Case Law Details

Case Name : Shri Pankaj Rathi Vs Commissioner of Income Tax (Appeals), XXXVII (Calcutta High Court)
Appeal Number : I.T.A. No. 24 of 2010
Date of Judgement/Order : 02/08/2011
Related Assessment Year :

Shri Pankaj Rathi Vs CIT (Calcutta High Court)- If assessee has not furnished the correct particulars of his income, penalty u/s 271(1)(c) can be levied on the ground that there was mensrea involved

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 v. Joint Commissioner of Income Tax, Mumbai and Anr. [200 7(6) SCC 329] : (AIR 2007 SC (Supp) 1280 : 2007 AIR SCW 4323), 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 v. Joint Commissioner of Income Tax, Mumbai and Anr. (AIR 2007 SC (Supp) 1280: 2007 AIR SCW 4323) was upset. In Union of India v. Dharamendra Textile Processors (AIR 2008 SC (Supp) 668 : 2008 AIR SCW 8038) (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, wilful 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 v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled by this Court in Union of India v. 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 v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra).”

Applying the aforesaid principles to the facts of the present case, we findthat the Tribunal correctly appreciated the facts and rightly affirmed the order of penalty. There is also no reason to interfere with the quantum of penalty as only an amount equivalent to 100% of the tax evaded has been imposed where as the maximum amount is 300%.
We, thus, find no merit in the appeal and dismiss the same by holding that the point formulated by the Division Bench was not appropriate within the scope of Section 271(1) (c ) of the Act and hold that on a true and proper interpretation of section 271(1)(c) of the Income Tax Act, 1961, the learned Tribunal was justified in upholding the penalty levied by the Assessing Officer @ 100% as the question of bona fide intention or inadvertent mistake alleged by the assessee is not a relevant factor and the finding of the Tribunal cannot be said to be arbitrary, unreasonable and perverse justifying interference under Section 260 A of the Act.

We further make it clear we have not considered the question of mala fide intention or mens rea of the appellant in furnishing the inaccurate income or in concealing the real income as the same is beyond the scope of this proceeding.

Shri Pankaj Rathi Vs Commissioner of Income Tax (Appeals), XXXVII

Calcutta High Court

I.T.A. No. 24 of 2010

Judgement on: August 2, 2011.

Bhaskar Bhattacharya, J.:
This appeal under Section 260A of the Income-tax Act, 1961 is at theinstance of an assessee and is directed against an order dated August 21, 2009, passed by the Income-tax Appellate Tribunal, “B” Bench, Kolkata, in Income-tax Appeal bearing ITA No.433/Kol/2009 for the Assessment Year 200 1-2002.
Being dissatisfied, the appellant has come up with the present appeal.The facts leading to filing of the present appeal may be summed up thus:

a) The appellant is an individual and is assessed to tax under the Act and the present appeal arises out of the appellant’s assessment and initiation of penalty proceedings under the Act for the Assessment Year 200 1-2002, for which the relevant previous year was the financial year ending on March 31, 2001.

b) During the financial year 2000-2001, the appellant had changed his job. Up to November 30, 2000 the appellant was employed with KPMG Consulting Pvt Ltd. and had earned gross salary of Rs.5,47,358/-. Thereafter, the appellant from December 1, 2000, joined Price Water House Coopers Pvt. Ltd. where from he earned gross salary of Rs. 4,18,555/- for the relevant period under consideration.

c)  Thus, the appellant, during the relevant period under consideration earned a total gross income of Rs. 9,65,913/- (Rs. 5,47,358/- + Rs. 4,18,555/-) but the appellant filed its return for the said period showing the gross income of only Rs. 4,18,555/- and claimed TDS of Rs. 1,32,367/-.

d) The appellant, thus, did not include the gross income of Rs. 5, 47,358/- earned from KPMG. It may not be out of place to mention here that from the salary payable by KPMG, there was deduction at source and such deduction at source was also not mentioned in the return of the appellant.

e) Subsequently, the appellant received a notice under Section 148 of the Act as the Assessing Officer on obtaining information from the former employer had reason to believe that a part of the income of the appellant escaped assessment. The appellant replied to the said notice requesting the Assessing Officer to treat his original return as the return filed in response to the aforesaid notice. Thereafter, the Assessing Officer ex parte assessed the appellant to the tune of Rs. 6,43,900/ – and a penalty proceedings under Section 271(1)(c) of the Act was separately initiated.

f) Being aggrieved by the aforesaid order of assessment, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals) wherein the appellant submitted that due to inadvertent mistake, he did not include the gross income of Rs. 5,47,358/- earned from the former employer though the tax on the said income was covered by TDS certificate. The said Appellate Authority, by an order dated February 5, 2007 directed the Assessing Officer to recompute the income of the appellant in accordance with such income enhanced by the aforesaid appellate authority and to allow the rebate and TDS after due verification.

g) The Assessing Officer, subsequently, by his order dated November 22, 2007 recomputed the income of the appellant and initiated reassessment proceeding. The appellant in reassessment notice stated his correct income and filed return on May 7, 2007 disclosing total income of Rs. 8,35,230/- and the Assessing Officer thereafter, by order dated November 22, 2007 assessed the appellant’s income accordingly as stated in the aforesaid return and also launched penalty proceedings under Section 271(1)(c) of the Act.

h) Subsequently, by an order dated May 30, 2008, the Assessing Officer held that since there was a difference in tax of Rs. 1,98,582/- between the original return and return dated May 7, 2007 filed in course of reassessment proceedings, tax on income to the extent of the said amount was concealed warranting invocation of penalty @ 100% and consequently, the appellant was served with a demand notice under Section 156 of the Act.

i) Aggrieved by the said order of penalty, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals) and the said appellant authority by its order dated December 16, 2008 upheld the penalty levied by the Assessing Officer.

j) Being dissatisfied, the appellant preferred an appeal before the Income-tax Appellate Tribunal and the said Tribunal by the order impugned herein upheld the aforesaid order of imposition of penalty.

k) Against the aforesaid order dated August 21, 2009 passed by the Tribunal, the appellant has come with the present appeal under Section 260A of the Act.

A Division Bench of this Court by order dated February 8, 2010formulated the following substantial question of law:“Whether on a true and proper interpretation of section 271(1) (c) of the Income Tax Act, 1961, the learned Tribunal was justified in upholding the penalty levied by the Assessing Officer @ 100% on a mere bona fide and/or inadvertent mistake committed by the appellant and its finding to this extent is arbitrary, unreasonable and perverse?”In the case before us, there is no dispute that during the relevant assessment year, the appellant worked for 8 months before the earlier employer and 4 months before the new employer and totally suppressed the income from salary availed of from the earlier employer but only disclosed the salary of 4 months received from the new employer. The only explanation given is that due to oversight he forgot to disclose the salary received from the earlier employer including the T.D.S deducted by the earlier employer.

An impression was given that the full amount of tax payable from salary concealed was deducted by the earlier employer and thus, the appellant had no intention to deceive. Although mens rea to deceive is irrelevant for our purpose, that such fact is wrong would appear from the fact that in the original return, the appellant claimed refund of Rs. 82,243/- on the allegation that excess amount of tax at source was deducted by his new employer after suppressing the fact that he worked for further 8 months before the earlier employer and the TDS deducted by the earlier employer, if taken into consideration along with the salary paid by such employer, the actual refund should be Rs. 37,314/-. Thus, he claimed an excess amount of about Rs. 45,000/- by way of refund even if the TDS by the former employer was taken into account.

Although Mr. Khaitan, the learned counsel appearing on behalf of the appellant tried to convince us that there was no concealment of income but it was a case of inadvertent mistake, we are not impressed by such submission.

In order to invoke Section 27 1(1) (c) of the Act, intention is immaterial. To appreciate the scope of Section 27 1(1) (c) of the Act, the same is quoted below:

271. Failure to furnish returns, comply with notices, concealment of income, etc.—(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—

(a)  [omitted;]

(b) has failed to comply with a notice under sub-section (1) of Section 142 or sub-section (2) of Section 143 or fails to comply with a direction issued under sub-section (2-A) of Section 142; or

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

he may direct that such person shall pay by way of penalty,—

(i) [omitted;]

(ii) in the cases referred to in clause (b), in addition to tax, if any, payable] by him, a sum of ten thousand rupees for each such failure;

(iii) in the cases referred to in clause (c), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.”

Thus, on a plain reading of the aforesaid Section it is clear that for application of Section 271(1) (c) of the Act, all that is necessary is that either  there must be concealment of income or inaccurate particulars of such income. In the case before us, the aforesaid provision has been definitely attracted as the appellant failed to disclose his salary for 8 months he received from his former employee. If an employee does not disclose the salary of 8 months and shows only the salary of 4 months in a year notwithstanding the fact that he worked as employee for full 12 months, such act definitely comes within the meaning of  concealment so as to attract the aforesaid provision. We are quite conscious that element of mala fide is an insignificant factor for the application of the said provision.

At this juncture, we may profitably refer to the following observations of the Supreme Court in the case of C. I. T., Ahmedabad vs. Reliance Petroproducts Pvt. Ltd., reported in AIR 2010 SC 1881 while elucidating the scope of Section 271(1) (c) of the Act;

“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 v. Joint Commissioner of Income Tax, Mumbai and Anr. [200 7(6) SCC 329] : (AIR 2007 SC (Supp) 1280 : 2007 AIR SCW 4323), 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 judgement in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (AIR 2007 SC (Supp) 1280: 2007 AIR SCW 4323) was upset. In Union of India v. Dharamendra Textile Processors (AIR 2008 SC (Supp) 668 : 2008 AIR SCW 8038) (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, wilful 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 v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled by this Court in Union of India v. 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 v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra).”

Applying the aforesaid principles to the facts of the present case, we find that the Tribunal correctly appreciated the facts and rightly affirmed the order of penalty. There is also no reason to interfere with the quantum of penalty as only an amount equivalent to 100% of the tax evaded has been imposed where as the maximum amount is 300%. We, thus, find no merit in the appeal and dismiss the same by holding that the point formulated by the Division Bench was not appropriate within the scope of Section 271(1) (c ) of the Act and hold that on a true and proper interpretation of section 271(1)(c) of the Income Tax Act, 1961, the learned Tribunal was justified in upholding the penalty levied by the Assessing Officer @ 100% as the question of bona fide intention or inadvertent mistake alleged by the assessee is not a relevant factor and the finding of the Tribunal cannot be said to be arbitrary, unreasonable and perverse justifying interference under Section 260 A of the Act.

We further make it clear we have not considered the question of mala fide intention or mens rea of the appellant in furnishing the inaccurate income or in concealing the real income as the same is beyond the scope of this proceeding.

In the facts and circumstances, there will be, however, no order as to costs.

(Bhaskar Bhattacharya, J.)

I agree.

(Sambuddha Chakrabarti, J.)

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