9911796707
TMI Blog2025 (1) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... 70A of the Income Tax Act, 1961 suggests a willful negligence or a misreporting of income which was made with full knowledge. However, it is nowhere stipulated in section 270A of the Income Tax Act, 1961 that there should be a willful negligence or a misreporting of income which was made with full knowledge on the part of the assessee to levy Penalty. 3. The Ld.CIT(A) has erred in holding that the AO had nowhere been able to establish that any mens rea was involved in this Act, without appreciating that Penalty is a deterrent provision and presence of mens rea is not necessary for levy of Penalty and is required when Prosecution is launched. 4. The Ld.CIT(A) has erred in deleting the Penalty levied u/s. 270A of the Income Tax Act, 1961 despite the fact that the Assessing Officer, in the Assessment Order, had clearly brought on record that the assessee had claimed Capital Expenditure incurred on acquisition/procurement of Assets as application of Income as well as depreciation, which amounted to double deduction. 5. The Ld.CIT(A) has erred in deleting the Penalty levied u/s. 270A of the Income Tax Act, 1961 even though the assessee had admitted the claim of double deduction du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Accordingly the AO held that revenue expenditure claimed as application of income includes the depreciation claim and the depreciation claim is in contravention of section 11(6) of the Act as the assessee has also claimed the capital expenditure as application of income which according to AO amounts to claim of double deduction and accordingly disallowed the claim of depreciation amounting to Rs. 7,53,66,656/- claimed by the assessee trust as it violates section 11(6) of the Act. 3.5 Further, with regard to claim of Loss on sale of vehicle amounting to Rs. 1,77,853/- as application of Income, the AO disallowed the same & not treated as application of Income on the ground that the assessee trust has not expended any amounts towards the items of expenditure & further the entire cost of acquisition of vehicle was allowed as application in earlier years & thus held that the loss cannot be treated as application again. 3.6 Finally, on or before completing the assessment proceedings, the AO initiated the penalty proceedings u/s 270A of the Act in respect of disallowance of depreciation claimed as application amounting to Rs. 7,53,66,656/- by stipulating the following reasons in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m equal to two hundred percent of the amount of tax payable on misreported income and accordingly the AO levied penalty of Rs. 5,31,48,508/- U/s 270A of the Act. 4. Aggrieved by the penalty order passed u/s 270A of the Act dated 26.2.2022, the assessee had preferred an appeal before the ld. CIT(A)/NFAC. 5. The Ld. CIT(A)/NFAC however allowed the appeal of the assessee by deleting the penalty levied u/s 270A of the Act amounting to Rs. 5,31,48,508/- mainly on the following grounds /observations:- 5.1 The Sub section (9) of section 270A details the specific acts of omission or commission that would amount to misrepresentation of facts. The above suggests a willful negligence or a misreporting of income which was made with full knowledge. Hence the assessee should have misreported with full intention of evading taxes and mens rea should be present. 5.2 The AO has not been able to prove that the assessee had engaged in willful misreporting. 5.3 The AO has not anywhere been able to establish that any mens rea was involved in this act, and that the assessee willfully misrepresented or suppressed the facts. The AO has only been able to establish the violation of the provision of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to Rs. 7,53,66,656/- and (b) disallowance of loss on sale of vehicles amounting to Rs. 1,77,853/-. The AO initiated the penalty proceedings U/s 274 read with 270A of the Act with regard to disallowances made towards the claim of depreciation on the ground that the revenue expenditure claimed as application of income includes the depreciation claim and the depreciation claim is in contravention of section 11(6) of the Act as the assessee has also claimed the capital expenditure as application of income which according to AO amounts to claim of double deduction. During the course of penalty proceedings the assessee submitted that by oversight while computing the income, the assessee trust omitted to add back depreciation which is purely a clerical error and not deliberate. 9.1 It is an undisputed fact that the assessee trust had not corrected the said mistake by filing the revised return as per the provisions contained u/s 139(5) of the Act as correctly observed by the AO in his penalty Order. It is only during the course of the assessment proceeding, the AO on verification of return filed and the submissions made, noticed that the revenue expenditure claimed as application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is-report its Income. When such Income are found to be under reported in the return of Income or misreported in the return, then only the liability would arise. Therefore the contention of the assessee that while computing the income, the assessee trust by sight omitted to add back depreciation cannot be accepted at all. 9.3 On going through the rationale in allowing the appeal of the assessee, we find that the ld.CIT(A)/NFAC is of the view that section 270A(9) of the Act suggest a willful negligence or a misreporting of income which is made with full knowledge. Thus the main contention of the ld. CIT(A)/NFAC is that the assessee should have misreported with full intention of evading taxes & mens-rea should be present in order to levy penalty U/s 270A of the Act. In the opinion of ld. CIT(A)/NFAC the AO has failed to establish that any mens rea was involved & the assessee willfully misrepresented or suppressed the facts. 9.4 For the purpose of evaluating the correctness of rival submissions addressed we deem it apposite to extract section 270A of the Act herein below: 270A. Penalty for under-reporting and misreporting of income. (1) The Assessing Officer or the Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula- (A - B) + (C - D) where, A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of underreported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income: Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB. (7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income. (8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the case may be. 9.5 On going through the above, we find no reference of any mens rea in section 270A of the Act & therefore we find force in the contention of the ld. CIT-DR that the ld. CIT(A)/NFAC has erred in interpreting sub section (9) of section 270A of the Act by stating that 270A(9) suggests a willful negligence or a misreporting of income which made with full knowledge. Further on going through the Section we also agree with the ld. DR that nowhere in the section 270A of the Act specifically refers necessity of the presence of mens rea for levy of penalty. 9.6 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of FERA, 1947. We, therefore, hold that mens rea (as is understood in criminal law) is not an essential ingredient for holding a delinquent liable to pay penalty under section 23(1)(a) of FERA, 1947 for contravention of the provisions of section 10 of FERA, 1947 and that penalty is attracted under section 23(1)(a) as soon as contravention of the statutory obligation contemplated by section 10(1)(a) is established. The High Court apparently fell in error in treating the 'blameworthy conduct' under the Act as equivalent to the commission of a 'criminal offence', overlooking the position that the 'blameworthy conduct' in the adjudicatory proceedings is established by proof only of the breach of a civil obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed under section 23(1)(a) of the Act irrespective of the fact whether he committed the breach with or without any guilty intention." (b) J.K. Industries Ltd. v. Chief Inspector of Factories & Boilers [1996] 6 SCC 665 (SCC p. 692, para 42) "42. The offences under the Act are not a part of general penal law but arise from the breach of a duty provided in a special beneficial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of mens rea is established. In most cases of criminal liability, the intention of the Legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under section 271(1)(a), however, it seems that the intention of the Legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision. (e) Swedish Match AB v. SEBI [2004] 11 SCC 641 (SCC p. 671, para 113) "The provisions of section 15H of the Act mandate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposing the penalty. According to us, mens rea is not essential for imposing civil penalties under the SEBI Act and Regulations." [Emphasis supplied] (pp. 366, 369, 372) 11. The decision in Bharat Heavy Electrical's case (supra) cannot be of any assistance to the assessee because the same proceeded on the basis of concession. Even otherwise, it was not open to the Bench to read, into a statute which was specific and clear, something which is not specifically provided for in the statute. 12. The stand of learned counsel for the assessee is that the absence of specific reference to mens rea is a case of casus omissus. If the contention of learned counsel for the assessee is accepted that the use of the expression "assessee shall be liable" proves the existence of discretion, it would lead to a very absurd result. In fact in the same provision there is an expression used i.e., "liability to pay duty". It can by no stretch of imagination be said that the adjudicating authority has even a discretion to levy duty less than what is legally and statutorily leviable. Most of cases relied upon by learned counsel for the assessee had their foundation on Bharat Heavy Electrical's case (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 273, it was observed that the courts must avoid the danger of a prior determination of the meaning of a provision based on their own preconceived notions of ideological structure or scheme into which the provision to be interpreted is somewhat fitted. They are not entitled to usurp legislative function under the disguise of interpretation. 17. While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary. See CST v. Popular Trading Co. [2000] 5 SCC 511. The legislative casus omissus cannot be supplied by judicial interpretative process. 18. Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole, appear to be well-settled. Under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 SCC 672. 21. The golden rule for construing all written instruments has been thus stated : "The grammatical and ordinary sense of the words is to be adhered to unless that would lead to some absurdity or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency, but no further." (See Grey v.Pearson.) 22. The latter part of this "golden rule" must, however, be applied with much caution. "If", remarked Jervis, CJ., "the precise words used are plain and unambiguous, in our judgment, we are bound to construe them in their ordinary sense, even though it do lead, in our view of the case, to an absurdity or manifest injustice. Words may be modified or varied, where their import is doubtful or obscure. But we assume the functions of legislators when we depart from the ordinary meaning of the precise words used, merely, because we see, or fancy we see, an absurdity or manifest injustice from an adherence to their literal meaning". (See Abley v. Dale, ER p. 525) 23. The above position was highlighted in Sangeeta Singh v. Union of India [2005] 7 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case 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. 9.9 Considering that no cross objection (CO) being filed by the assessee & also considering the totality of the facts of the case & by relying upon the judgment of the Apex Court, 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. 10. In the result, the appeal filed by the Revenue is allowed. Order pronounced in the open court on 30th Dec, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
