Supreme Court on deletion of penalty imposed under section 271(1)(c) of IT Act, 1961
The penalty spoken of in section 271(1)(c) is neither criminal nor quasi criminal but a civil liability; albeit a strict liability; such liability being civil in nature, mens rea is not essential.
SUPREME COURT OF INDIA
CIT
v.
Atul Mohan Bindal
Civil Appeal No. 5769 of 2009
August 24, 2009
RELEVANT EXTRACTS:
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4. Atul Mohan Bindal - assessee filed return of his income for Assessment Year 2002-03 on August 8, 2002 declaring his total income Rs.1,98,50,021/-. In the assessment proceedings u/s 143, a notice alongwith questionnaire was issued to him by the Assessing Officer on November 29, 2002. Pursuant thereto, assessee attended the assessment proceedings and furnished the requisite details. During the assessment proceedings, it transpired that assessee worked with M/s DHL International(S) PTE Ltd.,Singapore during the previous year and was paid salary in Singapore amounting to US$ 36,680.79 equivalent to Rs.17,81,952/-. The assessee explained that an amount of US $ 8199.87 (Rs.3,98,350/-) was deducted as tax from the aforesaid salary income and having paid tax on salary income earned in Singapore, he was of the view that the said income was not liable to be included in the total income in India. He however, offered salary income of Rs. 17,81,952/- to be included in his total income. The assessee was also found to have received an amount of Rs. 5,00,000/- from his erstwhile employer M/s Honeywell International (India) Pvt. Ltd. in the previous year. His explanation was that the said amount was exempted under Section 10(10 B) of the Act being retrenchment compensation. According to the Assessing Officer, that amount could not be exempted u/s 10 (10B) as the assessee was not a workman. The assessee also earned interest income of Rs. 22,812/- from Bank of India which was not included by him in the total income but he offered for tax the said amount. The Assessing Officer, accordingly, added Rs.17,81,952/-, Rs.5,00,000/- and Rs.22,812/- to the income declared by the assessee in the return and assessed the total income of assessee at Rs.2,21,54,785/-.Penalty proceedings under Section 271(1)(c) were initiated separately and penalty of Rs.7,75,211/- was imposed under Section 271(1)(c) by the Assessing Officer vide Order dated March 16, 2003.
5. The assessee accepted the order of assessment but challenged the order of penalty in appeal before the CIT (Appeals) XXV, New Delhi.
6. After hearing the assessee and the departmental representative, the CIT (Appeals) XXV, New Delhi allowed the appeal and set aside the order of penalty vide his order dated August 22, 2005. The CIT (appeals) held that the assessee has neither concealed the particulars of his income nor he furnished any inaccurate particulars thereof. This is what the CIT (Appeals) held:
"I believe that this is a case of unintentional and inadvertent omission and therefore, it is not a fit case for levy of penalty u/s. 271(1)(c) of the Act as the assessee has not concealed the particulars of his income; nor has he furnished any inaccurate particulars thereof. As can be seen from a perusal of the impugned order, the penalty has been levied with reference to firstly, the addition disallowing the claim of Retrenchment compensation of Rs.5,00,000/- made u/s 10(10B) of the Act, secondly, the salary received in Singapore for services rendered outside India from December to March 2002 amounting to Rs.17,81,952/- offered by the appellant in the course of assessment proceedings and thirdly the interest income of Rs. 22,812/- also offered for tax in therevised return filed during the course of assessment proceedings. As regards the former, the AO appears to be completely satisfied as regard the genuineness of the reasons that necessitated the revision. As regard the second, the issue involved difference of opinion even between two different benches of the Apex Court, and thirdly, the A.O again seems to be satisfied about the appellant's reply in this connection. In any case, the additions were made on the basis of the particulars furnished by the appellant and not discovered independently by the A.O.
5.1 That the appellant had a bona fide belief of the non-taxability of the salary income earned in Singapore where tax- withholding had taken place and India had DTAA with Singapore, so he did not include this receipt in his salary income cannot be rejected out of hand. During assessment proceedings however, assessee offered this salary receipt for taxation as per IT Act, 1961. Therefore, an amount of Rs. 17,81,952/- was included in the total income of the assessee. In such setting of facts, I am afraid, the impugned addition may not lead to concealment of income or furnishing of inaccurate particulars thereof."
9. The revenuel filed appeal u/s 260A before the High Court of Delhi. The High Court considered the question whether the Assessing Officer had recorded a valid satisfaction for initiating penalty proceedings under Section 271(1)(c) of the Act. Inter alia, relying upon a decision of that Court in Commissioner of Income Tax vs. Ram Commercial Enterprises Ltd. and noticing that Ram Commercial Enterprises has been approved by this Court in Dilip N. Shroff vs. Joint Commissioner of Income Tax (2007) 291 ITR 519 (SC), and T. Ashok Pai vs. Commissioner of Income Tax2, held that from the reading of the assessment order, it was not discernible as to why the Assessing Officer chose to initiate proceedings against the assessee and under which part of Section 271(1)(c). The High Court, therefore, accepted the view of the Tribunal and CIT (Appeals) and dismissed the appeal of the Revenue with cost of Rs. 5,000/-.
10. Section 271(1)(c) as was operative during the relevant year reads thus:
"271. (1) If the Assessing Officer or the (***) (Commissioner (Appeals) in the course of any proceedings under this Act , is satisfied that any person.
(a)
(b)
(c) has concealed the particulars of his income or (***) furnished inaccurate articulars of such income, he may direct that such person shall pay by way of penalty,
(i) .............
(ii)............
(iii) in the cases referred to in clause (c), in addition to any tax 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.
(***)
(Explanation 1. Where in respect of any facts material to the computation of the total income of any person under this Act.
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the (**) (Commissioner (Appeals) to be false, or
(B) such person offers an explanation which he is not able to substantiate ( and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him), then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub- section, be deemed to represent the income in respect of which particulars have been concealed.
11. A close look at Section 271(1) (c) and Explanation (1) appended thereto would show that in the course of any proceedings under the Act, inter alia, if the Assessing Officer is satisfied that a person has concealed the particulars of his income for furnished inaccurate particulars of such income, such person may be directed to pay penalty. The quantum of penalty is prescribed in Clause (iii). Explanation 1, appended to section 271(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false or the explanation offered by him is not substantiated and he fails to prove that such explanation is bona fide and that all the facts relating the same and material to the computation of his total income has been disclosed by him, for the purposes of Section 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income. The penalty spoken of in Section 271(1)(c) is neither criminal nor quasi criminal but a civil liability; albeit a strict liability. Such liability being civil in nature, mens rea is not essential.
12. In the case of Union of India and Ors. vs. Dharamendra Textile Processors and Ors (2008) 306 ITR 277 , a three judge Bench of this Court held that Dilip N. Shroff did not lay down correct law as the difference between Section 271(1)(c) and Section 276(c) of the Act was lost sight of. The Court held that the explanation appended to Section 271(1)(c) indicates element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The Court held thus:
"The Explanations appended to Section 271(1)(c) of the Income Tax Act, 1961, indicate the elements of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The judgment in Dilip N. Shroff case (supra) has not considered the effect and relevance of Section 276(c) of the I.T. Act. The object behind the enactment of Section 271(1)(c) read with Explanations indicates that the Section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276 (c)."
15. Insofar as the present case is concerned, as noticed above, the High Court relied upon its earlier decision in Ram Commercial Enterprises which is said to have been approved by this Court in Dililp N. Shroff. However, Dillip N. Shroff has been held to be not laying down good law in Dharamendra Textiles. Dharamendra Textiles is explained by this Court in Rajasthan Spining and Weaving Mills. Having thoughtfully considered the matter, in our judgment, the matter needs to be reconsidered by the High Court in the light of the decisions of this Court in Dharamendra Textiles and Rajasthan Spinning and Weaving Mills.
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