2010 (3) TMI 80 - SC - Income Tax

Penalty under section 271(1)(c) Concealment of Income In this case Supreme Court held that Tribunal, as well as, the Commissioner of Income-tax (Appeals) and the High Court have correctly reached this conclusion as where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a 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 inaccurate particulars. The appeal is dismissed. Decision in favor of assessee against the revenue

Summary

Issues Involved:
1. Liability of the respondent-assessee to pay penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Interpretation and application of section 271(1)(c) regarding concealment of income and furnishing inaccurate particulars of income.
3. Applicability of section 14A and section 36(1)(iii) of the Income-tax Act in the context of disallowed interest expenditure.

Detailed Analysis:

1. Liability of the respondent-assessee to pay penalty under section 271(1)(c) of the Income-tax Act, 1961:
The central issue in this appeal is whether the respondent-assessee is liable to pay a penalty of Rs.11,37,949 under section 271(1)(c) of the Income-tax Act, 1961. The assessing authority had ordered this penalty, but it was deleted by the Commissioner of Income-tax (Appeals). The Income-tax Appellate Tribunal confirmed the Commissioner (Appeals)'s order, and the High Court also upheld these decisions, dismissing the Revenue's appeal.

2. Interpretation and application of section 271(1)(c) regarding concealment of income and furnishing inaccurate particulars of income:
The Revenue argued that the assessee made an incorrect claim for interest expenditure, which amounted to furnishing inaccurate particulars of income. However, the court highlighted that for the penalty under section 271(1)(c) to apply, there must be either concealment of income or furnishing inaccurate particulars of income. The court noted that the term "particulars" refers to the details of a claim, and in this case, no information given in the return was found to be incorrect or inaccurate. The court emphasized that merely making an incorrect claim in law does not amount to furnishing inaccurate particulars. The court cited previous judgments, including CIT v. Atul Mohan Bindal and Union of India v. Dharamendra Textile Processors, to support its interpretation that mens rea (intentional wrongdoing) is not required for civil penalties under section 271(1)(c), but the conditions stated in the section must exist.

3. Applicability of section 14A and section 36(1)(iii) of the Income-tax Act in the context of disallowed interest expenditure:
The Revenue contended that under section 36(1)(iii), only interest paid in respect of capital borrowed for business purposes can be claimed, and section 14A disallows deductions for expenditure related to income not forming part of total income. The assessee had claimed interest expenditure for loans used to purchase shares, from which no dividend income was earned. The court, however, observed that the details of the expenditure were disclosed in the return and were not found to be inaccurate. The court stated that merely because the claim was disallowed does not mean it was a concealment of income or furnishing of inaccurate particulars. The court referred to Sree Krishna Electricals v. State of Tamil Nadu, where it was held that penalty cannot be imposed if the items not included in the turnover were disclosed in the dealer's account books.

Conclusion:
The court concluded that the assessee had not furnished inaccurate particulars or concealed income. The details provided in the return were accurate, and the claim's disallowance did not constitute grounds for penalty under section 271(1)(c). The Tribunal, Commissioner of Income-tax (Appeals), and the High Court were correct in their conclusions, and thus, the appeal by the Revenue was dismissed.