2010 (3) TMI 19 - SC - Income Tax

Penalty u/s 271(1)(c) - difference of opinion - In this assessment the addition in respect of interest expenditure was made - penalty amounting to ₹ 11,37,949/- under Section 271(1)(c) ordered by AO deleted by CIT(A) and ITAT - The said expenditure was claimed by the assessee on the basis of expenditure made for paying the interest on the loans incurred by it by which amount the assessee purchased some IPL shares by way of its business policies. However, admittedly, the assessee did not earn any income by way of dividend from those shares. The company in its Return claimed disallowance of the amount of expenditure for ₹ 28,77,242/- under Section 14A of the Act. - held that - As the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature

Summary

Issues Involved:
1. Liability of the respondent-assessee to pay penalty under Section 271(1)(c) of the Income Tax Act.
2. Interpretation and application of Section 271(1)(c) concerning concealment of income and furnishing inaccurate particulars of income.
3. Relevance of previous judgments and legal definitions in determining the applicability of the penalty.

Issue-wise Detailed Analysis:

1. Liability of the respondent-assessee to pay penalty under Section 271(1)(c) of the Income Tax Act:
The primary question in this appeal was whether the respondent-assessee was liable to pay a penalty of Rs. 11,37,949 under Section 271(1)(c) of the Income Tax Act. The Assessing Authority had ordered this penalty on the grounds of concealment of income and furnishing inaccurate particulars. However, the Commissioner of Income Tax (Appeals) deleted the penalty, a decision upheld by the Income Tax Appellate Tribunal and the High Court. The Supreme Court also dismissed the Revenue's appeal, agreeing with the lower authorities that no concealment or furnishing of inaccurate particulars had occurred.

2. Interpretation and application of Section 271(1)(c) concerning concealment of income and furnishing inaccurate particulars of income:
The Court examined the language of Section 271(1)(c), which penalizes concealment of income or furnishing inaccurate particulars. The Court noted that for the penalty to apply, there must be clear evidence of either concealment or inaccuracy in the particulars of income. The Court emphasized that the mere disallowance of a claim does not automatically translate to furnishing inaccurate particulars. The Court referred to previous judgments, including Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal and Union of India Vs. Dharamendra Textile Processors, to underline that the conditions of Section 271(1)(c) must be strictly met for the penalty to be imposed.

3. Relevance of previous judgments and legal definitions in determining the applicability of the penalty:
The Court referred to several key judgments to clarify the interpretation of "concealment" and "inaccurate particulars." In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr., the Court had held that mens rea (intent to deceive) was necessary for imposing a penalty under Section 271(1)(c). However, this was overruled in Union of India Vs. Dharamendra Textile Processors, where the Court stated that mens rea is not essential for civil penalties under this section. The Court also referred to Sree Krishna Electricals v. State of Tamil Nadu & Anr., which held that penalty cannot be imposed if the items not included in the turnover are disclosed in the dealer's account books. Applying these principles, the Court found that the assessee had disclosed all details in its return, and no information was found to be inaccurate or concealed.

Conclusion:
The Supreme Court upheld the decisions of the lower authorities, concluding that the respondent-assessee was not liable for the penalty under Section 271(1)(c) of the Income Tax Act. The Court emphasized that the mere rejection of a claim does not constitute furnishing inaccurate particulars or concealment of income. The appeal filed by the Revenue was dismissed, affirming that the conditions for imposing a penalty under Section 271(1)(c) were not met in this case.