Vs. Reliance Petroproducts Pvt. Ltd.  INSC 211 (17 March 2010)
SUPREME COURT OF INDIA (CIVIL APPELLATE JURISDICTION) CIVIL APPEAL No.
2463___OF 2010 (Arising out of SLP (C) No.27161 of 2008) C.I.T., Ahmedabad ....
Appellant Versus Reliance Petroproducts Pvt. Ltd. .... Respondent
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.
Few facts would be relevant.
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.
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.
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.
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."
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 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 Dharamendra
Textile Processors [2008(13) SCC 369], as also, the decision in Union of
"13. It goes without saying that for applicability of Section 271(1)(c),
conditions stated therein must exist."
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, 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 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 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 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 the effect that mens
rea was an essential ingredient for the penalty under Section 271(1)(c) Anr.
(cited supra) was overruled.
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
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.
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.
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.
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.
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:
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."
situation in the present case is still better as no fault has been found with
the particulars submitted by the assessee in its Return.
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
March 17, 2010.
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.