2016 (8) TMI 1042 - HC - Income Tax

Penalty under section 271(1)(c) - Held that - The assessee in one of the appeals is a government company engaged in the business of providing loans, leasing and hire purchase services and providing financial services whereas in the other appeal, the assessee is a partnership firm running education institution. From the assessment order it is clear that there is no satisfaction recorded by the Assessing Officer regarding concealment of income or for furnishing any inaccurate particulars. Therefore, from the plain reading of the assessment order itself it is clear that the assumption of jurisdiction to levy penalty is lacking in the present case. The notice issued by the Assessing Officer has also not stated whether the penalty proceedings are initiated for concealment of income or for furnishing inaccurate particulars. The revenue is not in a position to show the mens rea in the present cases. Disallowance of certain claims neither amounts to concealment nor deliberate furnishing of inaccurate particulars of income. As unless and until there is some evidence or some circumstance to show that the omission was attributable to an intention or desire on the part of the assessee to conceal the income so as to avoid imposition of tax thereon. Thus, jurisdiction u/s 271(1)(c ) of the Act cannot be assumed. In the present case, we are of the view that the impugned orders passed by the Tribunal as well as CIT(A) are erroneous with regard to levy of penalty u/s 271(1)(c) of the Act. - Decided in favour of assessee

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in law in upholding the penalty under section 271(1)(c) of the Income Tax Act, 1961?

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c):
The primary issue revolves around the imposition of penalties under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal upheld the penalty, which was contested by the assessees on grounds of furnishing inaccurate particulars of income.

2. Tax Appeal No. 2393 of 2010:
The assessee, a non-banking financial company, claimed provisions for bad and doubtful debts and diminution in value of investments in its return. The Assessing Officer disallowed these claims, and the Tribunal upheld the disallowance, leading to the imposition of penalties. The assessee argued that the claims were made in accordance with the Reserve Bank of India's prudential norms, which override the Income Tax Act as per Section 45Q of the RBI Act.

3. Tax Appeal No. 601 of 2013:
The assessee, a partnership firm running an educational institution, claimed depreciation and legal expenses, which were disallowed by the Assessing Officer. The Tribunal upheld the disallowance and the penalty. The assessee contended that the disallowance was due to a bona fide mistake and not due to concealment or furnishing of inaccurate particulars.

4. Arguments by the Assessees:
The assessees argued that the Tribunal erred in upholding the penalties as the claims were made in good faith and with full disclosure. They relied on judicial precedents, including the Supreme Court's decision in Commissioner of Income Tax vs. Reliance Petroproducts (P) Ltd, which held that merely making an incorrect claim does not amount to furnishing inaccurate particulars.

5. Tribunal's Observations:
The Tribunal noted that the assessee being a government company had a higher onus to ensure accurate claims. It held that the assessee failed to discharge the onus under clause (b) of Explanation (1) to section 271(1)(c), leading to the penalty for concealment.

6. CIT(A)'s Findings:
The CIT(A) found that the assessee furnished inaccurate particulars and upheld the penalty. It noted that the assessee's claim under the RBI Act was an afterthought and not initially disclosed in the computation of income.

7. Judicial Precedents:
The assessees cited several judicial precedents to argue against the penalties, including:
- T. Ashok Pai vs. Commissioner of Income Tax: Emphasized the need for a finding that the explanation offered was false and not bona fide.
- Geeta Prints (P.) Ltd. vs. Assistant Commissioner of Income Tax: Held that full disclosure of claims, even if disallowed, does not amount to concealment.
- Price Waterhouse Coopers Pvt. Ltd vs. Commissioner of Income Tax: Recognized that inadvertent errors without intent to conceal do not attract penalties.

8. Revenue's Arguments:
The revenue argued that the Tribunal rightly imposed penalties as the assessees furnished inaccurate particulars. They relied on the Delhi High Court's decision in Dinesh Kumar vs. Commissioner of Income Tax, which upheld penalties where the explanation offered was not acceptable.

9. Court's Findings:
The Court found that the Assessing Officer did not record any satisfaction regarding concealment or furnishing of inaccurate particulars in the assessment order. It noted the ambiguity and difference of opinion among authorities on whether the assessees made wrong claims or concealed particulars. The Court emphasized that disallowance of claims does not automatically lead to penalties unless there is evidence of intent to conceal income.

10. Conclusion:
The Court concluded that the penalties under section 271(1)(c) were not justified as the revenue failed to show mens rea or intent to conceal income. It held that the claims, though disallowed, were made with full disclosure and in good faith. The Court quashed the penalties and allowed the appeals in favor of the assessees.

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