2009 (4) TMI 499 - AT - Income Tax

Penalty - Concealment - Revised return - Carry forward of losses - Deduction u/s 10A - 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 s. 10A(6) with effect from asst. yr. 2001-02 by an undertaking eligible for deduction under s. 10A - There is a school of thought, however, to the effect that to successfully impose penalty under s. 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 On account of penalty under s. 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 s. 276C, consequences under criminal law, i.e. loss of individual liberty by jail sentence, follow - 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 - It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame - Appeal is allowed

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Interpretation of Section 10A regarding deduction of profits and losses of different units.
3. Application of Explanation 1 to Section 271(1)(c) concerning concealment of income and furnishing inaccurate particulars.
4. Impact of the Supreme Court's judgment in the case of Union of India vs. Dharamendra Textile Processors on penalty provisions.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The core issue is whether the penalty of Rs. 2,00,00,000 under Section 271(1)(c) was justified. The assessee claimed a carry forward of loss of Rs. 5,36,27,048 in a revised return, which was rejected by the AO. The AO imposed the penalty for furnishing inaccurate particulars of income. The Tribunal analyzed whether the assessee's actions constituted concealment of income or furnishing inaccurate particulars.

2. Interpretation of Section 10A:
The Tribunal examined the assessee's claim that deduction under Section 10A should be computed unit-wise rather than aggregating profits and losses of all units. The AO and CIT(A) held that the deduction must be from the total income, considering profits and losses of all units. The Tribunal noted that the assessee's interpretation was based on a bona fide belief supported by a detailed note and Form 56F, and hence, the claim was not frivolous.

3. Application of Explanation 1 to Section 271(1)(c):
The Tribunal discussed the deeming fiction under Explanation 1 to Section 271(1)(c), which applies when an assessee fails to offer an explanation, provides a false explanation, or fails to substantiate an explanation and prove it was bona fide. The Tribunal found that the assessee provided a detailed explanation, which was not found false, and disclosed all material facts. Therefore, the conditions for invoking the deeming fiction were not satisfied.

4. Impact of Dharamendra Textile Processors Judgment:
The Tribunal analyzed the implications of the Supreme Court's judgment in Dharamendra Textile Processors, which held that penalty under Section 271(1)(c) is a civil liability and does not require proof of mens rea. The Tribunal clarified that while the judgment nullified the requirement of proving mens rea, it did not imply that penalty should be imposed automatically upon any addition to income. The Tribunal emphasized that penalty provisions under Section 271(1)(c) still require a finding of concealment or furnishing inaccurate particulars, or conditions under Explanation 1.

Conclusion:
The Tribunal concluded that the assessee's claim was made in a bona fide manner with full disclosure of facts and a reasonable explanation. The claim was based on a plausible interpretation of law, and there was no concealment of income or furnishing of inaccurate particulars. Therefore, the penalty under Section 271(1)(c) was not justified, and the appeal was allowed, directing the AO to delete the penalty.

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