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2020 (3) TMI 881 - HC - Income TaxPenalty u/s 271(1)(c) - Whether 'mens rea' or deliberate attempt is not essential for levy of penalty, if it is established that assessee has furnished inaccurate particulars or concealment of particulars of income, penalty is levaible? - HELD THAT - A bare perusal of the provisions of section 271( 1)(c) would indicate that there has to be concealment of the particulars of the income or furnishing of inaccurate particulars of the income of the assessee. As held by the Supreme Court in the case of Reliance Petro products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT the meaning of the word particulars used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. The principal argument of revenue that at the time of filing of the return, the claim was made as revenue expenditure, while the Assessing Officer treated the same as the capital expenditure, we are not in a position to accept the contention as canvassed on behalf of the Revenue. As held by the Supreme Court in Reliance Petroproducts Pvt. Ltd. Supra unless the case is strictly covered by the provision, the assessee cannot be exposed to penalty. In short, the penalty provision cannot be invoked unless a clear cut case is made out - making an incorrect claim by any stretch of imagination would not tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing the inaccurate particulars. Therefore, assuming for a moment, the claim was made as revenue expenditure, but in fact, it was found to be capital expenditure that by itself would not be sufficient to arrive at the conclusion that the case is one of inaccurate particulars. - Decided against revenue.
Issues Involved:
1. Whether the expenditure claimed by the assessee was revenue or capital in nature. 2. Whether the assessee furnished inaccurate particulars of income leading to the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Nature of Expenditure: Revenue vs. Capital The core issue in this case was whether the expenditure claimed by the assessee, amounting to ?4,75,07,667, was revenue or capital in nature. The Assessing Officer (AO) disallowed the expenditure, treating it as capital expenditure, and subsequently framed the assessment under Section 143(3) of the Income Tax Act, determining the total income at ?5,60,71,852. The AO initiated penalty proceedings under Section 271(1)(c) on the premise that the assessee had furnished inaccurate particulars of income by wrongfully claiming the capital expenditure as revenue expenditure. 2. Furnishing of Inaccurate Particulars and Penalty under Section 271(1)(c) The AO levied a penalty of ?1,59,91,080 under Section 271(1)(c), arguing that the assessee had furnished inaccurate particulars of income. The AO cited the case of A.M. Shah Vs. CIT to support the assertion that the assessee's return contained inaccurate particulars, as the capital expenses were not noted in the relevant column of the return. The AO also referenced the Supreme Court decision in Dharmendra Textiles Processors, which established that 'mens rea' or deliberate intent is not essential for the levy of penalty if it is established that the assessee furnished inaccurate particulars. CIT(A) and Tribunal's Findings: The CIT(A) allowed the assessee’s appeal, relying on the Supreme Court decision in Commissioner of Income-tax, Ahmedabad Vs. Reliance Petro Products Private Limited, which held that making an incorrect claim does not amount to furnishing inaccurate particulars. The CIT(A) noted that: - The expenses were claimed based on audited accounts and tax audit reports, indicating a bona fide claim. - All details and material facts were disclosed, and none of the expenses were found to be bogus or excessive. - The issue was contentious and debatable, with the Gujarat High Court's latest order in a similar case favoring the assessee. The Appellate Tribunal concurred with the CIT(A), emphasizing that the issue was debatable and the genuineness of the expenses was not in question. The Tribunal highlighted that the penalty proceedings are distinct from quantum proceedings and that the assessee's bona fides were demonstrated. The Tribunal also noted that the substantial question of law in the quantum proceedings had been admitted for adjudication by the High Court. High Court's Judgment: The High Court dismissed the Revenue's appeal, affirming that: - There must be concealment of particulars or furnishing of inaccurate particulars for Section 271(1)(c) to apply. - The Supreme Court in Reliance Petro Products Pvt. Ltd. clarified that making an incorrect claim does not tantamount to furnishing inaccurate particulars. - The penalty provision cannot be invoked unless a clear-cut case is made out, and a mere incorrect claim does not suffice to attract penalty. The High Court concluded that the assessee's claim, though found to be capital expenditure, did not amount to furnishing inaccurate particulars. Consequently, the appeal was dismissed, and the penalty was not upheld.
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