C.I.T.,Ahmedabad vs Reliance Petroproducts Pvt.Ltd

C.I.T., Ahmedabad .... Appellant

Versus

Reliance Petroproducts Pvt. Ltd. .... Respondent

JUDGMENT

V.S. SIRPURKAR, J.

1. Leave granted.

2. The only question in this appeal which has been filed by the Commissioner of

Income Tax-III is as to whether the respondent-assessee is liable to pay the penalty

amounting to Rs.11,37,949/- under Section 271(1)(c) of the Income Tax Act (hereinafter

referred to as "the Act") ordered by the Assessing Authority. The Commissioner of Income

Tax (Appeals), however, deleted the said penalty. The order of the Commissioner

(Appeals) was appealed against before the Income Tax Appellate Tribunal (hereinafter

referred to "the Tribunal") which confirmed the order of the Commissioner (Appeals) and

dismissed the appeal filed by the Revenue. However, the Revenue challenged the said

order before the High Court which confirmed the orders passed by the Commissioner

(Appeals) and the Tribunal while dismissing the Tax Appeal filed by the Revenue.

3. Few facts would be relevant.

4. The assessee is a company and the relevant Assessment Year is 2001-02. The Return was filed on 31.1.2001 declaring loss of Rs.26,54,554/-. This assessment was

finalized under Section 143(3) of the Act on 25.11.2003 whereby the total income was

determined at Rs.2,22,688/-. In this assessment the addition in respect of interest

expenditure was made. Simultaneously penalty proceedings under Section 271(1)(c) of the

Act were also initiated on account of concealment of income/furnishing of inaccurate

particulars of income. The said expenditure was claimed by the assessee on the basis of

expenditure made for paying the interest on the loans incurred by it by which amount the

assessee purchased some IPL shares by way of its business policies. However, admittedly,

the assessee did not earn any income by way of dividend from those shares. The company

in its Return claimed disallowance of the amount of expenditure for Rs.28,77,242/- under

Section 14A of the Act.

5. By way of response to the Show Cause Notice regarding the penalty in its reply

dated 22.3.2006, the assessee claimed that all the details given in the Return were correct,

there was no concealment of income, nor were any inaccurate particulars of such income

furnished. It was pointed out that the disallowance made by the Assessing Authority in the

Assessment Order under Section 143(3) of the Act were solely on account of different

views taken on the same set of facts and, therefore, they could, at the most, be termed as

difference of opinion but nothing to do with the concealment of income or furnishing of

inaccurate particulars of such income. It was claimed that mere disallowance of the claim

in the assessment proceedings could not be the sole basis for levying penalty under Section

271(1)(c) of the Act. It was submitted specifically that it was an investment company and

in its own case for Assessment Year 2000-01 the Commissioner (Appeals) had deleted the

disallowance of interest made by the Assessment Officer and the Tribunal has also

confirmed the stand of the Commissioner (Appeals) for that year and, therefore, it was on

the basis of this that the expenditure was claimed. It was further submitted that making a claim which is rejected would not make the assessee company liable under Section

271(1)(c) of the Act. It was again reiterated that there was absolutely no concealment, nor

were any inaccurate particular ever submitted by the assessee-company.

6. Shri Bhattacharya, Learned ASG submits that Commissioner (Appeals), the

Tribunal as well as the High Court have ignored the positive language of Section 271(1)(c)

of the Act. He pointed out that the claim of the interest expenditure was totally without

legal basis and was made with the malafide intentions. It was further pointed out that the

claim made for the interest expenditure was not accepted by the Assessing Authority nor by

the Commissioner (Appeals) and, therefore, it was obvious that the claim for the interest

expenditure did not have any basis. He further pointed out that the contention about the

earlier claims being finalized was also not correct as the appeal was pending before the

High Court against the order of the Tribunal for the year 2000-01. According to the

Learned ASG, even otherwise, the expenditure on interest could not have been claimed in

law, as under Section 36(1)(iii), only the amount of interest paid in respect of capital

borrowed for the purposes of the business or profession could have been claimed and it was

clear that the interest in the present case was not in respect of the capital borrowed. Our

attention was also invited to Section 14A of the Act, which provides that no deduction

could be allowed in respect of the expenditure incurred by the assessee in relation to

income which does not form part of the total income under this Act. The Learned ASG

also invited our attention to provision of Section 10(33) to show that the income arising

from the transfer of a capital asset could not be reckoned as an income which can form the

part of the total income. In short, the contention was that the assessee in this case had made

a claim which was totally unacceptable in law and thereby had invited the provisions of

Section 271(1)(c) of the Act and had, therefore, exposed itself to the penalty under that

provision.

7. As against this, Learned Counsel appearing on behalf of the respondent pointed

out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing

statute and more particularly the one providing for penalty. It was pointed out that unless

the wording directly covered the assessee and the fact situation herein, there could not be

any penalty under the Act. It was pointed out that there was no concealment or any

inaccurate particulars regarding the income were submitted in the Return. Section

271(1)(c) is as under:-

"271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income."

A glance at this provision would suggest that in order to be covered, there has to

be concealment of the particulars of the income of the assessee. Secondly, the assessee

must have furnished inaccurate particulars of his income. Present is not the case of

concealment of the income. That is not the case of the Revenue either. However, the

Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure

on interest, the assessee has furnished inaccurate particulars of the income. As per Law

Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the

details of a claim, or the separate items of an account. Therefore, the word "particulars"

used in the Section 271(1)(c) would embrace the meaning of the details of the claim made.

It is an admitted position in the present case that no information given in the Return was

found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied

was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be

held guilty of furnishing inaccurate particulars. The Learned Counsel argued that

"submitting an incorrect claim in law for the expenditure on interest would amount to

giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose

the assessee to the penalty unless the case is strictly covered by the provision, the penalty

provision cannot be invoked. By any stretch of imagination, making an incorrect claim in

law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income

Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering

the same provision, the Court observed that the Assessing Officer has to be satisfied that a

person has concealed the particulars of his income or furnished inaccurate particulars of

such income. This Court referred to another decision of this Court in Union of India Vs.

Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of

India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:-

"13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist."

8. Therefore, it is obvious that it must be shown that the conditions under Section

271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything

would depend upon the Return filed because that is the only document, where the assessee

can furnish the particulars of his income. When such particulars are found to be inaccurate,

the liability would arise. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax,

Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms "concealment of

income" and "furnishing inaccurate particulars". The Court went on to hold therein that in

order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according

to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the

assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary

jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be

less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the

term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was

held that furnishing of an assessment of the value of the property may not by itself be

furnishing inaccurate particulars. It was further held that the assessee must be found to

have failed to prove that his explanation is not only not bona fide but all the facts relating to

the same and material to the computation of his income were not disclosed by him. It was

then held that the explanation must be preceded by a finding as to how and in what manner,

the assessee had furnished the particulars of his income. The Court ultimately went on to

hold that the element of mens rea was essential. It was only on the point of mens rea that

the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr.

was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after

quoting from Section 271 extensively and also considering Section 271(1)(c), the Court

came to the conclusion that since Section 271(1)(c) indicated the element of strict liability

on the assessee for the concealment or for giving inaccurate particulars while filing Return,

there was no necessity of mens rea. The Court went on to hold that the objective behind

enactment of Section 271(1)(c) read with Explanations indicated with the said Section was

for providing remedy for loss of revenue and such a penalty was a civil liability and,

therefore, willful concealment is not an essential ingredient for attracting civil liability as

was the case in the matter of prosecution under Section 276-C of the Act. The basic reason

why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr.

(cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile

Processors (cited supra), was that according to this Court the effect and difference between

Section 271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff

Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra). However, it must

be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. Joint

Commissioner of Income Tax, Mumbai & Anr. (cited supra), where the Court explained

the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in

Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to

the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c)

that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai &

Anr. (cited supra) was overruled.

9. We are not concerned in the present case with the mens rea. However, we have

to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate

particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:-

"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript".

We have already seen the meaning of the word "particulars" in the earlier part of this

judgment. Reading the words in conjunction, they must mean the details supplied in the

Return, which are not accurate, not exact or correct, not according to truth or erroneous.

We must hasten to add here that in this case, there is no finding that any details supplied by

the assessee in its Return were found to be incorrect or erroneous or false. Such not being

the case, there would be no question of inviting the penalty under Section 271(1)(c) of the

Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount

to furnishing inaccurate particulars regarding the income of the assessee. Such claim made

in the Return cannot amount to the inaccurate particulars.

10. It was tried to be suggested that Section 14A of the Act specifically excluded the

deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that

the dividends from the shares did not form the part of the total income. It was, therefore,

reiterated before us that the Assessing Officer had correctly reached the conclusion that

since the assessee had claimed excessive deductions knowing that they are incorrect; it

amounted to concealment of income. It was tried to be argued that the falsehood in

accounts can take either of the two forms; (i) an item of receipt may be suppressed

fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount)

claimed, and both types attempt to reduce the taxable income and, therefore, both types

amount to concealment of particulars of one's income as well as furnishing of inaccurate

particulars of income. We do not agree, as the assessee had furnished all the details of its

expenditure as well as income in its Return, which details, in themselves, were not found to

be inaccurate nor could be viewed as the concealment of income on its part. It was up to

the authorities to accept its claim in the Return or not. Merely because the assessee had

claimed the expenditure, which claim was not accepted or was not acceptable to the

Revenue, that by itself would not, in our opinion, attract the penalty under Section

271(1)(c). If we accept the contention of the Revenue then in case of every Return where

the claim made is not accepted by Assessing Officer for any reason, the assessee will invite

penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.

11. In this behalf the observations of this Court made in Sree Krishna Electricals v.

State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite.

In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu

General Sales Tax Act, the Court had found that the authorities below had found that there

were some incorrect statements made in the Return. However, the said transactions were

reflected in the accounts of the assessee. This Court, therefore, observed:

"So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside."

The situation in the present case is still better as no fault has been found with the

particulars submitted by the assessee in its Return.

12. The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the

High Court have correctly reached this conclusion and, therefore, the appeal filed by the

Revenue has no merits and is dismissed.

........................................J. (V.S. Sirpurkar)

...........................................J. (Dr. Mukundakam Sharma) New Delhi;

March 17, 2010.

Digital Performa

Case No. : Civil Appeal No...... of 2010 (Arising out of SLP(C) No. 27161 of 2008)

Date of Decision : 17.03.2010

Cause Title : C.I.T., Ahmedabad

Versus

Reliance Petroproducts Pvt. Ltd.

Coram : Hon'ble Mr. Justice V.S. Sirpurkar Hon'ble Dr. Justice Mukundakam Sharma

C.A.V. On : 09.02.2010

Judgment delivered by : Hon'ble Mr. Justice V.S. Sirpurkar

Nature of Order : Reportable