In a judgement that will clear the air on the tricky issue of the income-tax department’s power to levy penalties on assessees, the Supreme Court has held that a penalty cannot be levied merely because the I-T authorities and taxpayers hold divergent views on calculation of income.
The SC ruling went in favour of Reliance Petroproducts. The apex court held that the I-T department cannot levy penalty on a taxpayer if his claim for deduction is not acceptable to the tax authorities. Penalty is leviable only if there is proven concealment of income.

In this case, the I-T officials had rejected the company’s claim for deduction on its interest expenditure and levied a penalty on the ground of furnishing inaccurate particulars of income. Under the I-T Act, furnishing inaccurate particulars of income attracts a penalty. In the department’s view making incorrect claims is the same as furnishing incorrect income details.

According to the I-T department, the interest expenditure did not merit deduction because I-T laws provide for deduction only for interest paid for capital borrowed for the purpose of business or profession. The interest payments in this case did not fall into this category and hence was not deductible. Therefore, the claim for deduction is incorrect.

Reliance Petroproducts took the stand that the I-T laws do not provide for penalty unless there is a concealment of income or furnishing of incorrect details of income. The company also pointed out that its interpretation of the issue had been accepted by an appellate commissioner and the Income-Tax Appellate Tribunal in the previous year.

SC observed that the terms “furnishing inaccurate particulars of income” is not defined in the Income-Tax Act, but reading the words in conjunction they must mean the details furnished in the returns are not accurate. The apex court further observed that Reliance Petroproducts has furnished all details of its income.

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  1. ND says:

    No, this decision is not going to have any impact at all on a single officer of the IT Deptt. or even the great ITAT (about which the less said is better as it does not even have transparent transfer policy for its constutuents who are at the mercy of the Hon’ble Presidnt!)
    As it is, there is no culture or tradition left in the Deptt. of reading ITRs, etc., and not even Commissioners and Chief Commissioners care to read judgements, even if copies are provided by the tax payers’ representatives. In fact, most officers at all levels, including Commissioners (Admn. as well as Appeals) and Chiefs take serious exception to any case law/judgement being cited in any proceeding either in writing or while presenting a case before them. Their standard retort is:”Are you trying to teach me law, etc.?” There is not much difference in ITAT or CBDT. CASE LAWS/CITATIONS MUST BE DULY SUPPORTED BY THE DOCUMENTS PRINTED/ISSUED BY THE GOVERNOR OF THE RBI BEARING PHOTOGRAPHS OF MAHATMA GANDHI. Plain and simple. And this has been the culture now all over in not only IT deptt but all the authorities administering laws/hearing appeals!
    So, in this milieu, which is permitted and wideky accepted by the top/elite people in power, there is no doubt that no AO/their bosses including Commissioners/the first or second legal appellate forums, or even the topmost bosses at all levels will not care for this judgement. And since there is no system of going for contempt of court by the taxpayers (or by the ordinary people harassed by govt. machinery)against AOs and all other superior officers/ITAT members, and no system by which High Courts/the apex court can take suo motu cognisance of the audacious officers and their blatant disregard for jurisdictional High Courts’/Supreme Court’s decisions, nobody can do anything unless one is of the level and clout of the aggrieved party in the instant case, to whom ordinary people are indeed beholden. And such officers will get outstanding gradation by showing such cases of orders imposing penalty for concealment mostly by ignoring such decisions-even if cited-and , if at all cited in their poorly drafted and stereotype cryptic orders by even “differentiating” the decisions on hilarious grounds as there is no effective or meaningful system of supervisio (since Annual CRs are given not on the basis of quality but based on the personal services rendered by the subordinates and, of course, on the basis of the aforesaid RBI-issued documents, as much as are transfers and postings are done!).
    It is thus very sad that this great judgement will merely remain an academic point. The positive disincentives in the form of a negative Vigilance mechanism and law-illiterate accountants/accounts officers from the CAG’s office are also greatly responsible for this total destruction of a learned atmosphere and ambience in the deptt., once the real strength of the officers and staff-say upto the 80s. The other reasons are:
    A)interference from bosses for taking decisions favourable to the taxpayers or deliberately damaging them for enabling the bosses (including puny staff and officers in the ministry);
    B) Excessive pressure from the Ministry to recover all outstanding demands by any means and, if necessary, by levying penalty even without serving any notice/giving one/two days’ notice and recover the same immediately once it falld due after 35 days from the PURPORTED SERVICE of the Demand Notices;
    C) and, of course the all pervading value pattern in which money alone matters-and speaks.
    It is now for the higher judiciary to look into these matters.

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June 2021