Doc v. Reliance Petroproducts Pvt. Ltd.[1] Wherein It Has Been Held

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1370 OF 2017 Vijay Bhagwandas Raheja ….Appellant V/s.Deputy Commissioner of Income TaxCentral Circle – 29 and Anr.…Respondents ---- Mr. K. Gopal a/w Ms. Neha Paranjape and Mr. Akhilesh Deshmukh forAppellant.Mr. Akhileshwar Sharma for Respondents. ---- CORAM : K.R. SHRIRAM & DR. NEELA GOKHALE, JJ. DATED : 7[th] FEBRUARY 2024 P.C. : 1.Appellant an architect by profession filed, on 28[th] September2010, his return of income for the Assessment Year 2010-11 declaring hisincome as Rs.15,00,23,830/-. The return was accompanied withComputation of Income, Balance Sheet and Profit and Loss Account also.The return of appellant was selected for scrutiny assessment. Appellantrealised that while filing his return of income he had declared long termcapital gain on sale of property at Bangalore for Rs.8,41,94,374/- afterindexation. Whereas it should have been shown as short term capital gainbecause appellant had claimed depreciation with respect to the saidproperty in earlier assessment years. Appellant therefore filed a letter dated26[th] November 2012 providing the working of short term capital gain.Appellant declared that the short term capital gain would be Rs.11,18,40,291/-. Appellant then filed revised computation of totalincome declaring the short term capital gain for tax and paid the entirecapital gains tax. It is appellant’s case that during the assessmentproceedings appellant received notice dated 22[nd] November 2012 underSection 142(1) of the Income Tax Act, 1961 (the Act). Respondent No.1called upon appellant to show cause as to why the gains on sale of guesthouse at Bangalore should not be considered to be short term capital gain asdepreciation had been claimed in the earlier years. Appellant is candid thatit is at that time it came to light that there was an error in treating the gainon sale of the property at Bangalore as long term capital gain. 2.Notwithstanding appellant’s explanation as to the error incomputation and appellant’s explanation that he had not furnishedinaccurate particulars of capital gains and the fact that the taxes have beenpaid treating the gain on sale of the said property as short term capital gain,the Assessing Officer (A.O.) initiated penalty proceedings and imposedpenalty under Section 271(1)(c) of the Act, levying a penalty ofRs.3,44,29,216/- for filing inaccurate particulars of income at the rate of200% of alleged tax sought to be evaded. We have to note that in the orderimposing penalty there is no reason given why the penalty should be 200%when the minimum penalty is prescribed at only 100% of tax sought to beevaded. 3.The A.O. has levied penalty only for the reason that assesseerevised its computation of income during assessment proceedings and aftershow cause notice and if the case was not selected for scrutiny assesseecould have escaped with his intention of evading tax and therefore assesseehas deliberately furnished inaccurate particulars of income. In fact, this isthe submissions that Mr. Sharma also made while opposing the appeal. 3.The A.O. has levied penalty only for the reason that assesseerevised its computation of income during assessment proceedings and aftershow cause notice and if the case was not selected for scrutiny assesseecould have escaped with his intention of evading tax and therefore assesseehas deliberately furnished inaccurate particulars of income. In fact, this isthe submissions that Mr. Sharma also made while opposing the appeal. 4.Aggrieved by the order dated 19[th] July 2013 appellant preferredan appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. TheCIT(A) by an order dated 19[th] February 2014 allowed the appeal. Appellantreiterated before the CIT(A) that the error in declaring the gain arising ontransfer of guest house at Bangalore was due to a bonafide impression thatsince appellant had held the asset for more than three years it is a long termcapital asset and therefore any gain arising on transfer of long term capitalasset will result in long term capital gains with all the benefits attached to itsuch as indexation and lower tax rate of 20%. It was explained that underthis bonafide belief appellant filed the return of income and declared a gainas long term capital gain. It was also submitted that before any show causenotice was served the error was noticed and revised computation of incomewas filed and the gain was declared as short term capital gain. Appellantalso relied on the judgment of the Hon’ble Apex Court in Commissioner ofIncome Tax vs. Reliance Petroproducts Pvt. Ltd.[1] wherein it has been held that mere making of a claim, which is not sustainable in law, will notamount to furnishing of inaccurate particulars of income. The CIT(A)accepted these submissions and allowed the appeal. 5.Against the said order Revenue preferred an appeal before theITAT and the ITAT by an order pronounced on 16[th] December 2015 allowedthe appeal of the Revenue but reduced the penalty from 200% to 100%.Strangely, the ITAT has not even considered the judgment of the Hon’bleApex Court in Reliance Petroproducts Pvt. Ltd. (supra). 6.It is against this order of the ITAT pronounced on 16[th] December2015 this appeal has been preferred by assessee. The appeal was admittedon 29[th] January 2020 and the following three substantial questions of lawwere framed. QUESTIONS OF LAW (i) Whether the Tribunal is correct in law in reversing the orderpassed by the CIT(A) and thereby confirming the levy ofconcealment penalty? (ii) Whether the Tribunal is correct in law in upholding the actionof respondent No.1 in levying concealment penalty under Section271(1)(c) of the Income Tax Act, 1961 on the addition made onaccount of mistake in treating the income from transfer ofdepreciable asset as long term capital gain instead of short termcapital gain as per provisions of Section 50 of the Act? (iii) Whether the Tribunal is correct in law confirming the levy ofpenalty under Section 271(1)(c) of the Act without appreciatingthat appellant has neither concealed any particulars of income norfurnished any inaccurate particulars of income? In our view all these three questions can be answered together. Section 271(1)(c) of the Act reads as under : xxxxxxxxxx (c) has concealed the particulars of his income or furnishedinaccurate particulars of such income, or xxxxxxxxxx (iii) Whether the Tribunal is correct in law confirming the levy ofpenalty under Section 271(1)(c) of the Act without appreciatingthat appellant has neither concealed any particulars of income norfurnished any inaccurate particulars of income? In our view all these three questions can be answered together. Section 271(1)(c) of the Act reads as under : xxxxxxxxxx (c) has concealed the particulars of his income or furnishedinaccurate particulars of such income, or xxxxxxxxxx 8.As held by the Hon’ble Apex Court in Reliance PetroproductsPvt. Ltd. (supra), in order to be covered under this provision, there has to beconcealment of the particulars of income of assessee or assessee must havefurnished inaccurate particulars of his income. It is not Revenue’s case thatthere was any concealment of income. The entire basis is that by initiallyfiling the return of income showing gain made from the sale of the propertyat Bangalore as long term capital gain, assessee has furnished inaccurateparticulars of income. Admittedly, no information given in the return wasfound to be incorrect or inaccurate. It is not as if any statement made orany detail supplied was found to be factually incorrect. Submitting anincorrect claim in law of long term capital gain would not tantamount tofurnishing inaccurate particulars. We should also note that the assessmentorder itself was passed after assessee furnished its revised computation ofincome. A mere making of a claim which is not sustainable in law, by itself,will not amount to furnishing inaccurate particulars regarding income ofassessee. Such claim made in the returns cannot amount to inaccurateparticulars. We find support for this view in Reliance Petroproducts Pvt. Ltd.(supra) where Paragraph Nos. 8 to 12 read as under : xxxxxxxxxx 8. A glance at this provision would suggest that in order to becovered, there has to be concealment of the particulars of theincome of the assessee. Secondly, the assessee must havefurnished inaccurate particulars of his income. The present isnot a case of concealment of the income. That is not the caseof the Revenue either. However, the learned counsel forRevenue suggested that by making incorrect claim for theexpenditure on interest, the assessee has furnished inaccurateparticulars of the income. As per Law Lexicon, the meaning ofthe 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 claimmade. It is an admitted position in the present case that noinformation given in the return was found to be incorrect orinaccurate. It is not as if any statement made or any detailsupplied was found to be factually incorrect. Hence, at least,prima facie, the assessee cannot be held guilty of furnishinginaccurate particulars. The Learned Counsel argued that"submitting an incorrect claim in law for the expenditure oninterest would amount to giving inaccurate particulars of suchincome". We do not think that such can be the interpretationof the concerned words. The words are plain and simple. Inorder to expose the assessee to the penalty unless the case isstrictly covered by the provision, the penalty provision cannotbe invoked. By any stretch of imagination, making anincorrect claim in law cannot tantamount to furnishinginaccurate particulars. In CIT v. Atul Mohan Bindal [2009] 9SCC 589, where this court was considering the sameprovision, the court observed that the Assessing Officer has tobe satisfied that a person has concealed the particulars of hisincome or furnished inaccurate particulars of such income.This Court referred to another decision of this Court in Unionof India v. Dharamendra Textile Processors [2008] 13 SCC369 as also, the decision in Union of India v. Rajasthan Spg. &Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that:- "13. It goes without saying that for applicability ofSection 271(1)(c), conditions stated therein mustexist." 9. Therefore, it is obvious that it must be shown that theconditions under Section 271(1)(c) must exist before thepenalty is imposed. There can be no dispute that everythingwould depend upon the return filed because that is the onlydocument, where the assessee can furnish the particulars ofhis income. When such particulars are found to be inaccurate,the liability would arise. In Dilip N. Shroff v. Joint CIT [2007] 6 SCC 329, this court explained the terms "concealment ofincome" and "furnishing inaccurate particulars". The Courtwent on to hold therein that in order to attract the penaltyunder Section 271(1)(c), mens rea was necessary, asaccording to the court, the word "inaccurate" signified adeliberate act or omission on behalf of the assessee. It went onto hold that clause (iii) of section 271(1)(c) provided for adiscretionary jurisdiction upon the assessing authority,inasmuch as the amount of penalty could not be less than theamount of tax sought to be evaded by reason of suchconcealment of particulars of income, but it may not exceedthree times thereof. It was pointed out that the term"inaccurate particulars" was not defined anywhere in the Actand, therefore, it was held that furnishing of an assessment ofthe value of the property may not by itself be furnishinginaccurate particulars. It was further held that the AssessingOfficer must be found to have failed to prove that hisexplanation is not only not bona fide but all the facts relatingto the same and material to the computation of his incomewere not disclosed by him. It was then held that theexplanation must be preceded by a finding as to how and inwhat manner, the assessee had furnished the particulars of hisincome. The court ultimately went on to hold that the elementof mens rea was essential. It was only on the point of mensrea that the judgment in Dilip N. Shroff v. Joint CIT was upset.In Union of India v. Dharamendra Textile Processors, afterquoting from Section 271 extensively and also consideringSection 271(1)(c), the Court came to the conclusion that sinceSection 271(1)(c) indicated the element of strict liability onthe assessee for the concealment or for giving inaccurateparticulars while filing return, there was no necessity of mensrea. The Court went on to hold that the objective behindenactment of Section 271(1)(c) read with Explanationsindicated with the said section was for providing remedy forloss of revenue and such a penalty was a civil liability and,therefore, willful concealment is not an essential ingredientfor attracting civil liability as was the case in the matter ofprosecution under Section 276-C of the Act. The basic reasonwhy decision in Dilip N. Shroff v. Joint CIT was overruled bythis court in Union of India v. Dharamendra Textile Processorswas that according to this court the effect and differencebetween Section 271(1)(c) and Section 276-C of the Act waslost sight of in case of Dilip N. Shroff v. Joint CIT. However, itmust be pointed out that in Union of India v. DharmendraTextile Processors, no fault was found with the reasoning inthe decision in Dilip N. Shroff v. Joint CIT, where the courtexplained the meaning of the terms "conceal" and inaccurate".It was only the ultimate inference in Dilip N. Shroff v. JointCIT to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in DilipN. Shroff v. Joint CIT was overruled. 10. We are not concerned in the present case with themens rea. However, we have to only see as to whether in thiscase, as a matter of fact, the assessee has given inaccurateparticulars. In Webster's Dictionary, the word "inaccurate" hasbeen defined as : "not accurate, not exact or correct; not according totruth; erroneous; as an inaccurate statement, copy ortranscript". the penalty under Section 271(1)(c) that the decision in DilipN. Shroff v. Joint CIT was overruled. 10. We are not concerned in the present case with themens rea. However, we have to only see as to whether in thiscase, as a matter of fact, the assessee has given inaccurateparticulars. In Webster's Dictionary, the word "inaccurate" hasbeen defined as : "not accurate, not exact or correct; not according totruth; erroneous; as an inaccurate statement, copy ortranscript". 11.We have already seen the meaning of the word"particulars" in the earlier part of this judgment. Reading thewords in conjunction, they must mean the details supplied inthe return, which are not accurate, not exact or correct, notaccording to truth or erroneous. We must hasten to add herethat in this case, there is no finding that any details suppliedby the assessee in its return were found to be incorrect orerroneous or false. Such not being the case, there would beno question of inviting the penalty under Section 271(1)(c)of the Act. A mere making of the claim, which is notsustainable in law, by itself, will not amount to furnishinginaccurate particulars regarding the income of the assessee.Such claim made in the return cannot amount to theinaccurate particulars. 12. It was tried to be suggested that Section 14A of theAct specifically excluded the deductions in respect of theexpenditure incurred by the assessee in relation to incomewhich does not form part of the total income under the Act. Itwas further pointed out that the dividends from the sharesdid not form the part of the total income. It was, therefore,reiterated before us that the Assessing Officer had correctlyreached the conclusion that since the assessee had claimedexcessive deductions knowing that they are incorrect; itamounted to concealment of income. It was tried to beargued that the falsehood in accounts can take either of thetwo forms; (i) an item of receipt may be suppressedfraudulently; (ii) an item of expenditure may be falsely (or inan exaggerated amount) claimed, and both types attempt toreduce the taxable income and, therefore, both types amountto concealment of particulars of one's income as well asfurnishing of inaccurate particulars of income. We do notagree, as the assessee had furnished all the details of itsexpenditure as well as income in its return, which details, inthemselves, were not found to be inaccurate nor could beviewed as the concealment of income on its part. It was up tothe authorities to accept its claim in the Return or not. Merelybecause 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 penaltyunder Section 271(1)(c). If we accept the contention of theRevenue then in case of every Return where the claim madeis not accepted by Assessing Officer for any reason, theassessee will invite penalty under Section 271(1)(c). That isclearly not the intendment of the Legislature. claim was not accepted or was not acceptable to the Revenue,that by itself would not, in our opinion, attract the penaltyunder Section 271(1)(c). If we accept the contention of theRevenue then in case of every Return where the claim madeis not accepted by Assessing Officer for any reason, theassessee will invite penalty under Section 271(1)(c). That isclearly not the intendment of the Legislature. 9.The sum and substance of assessee’s case is that assessee hadneither concealed any income nor furnished any incorrect particulars ofsuch income. Admittedly, assessee had shown correct sale consideration ofthe property and also shown correct cause of depreciation in the return ofincome, so no income as such has been concealed. The only thing thatassessee did was claiming a particular income (Capital Gain) under differenthead namely under long term capital gains as against short term capitalgains. Assessee claims that it was done under bonafide belief that the assetwas a long term asset as it was held for more than three years. Just becauseassessee was a director in some companies cannot be a reason to state thatclaiming this short term capital gain as long term capital gain was to avoidpayment of any tax. In any event as noted earlier the entire short termcapital gain was paid even before the assessment order was passed. A meremaking of claim, which is not sustainable in law, by itself, will not amountto furnishing incorrect particulars regarding the income of assessee. Such aclaim made in the return cannot amount to furnishing inaccurate particularsas held by the Hon’ble Apex Court in Reliance Petroproducts Pvt. Ltd.(supra). 10.In the circumstances, in our view, the tribunal was not correctin interfering with the order passed by the CIT(A). All questions areanswered accordingly in the facts and circumstances of the present case. 11.Appeal allowed. No order as to costs. (DR. NEELA GOKHALE, J.) (K.R. SHRIRAM, J.)