2022 (10) TMI 1052 - HC - Income Tax

Penalty u/s 271(1)(c) - Assessee furnishing inaccurate particulars of income in respect of the addition made on account of disallowance of interest expenses - ITAT deleting the penalty levied - HELD THAT - As in view of finding of fact arrived at by the Tribunal to the effect that the assessee on realisation of the mistake, has rectified the same by offering the provision for interest of Rs. 11.90 crores as prior period income in subsequent year and therefore, in view of such necessary correction done by the assessee on detecting the mistake pointed out by the Assessing Officer during the assessment proceedings for the year under consideration, it can be inferred that there is no mensrea on part of the assessee so as to attract the penalty under section 271(1) (c) of the Act. We are therefore, of the opinion that no interference is required to be made in the impugned order passed by the Tribunal as no question of law much less any substantial question of law proposed or otherwise arise from the impugned order of the Tribunal. Revenue appeal dismissed.

Issues:
1. Appeal filed by Revenue under section 260A of the Income Tax Act against the deletion of penalty under section 271(1)(c) by the Tribunal.
2. Justification of deleting penalty for inaccurate particulars of income and legally unsustainable claims.
3. Rectification of mistake in subsequent year and its impact on penalty imposition.
4. Interpretation of bonafide mistake and malafide intentions in claiming interest expenses.
5. Consideration of mens rea for imposing penalty under section 271(1)(c) of the Income Tax Act.

Analysis:
1. The appeal was filed by the Revenue against the Tribunal's decision to delete the penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2007-2008. The Tribunal allowed the appeal filed by the respondent assessee, Gujarat State Electricity Corporation Ltd., regarding the disallowed interest expenses of Rs.11.90 crores, which were accounted for twice by mistake.

2. The substantial questions of law proposed included whether the ITAT was justified in deleting the penalty without appreciating the nature of the mistake made by the assessee. The Tribunal considered the fact that the assessee rectified the mistake by showing the interest expenses as prior period income in the subsequent year, indicating no mens rea to attract penalty under section 271(1)(c).

3. The Tribunal found that the assessee's rectification of the mistake in the subsequent year was a crucial factor in deleting the penalty. The Tribunal relied on previous judgments to support its decision, emphasizing that rectifying a mistake in the subsequent year does not warrant penalty imposition under section 271(1)(c) if there was no mens rea involved.

4. The issue of bonafide mistake and malafide intentions in claiming interest expenses twice was discussed. The Tribunal considered the assessee's actions as a bona fide mistake, especially given that the mistake was rectified promptly in the subsequent year. The Tribunal emphasized that rectification of errors, even if legally unsustainable, does not automatically imply malafide intentions.

5. The Court upheld the Tribunal's decision, stating that no interference was required in the impugned order as there was no substantial question of law arising. The Court agreed with the Tribunal's finding that the rectification of the mistake by the assessee in the subsequent year demonstrated the absence of mens rea, thereby justifying the deletion of the penalty under section 271(1)(c) of the Income Tax Act.

This detailed analysis outlines the key issues raised in the judgment, the arguments presented, and the ultimate decision reached by the Court based on the interpretation of relevant legal provisions and precedents.

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