2025 (1) TMI 448 - AT - Income Tax

Penalty u/s 270A - willful negligence or a misreporting of income - assessee has claimed both the capital expenses and depreciation as application of income - scope of mens rea - HELD THAT - It is well settled law that mens rea is not an essential condition for imposing penalties under civil acts. This is because the intention of the legislation is clear, and the penalty is levied once a specific eventuality occurs as prescribed under section 270A of the Act. The Apex Court has also ruled that penalty provisions are for breach of civil obligation, so mens rea is not an essential ingredient. Further the Mens rea is not necessary for a conviction in strict liability crimes. This means that someone can be held accountable for the deed itself, regardless of whether they intended to commit the crime. Therefore, following the precedent set in Dharmendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT we hold that mens rea is not an essential element for imposing penalties for breach of civil obligations as held by the ld. CIT(A)/NFAC and finding of the contravention is sufficient to attract penalties under the Income Tax Act, irrespective of the intention behind the contravention. Thus, even in the Audit report filed way before the filing of return of Income, the total revenue expenditure claimed as application of income includes the depreciation claim and the assessee has also claimed the capital expenditure as application of income which amounts to claim of double deduction. Further in the present case as observed by the AO, the assessee had option to rectify its mistake by filing revised return of income as per section 139(5) of the Act and during the proceedings it was noticed by AO that assessee has not filed it voluntarily. More remarkably during the course of Assessment proceedings, as observed by the AO, the assessee submitted that depreciation on assets has not been claimed as application of Income. Thus we set aside the Order of the ld. CIT(A)/NFAC sustain the order of the AO in levying the Penalty U/s 270A of the Act by allowing the appeal filed by the Revenue.

Summary

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1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

• Interpretation of Section 270A of the Income Tax Act, 1961 regarding the necessity of mens rea (intent) for imposing penalties for misreporting of income.
• Assessment of whether the assessee's actions constituted misreporting of income under Section 270A due to a double deduction claim.
• Evaluation of the CIT(A)'s decision to delete the penalty imposed by the Assessing Officer (AO) under Section 270A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Interpretation of Section 270A and Mens Rea

• Relevant Legal Framework and Precedents: Section 270A of the Income Tax Act deals with penalties for under-reporting and misreporting of income. The section does not explicitly require mens rea for imposing penalties, as established by precedents like Union of India v. Dharamendra Textile Processors.
• Court's Interpretation and Reasoning: The court emphasized that mens rea is not a prerequisite for imposing penalties under civil obligations, as the statute does not stipulate such a requirement.
• Key Evidence and Findings: The court found that the CIT(A) erred in interpreting Section 270A as requiring willful negligence or misreporting with full knowledge.
• Application of Law to Facts: The court applied the statute as written, without adding the requirement of mens rea, thus supporting the AO's decision to impose a penalty.
• Treatment of Competing Arguments: The court rejected the CIT(A)'s interpretation and the assessee's argument that mens rea was necessary, relying on the statutory language and Supreme Court precedents.
• Conclusions: The court concluded that the absence of mens rea does not preclude the imposition of penalties under Section 270A.

Issue 2: Assessment of Misreporting of Income

• Relevant Legal Framework and Precedents: Section 270A outlines conditions for under-reporting and misreporting, including misrepresentation or suppression of facts.
• Court's Interpretation and Reasoning: The court interpreted the actions of the assessee as misreporting, given the double deduction claim for both capital expenditure and depreciation.
• Key Evidence and Findings: The court noted that the assessee failed to rectify the error by filing a revised return and had previously acknowledged not claiming depreciation as an application of income.
• Application of Law to Facts: The court found that the assessee's conduct constituted misreporting under Section 270A, justifying the penalty.
• Treatment of Competing Arguments: The court dismissed the assessee's claim of an inadvertent error, highlighting the procedural steps and approvals involved in filing the audit report and return.
• Conclusions: The court upheld the AO's decision to impose a penalty for misreporting due to the double deduction claim.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "Mens rea is not an essential condition for imposing penalties under civil acts... The penalty is levied once a specific eventuality occurs as prescribed under section 270A of the Act."
• Core Principles Established: The judgment reinforces that penalties under Section 270A do not require mens rea and that misreporting can be established based on statutory contraventions.
• Final Determinations on Each Issue: The court set aside the CIT(A)'s order and reinstated the AO's penalty, concluding that the assessee's actions amounted to misreporting under Section 270A.