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Judgment
This is assessee''s appeal under Section 260A of the Income Tax Act. The appeal has been admitted for considering the following two substantial questions of law:-
Whether the explanation 4 to Section 271(1)(c) of the Income Tax Act (as it stood before the amendment by the Finance Act, 2002) could be invoked for the purpose of penalty where the income remained at loss?
Whether the Tribunal was wrong in holding that the alleged mistake of the counsel, if any, could be inferred in respect of both the amounts of Rs. 3,30,195/- and Rs. 1,99,82,000/-, while the Tribunal has accepted the aforesaid explanation towards the amount of Rs. 3,30,195/-?
As far as the first question is concerned, at the very outset Shri Sumit Nema argued that in view of the various judgments of the Supreme Court, this question is no more available to be canvassed in favour of the assessee, it is already held against the assessee and therefore, this question be held as rejected against the assessee.
Learned counsel for the appellant only made submissions with regard to justification of not accepting the explanation of the appellant for the purpose of an amount of Rs. 1,99,82,000/- as indicated in the question framed.
Assessee is a Cooperative society registered under the M.P. Cooperative Societies Act of 1960. The Society carries out its activity by forming a Cooperative of Sugarcane growers, farmers and workers belonging to Khandwa District in M.P. an economically backward area of State of Madhya Pradesh. The Society runs a Sugar Factory at Naval Nagar, Burhanpur, District Khandwa. The affairs of the society are managed by the Board of Directors. In the return of income submitted by the Society for the assessment year 1992-93 penalty in question under Section 271(1)(c) has been imposed upon the appellant. After the assessment proceedings were held the AO found that the assessee has credited an amount of Rs. 89,49,367/- on account of previous years adjustment. However, it was held by the Assessing Officer that this amount should be 1,22,45,062/-. It was found that the assessee has made a under statement of income to the tune of Rs. 3,30,195/-. This was added to the income of the assessee. It was further found that the assessee has claimed deduction on amount of interest payable or paid to financial institutes under Section 43(b) amounting to Rs. 3,33,25,278/-.
The facts indicate that the assessee had entered into a one time settlement with the financial institutes through which the financial institutes had agreed to waive liquidated damages and compound interest, if the principle amount i.e. Rs. 8.50 Crore was paid in installments on or before 30th June, 1992. The Books of account reflected that this was an ascertained amount and out of this sum of Rs. 8.50 Crores, Rs. 4.40 relate to principle amount and the balance of Rs. 4.1 Crore related to interest.
Be it as it may be, on scrutiny of the records it was found that the assessee has not disclosed the correct position with regard to the payment of interest and settlement of the outstanding dues of the financial institute. As a result, the Assessing Officer found that the Assessee has claimed excessive interest to the tune of Rs. 1,32,9,788/-. This was added to the income of the assessee and the penalty proceedings initiated. The assessee challenged the penalty proceedings before the Commissioner. The Commissioner allowed the appeal and found that there was no deliberate evasion or submission of inaccurate fact and the penalty was quashed. However, on a appeal being filed by the revenue, the Tribunal having maintained part of the penalty, this appeal by the assessee. It is found that penalty has been imposed upon the assessee on two counts. One was treated to be a mistake committed by the Chartered Accountant of the society and therefore, with respect to the income to the tune of Rs. 3,30,196/- pertaining to prior period of adjustment, the learned Tribunal quashed the penalty. With regard to payment of damages and liability to pay compound interest to the financial institute, it was found to be a deliberate act of the appellant and therefore, the penalty imposed to the tune of Rs. 1,99,82,000/- has been upheld. It is this part of the order, which is assailed in this appeal and the question is whether the findings recorded by the Tribunal in this regard is correct or not?
Shri Sumit Nema, learned counsel appearing for the assessee invited our attention to the statement of fact and with regard to the amount in question and the imposition of penalty, it was submitted by him that even though the assessee was required to pay to the financial institute a sum of Rs. 8.50 Crore and this amount was to be paid by 30th of June, 1992 as per the agreement and the one time settlement entered into with the financial institute, if the entire amount of Rs. 8.50 Crore was not paid by 30th June, 1992 then there was a provision for forfeiting the waiver of interest/damages and charging of compound interest. It was said that the entire outstanding amount of Rs. 8.50 Crore could not be paid on or before 30th June, 1992. Only a sum of Rs. 5,02,5000/- could be paid and the remaining amount was paid only by 7.4.93. As such the assessee was under the bonafide belief that till assessee may not be entitled to waiver of interest or damages. This was to be forfeited and compound interest liable to be imposed. That is why assessee showed interest on the amount payable to the financial institute. It is emphasized by Shri Nema that the assessee society due to non payment of the amount as per the settlement on 30th June, 1992 became liable to pay the compound interest as well as liquidated damages which was agreed to and in view of this condition, under the genuine apprehension that waiver of compound interest and liquidated damages may not be available to the assessee, the mistake was committed. It is pointed out that the financial institute issued the No Dues Certificate on 27.6.1994 and completed the process on 31.1.1995 and much after this, the assessment was already over and as this apprehension about the waiver of compound interest crystallized otherwise into the correct fact only on 31.1.1995 much before the assessment order was passed, the petitioner was entitled to the protection of law and there being no deliberate or inaccurate statement made by the appellant, the Tribunal has committed an error in the matter of imposing penalty. It is said that the Tribunal lost complete sight of the apprehension of the appellant in the matter of non availability of compound interest, waiver and liquidated damages and the fact that financial institute gave the NOC only on 31.1.1995 and the No Dues Certificate on 27.6.94, much after the original return was filed on 2.11.92 and the revised return on 26.11.93. It is said that the apprehension of the assessee on 7.4.93 and 26.11.93 was correct and they could not imagine on the said date that they would be granted the benefit of waiver of interest or liquidated damages as per to one time settlement inspite of the default committed by them. He invites our attention to the following judgments: Commissioner of Income Tax, Chennai Vs. Durr India (P) Ltd. - [2014]41 Taxmann 134 (Madras); Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts(P) Ltd. - [2010]189 Taxman 322 (SC); Price Waterhouse Coopers (P.) Ltd. Vs. Commissioner of Income Tax, Kolkatta - [2012]25 taxmann.com 400 (SC); Commissioner of Income Tax Vs. M/s S.M. Construction - Income Tax Appeal No. 412/2013; Speciality Food India Pvt. Ltd. Vs. Commissioner of Income Tax - ITA No. 51/2014 of Delhi High Court; and Shervani Hospitalities Ltd. Vs. Commissioner of Income Tax - [2013] 35 Taxmann.com 271.
Per Contra Shri Sanjay Lal took us to the judgment of the Tribunal, the reasons given by the Tribunal and the judgment of Supreme Court in the case of Union of India and Ors. Vs. Dharamendra Textile Processors and Ors. - (2008) 219 CTR (SC) 617 to say that the assessee having violated the provisions of law, imposition of penalty under Section 271(1)(c) read with explanation thereof is proper. For the purpose of imposing penalty under the aforesaid provisions mens rea, bad intention, malafide intention etc. are not applicable and in view of the judgment in the case of Dharamendra Textile Processors (supra), no further indulgence into the matter is called for. Shri Sanjay Lal took pains in taking us through the facts of the case and tried to emphasize that the question of mens rea or the intention of the appellant in this case is of no consequence because appellant did not disclose the correct fact with regard to payment of interest on 2.11.92 when the original return was filed and even when the revised return was filed on 26.11.93 and even when the assessment was completed sometimes in the year 1993-1994. Accordingly, he submits that in view of the aforesaid, the findings recorded by the Tribunal is not correct.
We have considered the rival contentions and we find that even though in the case of Dharamendra Textile Processors and Ors. (supra) in the matter of imposition of penalty for concealment of income under Section 271(1)(c) of the Income Tax Act it has been laid down that the question of mens rea etc. is not applicable. Imposition of penalty under the aforesaid provision is held to be a civil liability and willful concealment is not an essential ingredient for effecting civil liability. However, this case has been again considered by the Supreme Court in the case of Reliance Petroproduct (P)(Ltd.) (supra) and the correct meaning and import of the words "furnishing inaccurate particulars" or making an erroneous or inaccurate statement has been considered by the Supreme Court. Even the question of mens rea laid down in the case of Dharmendra Textile Processors and Ors. (supra) has been considered and after discussing the judgment of Supreme Court in the case of Dharmendra Textile (supra) so also the law in the case of Dilip N. Shroff Karta of N.D. Shroff Vs. Joint Commissioner of Income Tax, Special Range Mumbai and Another, (2007) 210 CTR 228 : (2007) 291 ITR 519 : (2007) 8 SCALE 256 : (2007) 6 SCC 329 : (2007) 7 SCR 499 which has been over-ruled by Dharmendra Textile Processors and Ors. (supra), the Supreme Court deals with the matter in para 9 in the following manner:-
"9. 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 or transcript".
We have 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. We must 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."
(Emphasis Supplied)
According to the Supreme Court a mere making of a claim which is not sustainable under law by itself will not amount to furnishing inaccurate particulars regarding income of the assessee. The matter was again considered by the Supreme Court in the case of Price Waterhouse Coopers (P) Ltd. Vs. Commissioner of Income Tax, Kolkatta - [2012]25 Taxmann.com 400 (SC) and it has been held that if the assessee has committed an inadvertent and bonafide mistake or error and had not intended to conceal his income or furnishing inaccurate price, the penal clause should not be enforced. The Madras High Court in the case of Durr India (P) Ltd. (supra) has considered the matter and after taking note of various judgments of the Supreme Court including the judgment in the case of Reliance Petroproducts (P) Ltd., Dilip N. Shroff, Dharmendra Textile Processors (supra) has laid down principle to say that penalty being a civil liability, the requirement of mens rea is not an essential element. But, if the claim of the assessee is bonafide then mere submission of an inaccurate particular by itself could not be held against the assessee under the provision of section 271(1)(c), it is held that if a bonafide error has resulted in submission of inaccurate particular and if there is justification for making such a statement, penalty should not be imposed.
That being the legal position, if we analyse the case in the backdrop of the aforesaid, we find that as per the statement annexed by the assessee with the return, they indicated that as per the one time settlement with the Financial Institute, they were required to pay 8.5 Crores on or before 30.6.92 and one of the conditions of the settlement was that if the amount is not paid by the due date then waiver of interest would be forfeited and liquidated damages would also be imposed.
Admittedly, the assessee did not abide by the terms of the one time settlement, could not pay the entire due of 8.5 Crores on or before 30.6.92, they paid it only on 7.4.1993. Till filing of the return they had only paid a sum of Rs. 5.25 Crores and the deduction claimed in the earlier year was deducted and the total deduction claimed was Rs. 3,33,25,278/- and thereafter under the apprehension that as they have violated the one time settlement, therefore, they are liable to pay compound interest and liquidated damages, the statement was made in the return. However, the anticipation of the assessee at the time of the filing of the return was because of the fact that they have violated the one time settlement, but it was only after the assessment was over that on 29.6.1994 and on 31.3.1995 that the fact about waiver of interest and liquidated damages by the Financial Institute was known to be incorrect.
It was, therefore, a case whether under the apprehension that due to violation of the one term settlement the appellant was liable to pay compound interest and liquidated damages they made certain statement in the return and that too when they were not liable to pay any tax due no income having accrued on account of sustained loss, therefore, in the facts and circumstances of the case, we are of the considered view that it is not a case where an inaccurate or statement is made deliberately or there is deliberate concealment of fact by the appellant. The error seems to be bonafide and, therefore, in the facts of the case, and in view of the law laid down by the Supreme Court and detailed hereinabove, we are of the considered view that the penalty could not have been imposed particularly when on the mistake on the part of the Chartered Accountant, the penalty of Rs. 3,30,195/- has been made. Accordingly, we answer the substantial question by holding that the Tribunal committed an error in affirming the penalty imposed by the Assessing Officer. The Tribunal should have accepted the explanation and held that there is no deliberate attempt on the part of the assessee/appellant in making incorrect statement or giving fact and the benefit of this should have been given to the assessee in the light of the law as discussed hereinabove.
Accordingly, the order passed by the Tribunal in this regard stands quashed.
The appeal stands allowed and disposed of.