Court denies Revenue appeal on penalty cancellation under Income-tax Act; deliberateness not required

The High Court dismissed the Revenue's appeal against the cancellation of a penalty under section 271(1)(c) of the Income-tax Act. The court upheld the decision of the Income-tax Appellate Tribunal and Commissioner of Income-tax (Appeals), emphasizing the absence of deliberateness or mens rea in the assessee's actions. The court ruled that the controversy over the terms "deliberate" and "mens rea" was not pivotal in this case, as the assessee's explanation was accepted, and there was no basis to deem the return as false. The court concluded that deliberateness or mens rea was not a prerequisite for penalty proceedings in this instance.

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Issues involved: Application u/s 256(2) of the Income-tax Act, 1961 for calling a statement of the case from the Income-tax Appellate Tribunal regarding cancellation of penalty u/s 271(1)(c).

Issue 1: The Revenue appealed against the cancellation of penalty of Rs. 1,15,000 u/s 271(1)(c) by the Income-tax Appellate Tribunal. The assessee had claimed interest payment from Escorts Limited, but later it was found that only a portion of the claimed amount was credited to her account. The Assessing Officer initiated penalty proceedings, but the Commissioner of Income-tax (Appeals) accepted the explanation, stating that the return was not false as the assessee had not made any wrong claim or furnished inadequate particulars of income.

Issue 2: The Tribunal affirmed the Commissioner's decision, noting the absence of deliberateness or mens rea in the assessee's actions. The Revenue contended that after the amendment removing the word "deliberate" from section 271(1)(c), the Tribunal should not have canceled the penalty. However, the High Court held that the controversy over "deliberate" and "mens rea" was not crucial in this case. The court emphasized that the Commissioner and the Tribunal had accepted the assessee's explanation and found no grounds for branding the return as false, thus rejecting the Revenue's application for reference.

Issue 3: The High Court concluded that the presence of deliberateness or mens rea was not a prerequisite for penalty proceedings in this case. The court highlighted that the factual findings supported the assessee's explanation and bona fides, rendering the debate over deliberateness or mens rea irrelevant. Therefore, the court rejected the Revenue's application for a statement of the case on the questions raised, as the explanation provided by the assessee was deemed acceptable in the circumstances.

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