2023 (3) TMI 861 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - rejection of claim of deduction towards expenditure of research and development - Whether there is no mensrea on part of assessee? - HELD THAT - There is no doubt that the claim of deduction towards expenditure on Research and Development constitutes furnishing inaccurate particulars in the sense it does not reflect the true state of facts/ affairs inasmuch as the appellant was not carrying on any business operation and has also sold the fixed assets during the relevant years in question. The claim of the appellant that there is no mensrea as the appellants are reporting loss is again a submission which proceeds on a misconception as to the scope of Section 271(1)(c) of the Act. Objective behind enactment of Section 271(1)(c) of the Act read with the Explanations indicate that the said section was for providing remedy for loss of revenue and such a penalty was a civil liability, therefore wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C. The submission of the appellant that only losses have been reported and thus penalty under Section 271(1)(c) of the Act is not warranted is an argument which has been rejected by the Hon'ble Supreme Court in Dharamendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT - As a matter of fact an amendment has also been introduced to Section 271(1)(c) of the Act vide Explanation 4 to the said Section that income would also include losses and merely because an assessee had reported losses, it cannot be submitted that Section 271(1)(c) of the Act would not get attracted. The challenge to the levy of penalty is unsustainable. As Section 271(1)(c) of the Act provides for strict liability and in the present case, deduction have been claimed on the basis of false and non-existent facts, thus the order of the Tribunal restoring the order for levy of penalty is in order. Decided in favour of the revenue.

Summary

Issues:
1. Challenge to the order of the Tribunal regarding assessment under Section 153 C read with 143 (3) of the Income Tax Act, 1961.
2. Challenge to the confirmation of the penalty levy under Section 271 (1)(c) of the Act.

Issue 1: Assessment under Section 153 C read with 143 (3) of the Income Tax Act, 1961:
The appellant, in the Health Care Industry, filed an original return of income declaring "Nil" income for the assessment year 2006-07. A search under Section 132 of the Act was conducted, and a notice under Section 153 C of the Act was issued. The appellant claimed deduction for Research and Development expenditure, but the Assessing Officer disallowed it due to lack of evidence and absence of business activity. The appellant appealed, and the appellate authority set aside the penalty, but the ITAT restored it based on findings that no Research and Development work was conducted. The Tribunal's decision was challenged in the Tax Case Appeals.

Issue 2: Confirmation of penalty levy under Section 271 (1)(c) of the Act:
The appellant argued that penalty under Section 271(1)(c) was unwarranted as there was no wilful intent, only losses were reported, and no evidence was furnished for the claimed expenditure. The court rejected these arguments, emphasizing that the claim of Research and Development was false and bogus, constituting inaccurate particulars. The court clarified that mens rea is not required for penalty under Section 271(1)(c) and that losses being reported do not preclude penalty. Citing judicial precedents, the court upheld the levy of penalty, confirming the Tribunal's decision.

In conclusion, the court dismissed the Tax Case Appeals, confirming the Tribunal's orders and deciding in favor of the revenue. The court held that the strict liability under Section 271(1)(c) applied in this case where false deductions were claimed without supporting evidence, justifying the penalty levy.