Case Law Details
RELEVANT PARAGRAPH
44. In Dharmendra Textile Processors’ case (supra), Their Lordships have held that that penalty under section 271(1)(c) provides remedy for loss of revenue. A penalty under section 271 (1)(c) involves payment of an additional amount, which is a civil liability to provide for remedy for loss of revenue, while a sentence of imprisonment under section 276 C means loss of individual liberty which does not help revenue in anyway except as serving as a deterrent for the potential defaulters. Therefore, as held by the Hon’ble Supreme Court, a penalty under section 271(1)(c) indeed provides a remedy for loss of revenue, but then, as the scheme of Section 271(1)(c) itself unambiguously shows, a penalty under section 271(1)(c) can not be imposed for case of addition to income. Section 271(1)(c) envisages certain situations in which penalty under section 271(1)(c) can be imposed and unless those conditions are satisfied, the penalty cannot be imposed merely because there was a loss of revenue. The nature of the penalty being to provide for loss of revenue is thus not in doubt, but that characteristic of penalty under section 271(1)(c) is to be read in conjunction with the scheme of the section 271(1)(c) itself. It is also be borne in mind that, as noted by Hon’ble Supreme Court in the case of Om Prakash Sheo Prakash (supra), there is no contradiction between a liability being civil in nature and yet penal in character. With mens rea or without mens rea, a penalty can only be imposed when there is failure, or deemed failure, to discharge an obligation. Therefore, Hon’ble Supreme Court’s observations to the effect that a penalty is to provide remedy for loss of revenue cannot be construed to mean that a penalty can be imposed as an automatic consequence for addition to returned income.
45. What follows from these discussions is that in view of Hon’ble Supreme Court’s judgment in the case of Dharmendra Textile Processors (supra), once the mandate of section 271(1)(c), read with Explanations thereto, are satisfied, there is no further onus on the Assessing Officer to establish mens rea. To that extent, the law laid down by Their Lordships in the case of Dilip N Shroff was reversed.
46. While in Dilip N Shroff’s case, Division Bench of the Hon’ble Supreme Court had held that , “Before, thus, a penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had furnished inaccurate particulars thereof (emphasis by underlining supplied by us)”, in Dharmendra Textile Processors case, a larger bench, having taken note of the position that “The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return” concluded that “The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the I.T. Act”. The observations of willful concealment of income not being an essential condition precedent for imposition of penalty and the penalty being a civil liability were made in the context of the question which was before Their Lordships , i.e., whether or not before imposition of penalty, it is required for Assessing Officer to prove establish a guilty mind and particularly in the light of the Explanations appended to Section 271(1)(c), which contain deeming fiction i.e. situations in which an assessee can be deemed to have furnished inaccurate particulars of income. As a matter of fact, way back in 2001, a three judge bench of the Hon’ble Supreme Court, in the case of K P Madhusudanan Vs CIT (251 ITR 99), the assessee’s plea to the effect that `revenue was required to prove mens rea of a criminal offence’ before penalty under section 271(1)(c) can be imposed, was rejected by Their Lordships. Elaborating upon the stand so taken by Their Lordships, a co ordinate bench of this Tribunal, speaking through one of us and in the case of DCIT Vs Narendra Kumar Mohta ( 84 ITD 495) had observed thus :
“We now come to the CIT(A)’s stand that penalty cannot be imposed in the case of an agreed addition and unless the Revenue is able to prove mens rea as of a quasi criminal offence. Since we have already held that it is not a case of agreed addition, assessee’s arguments clearly proceed on a fallacious assumption so far as `agreed addition’ is concerned. In any case, as to the requirement of Revenue’s establishing mens rea on the part of the assessee, we may only refer to the observations of the Hon’ble Supreme Court, in the case of K P Madhusudanan (supra), which are reproduced below:
Please become a Premium member. If you are already a Premium member, login here to access the full content.
