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2011 (1) TMI 480 - HC - Income TaxPenalty u/s 271(1)(c) - furnishing of inaccurate particulars - The Apex Court in Reliance Petro Products (2010 (3) TMI 80 - SUPREME COURT) has clearly held that the word inaccurate as used in the Act would mean something which is not accurate, not exact or not correct. Something which is untrue is inaccurate. - When mens rea is proved it shows that the person had an intention of evading payment of tax by illegal means. Merely because a wrong interpretation to the same set of facts is given would not, in our opinion, mean that the assessee is liable to pay penalty also. - merely because the assessee had claimed depreciation which claim was not accepted by the Revenue that by itself would not attract penalty under Section 271(1)(c) of the Act.
Issues Involved:
1. Applicability of Explanation 1A to Section 271(1)(c) regarding the reduction of stock value. 2. Applicability of Explanation 1B to Section 271(1)(c) regarding the substantiation of the explanation for the reduction of stock value. 3. Imposition of penalty under Section 271(1)(c) for inaccurate particulars of income. Issue-wise Detailed Analysis: 1. Applicability of Explanation 1A to Section 271(1)(c): The primary issue was whether the provisions of Explanation 1A to Section 271(1)(c) were applicable, given that the Assessing Officer (AO) could not establish that the explanation provided by the assessee for the reduction of stock value was false. The court noted that the assessee, a Government-owned Corporation, reduced the value of its stock by Rs. 2,12,18,295 due to deterioration. The AO added this amount back to the assessee's income, concluding that the reduction was illegal and aimed at avoiding tax liability. However, the ITAT held that no penalty could be imposed as the assessee had disclosed all material facts and there was no concealment of income. The court supported ITAT's view, emphasizing that the reduction was based on estimates and reports from divisional managers, and not on any falsehood or concealment. 2. Applicability of Explanation 1B to Section 271(1)(c): The second issue was whether the provisions of Explanation 1B to Section 271(1)(c) were applicable, considering that the assessee's explanation for the reduction of stock value was substantiated, even though the addition was upheld by the ITAT. The court observed that the reduction in stock value was based on a Board Resolution and reports from divisional managers, which were not detailed studies but estimates. The ITAT concluded that the assessee had discharged the onus placed upon it by part-B of Explanation-I, as the reduction was done on an estimate basis and the assessee had disclosed all material facts. The court agreed with ITAT's findings, noting that the assessee's actions were in line with the recommendations of statutory auditors and approved by the Comptroller and Auditor General of India. 3. Imposition of Penalty under Section 271(1)(c): The core question was whether the assessee was liable to pay a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The court reviewed various precedents, including the Supreme Court's rulings in *Reliance Petro Products* and *Gujarat Travancore Agency*, which clarified that mere disallowance of a claim does not automatically lead to a penalty unless there is concealment or furnishing of inaccurate particulars. The court found that the assessee had made a claim based on estimates and reports, which were not accepted by the Revenue. However, this did not constitute furnishing inaccurate particulars to warrant a penalty. The court emphasized that the assessee, being a Government Corporation, had its accounts audited and approved by the Comptroller and Auditor General, further supporting the absence of any fraudulent intent or concealment. Conclusion: The court concluded that the assessee was not liable for a penalty under Section 271(1)(c) as there was no concealment or furnishing of inaccurate particulars of income. The appeal was dismissed, and the questions framed were answered in favor of the assessee, with no order as to costs.
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