable in view of the amended provisions of section 10A. It was brought out on record that through Chapter III mentions "income which do not form part of the total income", section 10A after the amendments with effect from 1-4-2001 contains the words "a deduction of such profit and gains as are derived by an undertaking." Therefore section 10A emphasizes a deduction and not exemption as being understood by the major heading of Chapter III. It was held that since the provisions of section 10A are specific and clearly worded, the spirit and intent of the Legislature cannot be ignored and that the substance of the words used in the provisions of section 10A cannot be taken away or eroded. The Assessing Officer relied on the judgment of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT wherein it was held that :

"the rules of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal there is no scope for interpreting any rule of liberal interpretation."

He further relied on another judgment of Hon'ble Supreme Court in the case of Orissa State Warehousing Corporation/Rajasthan State Warehousing Corpn. v. CIT 237 ITR 589 where it was held that :

"that a fiscal status shall have to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language used ought to be considered so as to ascertain the proper meaning and intent of the legislation. The court is to ascribe the natural and ordinary meaning to the words used by the Legislature and the court ought not, under any circumstances, substitute its own impression and idea in place of the legislative intent as is available from a plain regarding of the statutory provisions."

In the same case, the Hon'ble Supreme Court while interpreting the provision of section 10(29) of the Income-tax Act, clearly stated that :

"The Legislature has been careful enough to introduce in the section itself, a clarification by using the words "any income derived therefrom". The words "any income" as appearing in the body of the statute is restrictive in its application by reason of the user of the expression "derived from". The statute has been rather categorical and restrictive in the matter of grant of exemption, therefore, the word used in the provision is to be read as it has been for."

5. Relying on the above cited judgments and observations made by the Hon'ble Supreme Court, the Assessing Officer held that the assessee's claim of "ambiguity" and "absurdities" in reading the provisions of section 10A is incorrect. It was brought out on record that section 10A before the amendment (Prior to 1-4-2001) was for exemption but there was an intentional change in the provisions of the section after 1-4-2001. The section in the amended form, lays down that the deduction with respect to the profits and gains as derived by an undertaking shall be allowed only after computation of the total income of the assessee.

6. The Assessing Officer, therefore, proceeded to compute the total income of the assessee where the profits and losses of Unit I and Unit II were added and combined and the deduction under section 10A, was allowed on the resultant amounts. In effect, the total income was worked out at Rs. 3.90 crores (Rs. 9.27 - 5.37 Cr.). On which the deduction under section 10A of Rs. 9.26 crores was to be allowed. However, since the total income was at Rs. 3.90 crores, the deduction was restricted to this resultant total income of Rs. 3.90 crores. The loss of Rs. 5.37 crores as claimed by the assessee, pertaining to Unit II was not allowed since the same was fully set off against the profits of Unit I. While competing the assessment, penal proceedings under section 271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income. The assessee did not prefer an appeal against the said assessment competed for the assessment year 2002-03. A notice under section 271(1)(c) was issued on 31-3-2005 and served upon the assessee. In response, the assessee filed a letter on 7-4-2005 requesting for an adjournment of 10 working days and the hearing was fixed on 4-5-2005. However, within the meantime, the assessee filed a written submission on 25-4-2005 in connection with the penalty proceedings." [Emphasis supplied]

6. The Assessing Officer also observed that, as evident from the submissions made by the assessee in hearings, the main reasons as to why, in assessee's perception, it was not a fit case for penalty, were as follows :

"(i) That section 10A in the amended form is akin to Chapter VI-A deductions, yet no cap can be laid as can be done in the case of deductions. The Authorised Representative submitted that section 10A cannot be totally interpreted on this lines of Chapter on "deductions". They have also contended that there was no concealment on the part of the assessee.
(ii) Since a revised return was filed, with a detailed note on why a revised return is being filed, there was no case of concealment of facts and hence no concealment of income.
(iii) Since the issue relating to section 10A - as to whether it is an exemption or a deduction like any Chapter VI-A deduction - is legal in content, the opinion of the department and that of the assessee may differ and hence the issue of "filling inaccurate particulars" does not arise and hence there is no case for penalty under section 271(1)(c). The Authorized Representative stressed on the written submission made by him and pleaded that the spirit behind the case laws may be applied in the case of the assessee-company."

7. The Assessing Officer then analyzed "the claim made by the assessee vide its revised return and the stand taken by the Assessing Officer and also the stand taken by the assessee at the time of assessment proceedings" and noted the "differing stands" therein. He then noted that the amended provisions of section 10A provides for a 'deduction' and not an 'exemption', as clearly discernible from the pre-amendment and post-amendment wordings of section 10A. It was noted that deductions can be allowed only from total income, which is a well-defined expression under section 2(45), read with section 5 of the Act, and covers "all incomes from whatever source". It was also observed that the claim of deduction with respect to profits of an individual unit was simply untenable and contrary to law. The Assessing Officer then concluded that "hence, the loss claimed of Rs. 5.37 crores, by filing of revised return, was not as per the provisions of the Act, and hence penalty proceedings under section 271(1)(c) were initiated for furnishing of inaccurate particulars of income". In the very next sentence, he further observed that "the written submissions made by the assessee in response to notices issued and opportunities granted, were perused and it was found that the stand taken by the assessee that the case does not invite penalty proceedings either for concealment or for filing inaccurate particulars, does not hold good." The Assessing Officer observed that the "case laws filed by the assessee are distinguishable from the case under discussion". A rather erudite discussion about the judicial precedents on concealment of income followed, even as the penalty was initiated for 'concealment of particulars'. The Assessing Officer also noted that when, as held by the Hon'ble Calcutta High Court in the case of Commissioner Of Income-Tax v. Bijay Iron Stores [2001] 252 ITR 408 , penalty is to be levied with respect to the addition which is sustained by the Tribunal and which has not been challenged before the High Court, and when "in the present case, the assessee did not even prefer the appeal against the assessment order, leave alone sustaining of such addition by the appellate authorities", it is a fit case for imposition of penalty. The Assessing Officer thus concluded as follows:

"13. Considering all the submissions made by the assessee and the facts and circumstances of the case and position of law as given in the provisions of section 10A and in view of the positions brought out by the Hon'ble Courts in the judgments discussed above, it is evident that the assessee has furnished inaccurate particulars of income and thereby has made a wrongful claim of loss of Rs. 5.3 crores. I am satisfied that in the instant case, the assessee is liable for penalty under section 271(1)(c) of the Income-tax Act and, accordingly, I levy a penalty of Rs. 2,00,00,000 (Rs. Two Crores only) on the assessee under section 271(1)(c) of the Income-tax Act, 1961."

8. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the CIT(A) but without any success. While doing so, the CIT(A) observed as follows :

"4. I have carefully considered the contention of the appellant. I have also gone through various judicial decisions relied upon by the appellant and those relied upon by the Assessing Officer. These judicial decisions can only provide guidance in deciding the issue but none of them is squarely applicable to the appellant's case as the facts in these cases may be similar but not identical. Therefore, the issue has to be decided on its own merit after considering the facts of the case. What is to be considered here is not the merits of the stand taken by the Assessing Officer in rejecting the appellant's manner of deduction under section 10A (as this issue already stands decided in view of the fact that the appellant has not filed any appeal against the assessment order) but one has to examine how far the Assessing Officer is justified in coming to the conclusion that the assessee has furnished inaccurate particulars of income so as to attract the penal action under section 271(1)(c) of the Income-tax Act. For this purpose, it needs to be examined if the appellant had sufficiently strong reasons to deviate from the normal meaning of the language used in section 10A or its action of making a favourable interpretation of the provisions of section 10A was a deserved case as per provisions of section 10A.

4.1 The appellant has argued that it claimed carry forward of loss in the revised return after relying upon the provisions of section 10A(4), a literal interpretation of which suggests that deduction under section 10A should be computed based upon the profitability, export turnover and total turnover of each undertaking and not on a company-wide level. I find that this argument does not help the appellant in establishing the bona fide of its action of filing a revised return and claiming loss, as nowhere the provisions of section 10A(4) suggest that profits/losses of different units are not to be clubbed before allowing deduction under section 10A. So is the case with Circular No. 794, dated 9-8-2000 issued by the Central Board of Direct Taxes on Explanatory Notes to Finance Act, 2000.

4.3 The appellant has also submitted that the provisions of section 10A are intended for industrial growth and development of the country. Therefore, while interpreting these provisions, a liberal view should be adopted and an interpretation which defeats the purpose of introducing a particular beneficial provision should not be accepted. By making this submission, the appellant has tried to plead that the bona fide of its wrong claim should not be doubted in view of the liberal interpretation made by the appellant company. In general, I agree with the view of the appellant. However, the case of the appellant is different. I find that the appellant has interpreted the provision so liberally that the actual meaning of the words used in section 10A stand completely distorted. This, to me, is not permissible. A provision cannot be interpreted so loosely that the real connotation of the words is lost. Under such a situation, the genuineness of the claim does come under the shadow of doubt. No person can be allowed to deliberately twist the obvious meaning of a term and plead innocence.

4.4 In an attempt to prove the bona fide of its claim made in the revised return, the appellant has also referred to Schedule B if Form 1 stating that the format and layout of Form 1 clearly supports the view that eligible profits and gains of a 10A unit should be reduced from the profits of the business of the undertaking in computing the income taxable under the head 'Profits and gains from business or profession.' The appellant submitted that by not disapproving Form 1, the Parliament has accepted the validity of the assumption that deduction under section 10A has to be claimed under the head 'Profits and gains from business or profession.' After careful consideration, I find that by making above submission, the appellant has not been able to prove the genuineness of its wrong claim. For, even if it accepted that deduction under section 10A has to be claimed under the head 'Profits and gains from business or profession', Col. 14 of Form 1 mandates that 'Net profit or loss as per consolidated Profit and Loss account has to be arrived at before allowing deduction under section 10A. This clearly means that profit/loss of both the units have to be combined before claiming deduction under section 10A. It is difficult to accept that the appellant could have genuinely missed such clear manner of computation of deduction under section 10A.

4.5 The appellant has also argued that non-filing of appeal cannot be the ground for levying penalty. I agree with the appellant. However, it needs to be appreciated that the fact of non-filing of the appeal against the action of the Assessing Officer certainly goes to show that the appellant itself did not consider its interpretation in respect of manner of computation of deduction under section 10A strong enough to stand the test of appeal. This also shows that by deliberating twisting the simple and clear language of the provisions, the appellant sought undue advantage of the legal provisions.

4.6 During the course of appellant proceedings, the appellant admitted that the revised return of income was in fact filed by it after considering retrospective amendment introduced by the Finance Act, 2003 in the provisions of section 10A(6) with effect from assessment year 2001-02 by an undertaking eligible for deduction under section 10A. This amendment made abundantly clear the position regarding the carry forward of loss. This shows that the idea of filing revised return making a claim for carry forward of loss, worked out on the basis of a manner of computation on the basis of which original return was filed, occurred to the appellant with the objective of taking advantage of the amendment. For this purpose, the appellant deliberately and consciously adopted a wrong interpretation of the simple and plain provisions of section 10A.

4.7 In view of the aforesaid, I hold that the Assessing Officer is justified in holding that the appellant has furnished inaccurate particulars of income and, accordingly, levying penalty under section 271(1)(c). The order imposing penalty under section 271(1)(c) is confirmed."

9. The assessee is not satisfied and is in further appeal before us.

10. We have heard Shri Golvala, learned counsel for the assessee, and Shri Kaushal, learned Commissioner (DR.). We have also carefully perused the material on record and duly considered factual matrix of the case as also the applicable legal position.

11. As we proceed to deal with the grievance raised in this appeal, we may mention that in the recent past, we have witnessed a very lively, though at times somewhat acrimonious, debate on paradigm shift in the scheme of section 271(1)(c), claimed to have been brought about by the Hon'ble Supreme Court's landmark judgment in the case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 . The perceptions of the taxpayers and the tax authorities about the impact of this judgment are at times so diametrically opposed to each other that there is effectively no meeting ground between these two extremes. With the consent of the parties, therefore, we have decided to hear several penalty appeals together so that we have the benefit of the guidance by a cross-section of bar members, as also revenue authorities, in finalizing our stand on this fundamental issue i.e., impact of the Hon'ble Supreme Court's judgment in the case of Dharmendra Textile Processors (supra) on the scheme of section 271(1)(c).

12. We, therefore, deem it fit and proper to begin by dealing with the legal position regarding the scope of penalty provisions under section 271(1)(c) of the Income-tax Act, post Dharamendra Textile Processors' judgment (supra) by the Hon'ble Supreme Court.

13. The relevant portion of section 271(1)(c) and Explanation 1 thereto, as it stands now, is as follows :

"271. Failure to furnish returns, comply with notices, concealment of income, etc.—(1) If the Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceedings under this Act, is satisfied that any person

(a) and ( b)******
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,

(i) and ( ii)******
(iii) in the cases referred to in clause ( c) or clause ( d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits the furnishing of inaccurate particulars of such income or fringe benefits :

Explanation 1. - Where in respect of any facts material to the computation of the total income of any person under this Act,

(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or
(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause ( c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."

14. A plain reading of this provision of law makes it clear that so far as the scheme of penalty for concealment of income is concerned, it is like this. It is sine qua non for imposition of penalty that during that the Assessing Officer or the CIT(A), during the course of any proceedings before him, should be satisfied that the assessee has (i) concealed his income, or (ii) furnished inaccurate particulars of income. As regards the quantum of penalty, the penalty imposed under section 271(1)(c) can range between 100 per cent to 300 per cent of the tax sought to be avoided by the assessee, as a result of such concealment of income or furnishing of inaccurate particulars. The third and most important feature of this provision is deeming provision regarding concealment of income. Not only that the penalty provisions cover the situations in which the assessee has concealed income or furnished the inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for 'concealment of income' comes into play. In addition to normal connotations of 'concealment' thus, a deeming fiction is also implicit in the scheme of penalty provisions. This deeming fiction, by way of Explanation 1 to section 271(1)(c) envisages two situations - (a) first, where in respect of any facts material to the computation of total income under the provisions of the Act, the assessee fails to offers an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or the CIT(A); and, (b) second, where in respect of any facts material to the computation of total income under the provisions of this Act, the assessee is not able to substantiate the explanation and the assessee fails to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of total income. In the first situation, the deeming fiction is triggered by the inaction of the assessee by his not giving the explanation with respect to any fact material to the computation of total income, or by action of the Assessing Officer or the CIT(A) by giving categorical finding to the effect that the explanation given by the assessee is false. In the second situation, the deeming fiction is triggered by the failure of the assessee leading to satisfaction of conditions laid down in clause B of Explanation 1 to section 271(1)(c), namely that the assessee is not able to substantiate an explanation in respect of any fact material to the computation of total income, and, in addition to this, the assessee is also not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of total income have been disclosed by the assessee. When this deeming fiction comes into play, which can only happen in one of the above situations, the related addition or disallowance in computing the total income of the assessee, for the purposes of section 271(1)(c), is deemed to represent the income in respect of which inaccurate particulars have been furnished.

15. It is thus not difficult to discern that, even on the first principle, a penalty under section 271(1)(c) is not simply a consequence of an addition being made to the income of the assessee. The penalty under section 271(1)(c) is a penalty for concealment of income or for furnishing of inaccurate particulars, or, under the extended definition by the virtue of Explanation 1 to section 271(1)(c), for a deemed concealment of income. As a corollary to this legal position, unless it is established that there is concealment of income or furnishing of inaccurate particulars or it is established that, on the facts of the case, concealment of income can be deemed in accordance with the provisdions of law, the penalty provisions cannot be invoked at all.

16. There is a school of thought, however, to the effect that to successfully impose penalty under section 271(1)(c) of the Act, the burden of the revenue is not discharged simply by demonstrating that the above conditions are satisfied and that the revenue must also establish mens rea on the part of the assessee. There have been significant developments with regard to this school of thought in the recent past, and we must take note of these developments so as to appreciate the true scope of penalty provisions under section 271(1)(c) of the Act.

17. The first significant recent development that we must take note of is Hon'ble Supreme Court's judgment in the case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 . In this case, the assessee had sold certain property, consisting of land and building in posh locality of Walkeshwar Road Mumbai. In the return filed by the assessee, the fair market value of assessee's share in the said property as on 1-4-1981 was claimed to be Rs. 2,52,00,000, and capital gains were computed on that basis. This valuation was backed by a report from the Registered Valuer. However, in the course of the assessment proceedings, the Assessing Officer referred the valuation issue to the District Valuation Officer. According to the DVO, the fair market value of the assessee's share in this property was only Rs. 1,44,92,907. This DVO's valuation report was backed by comparable sale instances. The registered valuer's valuation report, as filed by the assessee, was rejected by the DVO on the ground that the said report was primarily based on the reports carried in a local paper, by the name of Accommodation Times, and it did not have the backing of any comparable sales instances. It was in this background that the assessee's claim of FMV as on 1-4-1981 of the assessee's share in asset in question being Rs. 2,52,00,000 was rejected, and instead, the FMV as on 1-4-1981 was taken at Rs. 1,44,92,207. As a consequence to this adjustment, as against assessee's returned long-term capital loss at Rs. 34,12,000, the assessee was assessed for long-term capital gain of Rs. 3,09,78,478. This was accepted by the assessee, and the matter did not travel in appeal so far as quantum of assessment was concerned. The matters, however, did not rest there. The Assessing Officer also imposed penalty under section 271(1)(c) by observing, inter alia, that "by no stretch of imagination a property in a posh locality like Walkeshwar, Mumbai would have resulted in loss after substitution of indexed cost of acquisition. The intention of the assessee in obtaining the valuation report is obviously viewed in the context of the assessee having returned loss under the head 'Capital gains'". The Assessing Officer then concluded that "in the circumstances, the assessee is considered to have furnished inaccurate particulars of income in respect of the amount added under the head 'Capital gains'". The assessee's appeals to the CIT(A) and the ITAT did not yield any favourable results either. Hon'ble Bombay High Court also upheld the penalty order and observed that "what is market value of the property as on 1-4-1981 is a matter of fact, and the value furnished by the assessee was held to be factually incorrect". Their Lordships then added that "If the computation of long-term capital gains by the assessee was found to be wrong, obviously the findings of the revenue authorities and the Tribunal that the assessee furnished inaccurate particulars cannot be faulted". Aggrieved even by the judgment of Hon'ble Bombay High Court, the assessee carried the matter in appeal before the Hon'ble Supreme Court.

18. Hon'ble Supreme Court were of the considered view that on the facts and circumstances of the case, the imposition of penalty was not warranted. Their Lordships made following significant observations on merits of the case :

"79. The assessee could get the valuation done through any other mode of index value, or the assessee could have engaged any other valuer other than a registered valuer also. In the instant case, the assessee had chosen to obtain the opinion of a registered valuer.

80. The registered valuer has arrived its opinion on certain basis. He while making the valuation report, disclosed all the particulars. He disclosed that he had chosen to the index value method. He did not rely upon any sale instance. He might have referred to the valuation of the property as mentioned in a local newspaper. But it is not in dispute that he did not furnish any inaccurate particulars. It is true that he has not enclosed the sheet showing sale instance but nothing turns out thereupon as he had not relied upon any sale instances.

81. There can be a genuine difference of opinion between two experts. The District Valuer, as noticed hereinbefore, having regard to the sale instances of 1979 wherein the value of the land was fixed at Rs. 500 per sq. ft., took notice of the fact that the valuation in terms of another sale instance of 19-10-1982 wherein the land was valued at about Rs. 1823 per sq. ft. A valuation was to be arrived at on 1-4-1981. He picked up a figure of Rs. 897 per sq. ft. No reason had been assigned in support thereof. No other or further sale instances had been given. We do not know as to whether any other sale instances were available. He merely stated that such valuation had been arrived at after taking into account the time size-shape, time gap, location-situation and also the factors like physical, social, legal and economical. Some other officer could have picked up holes in the said report. On the other hand, the opinion of the registered valuer, as would appear from the report, was that he had taken into consideration the value of the shop as Rs. 1525 per sq. ft.

82. A duty may be enjoined on the assessee to make a correct disclosure of income but if such disclosure is based on the opinion of an expert, who is otherwise also a registered valuer having been appointed in terms of a statutory scheme, only because his opinion is not accepted or some other expert gives another opinion, the same by itself may not be sufficient for arriving at a conclusion that the assessee has furnished inaccurate particulars.

83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.

84. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. [See Malabar Industrial Co. Ltd. v. CIT, Kerala State [2000] 2 SCC 718]."

19. That was only one of the aspects of the matter. On the board principles governing the imposition of penalty under section 271(1)(c), and before dealing with the specific facts of the case, Their Lordships also observed as follows :

"35. ... it appears that there is distinct line of authorities which clearly lay down that in considering a question of penalty, mens rea is not a relevant consideration. Even assuming that when the statute says that one is liable for penalty if one furnishes inaccurate particulars, it may or may not by itself be held to be enough if the particulars furnished are found to be inaccurate is anything more needed but the question would still be as to whether reliance placed on some valuation of an approved valuer and, therefore, the furnishing of inaccurate particulars was not deliberate, meaning thereby that an element of mens rea is needed before penalty can be imposed, would have received serious consideration in the light of a large number of decisions of this Court.

******

48. Primary burden of proof, therefore, is on the revenue. The statute requires satisfaction on the part of the Assessing Officer. He is required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the department. [See D.M. Manasvi v. CIT, Gujarat-II [1973] 3 SCC 207].

49. While considering as to whether the assessee has been able to discharge his burden, the Assessing Officer should not begin with the presumption that he is guilty.

50. Once the primary burden of proof is discharged, the secondary burden of proof would shift on the assessee because the proceeding under section 271(1)(c) is of penal nature in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the Parliament considers to be against the public interest and, therefore, it was for the department to establish that the assessee shall be guilty of the particulars of income. [See Anwar Ali (supra) and M/s. Khoday Eswarsa (supra)].

51. The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle. [See Anantharam Veerasinghaiah & Co. v. CIT, Andhra Pradesh 1980 Supp. SCC 13].

52. The appellant herein in the penalty proceedings had produced relevant particulars to show that they were materials in support of the report, although a part of which was not annexed with the report.

53. Before, thus, a penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had furnished inaccurate particulars thereof." [Emphasis supplied]

20. Hon'ble Supreme Court's judgment in the case of Dilip N. Shroff (supra), particularly in the light of the above observations, was viewed as an authority for the proposition that penalty proceedings are quasi-criminal proceedings in nature and, therefore, burden of proof that the assessee has concealed income is on revenue authorities, as also for the proposition that an element of mens rea is needed before penalty under section 271(1)(c) can be imposed.

21. Let us see how would this proposition affect the working of section 271(1)(c). Let us take a case in which in respect of any facts material to the computation of total income under the provisions of the Act, the assessee does not give an explanation, gives a false explanation or is not able to substantiate the explanation given by him, and the assessee also fails to prove that the explanation, if given by the assessee, is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of total income. Going by the language of Explanation 1 to section 271(1)(c), it will be a fit case for imposition of penalty, but, in case one is to apply the aforesaid proposition emerging out of Dilip N. Shroff's case (supra), the onus will still be on the revenue to show that there was a mens rea on the part of the assessee. Where this onus is not discharged, according to this proposition, penalty under section 271(1)(c) could not be imposed.

22. The matter did not rest even there. This judgment was also viewed as an authority for the proposition, as evident from the discussions to follow, that penalties not only under Income-tax Act but also under legislations like Central Excise Act can only be imposed when mens rea of the assessee is established. It was in this background that another Division Bench of Hon'ble Supreme Court expressed doubts about correctness of this part of the judgment.

23. These doubts were expressed vide judgment dated 19-7-2007, reported as Union of India v. Dharamendra Textile Processors [2007] 295 ITR 244 (SC) . A view was expressed that "the judgment in the case of Dilip N. Shroff v. Jt. CIT [2007] 8 Scale 304 (SC) needs consideration by a larger Bench of this Court particularly when it has ramifications not only regarding the provisions of the Income-tax Act but also with regard to the provisions of sections 3A and 11AC of Central Excise Act and rule 96ZQ(5) of the Central Excise Rules". The question which had come up for consideration before Their Lordships, and in the context of which a reference was made for the larger Bench, is evident from the following extracts from the aforesaid judgment (at page 245) :

"In this batch of civil appeals, the question which arises for determination is whether section 11AC of the Central Excise Act, inserted by the Finance Act, 1996, with the intention of imposing mandatory penalty on persons who evade tax should be so read to contain mens rea as an essential requirement."

24. The stand of the revenue was that "the said section [Section 11AC of the Central Excise Act] should be read as penalty for statutory offences; that the executing authority had no discretion in the matter and that the adjudicating authority in such cases was duty bound to impose the penalty equal to the duty so determined". The assessee, on the other hand, contended that "mens rea was an essential requirement of the said section, particularly when the section refers to the intention in the matter of evading the payment of duty", and, in support, he relied upon the judgment of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra). Hon'ble Supreme Court also took note of the fact "it is the case of the Department that penalty under the said rule is also for statutory offences; that it is a case of imposition of penalty and that it is not a case where adjudicating authority has any discretion in the matter of imposition of penalty". Their Lordships took note of revenue's reliance upon Hon'ble Supreme Court's decision in the case of Chairman, SEBI v. Shriram Mutual Fund [2006] 68 SCL 216 , as also assessee's contention that "even rule 96ZQ(5) should be read down so as to include the requirement of mens rea particularly when the said clause begins with the expression 'if any independent processor fails to pay the amount of duty'". It was in this backdrop, and it was after setting out the provisions of section 11AC of the Central Excise Act and of section 271(1)(c) of the Income-tax Act, that Their Lordships were of the view that "there is a conflict of opinion between the judgments of the Division Bench of this Court in the case of Dilip N. Shroff v. Jt. CIT [2007] 8 Scale 304 on the one hand, and, on the other hand, we have another judgment of this Court in the case of Chairman, SEBI v. Shriram Mutual Fund [2006] 68 SCL 216 ". Their Lordships were also of the view that "Wilful concealment is not an essential ingredient for attracting civil liability as is the matter of prosecution under section 276C of the Act" and that "While considering an appeal against an order made under section 271(1)(c), what is required to be examined is the record of the officer imposing the penalty had before him, and, if that record can sustain the finding that there had been concealment, that would be sufficient to sustain the penalty". These observations of Their Lordships were seen to be coming in conflict with the view taken by the Hon'ble Supreme Court in Dilip N. Shroff's case (supra), and, therefore, in the immediately following sentence, Their Lordships added as follows :

"Keeping in mind these two circumstances, we are of the view that the judgment of Division Bench in the case of Dilip N. Shroff v. Joint CIT needs consideration. The Explanations added to section 271(1)(c), in their entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns. The judgment in Dilip N. Shroff's case has also not considered provisions of section 276C of the Act. Therefore, in our view, the judgment in the case of Dilip N. Shroff v. Joint Commissioner of Income-tax [2007] 8 Scale 304 (SC) needs consideration by a larger Bench of this court particularly when it has ramifications not only regarding the provisions of the Income-tax Act but also with regard to the provisions of sections 3A and 11AC of Central Excise Act and rule 96ZQ(5) of the Central Excise Rules.

For the aforesaid reasons, we direct the Registry to place our order in this bunch of civil appeals before the Hon'ble Chief Justice of India for appropriate directions."

25. The matter was thus referred to the larger Bench. An analysis of the above observations would show that Their Lordships had two specific reasons of doubting the correctness of the Dilip N. Shroff's judgment (supra). The first reason was that "The Explanations added to section 271(1)(c), in their entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns". These Explanations to section 271(1)(c) deal with deeming fictions about 'concealment of income' and one of these Explanations, which is most important for our purposes, has already been discussed earlier in this order. The second reason, according to Their Lordships and which was somewhat connected with the first reason, was that "The judgment in Dilip N. Shroff's case (supra) has also not considered provisions of section 276C of the Act". This assumes significance in the context that concealment of an income is visited with two types of consequences. The first consequence is of course penalty under section 271(1)(c), and the second consequence is, which is applicable only when it is a case of 'Wilful attempt to evade tax, etc.', as title to section 276C unambiguously sets out, and this deals with the prosecution of offence. Dilip N. Shroff's case (supra) was seen as authority for the proposition that establishing mens rea of the assessee was a sine qua non for imposition of penalty under section 271(1)(c) even though the element of 'wilful' violation of law was not referred to in the said section whereas section 276C deals with 'Wilful attempt to evade tax' and provides for consequences to such an action of the assessee. In case, the proposition regarding establishing mens rea was to be accepted, it would follow that penalty under section 271(1)(c) could only be imposed in cases in which there was a wilful attempt to evade taxes, which is what mens rea practically implies, but then in such a situation the ground covered by section 271(1)(c) and section 276 was to be the same. It was in this context that Their Lordships perhaps referred to section 276C and doubted that Dilip N. Shroff's case (supra), decision has failed to take note of the same. On the issues of legal interpretation, these were the only issues because of which the matter was referred to the larger Bench.

26. As the later developments were to show, the doubts expressed by the Division Bench reference on Hon'ble Supreme Court's judgment in the case of Dilip N. Shroff (supra) were held to be justified. The judgment of the larger Bench, reported as Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 , inter alia, held as follows :

"24. It is of significance to note that the conceptual and contextual difference between section 271(1)(c) and section 276C of the Income-tax Act was lost sight of in Dilip N. Shroff's case (supra).

25. The Explanations appended to section 271(1)(c) of the Income-tax Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroof's case (supra) has not considered the effect and relevance of section 276C of the Income-tax Act. Object behind enactment of section 271(1)(c) read with Explanations indicate 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. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income-tax Act."

27. The impact of this judicial development was summed up by www.itatonline.org as follows :

"(i) In Dilip N. Shroff v. JCIT the SC held that the order imposing penalty was quasi-criminal in nature and thus the burden lies on the department to establish that the assessee had consciously concealed his income. This view is not correct.
(ii) The object behind enactment of section 271(1)( c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue and they create the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability unlike the matter of prosecution under section 276C.
(iii) Dilip N. Shroff's case ( supra) has not considered the effect and relevance of section 276C.
(iv) It cannot be said that the absence of specific reference to mens rea is a case of casus omissus. The law on two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole has been considered in detail."

28. It is also important to note that in the process of deciding Dharmendra Textile Processors' case (supra), Their Lordships also took note, with approval, of following observations finding place in the judgment in the case of Shriram Mutual Fund (supra) :

"47. Thus, the following extracted principles are summarised :

(A) Mens rea is an essential or sine qua non for criminal offence.
(B) A straitjacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted in a given case.
(C) If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word 'penalty' by itself will not be determinative to conclude the nature of proceedings being criminal or quasi-criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravenor and the delinquency.
(D) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities.
(E) There can be two distinct liabilities, civil and criminal under the same Act."

29. Let us now quickly summarize what Hon'ble Supreme Court has held in the case of Dharamendra Textile Processors' (supra) before we analyze the same and interpret the law relating to imposition of penalty under section 271(1)(c) post Dharamendra Textile Processors' decision (supra ). The observations of the Hon'ble Supreme Court, which are relevant for this purpose, are as follows :

"The Explanations appended to section 271(1)(c) of the Income-tax Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return.

Object behind enactment of section 271(1)(c) read with Explanations indicate 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.

Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income-tax Act.

It is of significance to note that the conceptual and contextual difference between section 271(1)(c) and section 276C of the Income-tax Act was lost sight of in Dilip N. Shroff's case (supra).

Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. There can be two distinct liabilities, civil and criminal under the same Act. (The observations made by the Division Bench in the case of Chairman, SEBI v. Shriram Mutual Fund quoted with approval)."

30. These are the observations of the Hon'ble Supreme Court which are being perceived as different things by both the parties before us. On one hand, by and large, the assessee views the above observations as no more than limited disapproval of Hon'ble Supreme Court's judgment in the case of Dilip N. Shroff ( supra) on the question of assessee's mens rea being an essential requirement before penalty under section 271(1)(c) can be imposed but leaving the pre Dilip N. Shroff legal position intact. On the other hand, the Income-tax Department sees this development as an authority to levy penalty as somewhat consequential to an addition to returned income being made in almost every case. During the course of hearing, we requested the learned Departmental Representatives to place on record their stand on the impact of this judgment. Shri Kaushal, learned Commissioner (DR) reiterated the observations made by the Hon'ble Supreme Court, and politely reminded us of our duty to respectfully follow the law so laid down by Their Lordships, instead of resorting to a process of creative interpretation which dilutes or whittles down the law so laid down. In addition to the oral arguments at length, learned Departmental Representatives filed two notes before us. In the first note, which was signed by Shri Kaushal, learned Commissioner (DR), it was pointed out that the Tribunal was widely following Hon'ble Supreme Court's judgment in the case of Dilip N. Shroff (supra) but now that Dilip N. Shroff judgment is 'no longer valid' and stands overruled by a larger Bench of the Hon'ble Supreme Court in Dharmendra Textile Processors' case (supra), the Tribunal must decide the appeals 'in the light of ratio decidendi' of the Dharamendra Textile Processors' case (supra). The summary of views expressed by Hon'ble Supreme Court in the said larger Bench was also set out in that note. We need not reproduce the summary as there is no, and there cannot be any, dispute between the parties on what the Hon'ble Supreme Court has actually said in this case, the dispute is essentially confined to the implications of what Their Lordships have said. That aspect is highlighted by an analysis filed before us, which is said to have been prepared by Shri Santosh Kumar, another Departmental Representative before us who was on rotation duty. This analysis is reproduced below :

"The larger Bench of the Supreme Court have held as follows :

(i) Penalty under section 271(1)( c) is a strict liability.
(ii) Penalty under section 271(1)( c) is a civil liability.
(iii) Penalty under section 271(1)( c) is compensatory in nature, i.e., it compensates the revenue.
(iv) The element of mens rea is not required.

The strict liability is a liability which is imposed on the wrongdoer is all cases except in some of the cases which have been clearly mentioned in the statute. Similarly, civil liability is a liability for which intention of wrongdoer is not considered unless it is provided in the statute. When the Supreme Court held this penalty as compensatory in nature, it becomes mandatory as was said by the Supreme Court on the issue of charging of interest under sections 234A, 234B and 234C in the case of Anjum Ghaswala.

Now the question is that if penalty is mandatory, then why there are provisions for giving opportunity (of hearing) to the assessee (before penalty is imposed)?

The answer to this question is in the Explanations to section 271(1)(c). For example, if any addition is made on purely ad hoc basis and no discrepancy was found, then the assessee can argue before the Assessing Officer his case and the Assessing Officer can consider whether the explanation of the assessee is correct, but when the addition is specific then no explanation can be considered and the Assessing Officer has to levy the penalty. Now the assessee cannot say that all the details had already been filed before the Assessing Officer and hence the assessee had no intention to conceal the particulars. If there are any types of revenue loss by making wrong claim of deductions, by change of head of income, by wrong claim of expenses, etc., penalty will be levied."

31. With the benefit of very able assistance by the learned counsel for the assessee, as indeed by his colleagues at the bar, who also argued appeals relating to penalties under section 271(1)(c) along with this appeal, and equally able assistance by the distinguished Departmental Representatives, let us make our humble attempt to put the observations made by the Hon'ble Supreme Court in Dharamendra Textile Processors' case (supra) in the right perspective. In the entire discussions before us, a lot of emphasis was placed on certain observations made by the Hon'ble Supreme Court. These observations, seen in isolation, were sought to be canvassed as complete exposition of law on the scope of penalty proceedings under section 271(1)(c).

32. While we have made our humble efforts to put these observations in the correct perspective to the best of our ability, we must also put in a word of caution against the dangers inherent in drawing sweeping generaliza-tions from the observations so made by a judicial authority. As was held by the Hon'ble Supreme Court in the case of Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd. [1992] 198 ITR 297 , "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. As Their Lordships observed, "A decision of the Court takes its colour from the questions involved in the case in which it was rendered and while applying the decision to a later case, the Courts must carefully try to ascertain the true principles laid down....". We must, therefore, bear in mind the fact that the one cannot interpret a judicial precedent in the same manner in which statutory provisions are interpreted. The reason is elementary. When a judgment is written, it is written with the predominant objective of answering the questions needed to be adjudicated in the particular case that the Judges are in session of, and the judgment is, at a conscious or sub-conscious level, focused on the particular context, in which the questions being decided by the Judges arise. Unlike in a civil law jurisdiction, however, in common law jurisdictions, every judicial ruling has a precedence value in a specified domain and, therefore, every effort is made to deduce the general principles emerging from a judgment and use it as of precedence value so that the benefit of wisdom of higher tiers of judiciary percolates down to the lowest level. That exercise must, however, be conducted with greatest care and caution, and in a very objective manner. The difficulty in discerning the general principles emerging out of a judgment written on a complex matrix of facts is, thus, well-recognized, as is the need to ensure that no bias creeps in this process. This exercise must begin by taking stock of the legal framework in the context of which we have to understand import of the observations made by the Hon'ble Supreme Court.

33. Under the scheme of the Income-tax Act, when the Assessing Officer discovers that additions or disallowances are required to be made to the income returned by the assessee, he confronts the assessee with the basis on which the Assessing Officer considers so necessary. The explanation given by the assessee, if available to the Assessing Officer, are then taken into account for the purpose of deciding whether or not such additions or disallowances are required to be made. The Assessing Officer, accordingly, finalizes the assessment of income. While finalizing the assessment, if the Assessing Officer is of the view that the assessee has concealed income or furnished inaccurate particulars of income, he can, by way of recording satisfaction to the effect that it is a fit case for initiating the penalty proceedings, initiates the penalty proceedings under section 271(1)(c) of the Act. It may be noted that, in Dilip N. Shroff's case (supra), Hon'ble Supreme Court has approved Hon'ble Delhi High Court's judgments in the cases of Commissioner Of Income-Tax, Delhi-Iii v. Ram Commercial Enterprises Ltd [2000] 246 ITR 568 and Diwan Enterprises v. Commissioner Of Income Tax. [2000] 246 ITR 571 which require that the Assessing Officer must form his opinion and record satisfaction before initiating the penalty proceedings. This aspect of the matter has not been disturbed by the larger Bench decision in the case of Dharamendra Textile Processors (supra). Therefore, recording of such satisfaction is condition precedent for initiating the penalty proceedings. The next stage is the actual penalty proceedings under section 271(1)(c). In the course of the penalty proceedings, the Assessing Officer finds that if the assessee has concealed income or if the assessee has furnished inaccurate particulars, as also when the Assessing Officer finds that the case of the assessee is covered by the deeming fiction of one of the Explanations appended to section 271(1)(c), the Assessing Officer proceeds to impose penalty under section 271(1)(c).

34. Let us also not lose sight of the fact that conclusion of penalty proceedings under section 271(1)(c) is not the last stage in this process. In a case where it is found that the attempt to evade tax, by so concealing the income or by so furnishing the inaccurate particulars, was wilful, an assessee can be prosecuted under section 276C of the Act. We will revert to this aspect of the matter later.

35. Going back to the stage of finalizing the penalty proceedings, there was never a controversy about the necessary pre-condition for imposition of penalty by way of Assessing Officer satisfying himself that there is concealment of income by the assessee, or that there is furnishing of inaccurate particulars of income by the assessee, or that the case of the assessee is covered by deeming fiction covered by one of the Explanations appended to section 271(1)(c). Unless the Assessing Officer is satisfied that the case of the assessee falls in one of these categories, the very foundation for imposition of penalty does not exist. The controversy was whether even after the Assessing Officer is satisfied that the assessee has concealed income or the assessee has furnished inaccurate particulars, or even after the Assessing Officer is satisfied that the case of the assessee is covered by deeming fiction by one of the Explanations appended to section 271(1)(c), is there anything further required to be done by the Assessing Officer? In Dilip N. Shroff's case (supra), a Division Bench of the Hon'ble Supreme Court thought so. It was their esteemed view that the onus of proof is on the Assessing Officer that there was an element of mens rea. Obviously, this was in addition to the satisfaction of conditions laid down in section 271(1)(c) read with Explanations thereto. In Dharamendra Textile Processors' case (supra), a larger Bench of the Hon'ble Supreme Court did not share this perception and was of the esteemed view this additional pre-condition for imposition of penalty under section 271(1)(c), i.e., establishing existence of mens rea, was wrongly being read into the provisions of the Act.

36. It was in this context that Their Lordships have observed that a penalty under section 271(1)(c) is a civil liability in contradistinction with prosecution under section 276C which is a criminal liability. On account of penalty under section 271(1)(c), only consequences in the civil law, i.e., payment of a specified amount as damages or as compensation, follow, but on account of penalty under section 276C, consequences under criminal law, i.e., loss of individual liberty by jail sentence, follow. It is, however, incorrect to infer that just because a liability has been held to be 'civil liability' it cannot be penal in character. There is no contradiction in a liability being a civil liability and the same liability being penal liability as well, though a civil liability cannot certainly be criminal liability as well. As observed by Hon'ble Supreme Court in the case of Om Prakash Sheo Prakash v. Union of India AIR 1984 SC 1194 @ 1209, "A penalty imposed by the sales tax authorities is a civil liability, though penal in character". In this judgment also, in the immediately following sentence, Their Lordships compared civil liability with criminal liability and observed that "It may be relevant to notice that sub-section.... specifically refers to certain acts and omissions which are offences for which a criminal prosecution would lie...". The expression 'civil liability', as contradistinction inherently involves, is used for contrasting different character of 'criminal or quasi-criminal liability'. In the case of Guljag Industries v. Commercial Taxes Officer [2007] 293 ITR 584, Hon'ble Supreme Court has observed as follows:

"Wilful concealment is not an essential ingredient for attracting the civil liability as in the case of prosecution... Default or failure to comply with section ... (dealing with lapse) is the failure/default of a statutory civil obligation and proceedings under section .... (dealing with imposition of penalty) are neither criminal nor quasi-criminal in nature. The penalty is for statutory offence. Therefore, there is no question of proving of intention or of mens rea as the same is excluded from the category of essential element for imposing penalty. Penalty.... is attracted as soon as there is contravention of statutory obligations. Intention of parties committing such violation is wholly irrelevant."

37. A plain reading with the above observations would show that the only impact of a liability being civil liability is that mens rea or the intentions of the assessee need not be proved, and, as Hon'ble Supreme Court has observed in the case of Dharamendra Textile Processors (supra), "Wilful concealment is not an essential ingredient for attracting civil liability". It is thus clear that a mere contravention of statutory obligation is enough to trigger the penalty provision, but then there has to be a contravention of the statutory obligation first - wilful or not. In our considered view, unless that contravention of law takes place and unless the conditions for imposition of penalty under section 271(1)(c) are satisfied, even a civil liability cannot be invoked.

38. That takes us to a fundamental question as to what is the statutory obligation of an assessee when filing a return of income. Section 139(1), inter alia, provides that "every person .... shall.... furnish a return of income... during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed". Rule 12, in turn, provides form of return and the manner in which it is to be verified. The verification clause in the return of income required the assessee to solemnly declare that, to the best of his knowledge and belief, the information given in the return and schedules therein is correct and complete and that the amount of total income and other particulars shown therein are truly stated and are in accordance with the provisions of the Income-tax Act, 1961, in respect of income chargeable to income-tax in that particular assessment year. It is, thus, clear that as long as the information given in the Income-tax return is correct and complete to the best of assessee's knowledge and belief, it cannot be said that the statutory obligation under section 139(1) is contravened which, even for a civil liability for penalty being imposed, is a sine qua non. An addition to income does not always have a cause and effect relationship with the discharge of assessee's obligations under section 139(1), because even when an assessee duly discharges his obligations under section 139(1), there can still be additions to, or disallowance from, the returned income due to a variety of reasons, viz., genuine variations in perceptions of the assessee vis-a-vis the Assessing Officer about a legal interpretation, the changes in judge made or statute law between the period when an Income-tax return is filed and when the assessment is framed, extraneous factors affecting ability of the assessee to establish certain facts based on which deductions are claimed, and even plain inadvertent clerical errors. Except to the extent such cases will be caught be the mischief of Explanations appended to section 271(1)(c), these cases cannot, therefore, be visited with penal consequences. Of course, penalty under section 271(1)(c) can also be imposed when case of the assessee is covered by deeming fiction for 'concealment of income' on account of Explanations to section 271(1 )(c). However, there is no justification for the proposition that just because a penalty under section 271(1)(c) is a civil liability, it must mean the penalty can be levied on the basis of any addition to income. That will certainly not be a correct proposition. When an addition to returned income per se cannot even be a legally acceptable foundation of initiation of penalty proceedings under section 271(1)(c) because even before initiating the penalty proceedings, the Assessing Officer must record satisfaction that it is a fit case for initiating the penalty proceedings, it is futile to suggest that such an addition simplicitor is to be visited with imposition of penalty. In any event, as we have noted above, the relationship between the contravention of section 139(1) does not always have a cause and effect relationship, in practice or even by deeming fiction, with an addition or disallowance being made to income of the assessee.

39. We must, at this stage, also deal with the Hon'ble Supreme Court's Division Bench judgment in the case of Shriram Mutual Fund ( supra) which has been approved by the larger Bench in the case of Dharmendra Textile Processors (supra). In Shriram Mutual Fund's case (supra). Their Lordships were dealing with penalties under sections 15D and 15E of the SEBI Act. These penalties dealt with failure 'to comply with the terms and conditions of registration' and failure 'to comply with any of the regulations providing for restrictions on the activities of the asset management companies' respectively. There was, thus, clear cause and effect relationship between the failure to discharge obligations of the person and the imposition of penalty on him for such failure. When the relevant person fails to discharge the obligation, which he was bound to follow, the penalty was to be imposed. On these facts, Hon'ble Supreme Court had observed as follows :

"The scheme of SEBI Act of imposing penalty is very clear. Chapter VI-A nowhere deals with criminal offences. These defaults for failure are nothing but failure or default of statutory civil obligation provided under the Act and the Regulations made thereunder. It is pertinent to note the section 24 of the SEBI Act, deals with the criminal offences under the Act and its punishment. Therefore, proceedings under Chapter VI are neither criminal nor quasi-criminal. The penalty leviable under this Chapter or under these section is penalty in cases of default or failure of statutory obligations. In the provisions and the scheme of penalty under Chapter VI-A of SEBI Act, there is no element of any criminal offence or punishment as contemplated under the criminal proceedings. Therefore, there is no question of any mens rea by the appellant and it is not an essential element for imposing penalty under SEBI Act, and Regulations. . . ."

40. In Shriram Mutual Fund's case (supra), therefore, it was held that when there is a failure on the part of a person to discharge his civil obligations, mens rea need not to proved before imposing any penalty imposed on account of such civil obligations. Let us apply this proposition to the cases of the penalty for concealment of income or for furnishing of inaccurate particulars. Under the scheme of the Income-tax Act, it is undoubtedly assessee's civil obligation is to file a true and correct return income, and the penalty under section 271(1)(c) is imposed when there is a concealment of income, when inaccurate particulars are furnished, or when, by the virtue of deeming fictions envisaged by Explanations appended to section 271(1)(c), the assessee is deemed to have concealed income. As we have noted earlier as well, each addition to income, or disallowance out of computation of income, need not be a result of these three categories of reasons which can lead to imposition of penalty. Therefore, merely because there is an addition to income, or disallowance out of computation of income, it cannot be said that the assessee has failed to discharge his civil obligation under section 139(1) or that the assessee should be deemed to have failed to discharge his civil obligations. Unless that happens, even going by Shriram Mutual Fund's case (supra), civil liability for failure, or deemed failure, to discharge the obligations, cannot follow. An addition of income need not always be outcome of failure of civil obligations of the assessee. There can be situations when the assessee dutifully discharges his civil obligations under the Income-tax Act, and yet additions can be made to his income. It is, therefore, wholly contrary to the scheme of the Income-tax Act,1961, and has fallacious logic as its foundation, to suggest that in view of Shriram Mutual Fund's decision (supra), which has been approved by the Hon'ble Supreme Court's Larger Bench in Dharamendra Textile Processors' case (supra), an addition to income per se can be reason enough for imposition of penalty under section 271(1)(c).

41. Such an interpretation will also nullify the scheme of section 271(1)(c) which, as we have noted above, requires that before penalty is imposed the Assessing Officer has to be satisfied that the assessee has concealed income, or that the assessee has furnished inaccurate particulars or that the case of the assessee is covered by deeming fiction of one of the Explanations appended to section 271(1)(c). That apart, it is also well-settled in law that penalty proceedings are distinct from the assessment proceedings and based on the findings in the assessment order per se, penalty cannot be imposed. It is, therefore, wholly unjustified to interpret 'civil liability' of penalty under section 271(1)(c) should be construed to mean that a penalty is an automatic consequence of an addition being made to the income of the assessee. A penalty under section 271(1)(c) of the Income-tax Act, irrespective of whether it is a civil liability or a criminal liability, can only be imposed when scheme of the Act permits or requires so; not only that it is not an automatic consequence of an addition being made to the income, but an addition made during the course of assessment proceedings, by itself, cannot be enough to initiate, leave aside conclude, penalty proceedings under section 271(1)(c). Therefore, a finding recorded in the assessment order may constitute good evidence in the penalty proceedings but those findings cannot be regarded as conclusive for the purposes of penalty proceedings.

42. While dealing with the nature and kind of legal liabilities, 'Salmond on Jurisprudence (12th Edition; by P J Fitzgerald @349)' has thrown some light on the connotations of 'civil liability':

"He who commits a wrong is said to be liable or responsible for it. Liability or responsibility is the bond of necessity that exists between the wrongdoer and the remedy of the wrong. Where the remedy is civil one, the party wronged has a right to demand the redress allowed by the law, and a wrongdoer has a duty to comply with this demand. In the case of a criminal remedy, the wrongdoer is under duty to pay such penalty as the law through the agency of courts provides."

43. The impact of penalty being a 'civil liability' thus us that in case of a wrongdoing by the assessee, the assessee has to pay the penalty; nothing more than the fact of such wrong having been done is required. The action which triggers the civil liability is the lapse on the part of the assessee.

44. In Dharamendra Textile Processors' case (supra), Their Lordships have held that penalty under section 271(1)(c) provides remedy for loss of revenue. A penalty under section 271(1)(c) involves payment of an additional amount, which is a civil liability to provide for remedy for loss of revenue, while a sentence of imprisonment under section 276C means loss of individual liberty which does not help revenue in anyway except as serving as a deterrent for the potential defaulters. Therefore, as held by the Hon'ble Supreme Court, a penalty under section 271(1)(c) indeed provides a remedy for loss of revenue, but then, as the scheme of section 271(1)(c) itself unambiguously shows, a penalty under section 271(1 )(c) cannot be imposed for case of addition to income. section 271(1)(c) envisages certain situations in which penalty under section 271(1)(c) can be imposed and unless those conditions are satisfied, the penalty cannot be imposed merely because there was a loss of revenue. The nature of the penalty being to provide for loss of revenue is, thus, not in doubt, but that characteristic of penalty under section 271(1)(c) is to be read in conjunction with the scheme of the section 271(1)(c) itself. It is also be borne in mind that, as noted by Hon'ble Supreme Court in the case of Om Prakash Sheo Prakash (supra), there is no contradiction between a liability being civil in nature and yet penal in character. With mens rea or without mens rea, a penalty can only be imposed when there is failure, or deemed failure, to discharge an obligation. Therefore, Hon'ble Supreme Court's observations to the effect that a penalty is to provide remedy for loss of revenue cannot be construed to mean that a penalty can be imposed as an automatic consequence for addition to returned income.

45. What follows from these discussions is that in view of Hon'ble Supreme Court's judgment in the case of Dharamendra Textile Processors (supra), once the mandate of section 271(1)(c), read with Explanations thereto, are satisfied, there is no further onus on the Assessing Officer to establish mens rea. To that extent, the law laid down by Their Lordships in the case of Dilip N. Shroff (supra) was reversed.

46. While in Dilip N. Shroff's case (supra), Division Bench of the Hon'ble Supreme Court had held that, "Before, thus, a penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had furnished inaccurate particulars thereof" [Emphasis supplied], in Dharmendra Textile Processors' case (supra) a larger Bench, having taken note of the position that "The Explanations appended to section 271(1)(c) of the Income-tax Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return" concluded that "The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income-tax Act". The observations of wilful concealment of income not being an essential condition precedent for imposition of penalty and the penalty being a civil liability were made in the context of the question which was before Their Lordships, i.e., whether or not before imposition of penalty, it is required for Assessing Officer to prove establish a guilty mind and particularly in the light of the Explanations appended to section 271(1)(c), which contain deeming fiction, i.e., situations in which an assessee can be deemed to have furnished inaccurate particulars of income. As a matter of fact, way back in 2001, a three-Judge Bench of the Hon'ble Supreme Court, in the case of K.P. Madhusudanan v. CIT [2001] 251 ITR 99 , the assessee's plea to the effect that 'revenue was required to prove mens rea of a criminal offence' before penalty under section 271(1)(c) can be imposed, was rejected by Their Lordships. Elaborating upon the stand so taken by Their Lordships, a co-ordinate Bench of this Tribunal, speaking through one of us and in the case of Dy. CIT v. Narendra Kumar Mohta [2003] 84 ITD 495 (Kol.) had observed thus :

"We now come to the CIT(A)'s stand that penalty cannot be imposed in the case of an agreed addition and unless the revenue is able to prove mens rea as of a quasi-criminal offence. Since we have already held that it is not a case of agreed addition, assessee's arguments clearly proceed on a fallacious assumption so far as 'agreed addition' is concerned. In any case, as to the requirement of revenue's establishing mens rea on the part of the assessee, we may only refer to the observations of the Hon'ble Supreme Court, in the case of K. P. Madhusudanan ( supra), which are reproduced below :

Learned counsel then drew our attention to the judgment of this Court in the case of Sir Shadi Lal Sugar and General Mills Ltd. v. CIT (168 ITR 705). He submitted that the assessee had agreed to addition to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That did not follow that amount was agreed to be added to income as concealed income. That it did not follow that amount was agreed to be added to income as concealed income is undoubtedly what was laid down by this Court in Sir Shadi Lal Sugar and General Mills Ltd. v. CIT (supra) and that, therefore, the revenue was required to prove mens rea of a criminal offence. But it was because of the view taken in this and other judgments that the Explanation to section 271(1)(c) was added. By reason of addition of Explanation, the view taken in the said case can no longer be said to be applicable.

It is thus clear that, in the considered view of Hon'ble Supreme Court, it is no longer necessary that revenue is required to prove mens rea and, therefore, independent finding about conscious concealment is no longer a condition precedent for imposition of penalty under section 271(1)(c ) read with Explanation 1 thereto. The school of thought casting onus on revenue to prove mens rea, as advocated by large number of judicial precedents relied upon by the assessee, has been thus specifically rejected by the Hon'ble Supreme Court." [Emphasis supplied]

47. The proposition that mens rea need not be proved before penalty under section 271(1)(c) can be imposed was not laid down by the Hon'ble Supreme Court for the first time in Dharamendra Textile Processors' case (supra). As we have noted above, there are earlier judicial precedence to that effect. K.P. Madhusudanan's case (supra) is one such example, and incidentally that judgment was also rendered by a three-Judge Bench.

48. The views expressed by Their Lordships in Dharamendra Textile Processors' case (supra) cannot be viewed as an authority for the proposition that a penalty under section 271(1)(c) is an automatic consequence of an addition being made to income of the taxpayer, for the reason that whether it is a civil liability or a criminal liability, penalty under section 271(1)(c) can only come into play when the conditions laid down under that section are to be satisfied. In view of the elaborate discussions in the preceding paragraphs, by no stretch of logic or rationale it could be said that imposition of penalty under section 271(1)(c) has a cause and effect relationship with addition being made to the returned income per se. An addition being made to income does, because of impact of Explanation 1, effectively does raise a presumption against the assessee but that is an entirely rebuttable presumption and the scheme of rebuttal is provided in the Explanation itself.

49. In our humble understanding, all that the Explanation 1 to section 271(1)(c) does is to shift the onus of proof from Assessing Officer to the assessee; instead of Assessing Officer being under an obligation to establish the mala fides of the assessee, the onus is now on the assessee to establish his innocence and righteous conduct. As a matter of fact, as a result of the Explanation 1 to section 271(1)(c) in its present form, the burden of proof has entirely shifted to the assessee, and it is this paradigm shift which is one of the most important feature of rule of evidence in civil proceedings as distinct from criminal proceedings. In the 'Law of Evidence' by Ratan Lal and Dhiraj Lal (@ pages 10-11), this aspect is highlighted thus :

"Difference between evidence in civil and criminal proceedings

******

In a civil case, a Judge of fact must find for the party in whose favour there is a preponderance of proof, though the evidence is not entirely free from doubt. In a criminal case, no weight of preponderant evidence is sufficient, short of that which excludes all reasonable doubt. . . .

In a criminal trial the degree of probability of guilt has got to be very much higher - almost amounting to a certainty - than in civil proceeding, and if there is slightest reasonable or probable chance of innocence of an accused, the benefit must be given to him. . . .

The onus of proof in criminal cases never shifts to the accused, and they are under no obligation to prove their innocence . . . ."

50. The views so expressed by the learned authors appeal to us. Viewed from the above perspective, the observations made by Their Lordships in Dharmendra Textile Processors' case (supra) only re-emphasizes the paradigm shift on burden of proof as brought about by Explanation 1 to section 271(1)(c). The observations made in Dilip N. Shroff's case (supra), on the need for the tax authorities to establish mens rea before a penalty can be imposed, were contrary to this school of thought and, to that extent, therefore, the larger Bench overruled the Dilip N. Shroff's decision (supra). However, even when the liability under section 271(1)(c) is viewed as a civil liability, while the onus is certainly not on the tax authorities to establish mens rea of the assessee, the explanation of the assessee is still to be examined by the adjudicating authority on its own merits.

51. There can be three distinct mutually exclusive situations in the case of an addition to income. In the first scenario, the addition made could be on account of contumacious conduct of the assessee in which mens rea is established or can be reasonably inferred. As far as this situation is concerned, penalty was always leviable under section 271(1)(c). In the second scenario, while the addition is made to the returned income, neither is it established, or can be reasonably inferred, that the addition made to the income is on account of contumacious conduct of the assessee nor is it established, or can be reasonably inferred, that the assessee's conduct and explanation is bona fide. In such a situation, in the light of Hon'ble Supreme Court's judgment in the case of Dilip N. Shroff (supra), penalty under section 271(1)(c) could not have been levied since the onus of establishing mens rea of the assessee could not have been discharged in such a situation. However, as the law stands now and in the light of the Hon'ble Supreme Court's judgment in the case of Dharamendra Textile Processors' (supra), penalty under section 271(1)(c) will be leviable since it is not necessary for the tax authorities to establish mens rea of the assessee. That is the area in which legal position has changed. However, there is still a third scenario in which an addition is made to the income but it is established, or can be reasonably inferred, that assessee conduct and explanation is bona fide. These are the situations in which the assessee is able to establish his innocence. In such a situation, in accordance with the undisputed scheme of section 271(1)(c), neither the penalty was leviable prior to Hon'ble Supreme Court's judgment in the case of Dilip N. Shroff (supra) nor is it leviable after the Dharamendra Textile Processors' case (supra).

52. In our considered view, therefore, there is no change in law so far as first and third scenario visualized above are concerned. The scheme of section 27l(1)(c) remains as it and this scheme clearly requires much more than a mere addition to assessee's income before penalty under the said section can be imposed. The views expressed by Their Lordships in Dharamendra Textile Processors' case (supra) do not bring about any radical change in the scheme of section 271(1)(c) though these views do seek to nullify the Dilip N. Shroff's judgment (supra) which, in the esteemed views of the larger Bench, did not take into account the correct scheme of things as these were - more particularly post-insertion of Explanation 1 to section 271(1)(c). Indeed, even on the first principle and as seen in the above light, while this view is in accordance with the scheme of the section and the amendment brought about in the scheme of the section by insertion of Explanation 1 to section 271(1)(c), it does not bring about any radical change to the main scheme of section 271(1)(c) itself.

53. Even as there were huge apprehensions about possible unduly aggressive interpretation of this judgment by an overzealous section of tax authorities, there have been also been number of published opinions highlighting the correct perspective in which this judgment needs to be taken. Just as much as we have benefited from the lively debate in our courtroom, we have also had benefit of perusing many such well-reasoned opinions in the Press, and we would like to take note of some such helpful material. Shri S. Rajarathnam, a well-known author and commentator on income-tax, has, in his column in 'The Hindu'(http://www.hindu.com/ 2008/12/08/stories/2008120850031400.htm), and while dealing with the impact of Dharamendra Textile Processors' judgment (supra) on law relating to penalties under section 271(1)(c), inter alia, observed as follows:—

"The view taken by the Full Bench that penalty is automatic for violation of rules under central excise law is rendered in the context of excise law. Reference to an income-tax penalty in such a case cannot be treated as a direct authority on the subject. Revenue itself had not contended with reference to income-tax penalty that it is automatic, but only questioned the onus of proving lack of bona fides on revenue.

As regards approval by the Full Bench of the decision in SEBI's case (supra), this case dealt with an instance of violation of SEBI regulations, where penalty was considered to be automatic for a default, though such default was found to be non-intentional and in fact inadvertent by the SEBI Tribunal. This decision cannot be applicable to income-tax penalty. Income-tax penalties are governed by provision under the income-tax statute, which, no doubt, do not require mens rea on the part of the assessee as a pre-condition for penalty, but all the same require conditions under the tax statute to be satisfied before any levy of penalty.

If the Supreme Court's decision in Dharamendra Textile Processors' case (supra), now referred by the reader is understood as warranting automatic levy in case of every default even for income-tax defaults, such understanding is not correct. It was conceded by the Supreme Court in Dharmendra Textile Processors' case (supra) while referring to Dilip N. Shroff's case (supra) that "the question relating to discretion was not a basic issue" and that section 271(1)(c ) of the Income-tax Act provides for some discretion. Hence SEBI's case (supra) cannot apply for tax penalties.

For concealment penalties under section 271(1)(c), there is a complete code for such penalty under Explanation 1 to section 271(1)(c), which presumes concealment wherever there is a difference between reported and assessed income but would authorise levy of penalty only where the explanation is not bona fide and all the materials to the computation of his total income has been disclosed by him.

There has been no change in this law. The decision in Dharamendra Textile Processors' case (supra) cannot be understood as having brought about any change in the interpretation of the provisions, which are clear not admitting of any controversy. It may also be pointed out that even for initiation of penalty, satisfaction is required. Section 273B gives a blanket immunity for various offences listed in the Chapter relating to penalty, if the assessee proves that there is reasonable cause for such failure. It is in this context that there is no scope for apprehension that penalties under the income-tax law will, henceforth, be automatic. All that has been decided is that proof of mens rea is necessary only for prosecution cases."

54. In the light of our detailed analysis of the legal position, as set out earlier in this order, it is clear that our views are broadly on the same lines as the above comments, and, to that extent, we are in considered agreement with the views so articulated by the learned author. Similar are the views expressed by another eminent author in an article in the journal published by the Bombay Chartered Accountant Society (2008 - 40B - BCAJ 411) which are reproduced below :

"From the judgment of the larger Bench, it seems that the same overrules the judgment of Apex Court in Dilip Shroff's case only to the extent that deliberate act on the part of the assessee will have to be proved for levy of concealment penalty (i.e., mens rea is essential ingredient of the provisions) and the order imposing such penalty is quasi-criminal in nature. . . ."

55. In the light of the above discussions, and for the detailed reasons set out above, we are of the considered view that even post Dharamendra Textile Processors' judgment (supra) by the Hon'ble Supreme Court, merely because an addition is made to the income declared by the assessee, penalty under section 271(1)(c) cannot be imposed. In our considered view, Hon'ble Supreme Court's judgment in the case of Dharmendra Textile Processors (supra) does not bring about any radical change in the scheme of section 271(1)(c) though it does nullify the earlier Division Bench judgment on Hon'ble Supreme Court in the case of Dilip N. Shroff judgment (supra) to the extent that it held that the onus was on the tax authorities to establish mens rea before a penalty under section 271(1)(c) can be imposed - a proposition which, in the esteemed views of the larger Bench, did not take into account the correct scheme of things as these were - more particularly of Explanation 1, as it exists now, to section 271(1)(c). Their Lordships have indeed held that a penalty under section 271(1)(c) is a civil liability but that expression is used in contradistinction with criminal liability and, as held by the Hon'ble Supreme Court itself in the case of Om Prakash Shiv Prakash (supra), there is no conflict in a liability being a civil liability and at the same time being penal in character. In effect, therefore, liability under section 271(1)(c) continues to have its basic penal character even as it is held to be a civil liability. Hon'ble Supreme Court has also held that the onus is not on revenue to prove mens rea before penalty under section 271(1)(c) can be imposed on an assessee, but that does not imply that where assessee can prove his bona fides, in accordance with the scheme of the section 271(1)(c), penalty under section 271(1)(c) will still be leviable. All this means that in a situation where assessee has not been able to establish his bona fides, and a penalty under section 271 (1)(c) is warranted in accordance with the scheme of the section 271 (1)(c), tax authorities are prevented from imposing the penalty only on the ground that mens rea of a criminal offence is not established. It is this context in which Their Lordships have held that 'wilful concealment is not an essential ingredient for attracting a civil liability' and that it is a 'strict liability' which is to remedy the loss of revenue unlike a criminal liability, resulting in loss of individual liberty, which only to serve as a deterrent to other potential defaulters. All these observations do not disturb, or even touch, the basic statutory scheme of penalty under section 271(1)(c). A civil liability is for contravention of civil obligations, and, under the scheme of the Income-tax Act, that civil obligation is furnishing of a return of income "in the prescribed form and verified in the prescribed manner and setting forth such particulars as may be prescribed". There is thus no cause an effect relationship between an addition being made to the income of an assessee and a penalty under section 271(1)(c). No doubt an addition to income is the starting point of this exercise, but not only that in the assessment proceedings itself the Assessing Officer has to be satisfied that the additions are such that penalty proceedings under section 271(1)(c) are required to be initiated but also before any penalty under section 271(1)(c) can be imposed, each such case will have to be examined in the light of scheme of things envisaged by section 271(1)(c) read along with Explanations thereto.

56. The scheme of section 271(1)( c), as we have noted earlier in this order, visualizes imposition of penalty when the assessee has concealed income or when the assessee has furnished inaccurate particulars of income. In addition to these two situations, penalty can also be imposed, inter alia, when assessee is deemed to have concealed particulars of income under Explanation 1 to section 271(1)(c). This explanation provides that the assessee will be deemed to have concealed particulars of income wherein respect of any facts material to the computation of the total income of any person under this Act, (i) when the assessee fails to provide an explanation, (ii) when the assessee provides an explanation which is found to be false, and (iii) when the assessee provides an explanation which he fails to substantiate and he fails to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee.

57. Let us now revert to the facts of this particular case before us. The assessee initially filed an Income-tax return claiming deduction under section 10A after setting off losses of Unit II against profits of Unit I. As the eligible profits of Unit I were obviously more than the income so arrived at, while the assessee was entitled to deduction under section 10A for the entire profits of Unit I, the actual deduction was restricted to the amount of income after set off. Thereafter, the assessee filed a revised Income-tax return in which deduction under section 10A was claimed in respect of profits of Unit I individually and the unabsorbed depreciation and business loss of Unit II was claimed to be carried forward. In the note filed along with the revised return, the assessee, inter alia, submitted as follows:—

"Kanbay India had filed its original return of income for the financial year ended 31-3-2002 ('assessment year 2002-03') on 31-10-2002 with Ward 8(2) (acknowledgement number 05079).

For the financial year ended 31-3-2002, Unit 1 has derived profits whereas Unit 2 has incurred a loss (these have been disclosed in the accountant's report in Form 56F for these two units for the financial year ended 31-3-2002 filed along with the original return of income). In the original return of income, the deduction under section 10A in respect of Unit 1 was erroneously calculated after setting off the losses of Unit 2.

Given that the deduction under section 10A is an undertaking specific deduction, the return is now being revised to claim the deduction under section 10A in respect of profits of Unit 1 without considering the losses of Unit 2. The balance taxable profits of Unit 1 have been set off against the loss incurred by Unit 2 to arrive at income chargeable under the head 'Profits and Gains from Business or Profession'.

******

Further to the above, the balance losses of Unit 2 after set off against taxable profits of Unit 1 are carried forward and set off to future years. The position in this regard is as follows :—

58. It is this claim which did not find favour with the Assessing Officer. The Assessing Officer was of the view that since, post 2001 amendment of section 10A, the benefit under section 10A is no longer a tax exemption but only a deduction from total income, it can never exceed the total come. It was also noted that since total income of the assessee can only be computed after aggregating the profits and losses of various units, the losses of Unit 2 are set off against profits of Unit 1 and there is nothing left to be carried forward and that the deduction under section 10A is to restricted to the net income after the set off. The assessee's initial intention was that since section 10A benefit is an undertaking specific tax benefit, the deduction under that section cannot be restricted to overall total income of the assessee and must be granted to with respect to the profits of the undertaking. The assessee has referred to the circulars issued by the Central Board of Direct Taxes as also a reference is made to the certain columns in forms prescribed in the Income-tax Rules which support this interpretation of law. When the claim was rejected by the Assessing Officer, the assessee let the matter rest there and did not carry in further appeal.

59. We are not really concerned with the merits of the stand taken by the assessee in the claim made by the assessee in the revised return so filed, but all that is necessary to be examined for our purposes is whether making such a claim can be said to concealment of income or furnishing of inaccurate particulars.

60. The expression 'concealment of income' has not been defined in the Act, but the natural meanings of the expression 'concealment' are 'to keep from being seen, found, observed, or discovered'. It would, therefore, follow that the expression concealment of income, in its natural sense and grammatical meaning, implies an income is being hidden, camouflaged or covered up so as it cannot be seen, found, observed or discovered. That is certainly not the situation before us. The assessee has made a claim, and that too by revised return which virtually ensured that the fact of assessee's having made this claim cannot remain unnoticed by the Assessing Officer, and has given specific justification and all the supporting details for the same. By no stretch of logic, this situation can be treated as a situation in which any income is concealed by the assessee. Concealment of an income by an income cannot be a passive situation anyway; it implies that the person concealing the income is hiding, covering up or camouflaging an income - something which essentially requires a conscious effort. On the contrary, this is a situation in which the assessee has acted in very transparent and straight forward manner. There cannot be any concealment of income in such a situation.

61. The expression 'furnishing of inaccurate particulars of income' has also not been defined in the Act. The expression 'inaccurate' refers to 'not in conformity with the fact or truth' and that is the meaning which, in our considered view, is relevant in the context of 'furnishing of inaccurate particulars'. The expression 'particulars' refers to 'facts, details, specifics, or information about someone or something'. Therefore, the plain meaning of the expression 'furnishing of inaccurate particulars of income' implies furnishing of details or information about income which are not in conformity with the facts or truth. The details or information about income deal with the factual details of income and this cannot be extended to areas which are subjective such as the status of taxability of an income, admissibility of a deduction and interpretation of law. The furnishing of inaccurate information thus relates to furnishing of factually correct details and information about income. In the present case, however, what has been treated as furnishing of inaccurate particulars is making of a claim which was not admitted by the Assessing Officer an action not contested by the assessee. The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income. The authorities below have apparently proceeded to treat assessee's making an incorrect claim of income as furnishing of inaccurate particulars. What is a correct claim and what is an incorrect claim is a matter of perception. In our considered view, raising a legal claim, even if it is ultimately found to be legally unacceptable, cannot amount of furnishing of inaccurate particulars of income. 'Inaccurate', as we have noted above, is something factually incorrect and interpretation of law can never be a factual aspect. Just because an Assessing Officer does not accept an interpretation, such an interpretation is not rendered incorrect. Even the judgments of Hon'ble Supreme Court are reversed by the larger Benches of Hon'ble Supreme Court. The development of law is a dynamic process which is affected by the innumerable factors, and it is always an ongoing exercise. In such circumstances, a bona fide legal claim by the assessee being visited with penal consequences only because it has not been accepted thus far by the tax authorities or judicial authorities is an absurdity. In any event, as we have noted above, the connotations of expression 'particulars of income' do not extend to the issues of interpretation of law and as such making a claim, which is found to be unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income. In this view of the matter, the case of the assessee cannot be said to be a case of 'furnishing of inaccurate particulars of income', in its natural sense, either.

62. There is, however, one more eventuality in which penalty can be imposed and that is the situation in which deeming fiction of Explanation 1 to section 271(1)(c) comes into play. This deeming fiction, as we have noted earlier in this order, comes into play where in respect of any facts material to the computation of the total income of any person under this Act, (i) when the assessee fails to provide an explanation, (ii) when the assessee provides an explanation which is found to be false, and (iii) when the assessee provides an explanation which he fails to substantiate and he fails to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee.

63. Even a casual look at the provision for deeming fiction of Explanation 1 to section 271(1)(c) would show that it relates only to the factual aspects. The opening words employed in this deeming fiction are "where in respect of any facts material to the computation of the total income of any person under this Act". [Emphasis supplied]. In the case before us, the only controversy is regarding legality of a claim made by the assessee and, therefore, this deeming fiction cannot be invoked in the present case at all. In our considered view, the deeming fiction of Explanation 1 to section 271(1)(c) can only be pressed into service in connection with "facts material to the computation of income" and not in connection with the computation of income per se. Viewed in the light of the discussions in the preceding paragraph, wherein we have held that there cannot be any 'concealment of particulars of income' on the issues of legal interpretation, and viewed in the light of the fact that the deeming fiction is to provide for a 'deemed furnishing of inaccurate particulars', the reference to the facts material to the computation of the total income is quite in harmony with the scheme of section 271(1)(c).

64. In the present case, there is no dispute that all the relevant facts material to the computation of total income are duly furnished by the assessee and no deficiencies in furnishing of such facts are pointed out by the authorities below. There is, thus, no cause of action for deeming fiction being triggered by the conduct of the assessee.

65. Be that as it may, even assuming that deeming fiction under Explanation 1 to section 271(1)(c) can be triggered by a wrong legal claim, it cannot be the case that merely because there is a wrong claim, even if that be so, penalty under section 271(1)(c) can be imposed. This deeming fiction under section 271(1)(c) only shifts the onus of proof on the assessee, as this Explanation itself provides that a penalty can only be imposed (a) when there is no explanation by the assessee, (b) when the explanation given by the assessee is found to be false, and (c) when the assessee provides an explanation which he fails to substantiate and he fails to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee.

66. In the case before us ( a) is not satisfied as the assessee has filed an explanation to the effect that he was of the bona fide view that the claim of deduction under section being undertaking specific, the same should be granted with respect to the profits of the eligible undertaking and in isolation with other businesses of the assessee. The condition (b) is also not satisfied, as the explanation of the assessee has not been found to be false. We may also add that the onus of proving that the explanation is false is on the revenue and there is no finding in this direction at all.

67. As far as conditions in (c) above are concerned, even assuming that the assessee fails to substantiate the explanation, he has been able to demonstrate that the explanation is bona fide and that the assessee in the Income-tax return itself has duly disclosed all the facts necessary for the same and necessary for computation of income. All the details and justification of claim have been set out in the return of income itself. There was a detailed note giving rationale and computation of the unit-wise claim of deduction under section 10A and it was duly supported by the prescribed certificate from the chartered accountant. The question of bona fides cannot be decided against the assessee either. Whether the conduct of the assessee was bona fide or not is essentially a question of fact and the related facts are always in the exclusive knowledge of the assessee. The assessee's contention is that he was of the bona fide view that the claim is admissible as the deduction under section 10A is an undertaking specific relief and a reading of CBDT circular as also the format of rules prescribed in the Income-tax Rules support this interpretation. One may or may not agree with this understanding of the assessee, but the fact that there can be a bona fide view to that effect cannot be ruled out. The human probabilities favour acceptance of this explanation for bona fides. The fact that the assessee has not carried in appeal the rejection of his claim by the Assessing Officer is sought to be used against the assessee's claim of bona fides. We are unable to see any rationale in this. The decision to go in litigation or not does not depend on the merits alone, and merely because an assessee does not challenge a particular addition or disallowance in appeal does not mean that the claim for such exclusion from income or deduction lacked bona fides. The decision not to go into a litigation or not is dependent on a variety of factors, and the merits of the legal issue involved is only one such factor. In our considered view, therefore, the decision to the assessee to pursue or not to pursuer legal remedy against rejection of his stand is not the safe indicator about bona fides of such stand. The authorities below clearly erred in holding that merely because the assessee has accepted the stand of the Assessing Officer, so far as rejection of assessee's claim was concerned, it would show that action of the assessee lacked bona fides.

68. In any event, when an explanation is offered by the assessee in discharge of the onus cast upon him by Explanation 1 to section 271(1)(c), it is not for the Assessing Officer to ponder over what should have happened in ideal circumstances, and reject the explanation because what has actually happened is less than such an imaginary ideal situation; he is to consider the explanation objectively and unless he finds the same against the human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, the Assessing Officer ought to accept the same. It cannot always be feasible to prove the claim of bona fides to the hilt, nor, in our considered view, the assessee can be expected to do so. Whether or not a person has acted bona fide reflects the state of his mind in respect of his conduct, and, therefore, the assessee has his inherent limitations in establishing this aspect of the manner. All that the assessee can do is to explain the circumstances in which he has acted in a particular manner and set out the related facts. The explanation for bona fides, at the cost of repetition, needs to be considered in a fair and objective manner and in the light of human probabilities. As long as the explanation given by the assessee is in the light of the human probabilities, there are no factual errors or inconsistencies, and it is supported by reasonable supporting evidences regarding factual elements embedded therein, if any, the bona fides should be taken as proved. The assessee's explanation regarding bona fides of the claim does not suffer from any apparent consistencies or factual errors and it is quite in tune with the human probabilities. There is no good reason to reject the same as unacceptable for the purpose of making of the claim of deduction being covered by the deeming fiction under Explanation 1 to section 271(1)(c).

69. In view of the reasons set out above, the case of the assessee is not even hit by the mischief of any of the three eventualities envisaged by the deeming fiction under Explanation 1 to section 271(1)(c). We have already held that, on the facts and in the circumstances of the case, the assessee could not be said to have concealed the particulars of income or furnished inaccurate particulars of income. Under the scheme of section 271(1)(c), therefore, it was not a fit case for the imposition of penalty. We need not, therefore, address ourselves to other legal issues raised before us, and, for the short reasons set out above, hold that it was not a fit case for imposition of penalty under section 271(1)(c) of the Act. The issue whether even in the absence of any mens rea, on the facts of this case, the assessee could have been imposed penalty under section 271(1)(c) would have been relevant only if it was found to be a fit case for imposition of penalty under the scheme of section 271(1)(c). Since we have come to the conclusion that under the scheme of section 271(1)(c), it was not a fit case for imposition of penalty, and in view of our analysis of legal position set out earlier in this order, we hold that the facts and circumstances of the case did not warrant or justify any imposition of penalty. We, therefore, direct the Assessing Officer to delete the impugned penalty of Rs. 2,00,00,000. The assessee gets the relief accordingly.

70. Before we part with the matter, we would like to make a couple of observations. Firstly, we may mention that, as we have stated earlier in this order as well, this appeal was taken up for hearing along with several other appeals relating to penalties under section 271(1)(c) of the Act. While deciding one aspect of this appeal, i.e., impact of Hon'ble Supreme Court's judgment in the case of Dharamendra Textile Processors (supra) on the legal framework relating to imposition of penalty under section 271(1)(c), we also had the benefit of arguments advanced by learned counsels, as also by the learned Departmental Representatives, in all those cases. We would like to place on record our deep appreciation to Shri Golvala as indeed to all the learned representatives for their valuable assistance in the lengthy hearing of these appeals which was spread over several sessions. We thus place on record our deep appreciation to Shri Golvala as also to Shri Chetan Karia, Shri D.P. Bapat, Shri K.A. Sathe, Shri Kishore Phadke, Shri M.N. Kulkarni, Shri Pramod Singte, Shri Rajan Vora, Shri Sunil Ganoo, Dr. Sunil Pathak, Shri S.P. Doshi, Shri S.P. Joshi, Shri S.R. Puranik, (in alphabetical order) appearing for other assessees; and - Shri R. Kaushal, Shri A.S. Singh, Shri K. Srinivasan, and Shri Santosh Kumar - appearing for the revenue. Secondly, no matter how politely Shri Kaushal puts it, which is his hallmark anyway, we were all along alive to his submission that, by resorting to a process of interpretation, we must not dilute the law laid down by Their Lordships in Dharamendra Textile Processors' case (supra). However, just as much as we were alive to this plea, we were also alive to the words of guidance by Hon'ble Supreme Court in Mumbai Kamgar Sabha v. Abdulbahi Faizullabhai AIR 1976 SC 1455 wherein Their Lordships have, in their inimitable and felicitous words observed thus, "It is trite, going by Anglophonic principles that a ruling of a superior court is binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark." It is, therefore, indeed duty of every subordinate judicial forum to apply the ruling of the superior Courts in such a manner so as to enforce the true legal principles emerging from the same, by putting the words and expression used in the ruling in the right perspective and by taking a holistic legal view of the matter. Such an exercise is not to be viewed as diluting the law laid down in a ruling, but as a cerebral judicial exercise and a call of duty in judicial offices. We have highest respects for the rulings by the higher judicial forums, but it would indeed be inappropriate to use the words and expressions employed in these rulings, in isolation, as complete exposition of law and as a blind man's walking stick, rather than luminosity of judicial knowledge with the benefit of which we have to perform our duties of office.

71. The appeal is allowed.