Landmark Judgment by Supreme Court On Penalty u/s 271(1)(c). Dharnendra ....

Landmark Judgment by Supreme Court On Penalty u/s 271(1)(c) in Favour Of Taxpayers !

March 27, 2010 

Very recent judgment of Supreme Court in CIT vs Reliance Petroproducts Pvt Ltd delivered on 17/3/2010, is a great relief to taxpayers as it has cleared the confusion in minds of Authorities regarding the imposistion of penalty. In fact the decision of Apex Court in Dharmendra Textile embolden Authorities to the extent that penalty proceeding was turned into just a procedure contrary to the scheme framed by law makers .  In the very recent judgment, the facts of the case was as under

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.

5.         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

The Supreme Court made following observation while dismissing the  petition by Income Tax Department.

1. For every penalty u/s 271(1)(c) , one of the two conditions must be satisfied

• there must be concealment ;   or
• assessee must have furnished inaccurate particulars of income.

If none of these are alleged by A.O vide his order of assessment, penalty u/s 271(1)(c) can not be imposed.

2. The decision of Supreme Court in Dharmendra Textile Processors & Others [2008] 306 ITR 277 merely overrules the decision of Dilip N Shroff vs JCIT  [2007] 291 ITR 519 (SC) related to mense rea i.e A.O need noot prove that the concealment or inaccurate particluars of income was done by assessee with an intention to evade tax and in guilt mind. The decision in Dharmendra Textile does not make the penalty proceeding a mere procedure , but the two conditions given in section 271(1)(c) are fundamental for imposing penalty.

3. The word "inaccurate particulars"  must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous.

4. Most important was this observation

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.

INCOME TAX REPORTS (ITR) HIGHLIGHTS ISSUE DATED 29-3-2010 Volume 322 : Part 1

INCOME TAX REPORTS (ITR) HIGHLIGHTS

ISSUE DATED 29-3-2010

Volume 322 : Part 1

 

 

SUPREME COURT JUDGMENTS

>> Premium paid to bank to ensure delivery of foreign exchange on stipulated dates at predetermined rates not admissible as interest on capital borrowed for purposes of business : Asst. CIT v. Elecon Engineering Co. Ltd. p. 20

>> Making incorrect claim does not amount to concealment of "particulars" for attracting penalty u/s 271(1)(c) : CIT v. Reliance Petroproducts P. Ltd. p. 158

HIGH COURT JUDGMENTS

>> Personnel deputed to foreign country for fulfilment of contract for design and testing of software in foreign country entitled to deduction u/s 80HHE : CIT v. Information Architects (Bom) p. 1

 

>> Roll over premium to mitigate risk due to fluctuation in foreign exchange rate deductible u/s 36(1)(iii) : Elecon Engineering Co. Ltd. v. Asst. CIT (Guj) p. 11

>> Canteen for workers inside factory premises constitutes factory building entitled to higher rate of depreciation : CIT v. Bajaj Auto Ltd. (Bom) p. 29

>> Advertisement for appointment of dealer not akin to advertisement for recruitment of personnel not covered by s 37(3B)(ii) : CIT v. Bajaj Auto Ltd. (Bom) p. 29

>> Amount received as compensation is capital receipt : S. Zoraster and Co. v. CIT (Raj) 35

>> Valuation of property determined for AY 1971-72 and attaining finality : Same valuation applicable for subsequent years : CIT v. Rawal Rajeshwarsingh of Samod (Raj) p. 39

>> Deeming provision that where any part of company's business consists of purchase and sale of shares, company deemed to carry on speculation business applies whether loss or profit arises from such transaction : CIT v. Lokmat Newspapers P. Ltd. (Bom) p. 43

>> In the case of companies under liquidation, s 104 has no application : CIT v. Golecha Properties P. Ltd. (Raj) p. 51

>> Loss of earlier assessment year to be set off against profit of assessment year 1993-94 to determine claim of deduction u/s 80-I : Daya Engineering Works Ltd. v. CIT (Patna) p. 55

>> Amount received on sale of levy free sugar is capital receipt not assessable : CIT v. Tiruttani Co-operative Sugar Mills Ltd. (Mad) p. 59

>> Rent received by assessee engaged in development and sale of property assessable as income from property : CIT v. Haryana Urban Development Authority (P&H) p. 61

>> Beneficial owner of buses entitled to depreciation : CIT v. Smt. A. Sivakami (Mad) p. 64

>> AO to proceed whether revision was justified depending upon pending decision of Settlement Commission : CIT v. Vysya Bank (Karn) p. 69

>> Tribunal deleting additions on ground exact material in support of assessment not brought on record : Finding of fact : CIT v. Dr. A. P. Bahal (Raj) p. 71

>> Wrong claim for deduction does not amount to concealment of income : CIT v. Shahabad Co-op. Sugar Mills Ltd. (P&H) p. 73

>> Petitioner guarantor for loan taken by director of sister company for that company, recovery from petitioner valid : Molly Trading Co. P. Ltd. v. UOI (Bom) p. 76

>> No deliberate default where assessee on realising mistake committed by counsel accepting decision of AO : CIT v. Sidhartha Enterprises (P&H) p. 80

>> Assessee deducted tax at source and deposited with Government and tax deduction certificates sent to persons on next day : Penalty cannot be imposed : CIT v. Ashapura Garments P. Ltd. (Bom) p. 83

>> Assessee not maintaining accounts : Penalty cannot be levied u/s 271B : CIT v. S. K. Gupta and Co. (All) p. 86

>> Tribunal finding additions to income were adjusted against value of closing stock and explanation of assessee was not false : Cancellation of penalty justified : CIT v. Hindustan Computers Ltd. (All) p. 88

>> Notice for reassessment not valid where no material to show such escapement : Shankarlal Nagji and Co. v. ITO (Guj) p. 90

>> Deletion of additions did not represent undisclosed income : Justified : CIT v. Digvijay Chemicals (All) p. 95

>> Tribunal not considering reasons forming basis of order of Commissioner : Matter remanded : CIT v. KNR Patel (JV) (Bom) p. 97

>> Amount received under voluntary retirement scheme in excess of five lakhs of rupees entitled to relief u/s 89 : CIT v. T. K. Paliwal (Raj) p. 101, CIT v. S. N. Sharma (Raj) p. 105 and CIT v. Rabindranath Lal (Raj) p. 119

>> Commissioner directing payment of 50 per cent. of demand till disposal of appeal by CIT (Appeals) : Release of attachment subject to compliance with direction of Commissioner : Jagdish Sharma v. Union of India (Raj) p. 108

>> Rent : Apportionment between business income and income from house property : Finding of fact : CIT v. Mysore Intercontinental Hotels P. Ltd. (Karn) p. 116

>> Single donation of more than five per cent. for construction of one room in a hostel managed by particular community not a ground to deny renewal of approval of institution : Shri Sardarmal Sancheti Charitable Trust v. Union of India (Raj) p. 167

>> Department accepting nursing home run by two individuals not an AOP : No new materials discernible nursing home cannot be treated as an AOP : Dr. Narendra Prasad v. CIT (Patna) p. 171

AUTHORITY FOR ADVANCE RULINGS

>> Non-resident not liable to tax in India for marketing licensed software products through independent, non-exclusive, third party resellers : Dassault Systems K. K., In re p. 125

STATUTES

From our Reporter at the Supreme Court :

>> Appeal to High Court : Whether order for earlier year taken on appeal p. 1

>> Appeal to High Court : Dismissal on grounds of delay : Matter remitted to consider question of law p. 1

>> Bad debt : Whether writing off in books of assessee sufficient p. 2

>> Block assessment : Cross examination of witness p. 2

>> Block assessment : Income disclosed in regular assessment p. 2

>> Block assessment : Last panchnama for purpose of reckoning limitation p. 3

>> Block assessment : Mistake in computation of undisclosed income p. 3

>> Block assessment : Evidence relatable to search whether available for addition and penalty whether justified p. 3

>> Block assessment : Whether barred by time reckoning from date of last panchnama p. 4

>> Block assessment : Mere revocation of prohibitory order whether relevant for reckoning limitation p. 4

>> Book profits : Scope of interference by Assessing Officer p. 4

>> Book profits : Annual value of property : Whether rent paid by sub-lessee includible p. 4

>> Deduction : Whether allowable on income from dividend p. 4

>> Business : Single or multiple businesses p. 5

>> Business : When business set up p. 5

>> Business expenditure : Increased liability to interest on external commercial borrowings p. 5

>> Business expenditure : Liability owing to fluctuation in foreign exchange rate p. 5

>> Business expenditure : Travelling expenses of directors : Corporate club membership fees p. 6

>> Business expenditure : Whether salary, stamp duty, transfer fees and safe custody charges directly related to earning of dividend for the purpose of section 80M p. 6

>> Business expenditure : Commission payment p. 6

>> Business expenditure : Commission whether deductible p. 7

>> Business expenditure : Disallowance under section 14A on estimate p. 7

>> Business income : Interest from surplus funds temporarily invested in loans and advances p. 7

>> Business loss : Whether loss was trading loss p. 7

>> Capital gains : Eligibility for deduction under section 54EC on gains from sale of factory shed p. 8

>> Capital gains : Exemption whether allowable where proceeds invested in two flats p. 8

>> Capital gains : Purchase of two residential units p. 8

 

>> Cash credits : Persons to whom summons issued delaying proceedings, whether ground to make addition in hands of assessee p. 8

 

 

INCOME TAX REPORTS (ITR) HIGHLIGHTS ISSUE DATED 29-3-2010 Volume 322 : Part 1

INCOME TAX REPORTS (ITR) HIGHLIGHTS

ISSUE DATED 29-3-2010

Volume 322 : Part 1

 

 

SUPREME COURT JUDGMENTS

>> Premium paid to bank to ensure delivery of foreign exchange on stipulated dates at predetermined rates not admissible as interest on capital borrowed for purposes of business : Asst. CIT v. Elecon Engineering Co. Ltd. p. 20

>> Making incorrect claim does not amount to concealment of "particulars" for attracting penalty u/s 271(1)(c) : CIT v. Reliance Petroproducts P. Ltd. p. 158

HIGH COURT JUDGMENTS

>> Personnel deputed to foreign country for fulfilment of contract for design and testing of software in foreign country entitled to deduction u/s 80HHE : CIT v. Information Architects (Bom) p. 1

 

>> Roll over premium to mitigate risk due to fluctuation in foreign exchange rate deductible u/s 36(1)(iii) : Elecon Engineering Co. Ltd. v. Asst. CIT (Guj) p. 11

>> Canteen for workers inside factory premises constitutes factory building entitled to higher rate of depreciation : CIT v. Bajaj Auto Ltd. (Bom) p. 29

>> Advertisement for appointment of dealer not akin to advertisement for recruitment of personnel not covered by s 37(3B)(ii) : CIT v. Bajaj Auto Ltd. (Bom) p. 29

>> Amount received as compensation is capital receipt : S. Zoraster and Co. v. CIT (Raj) 35

>> Valuation of property determined for AY 1971-72 and attaining finality : Same valuation applicable for subsequent years : CIT v. Rawal Rajeshwarsingh of Samod (Raj) p. 39

>> Deeming provision that where any part of company's business consists of purchase and sale of shares, company deemed to carry on speculation business applies whether loss or profit arises from such transaction : CIT v. Lokmat Newspapers P. Ltd. (Bom) p. 43

>> In the case of companies under liquidation, s 104 has no application : CIT v. Golecha Properties P. Ltd. (Raj) p. 51

>> Loss of earlier assessment year to be set off against profit of assessment year 1993-94 to determine claim of deduction u/s 80-I : Daya Engineering Works Ltd. v. CIT (Patna) p. 55

>> Amount received on sale of levy free sugar is capital receipt not assessable : CIT v. Tiruttani Co-operative Sugar Mills Ltd. (Mad) p. 59

>> Rent received by assessee engaged in development and sale of property assessable as income from property : CIT v. Haryana Urban Development Authority (P&H) p. 61

>> Beneficial owner of buses entitled to depreciation : CIT v. Smt. A. Sivakami (Mad) p. 64

>> AO to proceed whether revision was justified depending upon pending decision of Settlement Commission : CIT v. Vysya Bank (Karn) p. 69

>> Tribunal deleting additions on ground exact material in support of assessment not brought on record : Finding of fact : CIT v. Dr. A. P. Bahal (Raj) p. 71

>> Wrong claim for deduction does not amount to concealment of income : CIT v. Shahabad Co-op. Sugar Mills Ltd. (P&H) p. 73

>> Petitioner guarantor for loan taken by director of sister company for that company, recovery from petitioner valid : Molly Trading Co. P. Ltd. v. UOI (Bom) p. 76

>> No deliberate default where assessee on realising mistake committed by counsel accepting decision of AO : CIT v. Sidhartha Enterprises (P&H) p. 80

>> Assessee deducted tax at source and deposited with Government and tax deduction certificates sent to persons on next day : Penalty cannot be imposed : CIT v. Ashapura Garments P. Ltd. (Bom) p. 83

>> Assessee not maintaining accounts : Penalty cannot be levied u/s 271B : CIT v. S. K. Gupta and Co. (All) p. 86

>> Tribunal finding additions to income were adjusted against value of closing stock and explanation of assessee was not false : Cancellation of penalty justified : CIT v. Hindustan Computers Ltd. (All) p. 88

>> Notice for reassessment not valid where no material to show such escapement : Shankarlal Nagji and Co. v. ITO (Guj) p. 90

>> Deletion of additions did not represent undisclosed income : Justified : CIT v. Digvijay Chemicals (All) p. 95

>> Tribunal not considering reasons forming basis of order of Commissioner : Matter remanded : CIT v. KNR Patel (JV) (Bom) p. 97

>> Amount received under voluntary retirement scheme in excess of five lakhs of rupees entitled to relief u/s 89 : CIT v. T. K. Paliwal (Raj) p. 101, CIT v. S. N. Sharma (Raj) p. 105 and CIT v. Rabindranath Lal (Raj) p. 119

>> Commissioner directing payment of 50 per cent. of demand till disposal of appeal by CIT (Appeals) : Release of attachment subject to compliance with direction of Commissioner : Jagdish Sharma v. Union of India (Raj) p. 108

>> Rent : Apportionment between business income and income from house property : Finding of fact : CIT v. Mysore Intercontinental Hotels P. Ltd. (Karn) p. 116

>> Single donation of more than five per cent. for construction of one room in a hostel managed by particular community not a ground to deny renewal of approval of institution : Shri Sardarmal Sancheti Charitable Trust v. Union of India (Raj) p. 167

>> Department accepting nursing home run by two individuals not an AOP : No new materials discernible nursing home cannot be treated as an AOP : Dr. Narendra Prasad v. CIT (Patna) p. 171

AUTHORITY FOR ADVANCE RULINGS

>> Non-resident not liable to tax in India for marketing licensed software products through independent, non-exclusive, third party resellers : Dassault Systems K. K., In re p. 125

STATUTES

From our Reporter at the Supreme Court :

>> Appeal to High Court : Whether order for earlier year taken on appeal p. 1

>> Appeal to High Court : Dismissal on grounds of delay : Matter remitted to consider question of law p. 1

>> Bad debt : Whether writing off in books of assessee sufficient p. 2

>> Block assessment : Cross examination of witness p. 2

>> Block assessment : Income disclosed in regular assessment p. 2

>> Block assessment : Last panchnama for purpose of reckoning limitation p. 3

>> Block assessment : Mistake in computation of undisclosed income p. 3

>> Block assessment : Evidence relatable to search whether available for addition and penalty whether justified p. 3

>> Block assessment : Whether barred by time reckoning from date of last panchnama p. 4

>> Block assessment : Mere revocation of prohibitory order whether relevant for reckoning limitation p. 4

>> Book profits : Scope of interference by Assessing Officer p. 4

>> Book profits : Annual value of property : Whether rent paid by sub-lessee includible p. 4

>> Deduction : Whether allowable on income from dividend p. 4

>> Business : Single or multiple businesses p. 5

>> Business : When business set up p. 5

>> Business expenditure : Increased liability to interest on external commercial borrowings p. 5

>> Business expenditure : Liability owing to fluctuation in foreign exchange rate p. 5

>> Business expenditure : Travelling expenses of directors : Corporate club membership fees p. 6

>> Business expenditure : Whether salary, stamp duty, transfer fees and safe custody charges directly related to earning of dividend for the purpose of section 80M p. 6

>> Business expenditure : Commission payment p. 6

>> Business expenditure : Commission whether deductible p. 7

>> Business expenditure : Disallowance under section 14A on estimate p. 7

>> Business income : Interest from surplus funds temporarily invested in loans and advances p. 7

>> Business loss : Whether loss was trading loss p. 7

>> Capital gains : Eligibility for deduction under section 54EC on gains from sale of factory shed p. 8

>> Capital gains : Exemption whether allowable where proceeds invested in two flats p. 8

>> Capital gains : Purchase of two residential units p. 8

 

>> Cash credits : Persons to whom summons issued delaying proceedings, whether ground to make addition in hands of assessee p. 8