2014 (12) TMI 481 - HC - Income Tax

Levy of penalty as per Explanation-I Section 271(1)(c) - Company has gone into liquidation and the Official Liquidator has been appointed - Whether the Tribunal was correct in law in allowing the appeal of the assessee in holding that the assessee had discharged the onus cast upon it under Explanation-I Section 271(1)(c) Held that - The word concealment would refer to somewhat malicious and mala fide conduct on the part of the assessee - The expression inaccurate particulars is copiously wider and broader and would include cases where particulars furnished are not accurate and which results in avoidance or evasion of tax - the assessee in Schedule-16 General Expenses of the profit and loss account had shown a debit on account of loss on sale of the fixed assets - the assessee had incurred losses was indicated in Schedule-16 of the profit and loss account - it is plausible for the assessee to urge that material facts were submitted and stated in the original return. Whether the assessee has been able to show that his conduct was bona fide Held that - All claims or deductions wrongly made cannot be treated as bona fide and protected by Explanation 1 to section 271(1)(c) of the Act - In cases where interpretive skills and divergent views are plausible, penalty for concealment should not be imposed - the assessee had claimed loss on account of sale of plant and machinery i.e. the fixed assets, in the profit and loss account - an assessee would normally rely upon legal opinion of a Chartered Accountant, who is required to audit accounts of the company and also submit an audit report, but penalty cannot be deleted on guise or pretence of legal opinion as a smokescreen and fa ade - the contention of the assessee cannot be accepted that all claims howsoever untenable, once certified by a Chartered Accountant or the Directors of the company, cannot be made a subject matter of penalty proceedings - most of the income tax returns are accepted without scrutiny or regular assessment and self-compliance of tax provisions is a rule required to be followed, the same is decided in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT - the assessee had not filed revised return voluntarily, but had filed the revised return after the AO confronted the assessee and they were asked to explain how and why loss on account of sale of fixed assets was claimed in the profit and loss account the levy of penalty is upheld u/s 271(1)(c) Decided against assessee.

Issues Involved:
1. Whether the ITAT was correct in law in allowing the appeal of the assessee by holding that the assessee had discharged the onus under Explanation 1 to Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Background and Procedural History:
The Revenue's appeal under Section 260A of the Income Tax Act, 1961 pertains to the assessment year 2006-07. The substantial question of law is whether the ITAT was correct in allowing the appeal of the assessee by holding that the assessee had discharged the onus under Explanation 1 to Section 271(1)(c) of the Act. The assessee company had gone into liquidation, and the Official Liquidator was appointed.

2. Tribunal's Decision:
The ITAT deleted the penalty imposed under Section 271(1)(c) of the Act. The Tribunal noted that the assessee sold machinery and plant due to circumstances beyond its control, incurring an actual loss, which was debited to the profit and loss account. The loss could not have been claimed while computing total income and should have been reduced from the written down value (WDV) of the block of assets. The Tribunal found that the revised return was bona fide and filed under Section 139(5) of the Act.

3. Legal Provisions and Interpretation:
Section 271(1)(c) and Explanation 1 thereto were examined. The word "concealment" refers to malicious and mala fide conduct, while "inaccurate particulars" include details that result in tax avoidance or evasion. Mens rea is not a necessary attribute for imposing penalty under Section 271(1)(c). The provision is remedial and coercive, aimed at addressing tax delinquency. However, penalty should not be imposed in all cases where inaccurate particulars are furnished. Explanation 1 consists of two limbs: Clause (A) applies when an explanation is false, and Clause (B) applies when an explanation is not substantiated but bona fide.

4. Tribunal's Findings on Bona Fides:
The Tribunal found that the assessee relied on the Chartered Accountant's report and the return prepared by the Chartered Accountant. The error was rectified by filing a revised return before detection. However, the High Court disagreed, stating that not all claims or deductions wrongly made can be treated as bona fide. The claim in question was patently incorrect and contrary to basic accountancy principles.

5. Voluntariness of Revised Return:
The High Court examined whether the revised return was filed voluntarily. The Tribunal held that the revised return was filed before any specific query was raised by the Assessing Officer. However, the High Court found that the revised return was filed after the Assessing Officer confronted the assessee and asked for an explanation regarding the loss on sale of fixed assets. The revised return was not filed voluntarily but in response to the Assessing Officer's queries.

6. Conclusion:
The High Court concluded that the assessee had not discharged the onus under Explanation 1 to Section 271(1)(c) of the Act. The revised return was not filed voluntarily, and the claim was patently incorrect. The substantial question of law was answered in favor of the Revenue, and the levy of penalty by the Assessing Officer was upheld. The appeal was disposed of with no costs.

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