2007 (3) TMI 209 - HC - Income Tax

Levy of penalty u/s 271 - The Tribunal is right in law in upholding the levy of penalty - It was incumbent on the appellant to prove beyond shadow of doubt the existence of a bona fide belief that the interest u/s 244A was not taxable? - HELD THAT - In the instant case, both the assessees were quite conscious of the receipt of the income derived by way of interest, for the delay in refunding the excess tax paid by them, by the Revenue. The assessees, having exercised such statutory right based on their statutory entitlement by virtue of section 244A of the Act, ought to have shown the same in their returns of income and consequently, the question of lack of intention or the defence of oversight does not arise. The assessees, having exercised their right under a statute, are also bound by the duty under the statute to pay tax on such income derived by way of interest by the Revenue. As observed, the source of income is only from the Revenue themselves. Therefore, the assessees are quite aware that either wittingly or unwittingly, they cannot escape from the statutory duty of payment of tax on such income. Such a failure of duty on the part of the assessees, in our considered opinion, constitutes an element of concealment, warranting levy of penalty u/s 271(1)(c) of the Act, inasmuch as the assessees who had gained the benefit under the statute cannot be permitted to state that they had no intention to suppress such gain, nor that omission of such income in the returns was by oversight, as, both legally and logically it follows that they had a knowledge of the receipt of income from the respondent. But for the pointing out by the respondent as to the said additions, while passing the assessment order u/s 143(3) of the Act for the assessment year 1996-97, the said income as well as the tax liability would have remained unearthed. Therefore, under such circumstances, we see every justification for initiating the proceedings for penalty u/s 271(1)(c) of the Act and levying penalty, based on factual and concurrent finding by the authorities below. Accordingly, we have no hesitation to answer the question against the assessees. Appeals are dismissed.

Summary

Issues Involved:
1. Whether the Appellate Tribunal is right in law in upholding the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, for not proving beyond a shadow of doubt the existence of a bona fide belief that the interest under section 244A was not taxable.

Issue-wise Detailed Analysis:

1. Background and Facts:
Both appeals pertain to the same assessment year involving two different assessees. The returns for the assessment year 1996-97 were filed on November 29, 1996, and processed under section 143(1)(a) of the Income-tax Act, 1961. Notices under section 143(2) were issued for scrutiny, and the assessments were completed under section 143(3). The additions made included interest under section 244A for the assessment year 1993-94 and unexplained credits in the SB account. Penalty proceedings under section 271(1)(c) were initiated for concealment of income and furnishing inaccurate particulars. Despite the assessees' explanation of oversight, the Assessing Officer imposed a minimum penalty of 100%.

2. Appellate Proceedings:
The Commissioner of Income-tax modified the penalty by confirming it for the addition of interest under section 244A but deleting it for unexplained credits. The Tribunal upheld the Commissioner's order, leading to the present appeals.

3. Legal Question:
The core issue is whether it was incumbent on the assessees to prove beyond the shadow of doubt the existence of a bona fide belief that the interest under section 244A was not taxable, in the context of levying penalty under section 271(1)(c).

4. Relevant Legal Provisions:
- Section 244A: This section entitles the assessee to interest on refunds, which is taxable as income.
- Section 271(1)(c): This section pertains to penalties for concealment of income or furnishing inaccurate particulars, with specific explanations detailing conditions under which penalties are applicable.

5. Analysis of Assessees' Argument:
The assessees contended that the omission to include the interest income was due to oversight and not intentional. However, the Assessing Officer was not convinced and levied the penalty, observing that the assessees failed to prove beyond the shadow of doubt the existence of a bona fide belief that the interest was not taxable.

6. Court's Interpretation:
The court emphasized that in economic offences, the statutory liability to pay tax is strict, and the theory of mens rea (intention) is not applicable. The classical view of "no mens rea, no crime" has been eroded, especially in economic crimes. The court stated that a rule of strict liability should be imposed without insisting on mens rea to deal with such socio-economic crimes.

7. Conclusion:
The court concluded that the assessees, having availed of the statutory benefit of interest under section 244A, were also statutorily liable to pay tax on such income. The failure to include this income in their returns constituted concealment, warranting the levy of penalty under section 271(1)(c). The court found justification for the penalty based on the factual and concurrent findings of the authorities below and dismissed the appeals.

Judgment:
The appeals were dismissed, affirming the levy of penalty under section 271(1)(c) for the concealment of income derived from interest under section 244A. No costs were awarded.