Commissioner of Income Tax vs Vijay Kumar Jain

Dhirendra Mishra, J.—This Income Tax Appeal against the order of Income Tax Appellate Tribunal, Nagpur, has been admitted on following substantial question of law:

Whether on the facts and circumstances of the case, learned Tribunal was justified in upholding the order of the learned Commissioner (Appeals) cancelling the penalty u/s 271(1)(c) of the Income Tax Act, 1961 levied by the assessing officer?

Briefly stated facts of the case, as projected in the impugned order, are that the assessee filed return for the year under consideration declaring total income at Rs. 70,818. The assessing officer rejected the book results and made an addition of Rs. 1,70,920 by estimating net profit @ 10% of receipt as against 6.36 shown by the assessee. The penalty proceedings were initiated u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act) and the assessing officer imposed penalty of Rs. 60,000 (Annuxure-P/2) vide order dated 19-11-1996. The appeal preferred by the assessee against imposition of penalty u/s 271(1)(c) of the Act was allowed by the Commissioner (Appeals) with a finding that the addition was only on account of application of higher rate of net profit by applying provisions of Section 145. There is no evidence on record to show that the assessee had concealed particulars of income or submitted inaccurate particulars of his income. In view of the above, the assessing officer was not correct in holding that the assessee had concealed particulars of income by not producing documents in support of the claims made in the return.

The Tribunal has further dismissed the appeal of the revenue with the following observations:

I have heard the rival submissions and gone through the orders of the revenue authorities as well as the decisions relied upon by the contending parties. In the instant case, the revenue has not given reason for adopting the net profit at 10% in the case of the assessee whereas on similar set of facts in other cases, even a lessor percentage of net profit then declared by the assessee was acceptable. It leads to the conclusion that the percentage of net profit shown by the assessee was reasonable and even if there were defects in the books of account of the assessee, there was no justification to make higher estimate than the one which was already accepted by the revenue in the cases of another assessee of the same region doing business in the same line. In view of the above, I am of the view that the order of the learned Commissioner (Appeals) in cancelling the penalty cannot be faulted with. The order of the Commissioner (Appeals) is upheld.

Shri Rajeev Shrivastava, learned Counsel for the appellant/revenue would argue that the assessee did not produce relevant books of account and other documents in support of his return at the time of assessment proceeding and it was stated that he did not maintain regular books of account due to absence of accountant. Rejecting the aforesaid explanation, taxable income was estimated at 10% of the total receipt. The assessing officer also held that the assessee has tried to conceal his actual income by showing inflated expenditure for which no evidence was adduced and accordingly, taxable income was estimated at the rate of 10% of the total receipt.

The appeal preferred by the assessee against the order of assessment was dismissed by the Commissioner (Appeals) and thereafter, penalty u/s 271(1)(c) was imposed after notice to the assessee. The assessing officer has recorded a categorical finding that the assessee did not produce any document in support of his income and expenditure accounts despite he was given repeated opportunities for producing the same. He also did not produce any document before the Appellate Commissioner whereupon his appeal was dismissed against the order of assessing officer and on the basis of this, it has been inferred that the assessee did not possess any such document and thus, the assessee has deliberately tried to conceal his income by filing wrong return.

Relying upon the decision of the Supreme Court in the matter or The Chairman, SEBI Vs. Shriram Mutual Fund and Another, it was argued that mens rea is not an essential ingredient for contravention of the provisions of a civil Act. Penalty is attracted since contravention of statutory obligations as contemplated by the Act is established and intention of the parties committing such violation becomes immaterial.

Further relying upon decision of the Supreme Court in Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal, it was argued that if the assessing officer is satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income, such person may be directed to pay penalty.

On the other hand, Shri Ashok Patil, learned Counsel for the respondent/assessee would argue that in penalty proceeding u/s 271(1)(c) of the Act, strict proof of concealment of income is required. Where assessment is made on the basis of estimate, the finding of concealment in such circumstances, is not sufficient for levying penalty.

We have heard learned Counsel for the parties.

The question for our consideration for deciding this appeal is - whether Commissioner (Appeals) and the Tribunal were justified in cancelling penalty u/s 271(1)(c) of the Act imposed by the assessing officer in the admitted facts that the assessing officer after rejecting the book results estimated net profit of the assessee at the rate of 10 per cent of the total receipt in the return and on difference of profit so estimated, imposed additional tax?

In Chairman, SEBI (supra), the question before the Supreme Court was whether once it is conclusively established that a mutual fund has violated the terms of certificate of registration and statutory regulations, the imposition of penalty becomes a sine qua non of the violation. Answering in the affirmative and allowing the appeals, the Supreme Court held that mens rea is not an essential ingredient for contravention of the provisions of a civil Act. Unless the language of the statute indicates the need to establish the element of mens rea, it is generally sufficient to prove that a default is complying with the statute has occurred and it is wholly unnecessary to ascertain whether such a violation was intentional or not. The breach of a civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not.

In Dilip N. Shroff Karta of N.D. Shroff Vs. Joint Commissioner of Income Tax, Special Range Mumbai and Another, the Supreme Court, while considering the nature and applicability of Section 271(1)(c) and Explanation 1 thereto, held that even if the status says that one is liable for penalty if one furnishes inaccurate particulars, the same may not by itself be enough to hold that nothing more is needed if the particulars furnished are found to be inaccurate. An element of mens rea is needed before penalty can be imposed. Concealment and furnishing inaccurate particulars refer to a deliberate act or omission on the part of the assessee. A mere omission or negligence would not constitute ad deliberate act of Supressio veri or suggestio falsi. Another Division Bench of the Supreme Court, doubting the correctness of the above view expressed in Dilip N. Shroff referred the controversy involved in the appeals to a Larger Bench.

In UOI v. Dharamendra Textile Processors (2008) 13 SCC 369, it was held by the 3 judge Bench of the Supreme Court in paragraph-20 that Dilip N. Shroff case was not correctly decided but Chairman, SEBIs case has analysed the legal position in the correct perspective and accordingly answered the reference.

In Atul Mohan Bindal (Supra), it has been observed that if the assessing officer is satisfied that a person has concealed the particulars of this income or furnished inaccurate particulars of such income, such person may be directed to pay penalty. In paragraph-13, it has been further observed that for applicability of Section 271(1)(c), conditions stated therein must exist.

The Supreme Court in its latest decision in the matter of CIT v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC), while considering applicability of Section 271(1)(c) of the Act, held that in order to impose penalty under the aforesaid section, there has to be concealment of particulars of income of the assessee and the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in Section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provisions, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, 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. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty u/s 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.

If we examine facts of the present case in the light of the principles of law laid down by the Supreme Court in the aforesaid judgments, we find that the assessee furnished accurate particulars of entire receipt of Rs. 21,76,274. After deduction towards expenditure and addition of net profit through other sources, taxable net income was shown at Rs. 70,818, however, since the assessee did not produce any evidence and books of account including the balance sheet for the assessment year, net profit was estimated at the rate of 10% of the receipt from all sources and on difference of profit so estimated, additional tax was imposed and it was further directed that proceeding u/s 271(1)(c) of the Act for imposition of penalty be separately drawn against the assessee for concealment of income by not producing proper evidence of expenditure. To impose penalty u/s 271(1)(c), conditions stated therein must exist meaning thereby the assessee must have concealed particulars of his income or furnished inaccurate particulars of such income.

In the instant case, it is not the case of the revenue that the assessee concealed particulars of his income or any particulars of income furnished by him was found to be inaccurate by the assessing officer. The assessee declared net profit by estimating it at the rate of 6.36% of his gross receipt as the assessing officer in similarly situated cases had accepted lower net profit than 6.36% declared by the assessee. Considering the aforesaid facts, the Tribunal held that the order of Commissioner (Appeals) in cancelling penalty cannot be faulted with and accordingly upheld the order.

In our considered opinion, in view of the undisputed facts that particulars furnished by the assessee regarding receipt in the relevant financial year have not been found inaccurate; it is also not the case of the revenue that the assessee concealed any income in his return, the order of the Tribunal confirming the order of the Commissioner (Appeals) canceling penalty imposed by the assessing officer u/s 271(1)(c) of the Act cannot be faulted with.

In the result, the appeal fails and the same is dismissed.