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2018 (12) TMI 461 - AT - Income TaxPenalty levied u/s 271(1)(c) - bogus claim of exemption u/s 11 - assessee claimed exemption of its income under section 11(1) of the Act without any registration under section 12AA(1) - mensrea - Held that - The claim of exemption of income under section 11(1) is allowed only when the assessee is registered under section 12AA(1) of the Act . In view of the no registration, the claim of exemption under section 11 is a patently bogus claim made by the assessee. It is evident that the assessee failed to give any bonafide explanation in respect of the bogus claim made in all the three assessment years and thus Explanation -1 below the section 271(1)(C) of the Act is conspicuously attracted in the case of the assessee. For levying penalty under section 271(1)(C) of the Act, mensrea of having intention of evading tax is not important. What is important is whether the assessee has substantiated the explanation given and able to prove that the explanation is bonafide. If the assessee failed in doing so , it is liable to attract penalty under section 271(1)(C)of the Act . As in the case of COMMISSIONER OF INCOME TAX vs. HCIL KALINDEE ARSSPL (2013 (8) TMI 245 - DELHI HIGH COURT) has held that Penalty provisions are not criminal and do not require culpable mensrea. Whether or not the assessee had acted malafidely is not the relevant question to be asked and answered. The relevant question to be asked and answered is whether the assessee has discharged the onus and satisfied the conditions mentioned in Explanation 1 to Section 271(1)(c) of the Act. Absurd or illogical interpretations cannot be pleaded and become pretence and excuses to escape penalty. Bonafides have to be shown and cannot be assumed. Penalty confirmed - Decided against assessee.
Issues Involved:
1. Legitimacy of penalty levied under section 271(1)(c) of the Income Tax Act, 1961. 2. Claim of exemption under section 11(1) without registration under section 12AA(1). 3. Bona fide error versus deliberate attempt to evade tax. Issue-Wise Detailed Analysis: Legitimacy of Penalty Levied under Section 271(1)(c): The appeals concern the penalty levied under section 271(1)(c) of the Income Tax Act, 1961, for assessment years 2003-04 to 2005-06. The assessee, a federation of oil companies promoting sports, argued that it had inadvertently misinterpreted the law and disclosed all facts in the computation of income, claiming there was no intention to evade tax. The penalty amounts involved were ?3,43,215, ?9,93,603, and ?3,98,862 respectively. Claim of Exemption under Section 11(1) Without Registration under Section 12AA(1): The assessee was registered under the Societies Registration Act, 1860, and enjoyed exemption under section 10(23) of the Act until it was omitted by the Finance Act 2002, effective from 01/04/2003. For the assessment years in question, the assessee claimed exemption under section 11(1) without registration under section 12AA(1). The Ld. CIT(A) noted that the assessee had applied for registration under section 12AA(1) on 29/08/2003, which was rejected on 24/07/2004. Despite this, the assessee claimed exemption, which was denied by the AO, leading to the disallowance of regular expenses. The Tribunal and the Delhi High Court upheld the disallowance. Bona Fide Error versus Deliberate Attempt to Evade Tax: The Ld. CIT(A) upheld the penalty, noting that the assessee was aware it was not registered under section 12AA(1) during the relevant years but still claimed exemption. The CIT(A) stated, "The assessee deliberately made the bogus claim of exemption in the return of income and took the chance that the department may overlook the matter." The explanation provided by the assessee was not found to be bona fide, and the penalty was justified under Explanation 1 of section 271(1)(c). Citing precedents like CIT Vs Zoom Communications Pvt Ltd and U.O.I. Vs Dharmendra Textile Processors, the CIT(A) emphasized that penalty provisions are civil liabilities and do not require wilful concealment. The Tribunal concurred, noting that the assessee failed to provide a bona fide explanation for the bogus claims. The Tribunal highlighted that mens rea is not essential for levying penalty under section 271(1)(c); what matters is whether the assessee substantiated its explanation and proved it was bona fide. The Tribunal referenced the case of COMMISSIONER OF INCOME TAX vs. HCIL KALINDEE ARSSPL, which held that penalty provisions do not require culpable mens rea and that absurd or illogical interpretations cannot be used to escape penalty. Conclusion: The Tribunal upheld the penalty sustained by the Ld. CIT(A) for all three assessment years, concluding that the assessee’s claims were not bona fide and attracted penalty under section 271(1)(c). The appeals were dismissed, affirming the penalties imposed for the bogus claims of exemption. Pronouncement: This decision was pronounced in the Open Court on 6th December, 2018.
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