2020 (7) TMI 667 - HC - Income Tax

Penalty levied u/s 271(I)(c) - Whether Mens rea is apparent in this case? - HELD THAT - Imposition of penalty and realisation thereof is not a regular source of income for the Income Tax Department. It is only the justifiably imposition of tax which is intended to be recovered and unless there is a mens rea or a guilty animus on the part of the Assessee, the penalty under section 271(1)(c) of the Act is an exception rather than a rule. In these circumstances, where the two regular appellate authorities have granted the relief to the Assessee by deleting the penalty imposed by the Assessing Authority under section 271(1)(c) of the Act, we don't think that it is a fit case for re-imposition thereof, by allowing the appeal of the Department before us under section 260A of the Act, which lies only on the substantial questions of law arising from the order of the learned Tribunal. No substantial question of law.

Summary

Issues:
1. Appeal against deletion of penalty under Section 271(I)(c) of the Income Tax Act.
2. Consideration of mens rea in claiming exemption under Section 10B of the Act.
3. Interpretation of conflicting Supreme Court judgments regarding voluntary disclosure and penalty provisions.
4. Assessment of bona fide confusion in claiming exemptions for 100% Export Oriented Units.
5. Application of penalty provisions under section 271(1)(c) in cases of inadvertent claims.

Analysis:
1. The appeal challenged the deletion of penalty under Section 271(I)(c) of the Income Tax Act. The Revenue contended that the Assessee had mens rea in claiming exemption under Section 10B of the Act beyond the eligible period. The Tribunal upheld the deletion of penalty based on the Apex Court's judgment in Reliance Petroproducts case, emphasizing that a mere unsustainable claim does not constitute inaccurate particulars.

2. The conflicting Supreme Court judgments were analyzed regarding voluntary disclosure and penalty provisions. The Revenue argued that the Assessee's deliberate claim under Section 10B showed wrongful intention, while the Respondent highlighted the confusion caused by the extension of the Sunset clause for exemptions. The Respondent withdrew the claim upon realizing the correct legal position, leading to a debate on mens rea and ill intention in making the initial claim.

3. The Tribunal's decision to delete the penalty was based on the absence of mens rea or guilty animus on the Assessee's part. It was emphasized that the Assessee rectified the claim promptly upon being aware of the correct legal position. The Court noted that there was no revenue loss or tax evasion, and the penalty imposition should be an exception rather than a rule.

4. The Court concluded that the imposition of penalty and its realization is not a regular source of income for the Income Tax Department. Given that the competent authorities had already granted relief to the Assessee by deleting the penalty, the Court found no substantial question of law warranting the re-imposition of the penalty. The appeal was dismissed, emphasizing that penalty imposition is a quasi-judicial exercise and should not lead to substantial legal questions.