M/S Tulip Global Pvt. Ltd., 305, Iiird Floor, Jaipur Tower, Oppositeall India Radio, Jaipur v. Commissioner Of Income Tax, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 352/2017 M/s Tulip Global Pvt. Ltd., 305, Iiird Floor, Jaipur Tower, OppositeAll India Radio, Jaipur Through Its Director Shri Prakash ChandJain ----Appellant Versus Commissioner Of Income Tax, Jaipur ----Respondent For Appellant(s) : Mr. Sanjay Jhanwar with Ms. Archana For Respondent(s): Mr. Siddharth Bapna for Mr. Anil Mehta HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 13/03/2018 Order 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasreversed the conclusion reached by the CIT(A) and allowed theappeal filed by the department. 2.This court while admitting the matter framed the followingquestions of law:- “1. Whether under the facts and circumstancesof the case and in law the order passed by theLd. ITAT reversing the order of CIT(A) andthereby confirming levy of penalty undersection 271(1) (c) of the Act is not perverse?2. Whether under the facts and circumstancesof the case and in law the ITAT was correct inlevyingpenaltyu/s271(1)(c)ofRs.30,63,280/- notwithstanding fact that thecomplete particulars necessary for thecomputation of capital gain were disclosed bythe assessee in the return of income itself?of the case and in law the order passed by theLd. ITAT reversing the order of CIT(A) andthereby confirming levy of penalty undersection 271(1) (c) of the Act is not perverse?2. Whether under the facts and circumstancesof the case and in law the ITAT was correct inlevyingpenaltyu/s271(1)(c)ofRs.30,63,280/- notwithstanding fact that thecomplete particulars necessary for thecomputation of capital gain were disclosed bythe assessee in the return of income itself? 3. Whether under the facts and circumstancesof the case and in law the ITAT was correct inlevying penalty under Section 271(1)(c) in theabsence of any material on record to the effectdisproving/rebutting the explanation of theassessee of having committed bona-fidehuman error in selecting the head forcalculating capital gain?4. Whether there can be a valid levy of penaltyu/s 271(1) (c) of the Act for alleged“Concealment of income” as well as “furnishinginaccurate particulars of income”? 3.Counsel for the appellant contended that while imposing the penalty u/s 271(1)(c) in its notice dated 26[th] February, 2014 andits reply, the assessing officer has observed as under:- “The assessee has truly disclosed each and everydetails required to file ITR, which is evident form thefact that, right financial year(s) i.e. purchase year2009-10 and sale year 2011-12, were selected tocompute the capital gain. However, on the part of tax consultant of the assessee,while using the utility software for preparation ofincome tax return, the selection of head was wronglytaken as long term gain/loss instead of short termgain/loss. This erroneous selection of head has resultedindexation and consequently capital gain was convertedin capital loss. It is further pertinent to note that, the assesseedeposited due taxes in form of advance tax as per itsown calculation of taxable income. Which includedcapital gain arising from sale of immovable property.Perusal of the above shows that the assessee did nothad mala-fide intention and the mistake is due toincorrect selection of head.” 4.It is further contended that the concealing the particulars ofincome which was not there or furnishing inaccurate particulars ofincome is contrary to the decision rendered by the Supreme Courtand he has also taken us to the observations made by the CIT(A)which reads as under:- It is further pertinent to note that, the assesseedeposited due taxes in form of advance tax as per itsown calculation of taxable income. Which includedcapital gain arising from sale of immovable property.Perusal of the above shows that the assessee did nothad mala-fide intention and the mistake is due toincorrect selection of head.” 4.It is further contended that the concealing the particulars ofincome which was not there or furnishing inaccurate particulars ofincome is contrary to the decision rendered by the Supreme Courtand he has also taken us to the observations made by the CIT(A)which reads as under:- “Copy of the letter dated 31.01.2014 (mentioned asdated 13.01.2014 in your honor’s letter) is enclosed forkind reference. The assessing officer has rightlypointed out in the penalty order that even at the timeof assessment proceedings, the assessee through itsA.R. categorically claimed that it had incurred Longterm capital loss on sale of building. In order to substantiate this categorical claim, copies of thepurchase & sale deed were indeed submitted.” 5.He contended that the bonafide of the assessee is very clearthat the total income declared was Rs. 19,92,54,834/- togetherwith income from capital gains Rs. 21,91,843/- on which tax wasalready paid and immediately the response to the notice has beenfiled which has already been referred hereinabove. 6.The CIT(A) while considering the matter has observed asunder:- “3.4. I have also taken a note of the enquiry reportsubmitted by the AO and also duly consideredassessee’s submission along with rejoinder onenquiry reported submitted by the AO. It is fact thatthe details of indexed cost of acquisition with datesare available in the ITR and during the assessmentproceeding assessee had suo moto provided copies ofsale deed and purchase deed to the AO which isevident from foregoing scanned copy. Further, AO hasnot also asked any working of long term capital lossas claimed by the assessee. Ao in the assessmentorder has given the observation that said claim hasbeen made falsely as claimed in the penalty orderwhich is not true as evident from the foregoingscanned copy of the assessment order. It is also afact that assessee’s return was processed and refundafter adjustment was received by it after passing ofassessment order. All these details relevant forcomputation of STCG are already available with theAO in ITR itself, therefore, AO’s contention forpenalty proceeding for furnishing of inaccurateparticulars as well as concealment of particulars ofincome cannot be legally sustained as nowhereassessee’s intention of selecting the wrong head forcalculating Capital Gain is neither doubted by the AOin the assessment order nor facts available on recordlead to such conclusion.” 7.The Tribunal while considering the matter without discussingthe observations made by the CIT(A) has observed as under:- 7. We have heard the rival contention, perused thematerial available on record and gone through theorder of the authorities below. Undisputed facts in thecase are that the assessee had claimed loss on the saleof the property; the assessee has also carried forwardsuch loss. The explanation of the assessee for doing sobefore the ld. CIT(A) was that inadvertently the wrong 7.The Tribunal while considering the matter without discussingthe observations made by the CIT(A) has observed as under:- 7. We have heard the rival contention, perused thematerial available on record and gone through theorder of the authorities below. Undisputed facts in thecase are that the assessee had claimed loss on the saleof the property; the assessee has also carried forwardsuch loss. The explanation of the assessee for doing sobefore the ld. CIT(A) was that inadvertently the wrong key of Computer was pressed which resulted into thismistake. Ld. CIT(A) accepted this explanation on thebasis that all details relevant for computation of capitalgain was duly disclosed in the Income tax Return. Thefactum of disclosing the material facts relevant to thecomputation of capital gain is not disputed by theRevenue. It is settled position of law that a penaltycannot be imposed where the assessee has a bonafideexplanation. Now, the question is whether the assesseein present case has bonafide explanation. Thecontention of the assessee is that due to human error, awrong key of Computer was pressed consequently, inplace short term gain, long term capital loss wascomputed. However, when pointed out by the AO thismistake was detected. There is no dispute if it is ahuman error the explanation can be termed asbonafide, no penalty can be attracted. However, inpresent case no material is placed on record to inferconclusively that it was a human error. The inferencethat it was human error or not would depend uponcircumstances of each case. The Hon’ble SupremeCourt under the similar facts in the case of N.G.Technologies (In Liquidiation) vs. CIT(supra) has upheldthe levy of penalty. We therefore, respectfully followingthe same set aside the order of ld. CIT(A) and restorethe penalty order. Thus, appeal of the Revenue isallowed.” 8.Counsel for the appellant has relied upon the followingdecisions:- Price Waterhouse Coopers (P) Ltd. vs.Commissioner of Income Tax, Kolkata-I;[2012] 348 ITR 306 “20. We are of the opinion, given the peculiar facts ofthis case, that the imposition of penalty on theAssessee is not justified. We are satisfied that theAssessee had committed an inadvertent and bona fideerror and had not intended to or attempted to eitherconceal its income or furnish inaccurate particulars.” Commissioner of Income Tax, Ahmedabad vs.Reliance Petroproducts Pvt. Ltd.; [2010] 322ITR 158 (SC) “7. As against this, Learned Counsel appearing onbehalf of the respondent pointed out that the languageof Section 271(1)(c) had to be strictly construed, thisbeing a taxing statute and more particularly the oneproviding for penalty. It was pointed out that unlessthe wording directly covered the assessee and the factsituation herein, there could not be any penalty underthe Act. It was pointed out that there was noconcealment or any inaccurate particulars regarding the income were submitted in the Return. Section271(1)(c) is as under: 271(1) If the Assessing Officer or the Commissioner(Appeals) or the Commissioner in the course of anyproceedings under this Act, is satisfied that anyperson- “7. As against this, Learned Counsel appearing onbehalf of the respondent pointed out that the languageof Section 271(1)(c) had to be strictly construed, thisbeing a taxing statute and more particularly the oneproviding for penalty. It was pointed out that unlessthe wording directly covered the assessee and the factsituation herein, there could not be any penalty underthe Act. It was pointed out that there was noconcealment or any inaccurate particulars regarding the income were submitted in the Return. Section271(1)(c) is as under: 271(1) If the Assessing Officer or the Commissioner(Appeals) or the Commissioner in the course of anyproceedings under this Act, is satisfied that anyperson- (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income.A glance at this provision would suggest that in orderto be covered, there has to be concealment of theparticulars of the income of the assessee. Secondly,the assessee must have furnished inaccurateparticulars of his income. Present is not the case ofconcealment of the income. That is not the case of theRevenue either. However, the Learned Counsel forRevenue suggested that by making incorrect claim forthe expenditure on interest, the assessee hasfurnished inaccurate particulars of the income. As perLaw Lexicon, the meaning of the word "particular" is adetail or details (in plural sense); the details of aclaim, 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 casethat no information given in the Return was found tobe incorrect or inaccurate. It is not as if any statementmade or any detail supplied was found to be factuallyincorrect. Hence, at least, prima facie, the assesseecannot be held guilty of furnishing inaccurateparticulars. The Learned Counsel argued that"submitting an incorrect claim in law for theexpenditure on interest would amount to givinginaccurate particulars of such income". We do not thinkthat such can be the interpretation of the concernedwords. The words are plain and simple. In order toexpose the assessee to the penalty unless the case isstrictly covered by the provision, the penalty provisioncannot be invoked. By any stretch of imagination,making an incorrect claim in law cannot tantamount tofurnishing inaccurate particulars. In Commissioner ofIncome Tax, Delhi v. Atul Mohan BindalMANU/SC/1496/2009 : 2009 (9) SCC 589 where thisCourt was considering the same provision, the Courtobserved that the Assessing Officer has to be satisfiedthat a person has concealed the particulars of hisincome or furnished inaccurate particulars of suchincome. This Court referred to another decision of thisCourt in Union of India v. Dharamendra TextileProcessors MANU/SC/4448/2008 : 2008 (13) SCC 369as also, the decision in Union of India v. RajasthanSpg. & Wvg. Mills MANU/SC/0786/2009 : 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. 8. Therefore, it is obvious that it must be shown that 13. It goes without saying that for applicability ofSection 271(1)(c), conditions stated therein mustexist. 8. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must existbefore the penalty is imposed. There can be no disputethat everything would depend upon the Return filedbecause that is the only document, where the assesseecan furnish the particulars of his income. When suchparticulars are found to be inaccurate, the liabilitywould arise. In Dilip N. Shroff v. Joint Commissioner ofIncome Tax, Mumbai and Anr. MANU/SC/3182/2007 :2007 (6) SCC 329 this Court explained the terms"concealment of income" and "furnishing inaccurateparticulars". The Court went on to hold therein that inorder to attract the penalty under Section 271(1)(c),mens rea was necessary, as according to the Court,the word "inaccurate" signified a deliberate act oromission on behalf of the assessee. It went on to holdthat Clause (iii) of Section 271(1) provided for adiscretionary jurisdiction upon the Assessing Authority,inasmuch as the amount of penalty could not be lessthan the amount of tax sought to be evaded by reasonof such concealment of particulars of income, but itmay not exceed three times thereof. It was pointed outthat the term "inaccurate particulars" was not definedanywhere in the Act and, therefore, it was held thatfurnishing of an assessment of the value of theproperty may not by itself be furnishing inaccurateparticulars. It was further held that the assessee mustbe found to have failed to prove that his explanation isnot only not bona fide but all the facts relating to thesame 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 howand in what manner, the assessee had furnished theparticulars of his income. The Court ultimately went onto hold that the element of mens rea was essential. Itwas only on the point of mens rea that the judgment inDilip N. Shroff v. Joint Commissioner of Income Tax,Mumbai and Anr. was upset. In Union of India v.Dharamendra Textile Processors (cited supra), afterquoting from Section 271 extensively and alsoconsidering Section 271(1)(c), the Court came to theconclusion that since Section 271(1)(c) indicated theelement of strict liability on the assessee for theconcealment or for giving inaccurate particulars whilefiling Return, there was no necessity of mens rea. TheCourt went on to hold that the objective behindenactment of Section 271(1)(c) read with Explanationsindicated with the said Section was for providingremedy for loss of revenue and such a penalty was acivil liability and, therefore, willful concealment is notan essential ingredient for attracting civil liability aswas the case in the matter of prosecution underSection 276C of the Act. The basic reason why decisionin Dilip N. Shroff v. Joint Commissioner of Income Tax,Mumbai and Anr. (cited supra) was overruled by thisCourt in Union of India v. Dharamendra TextileProcessors (cited supra), was that according to thisCourt the effect and difference between Section 271(1)(c) and Section 276C of the Act was lost sight of incase of Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra). However, it mustbe pointed out that in Union of India v. DharamendraTextile Processors (cited supra), no fault was foundwith the reasoning in the decision in Dilip N. Shroff v.Joint Commissioner of Income Tax, Mumbai and Anr.(cited supra), where the Court explained the meaningof the terms "conceal" and inaccurate". It was only theultimate inference in Dilip N. Shroff v. JointCommissioner of Income Tax, Mumbai and Anr. (citedsupra) to the effect that mens rea was an essentialingredient for the penalty under Section 271(1)(c) thatthe decision in Dilip N. Shroff v. Joint Commissioner ofIncome Tax, Mumbai and Anr. (cited supra) wasoverruled. Tax, Mumbai and Anr. (cited supra). However, it mustbe pointed out that in Union of India v. DharamendraTextile Processors (cited supra), no fault was foundwith the reasoning in the decision in Dilip N. Shroff v.Joint Commissioner of Income Tax, Mumbai and Anr.(cited supra), where the Court explained the meaningof the terms "conceal" and inaccurate". It was only theultimate inference in Dilip N. Shroff v. JointCommissioner of Income Tax, Mumbai and Anr. (citedsupra) to the effect that mens rea was an essentialingredient for the penalty under Section 271(1)(c) thatthe decision in Dilip N. Shroff v. Joint Commissioner ofIncome Tax, Mumbai and Anr. (cited supra) wasoverruled. 9. We are not concerned in the present case with themens rea. However, we have to only see as to whetherin this case, as a matter of fact, the assessee hasgiven inaccurate particulars. In Webster's Dictionary,the word "inaccurate" has been defined as: not accurate, not exact or correct; not according totruth; erroneous; as an inaccurate statement, copy ortranscript. 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 thedetails supplied in the Return, which are not accurate,not exact or correct, not according to truth orerroneous. We must hasten to add here that in thiscase, there is no finding that any details supplied bythe assessee in its Return were found to be incorrector erroneous or false. Such not being the case, therewould be no question of inviting the penalty underSection 271(1)(c) of the Act. A mere making of theclaim, which is not sustainable in law, by itself, will notamount to furnishing inaccurate particulars regardingthe income of the assessee. Such claim made in theReturn cannot amount to the inaccurate particulars.” Union of India & Ors. vs. Dharmendra TextileProcessors & Ors.: (2008) 306 ITR 0277 “24. It is of significance to note that the conceptual andcontextual difference between Section 271(1)(c) andSection 276C of the IT Act was lost sight of in DilipShroff's case (supra). 25. The Explanations appended to Section 272(1)(c) ofthe IT Act entirely indicates the element of strictliability on the assessee for concealment or for givinginaccurate particulars while filing return. The judgmentin Dilp N. Shroof's case (supra) has not considered theeffect and relevance of Section 276C of the I.T. Act.Object behind enactment of Section 271(1)(e) readwith Explanations indicate that the said section hasbeen enacted to provide for a remedy for loss ofrevenue. The penalty under that provision is a civilliability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case inthe matter of prosecution under Section 276C of theI.T. Act.” Dilip N. Shroff vs. Joint Commissioner ofIncome Tax, Special Range, Mumbai; [2007]291 ITR 519 (SC) 31. Section 271(1)(c) of the Act is in two parts. Whereasthe first part refers to concealment of income, thesecond part refers to furnishing of inaccurate particularsthereof. In the instant case, the penalty has been leviedupon the Appellant under the second part of Section271(1)(c) of the Act. One of the questions which arisesfor consideration is as to whether Explanation 1 isapplicable in respect of both the parts or in respect ofthe first part only. 43. The expression "conceal" is of great importance.According to Law Lexicon, the word "conceal" means:“to hide or keep secret. The word "conceal" iscon+celare which implies to hide. It means to hide orwithdraw from observation; to cover or keep from sight;to prevent the discovery of; to withhold knowledge of.The offence of concealment is, thus, a direct attempt tohide an item of income or a portion thereof from theknowledgeoftheincometaxauthorities.In Webster's Dictionary, "inaccurate" has been definedas: 43. The expression "conceal" is of great importance.According to Law Lexicon, the word "conceal" means:“to hide or keep secret. The word "conceal" iscon+celare which implies to hide. It means to hide orwithdraw from observation; to cover or keep from sight;to prevent the discovery of; to withhold knowledge of.The offence of concealment is, thus, a direct attempt tohide an item of income or a portion thereof from theknowledgeoftheincometaxauthorities.In Webster's Dictionary, "inaccurate" has been definedas: not accurate, not exact or correct; not according totruth; erroneous; as an inaccurate statement, copy ortranscript. 46. The explanation, having regard to the decisions ofthis Court, must be preceded by a finding as to how andin what manner he furnished the particulars of hisincome. It is beyond any doubt or dispute that for thesaid purpose the Income Tax Officer must arrive at asatisfaction in this behalf. [See Commissioner of IncomeTaxv.RamCommercialEnterprisesLtd.MANU/DE/1081/1998 : [2000]246ITR568(Delhi) andDiwan Enterprises v. Commissioner of Income TaxMANU/DE/0306/1998 : [2000]246ITR571(Delhi)]” 8.1. He has relied upon the decision of this Court in case ofSheveta Construction Co. Pvt. Ltd. vs. ITO, Ward 3(4) (DBITA No.534/2008) decided on 6[th] December, 2016 wherein it has beenheld as under:- “6. Another decision of Supreme Court in case ofDilip N. Shroff Vs. Joint Commissioner of Income Tax& Anr. (2007) 291 ITR 519 (SC) it has been held asunder “It is of some significance that in the standard proforma used by the Assessing Officer in issuing anotice despite the fact that the same postulates thatinappropriate words and paragraphs were to bedeleted, but the same had not been done. Thus, theAssessing Officer himself was not sure as to whetherhe had proceeded on the basis that the assessee hadconcealed his income or he had furnished inaccurateparticulars. Even before us, the learned AdditionalSolicitor General while placing the order ofassessment laid emphasis that he had dealt with boththe situations. The impugned order, therefore, suffersfrom non-application of mind. It was also bound tocomply with the principles of natural justice. TheIncome Tax Officer had merely held that the assesseeis guilty of furnishing of inaccurate particulars andnot of concealment of income; which finding wasarrived at also by the Commissioner of Income Taxand the Income Tax Appellate Tribunal. In the factsand circumstances of the case, there are enoughmaterial to show that the action on the part of theappellant may not be said to be such which wouldattract the penal provision under s. 271 (1)(c). Forthe reasons aforementioned, the impugned judgmentcannot be sustained.” 7. He contended that while concluding theassessment order the officer must be clear whether itis the concealment of income or furnishing ofinaccurate detail. He cannot have both the things.7.1 However, Mr. Singhi appearing for the departmentsubmits that a perusal of the order of penalty makesit amply clear that both the things are fulfilled. Inthat view of the matter the view taken by theTribunal is required to be accepted. “ 8.2. He has also relied upon the decision of Andhra Pradesh HighCourt in case of Chennakesava Pharmaceuticals vs. Commissionerof Income Tax reported in (2012) 349 ITR 0196 wherein it hasbeen held as under:- “19. In Dilip N. Shroff's case (10 supra), the Supremeapproved the judgment in Ram Commercial EnterprisesLtd.'s case (supra 6) and also held that Section 271(1)(c) being a penal provision must be strictly construedand that mens rea is necessary ingredient for penaltyunder Section 271(1)(c) of the Act. 8.2. He has also relied upon the decision of Andhra Pradesh HighCourt in case of Chennakesava Pharmaceuticals vs. Commissionerof Income Tax reported in (2012) 349 ITR 0196 wherein it hasbeen held as under:- “19. In Dilip N. Shroff's case (10 supra), the Supremeapproved the judgment in Ram Commercial EnterprisesLtd.'s case (supra 6) and also held that Section 271(1)(c) being a penal provision must be strictly construedand that mens rea is necessary ingredient for penaltyunder Section 271(1)(c) of the Act. 20. But in Commissioner of Income Tax vs. DharmendraTextile Processors MANU/SC/4448/2008 : (2008) 306ITR 277 (SC), the Supreme Court held that the penaltyu/s. 271(1)(c) is a civil liability and "wilful" concealmentis not an essential ingredient for attracting civil liability.It over ruled only that portion of the judgment in DilipN. Shroff's case (10 supra )wherein the Supreme Courthad held that the mens rea was essential ingredient forimposing penalty under Section 271(1)(c) of the Act. This was pointed out in Reliance Petroproducts Pvt.Ltd's case (1 supra). 21. In Reliance Petroproducts Pvt. Ltd's case (1 supra),the Supreme Court also held that imposition of penaltyis unwarranted when there is no finding in theassessment order that details supplied by the assesseewere found to be false. This indicates that the viewtaken by the Delhi High Court in Ram CommercialEnterprises Ltd.'s case (6 supra ) which has beenapproved in Dilip N. Shroff's case (10 supra) continuesto be valid and this part of the judgment in Dilip N.Shroff's case (10 supra) has not been over ruled andcontinues to be good law.” 9.Counsel for the respondents Mr. Siddharth Bapna has contested the claim and contended that the view taken by theTribunal is just and proper and in view of the series of decisions ofSupreme Court right from 1989-2009 and the recent decision ofDelhi High Court, it is clearly established that the view taken by itis well designed and was not a human error, therefore, hecontended mens rea in view of the decisions of Supreme Court:- Union of India & Ors. vs. Dharmendra TextileProcessors & Ors.: (2008) 306 ITR 0277 “26. In Union Budget of 1996-97, Section 11AC of theAct was introduced. It has made the position clear thatthere is no scope for any discretion. In para 136 of theUnion Budget reference has been made to theprovision stating that the levy of penalty is amandatory penalty. In the Notes on Clauses also thesimilar indication has been given. 27. Above being the position, the plea that the Rules96ZQ and 96ZO have a concept of discretion inbuiltcannot be sustained. Dilip Shroff's case (supra) wasnot correctly decided but Chairman, SEBI's case(supra) has analysed the legal position in the correctperspectives.Thereferenceisanswered. The mater shall now be placed before the DivisionBench to deal with the matter in the light of what hasbeen stated above, only so far as the cases wherechallenge to vires of Rule 967Q(5). In all other casesthe orders of the High Court or the Tribunal, as thecase may be, are quashed and the matter remitted toit for disposal in the light of present judgments.Appeals except Civil Appeal Nos. 3388 of 2006, 3397of 2003, 3398-99 of 2003, 4096 of 2004, 4316 of2007, 4317 of 2007, 5277 of 2006, 675 of 2007, 1420 of 2007 and appeal relating to SLP (C) No. 21751 of2007 are allowed and the excepted appeals shall nowbe placed before the Division Bench for disposal.” M/s Gujarat Travancore Agency, Cochin vs.Commissioner of Income Tax, Kerala,Ernakulam; (1989) 3 SCC 52 The mater shall now be placed before the DivisionBench to deal with the matter in the light of what hasbeen stated above, only so far as the cases wherechallenge to vires of Rule 967Q(5). In all other casesthe orders of the High Court or the Tribunal, as thecase may be, are quashed and the matter remitted toit for disposal in the light of present judgments.Appeals except Civil Appeal Nos. 3388 of 2006, 3397of 2003, 3398-99 of 2003, 4096 of 2004, 4316 of2007, 4317 of 2007, 5277 of 2006, 675 of 2007, 1420 of 2007 and appeal relating to SLP (C) No. 21751 of2007 are allowed and the excepted appeals shall nowbe placed before the Division Bench for disposal.” M/s Gujarat Travancore Agency, Cochin vs.Commissioner of Income Tax, Kerala,Ernakulam; (1989) 3 SCC 52 4. Learned Counsel for the assesses has addressed anexhaustive argument before us on the questionwhether a penalty imposed under Section 271(l)(a) ofthe Act involves the element of mens rea and insupport of his submission that it does he has placedbefore us several cases decided by this Court and theHigh Courts in order to demonstrate that theproceedings by way of penalty under Section 271(l)(a)of the Act are quasi criminal in nature and thattherefore the element of mens rea is a mandatoryrequirement before a penalty can be imposed underSection 271(l)(a). We are relieved of the necessity ofreferring to all those decisions. Indeed, many of themwere considered by the High Court and are referred toin the judgment under appeal. It is sufficient for us to refer to Section 271(1)(a),which provides that a penalty may be imposed if theIncome-tax Officer is satisfied that any person haswithout reasonable cause failed to furnish the returnof total income, and to Section 276C which providesthat if a person wilfully fails to furnish in due time thereturn of income required under Section 139(1), heshall be punishable with rigorous imprisonment for aterm which may extend to one year or with fine. It isclear that in the former case what is intended is a civilobligation while in the latter what is imposed is acriminal sentence. There can be no dispute thathaving regard to the provisions of Section 276C,which speaks of wilful failure on the part of thedefaulter and taking into consideration the nature ofthe penalty, which is punitive, no sentence can beimposed under that provision unless the element ofmensreaisestablished.In most cases of criminal liability, the intention of theLegislature is that the penalty should serve as adeterrent. The creation of an offence by Statuteproceeds on the assumption that society suffers injuryby the act or omission of the defaulter and that adeterrent must be imposed to discourage therepetition of the offence. In the case of a proceedingunder Section 271(1)(a), however, it seems that theintention of the legislature is to emphasise the fact ofloss of Revenue and to provide a remedy for suchloss, although no doubt an element of coercion ispresent in the penalty. In this connection the terms inwhich the penalty falls to be measured is significant.Unless there is something in the language of thestatute indicating the need to establish the element ofmens rea it is generally sufficient to prove that adefault in complying with the statute has occurred. In our opinion, there is nothing in Section 271(l)(a)which requires that mens rea must be proved beforepenalty can be levied under that provision.We are supported by the statement in Corpus JurisSecundum, Volume 85, page 580, paragraph 1023:A penalty imposed for a tax delinquency is a civilobligation, remedial and coercive in its nature, and isfar different from the penalty for a crime or a fine orforfeiture provided as punishment for the violation ofcriminal or penal laws.” Chairman, SEBI vs. Shriram Mutual Fund &Anr; (2006) 5 SCC 361 our opinion, there is nothing in Section 271(l)(a)which requires that mens rea must be proved beforepenalty can be levied under that provision.We are supported by the statement in Corpus JurisSecundum, Volume 85, page 580, paragraph 1023:A penalty imposed for a tax delinquency is a civilobligation, remedial and coercive in its nature, and isfar different from the penalty for a crime or a fine orforfeiture provided as punishment for the violation ofcriminal or penal laws.” Chairman, SEBI vs. Shriram Mutual Fund &Anr; (2006) 5 SCC 361 29. The Tribunal set aside the order passed by theAdjudicating Officer on the ground that the penalty tobe imposed for failure to perform a statutory obligationis a matter of discretion which has to be exercisedjudicially and on a consideration of all the relevantfacts and circumstances. The Tribunal also held thatthe Adjudicating Officer has to be satisfied with thematerial placed before him that the violation deservespunishment. It was held that the penalty is warrantedby the quantum which has to be decided by taking intoconsideration the factors stated in Section 15J of SEBIAct. In our opinion, the Tribunal has miserably failed toappreciate that by setting aside the order of theAdjudicating Officer the Tribunal was setting a seriouswrong precedent whereby every offender would takeshelter of alleged hardships to violate the provisions ofthe Act. In our opinion, mens rea is not an essentialingredient for contravention of the provisions of a civilact. In our view, the penalty is attracted as soon ascontravention of the statutory obligations ascontemplated by the Act is established and, therefore,the intention of the parties committing such violationbecomes immaterial. In other words, the breach of acivil obligation which attracts penalty under theprovisions of an Act would immediately attract the levyof penalty irrespective of the fact whether thecontravention was made by the defaulter with anyguilty intention or not. This apart that unless thelanguage of the statute indicates the need to establishthe element of mens rea, it is generally sufficient toprove that a default in complying with the statute hasoccurred. Under a close scrutiny of Section 15D(b) and15E of the Act, there is nothing which requires thatmens rea must be proved before penalty can beimposed under these provisions. Hence, we are of theview that once the contravention is established, thenthe penalty has to follow and only the quantum ofpenalty is discretionary. Discretion has been exercisedby the Adjudicating Officer as is evident fromimposition of lesser penalty than what could have beenimposed under the provisions. The intention of theparties is wholly irrelevant since there has been a clearviolation of the statutory Regulations and provisionsrepetitively, covering a period of 6 quarters. Hence wehold that the respondents have wilfully violated statutory provisions with impunity and hence theimposition of penalty was fully justified. The Tribunal,in this context, failed to appreciate that every MutualFund has to redeem the units as per terms andconditions of the scheme on the request of the unitholders and this cannot, in any manner, be consideredas an extraordinary circumstance or something whichwas not known to the respondents. The facts andcircumstances of the present case in no way indicatethe existence of special circumstances so as to waivethe penalty imposed by the Adjudicating Officer. Aperusal of the order passed by the Adjudicating Officerwould clearly go to show that factors such as smallsize of the funds, low volume of transactions, thinlytraded securities, administrative and operationalexigencies were duly considered and appreciated bythe Adjudicating Officer while passing the order andthat is why the Adjudicating Officer did not impose themaximum permissible penalty. The Tribunal failed toappreciate that the objective behind imposing certainlimit on the business that can be conducted by mutualfund through the associate broker is to eliminate anyundue advantage to the class of brokers by virtue oftheir close association with the Asset ManagementCompany, sponsors etc. In other words, the object ofimposing such limits is to ensure that there is noconcentration of business only in such entities, so thatthere is an indirect pecuniary advantage to the personassociated with the Asset Management Company,sponsors etc. Any undue concentration on the businessof the mutual fund with its affiliated brokers by payinghuge commissions to such brokers is neither desirablenor in the interest of the unit holders. It is a matter ofrecord that in the 12 admitted instances of violation bythe respondents, the percentage of the businessthrough the associated brokers was as high as 91.68%and 52.2% in certain factors. This apart, therespondent's excessive exposure to the associatebrokers is not only established from the record, buthas also been admitted by respondents. 35. In our considered opinion, penalty is attracted assoon as the contravention of the statutory obligation ascontemplated by the Act and the Regulation isestablished and hence the intention of the partiescommitting such violation becomes wholly irrelevant. Abreach of civil obligation which attracts penalty in thenature of fine under the provisions of the Act and theRegulations would immediately attract the levy ofpenalty irrespective of the fact whether contraventionmust made by the defaulter with guilty intention ornot. We also further held that unless the language ofthe statute indicates the need to establish thepresence of mens rea, it is wholly unnecessary toascertain whether such a violation was intentional ornot. On a careful perusal of Section 15D(b) andSection 15E of the Act, there is nothing which requiresthat mens rea must be proved before penalty can beimposed under these provisions. Hence once the contravention is established then the penalty is tofollow.” Commissioner of Income Tax, Delhi vs. AtulMohan Bindal; (2009) 9 SCC 589 10. The quantum of penalty is prescribed in Clause(iii). Explanation 1, appended to Section 271(1)(c)provides that if that person fails to offer anexplanation or the explanation offered by such personis found to be false or the explanation offered by himis not substantiated and he fails to prove that suchexplanation is bona fide and that all the facts relatingto the same and material to the computation of histotal income has been disclosed by him, for thepurposes of Section 271(1)(c), the amount added ordisallowed in computing the total income is deemed torepresent the concealed income. The penalty spokenof 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 notessential. 11. In the case of Union of India and Ors. v.DharamendraTextileProcessorsandOrs.MANU/SC/4448/2008 : (2008) 306 ITR 277, a threejudge Bench of this Court held that Dilip N. Shroff didnot lay down correct law as the difference betweenSection 271(1)(c) and Section 276(c) of the Act waslost sight of. The Court held that the explanationappended to Section 271(1)(c) indicates element ofstrict liability on the assessee for concealment or forgiving inaccurate particulars while filing the return.The Court held thus: The Explanations appended to Section 271(1)(c) ofthe Income Tax Act, 1961, indicate the elements ofstrict liability on the assessee for concealment or forgiving inaccurate particulars while filing the return.The judgment in Dilip N. Shroff case (supra) has notconsidered the effect and relevance of Section 276(c)of the I.T. Act. The object behind the enactment ofSection 271(1)(c) read with Explanations indicatesthat the Section has been enacted to provide for aremedy for loss of revenue. The penalty under thatprovision is a civil liability. Willful concealment is notan essential ingredient for attracting civil liability as isthe case in the matter of prosecution under Section276(c).” 9.1. He has also relied upon the decision of Delhi High Court in Tax Appeal No. 82/2012 (Commissioner of Income vs. NGTechnologies Ltd.) decided on 1[st] December, 2014 against whichthe SLP was dismissed it has been observed as under:- “15. We have recorded the findings of the Tribunal onthe aforesaid aspect in paragraphs quoted from theimpugned order. The reasoning of the Tribunal is two-fold. Firstly, the assessee had relied upon the reportsubmitted by the Chartered Accountant and the returnof income prepared by the said Chartered Accountant.The mistake or error had occurred due to lack ofproper legal advice. Secondly, the error or mistake inclaiming capital loss in the profit and loss account wasrectified and corrected by filing the revised return,before detection or erratum being discovered. 16. We have examined the aforesaid reasoning, butare unable to accept the said finding. All claims ordeductions wrongly made cannot be treated as bonafide and protected by Explanation 1 to section 271(1)(c) of the Act. Whether or not the conduct of theassessee was legitimate or mere legerdemain woulddepend upon facts of each case, nature and characterof the claim, whether the legal provision applicablewas capable of two interpretations, whether theclaim/exemption was plausible and conceivable etc. Incases where interpretive skills and divergent views areplausible, penalty for concealment should not beimposed. Assessee need not be asked to pay penaltyif he has taken a particular legal stand and preferredan interpretation in his favour. However, at the sametime, the interpretation put forward or the claim madeshould not be banal or a ruse, per se or ex facieincorrect or wrong. Platitudinous conduct or claim isnotabonafideconduct. 17. In the facts of the present case, it is noticeablethat the assessee had claimed loss on account of saleof plant and machinery i.e. the fixed assets, in theprofit and loss account. This should not have beenobviously claimed. It was without any debate anddiscussion a capital loss. The claim cannot beexplained and justified by any argument andreasoning. The claim was positively and meaningfullyincorrect and contrary to the principles of straightforward and primary accountancy. It is true andcorrect that an assessee would normally rely uponlegal opinion of a Chartered Accountant, who isrequired to audit accounts of the company and alsosubmit an audit report, but penalty cannot be deletedon guise or pretence of legal opinion as asmokescreen and facade. The claim or the entry in thepresent case was contrary to elementary and well-known basic principles of accountancy. The presentcase is not a case of a debatable issue relating to legalor accountancy principle which could have beeninterpreteddifferently. 18. It is mandatory and compulsory for a company toget their accounts audited from a CharteredAccountant, who is required to submit an audit reportto be filed with the return. We cannot, therefore,accept the contention of the assessee as universal andcomprehensive that all claims howsoever untenable, once certified by a Chartered Accountant or theDirectors of the company, cannot be made a subjectmatter of penalty proceedings. This will be stretchingand making the requirement to prove bona fideconduct illusionary and ineffective and would fail to,check and stop fanciful and incredible claims. It isnoticeable that most of the income tax returns areaccepted without scrutiny or regular assessment andself-compliance of tax provisions is a rule required tobe followed. The view, which we have taken, is inconsonance with the ratio expounded in Reliance PetroProducts Pvt. Ltd. (supra).” 10.We have heard counsel for both the sides. 11.Before proceeding with the matter, it will not be out of placeto mention that the appellant has already paid advance tax andunder the bonafide impression, his claim was wrongly rejectedtherefore, while issuing notice, the view of ITO whether theinaccurate information and concealment of income is there isrequired to be viewed very seriously.