2010 (8) TMI 361 - AT - Income Tax

Penalty - Assessing Officer made addition under the head Short-term capital gain on account of violation of provisions of section 94(7) of the Act by not ignoring losses - The Assessing Officer levied penalty of Rs. 28, 91, 605 being 100 per cent of tax sought to be evaded under section 271(1)(c) of the Act in respect of income of Rs. 85, 90, 626 - Apex Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. (2010 -TMI - 75701 - SUPREME COURT) held that there can be no dispute that everything would depend upon the Return filed because that is the only document where the assessee can furnish the particulars of his income when such particulars are found to be inaccurate the liability would arise - But in the case under consideration we find that the assessee has furnished full detail and has not concealed any particulars of income or has furnished any inaccurate particular of income Accordingly penalty levied are cancelled and the appeal is allowed

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Adjustment made by the Assessing Officer under section 94(7) of the Act.
3. Definition and interpretation of "inaccurate particulars" and "concealment" under section 271(1)(c).
4. Applicability of mens rea in penalty proceedings.
5. Explanation 1 to section 271(1)(c) and its implications.
6. Bona fide belief and its impact on penalty imposition.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in this appeal is the levy of penalty under section 271(1)(c) on the assessee for allegedly violating provisions of section 94(7) by not ignoring losses while computing short-term capital gains. The Assessing Officer imposed a penalty of Rs. 28,91,605, which was confirmed by the CIT(A).

2. Adjustment Made by the Assessing Officer under Section 94(7) of the Act:
During the assessment proceedings, the Assessing Officer added an amount under the head 'Short-term capital gain' due to the violation of section 94(7). The assessee had filed a revised return and furnished complete details of the transactions, which the Assessing Officer used to calculate the short-term capital gains. The assessee argued that the claim was made on the advice of a technical expert and that full particulars were disclosed.

3. Definition and Interpretation of "Inaccurate Particulars" and "Concealment" under Section 271(1)(c):
The judgment delves into the definitions of "inaccurate" and "conceal" as per Webster's Dictionary and legal precedents. "Inaccurate" is defined as not exact or correct, while "conceal" implies hiding or withholding knowledge. The Apex Court in Reliance Petroproducts (P.) Ltd. clarified that the liability under section 271(1)(c) arises when the particulars in the return are found to be inaccurate.

4. Applicability of Mens Rea in Penalty Proceedings:
The court examined past judgments, noting that in Dilip N. Shroff v. Jt. CIT, mens rea was considered necessary for penalty under section 271(1)(c). However, this was overruled in Dharamendra Textile Processors, where it was held that mens rea is not essential for civil liabilities under section 271(1)(c). The penalty is a civil liability and does not require willful concealment.

5. Explanation 1 to Section 271(1)(c) and Its Implications:
Explanation 1 to section 271(1)(c) suggests that if an assessee fails to offer a bona fide explanation or provides a false one, the amount added or disallowed will be deemed concealed. The burden of proof lies on the assessee to show that the explanation is bona fide and that all material facts were disclosed.

6. Bona Fide Belief and Its Impact on Penalty Imposition:
The court referred to Cement Marketing Co. of India Ltd. v. Asstt. CST, where it was held that a bona fide belief in the correctness of a claim does not constitute a "false" return. The court observed that the assessee in this case made a bona fide claim and disclosed all particulars. The penalty was imposed based on the material furnished by the assessee, and no concealment or inaccurate particulars were found.

Conclusion:
The court concluded that the assessee had furnished full details and did not conceal any particulars of income or furnish inaccurate particulars. The penalty under section 271(1)(c) was therefore not justified. The appeal was allowed, and the penalty levied was canceled.

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