2004 (10) TMI 26 - HC - Income Tax

Deletion of penalty under section 271(1)(c) - Whether Tribunal was correct in holding that penalty under section 271(1)(c) of the Income-tax Act 1961 could not be levied even if the assessee had not disclosed in their returns of income their agricultural income for the assessment year 1974-75? - explanation offered by the respondents that they were under the honest belief that agricultural income was to be disclosed in the assessment year 1975-76 and there was neither any fraud nor any gross or wilful neglect has been accepted by the Tribunal. Thus the burden which was placed upon them by the Explanation has been discharged - the word concealment inherently carries with it the element of mens rea which in the present case was to be established by the Revenue which the Revenue has failed to establish hence Tribunal was justified in upholding the deletion of penalty.

Summary

Issues:
Penalty under section 271(1)(c) of the Income-tax Act, 1961 for non-disclosure of agricultural income in the returns of income for the assessment year 1974-75.

Analysis:
The case involved a reference made by the Income-tax Appellate Tribunal regarding the correctness of levying penalty under section 271(1)(c) of the Income-tax Act, 1961 for non-disclosure of agricultural income in the returns of income for the assessment year 1974-75. The respondents, co-owners of an agricultural farm, did not disclose their share of income from the farm in their returns. The Revenue argued that non-disclosure amounted to concealment of income, justifying the penalty. The respondents contended that they honestly believed the agricultural income was to be disclosed in the following assessment year, 1975-76. They also highlighted the legislative competence to tax agricultural income and the absence of mens rea in their actions.

The court examined the legal provisions and relevant case law. It noted that agricultural income was required to be disclosed for rate purposes only by the Finance Act, 1973, but was not treated as regular income under the Act. The court discussed the Explanation to section 271(1)(c) and emphasized the requirement to establish mens rea for concealment. It cited precedents indicating that deliberate concealment or furnishing inaccurate particulars must be proven for penalty imposition.

The court considered the respondents' explanation that they honestly believed in disclosing agricultural income in the subsequent assessment year, supported by the absence of fraud or wilful neglect. Relying on the principles established in previous cases, the court concluded that the burden placed on the respondents by the Explanation had been discharged. It held that the element of mens rea necessary for concealment was not established by the Revenue, justifying the Tribunal's decision to delete the penalty.

In the final analysis, the court answered the question in favor of the assessee, ruling against the Revenue. It highlighted the importance of establishing deliberate concealment or furnishing inaccurate particulars for penalty imposition, which was not proven in this case. The court upheld the Tribunal's decision to delete the penalty, emphasizing the lack of mens rea in the respondents' actions.