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TMI Blog2025 (1) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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. - Shri Prashant Maharishi, Vice President And Shri Keshav Dubey, Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appeal. 7. The Order of the Ld.CIT(A), NFAC, Delhi may be set-aside and the Order of the Assessing Officer may be confirmed. 3. Before leaping straightway to the penalty proceedings, it is very much pertinent here to discuss with regard to the disallowances made in the assessment proceedings for ease of understanding and appreciating the real facts which leads to the initiation of penalty proceedings. 3.1 Brief facts of the case are that the assessee Trust filed its return of Income for the Asst. year 2017-18 on 28/10/2017 declaring Nil Income after claiming exemption u/s 11 of the Act. Thereafter the case was selected for scrutiny under CASS. During the course of the Assessment proceedings the AO asked to furnish details of depreciation claimed (Block-wise), details of Asset acquired and details of application during the F.Y 2016-17, previous years with respect to acquisition/procurement of capital asset(s) against which depreciation has been claimed for A.Y 2017- 18 and to substantiate their claim of depreciation and amount incurred for capital assets claimed as application vis- -vis section 11(6) of the Act. 3.2 As observed by the AO, in response the assessee has submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenses and depreciation as application of income. Therefore, penalty proceedings are initiated u/s. 274 read with section 270A of the Income-tax Act, 1961 separately . Penalty Notice u/s 274 r.w.s. 270A of Income Tax Act, 1961 for misreporting of income is enclosed herewith. 3.7 Thereafter, the AO issued penalty notice u/s 274 r.w.s. 270A of the Act dated 23/12/2019 requesting the assessee trust to appear and show cause as to why an order imposing a penalty u/s 270A of the Act should not be made under section 270A of the Act. The AO in the said penalty notice had also observe that in the course of proceedings before me for the Assessment year 2017-18, it appears to me Under-reporting /misreporting of income. 3.8 During the course of the Penalty proceedings, the assessee submitted that there has been neither an under reporting/misreporting of income. Further the assessee admitted that by oversight while computing the income, the assessee trust omitted to add back depreciation which is purely a clerical error and not deliberate. Further the assessee trust also submitted that the their case is also not covered by any of the provision listed in sub section (2) of section 270 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly deleted the penalty u/s 270A of the Act. 6. Aggrieved by the order of the ld. CIT(A)/NFAC dated 04.07.2024, the Revenue has filed the present appeal before this Tribunal. The assessee has filed the paper book comprising 80 pages containing various documents filed/produced before the Authorities below. 7. Before us, the ld. CIT-D.R. Ms. Neera Malhotra fervently submitted that the ld. CIT(A)/NFAC wrongly interpreted sub section (9) of section 270A of the Act in holding that 270A(9) of the Act suggests a willful negligence or a misreporting of income which was made with full knowledge however it is no where stipulated in section 270A. Further the ld. CIT-D.R submitted in view of the judgment of the Apex Court, it is settled position that the presence of mens rea is not at all necessary for levy of Penalty and is required only when prosecution is launched. Lastly she argued that ld. CIT(A)/NFAC erred in deleting the penalty even though the assessee had admitted the claim of double deduction before the Appellate Proceedings. 8. The ld. AR of the assessee on the other hand supported the order of the ld. CIT(A)/NFAC and reiterated the same grounds as placed before the lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has submitted replies on various dates furnishing therein partial details called for and more notably also submitted that depreciation on assets has not been claimed as application of Income. Therefore we are of the opinion that from the conduct, behavior and attitude of the assessee, it is clear that the assessee was fully aware of the fact of claiming double deduction i.e one as an application for capital expenditure incurred and secondly the depreciation on such capital expenditure as application in contravention of section 11(6) of the Act. 9.2 Further, the assessee s claim that by oversight while computing the income, the assessee trust omitted to add back depreciation is also not tenable being afterthought as the auditor in his Audit report furnished in form 10B has declared the amount of income applied to charitable or religious purposes in India during the Asst. year 2017-18 as Rs. 67,70,38,920/- [ Rs. 55,56,54,057/- (revenue expenditure) + Rs. 8,11,20,826/- (capital expenditure)] which amounts to claim of double deduction the same is accepted by the assessee on the I. Tax web portal. It is worthwhile here to note that once the Auditor uploads the audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome determined in the return processed under clause (a) of sub-section (1) of section 143; (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment; (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143; (e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment; (g) the income assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed. (4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as preceding year ) and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. (5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order (a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and (b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount; (e) failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. (10) The tax payable in respect of the under-reported income shall be (a) where no return of income has been furnished or where return has been furnished for the first time under section 148 and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income; (b) where the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income; (c) in any other case, determined in accordance with the formula (XY) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation which attracts penalty under section 23(1)(a), FERA, 1947 and a finding that the delinquent has contravened the provisions of section 10, FERA, 1947 that would immediately attract the levy of penalty under section 23, irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not. Therefore, unlike in a criminal case, where it is essential for the prosecution to establish that the accused had the necessary guilty intention or in other words the requisite mens rea to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement, in cases of contravention of the provisions of section 10 of FERA, would be discharged where it is shown that the blameworthy conduct of the delinquent had been established by wilful contravention by him of the provisions of section 10, FERA, 1947. It is the delinquency of the defaulter itself which establishes his blameworthy conduct, attracting the provisions of section 23(1)(a) of FERA, 1947 without any further proof of the existence of mens rea . Even after an adjudication by the authorities and levy of penalty un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... road. Absolute offences are not criminal offences in any real sense but acts which are prohibited in the interest of welfare of the public and the prohibition is backed by sanction of penalty. (c) R.S. Joshi v. Ajit Mills Ltd. [1977] 4 SCC 98 (SCC p. 110, para 19) Even here we may reject the notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability but must be preceded by mens rea. The classical view that no mens rea, no crime has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude mens rea. Therefore, the contention that section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty. (d) Gujarat Travancore Agency v. CIT [1989] 3 SCC 52 SCC (p. 55, para 4). It is sufficient for us to refer to section 271(1)(a), which provides that a penalty may be imposed if the Income-tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income, and to section 276C which provides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed : (A) Mens rea is an essential or sine qua non for criminal offence. (B) A straitjacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted in a given case. (C) If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word penalty by itself will not be determinative to conclude the nature of proceedings being criminal or quasi-criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravenor and the delinquency. (D) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. There can be two distinct liabilities, civil and criminal under the same Act. ****** 52. The SEBI Act and the Regulations, are intended to regulate the securities market and the related aspects, the imposition of penalty, in the given facts and circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Legislature enacting it. (See Institute of Chartered Accountants of India v. Price Waterhouse [1997] 6 SCC 312). The intention of the Legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner [1846] 6 MOO PC1, the courts cannot aid the Legislature s defective phrasing of an Act, they cannot add or mend, and by construction make up deficiencies which are left there. See State of Gujarat v. Dilipbhai Nathjibhai Patel [1998] 3 SCC 234. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. [See Stock v. Frank Jones (Tipton) Ltd. 1978 (1) ALL ER 948]. Rules of interpretation do not permit the courts to do so, unless the provision as it stands is meaningless or of doubtful meaning. The courts are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apply words literally would defeat the obvious intention of the legislation and produce a wholly unreasonable result , we must do some violence to the words and so achieve that obvious intention and produce a rational construction. [Per Lord Reid in Luke v. IRC [1963] AC 557 where at AC p. 577 he also observed : (All ER p. 664 I). This is not a new problem, though our standard of drafting is such. 19. It is then true that : When the words of a law extend not to an inconvenience seldom happening, but due to those which often happen, it is good reason not to strain the words further than they reach, by saying it is casus omissus, and that the law intended quae frequentiusaccidunt . But , on the other hand, it is no reason, when the words of a law do enough extend to an inconvenience seldom happening, that they should not extend to it as well as if it happened more frequently, because it happens but seldom . See Fenton v. Hampton [1858] 11 MOO PC 347. 20. A casus omissus ought not to be created by interpretation, save in some case of strong necessity. Where, however, a casus omissus does really occur, either through the inadvertence of the Legislature, or on the principle quod enim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income-tax Act. 9.7 Therefore, following the precedent set in Dharmendra Textile Processors (Supra), 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. 9.8 Further , the AR of the assessee heavily relied on the judgment of the Hon ble Supreme Court in the case of Price Waterhouse Coopers (P) Ltd v. Commissioner of Income Tax, Kolkata-I reported in [2012] 25 taxmann.com 400 (SC) which in our view is distinguishable from the present facts circumstances of the case. In the case of Price Waterhouse Coopers (P) Ltd v. Commissioner of Income Tax, Kolkata-I the issue was where in tax audit report filed by the assessee, it was indicated that provision towards payment of gratuity was not allowable but the assessee failed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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