2012 (7) TMI 281 - HC - Income Tax

Deleting penalty u/s 13 of Interest Tax Act. 1974 - there could be honest or bona fide difference of opinion on whether discounting charges were in the nature of interest income for computation of the tax under the Act - assessee in the return had shown amount under the head Interest others and bills discounting charges but had not included in the said amount on which tax was payable - Held that - Declaration or statement in the return that the said amounts were not included for the purpose of tax may show/establish absence of mens rea but in the present case this by itself does not justify cancellation or quashing of penalty as the ingredients of the provisions of Section 13 are satisfied - for the purpose of the Act, bill discounting charges have to be treated and regarded as interest .The term interest as per the definition clause i.e. Section 2(7) amended w.e.f. 1st October, 1991 is absolutely clear and unambiguous and cannot be any doubt or ambiguity that bill discounting charges have to be computed and included in interest for the purpose of tax payable under the Act. This is not the case of a bonafide, honest or even plausible different interpretation. Two divergent views on interpretation of Section 2(7) of the Act are not possible. Discount on promissory note and bills of exchange drawn or made in India by express stipulation have been included in the word interest . What is excluded is discount on treasury bills . There is no ambiguity or doubt in the said words. The single sentence observations of the CIT(A) and the tribunal to the contrary are unsustainable - in favour of the appellant Revenue

Issues Involved:
1. Justification of the penalty under Section 13 of the Interest Tax Act, 1974.
2. Interpretation of "interest" under Section 2(7) of the Interest Tax Act.
3. Validity of the penalty proceedings initiated by the Assessing Officer.
4. Consideration of mens rea in civil penalty under Section 13 of the Act.
5. Applicability of Circular No. 647 dated 22nd March, 1993.

Issue-Wise Detailed Analysis:

1. Justification of the Penalty under Section 13 of the Interest Tax Act, 1974:
The primary issue was whether the Income Tax Appellate Tribunal was justified in holding that the penalty under Section 13 of the Interest Tax Act, 1974, imposed by the Assessing Officer, could not be sustained. The tribunal upheld the CIT(A)'s decision to delete the penalty, asserting that there could be an honest or bona fide difference of opinion on whether bill discounting charges were considered interest income for tax computation. The tribunal reasoned that a divergence of legal opinion on this matter was possible, thus supporting the deletion of the penalty.

2. Interpretation of "Interest" under Section 2(7) of the Interest Tax Act:
The court examined the definition of "interest" under Section 2(7) of the Act, which was amended effective from 1st October 1991. The amended section explicitly includes "discount on promissory notes and bills of exchange drawn or made in India" within the definition of interest. The court found that the term "interest" is clear and unambiguous, and there is no scope for a bona fide or honest difference of opinion regarding its interpretation. The tribunal's and CIT(A)'s observations to the contrary were deemed unsustainable.

3. Validity of the Penalty Proceedings Initiated by the Assessing Officer:
The court reviewed the penalty proceedings initiated by the Assessing Officer for concealment and/or furnishing inaccurate particulars of chargeable interest. The CIT(A) had deleted the penalty, citing an honest and bona fide difference of legal opinion. However, the court noted that the statutory provision under Section 2(7) was clear, and the respondent's claim that there was a genuine difference of opinion was not sufficient to quash the penalty. The tribunal failed to examine the findings of the Assessing Officer adequately.

4. Consideration of Mens Rea in Civil Penalty under Section 13 of the Act:
The court reiterated that the establishment of mens rea is not a prerequisite for imposing a penalty under Section 13 of the Act. Penalty under this section is a civil obligation and does not require proof of willful concealment or deliberate furnishing of inaccurate particulars. The court referenced the Supreme Court's decision in Dharmendra Textile Processors, which clarified that mens rea is not necessary for civil penalties under tax law.

5. Applicability of Circular No. 647 dated 22nd March, 1993:
The respondent assessee relied on Circular No. 647 to argue that there was a genuine difference of opinion regarding the treatment of bill discounting charges as interest. The court found this reliance entirely misconceived, as the circular pertains to Section 194A of the Income Tax Act, 1961, and not to the Interest Tax Act. The circular does not interpret Section 2(7) of the Interest Tax Act and thus has no bearing on the case.

Conclusion:
The court concluded that the tribunal erred in deleting the penalty, as the statutory provisions were clear and unambiguous. The question of law was answered in favor of the Revenue and against the respondent assessee. However, the matter was remitted to the tribunal to decide on the cross-objections filed by the respondent assessee on merits. The parties were directed to appear before the Additional Registrar of the tribunal for further proceedings. No order as to costs was made.

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