Making unsustainable claims do not amount to furnishing inaccurate particulars and Penalty u/s. 271 (1) (c) cannot be imposed

In The Case of: C.I.T., Ahmedabad VERSUS Reliance Petroproducts Pvt. Ltd., Decided By: SUPREME COURT OF INDIA, Appeal No:   CIVIL APPEAL No. ________OF 2010 (Arising out of SLP (C) No.27161 of 2008), pronounced on: March 17, 2010.

The assessee claimed deduction u/s 36 (1) (iii) for interest paid on loan taken for purchase of shares. The interest was disallowed u/s 14A. Penalty u/s 271 (1) (c) was levied on the ground that the claim was unsustainable which was deleted by the lower authorities. On appeal by the department to the Supreme Court, HELD dismissing the appeal:

(i) S. 271 (1) (c) applies where the assessee “has concealed the particulars of his income or furnished inaccurate particulars of such income”. The present was not a case of concealment of the income. As regards the furnishing of inaccurate particulars, no information given in the Return was found to be incorrect or inaccurate. The words “inaccurate particulars” mean that the details supplied in the Return are not accurate, not exact or correct, not according to truth or erroneous. In the absence of a finding by the AO that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false, there would be no question of inviting penalty u/s 271(1)(c).

(ii) The argument of the revenue that “submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such income” is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. 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. If the contention of the Revenue is accepted then in case of every Return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(1)(c). That is clearly not the intendment of the Legislature.

(iii) The law laid down in Dilip Shroff 291 ITR 519 (SC) as to the meanings of the words “conceal” and “inaccurate” continues to be good law because what was overruled in Dharmendra Textile Processors 306 ITR 277 (SC) was only that part in Dilip Shroff where it was held that mens rea was an essential requirement for penalty u/s 271 (1)(c).

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1. False claim in return of Income would be treated as case of concealment of Income or of furnishing inaccurate particulars of Income
2. Confirmation of addition by tribunal does not mean concealment of income or inaccurate furnishing of particulars of income
3. Penalty U/s. 271(1)(c) can not be imposed on the basis of routine & general presumptions
4. If the income is surrendered with the condition that no penalty be imposed, then the AO not justified in imposing the penalty
5. Penalty U/s. 271(1)(c) of IT Act can not be imposed for mistake in calculation of deduction If Assessee furnished all the details