2009 (8) TMI 44 - SC - Income Tax

Penalty under s.271(1)(c) is civil strict liability; mens rea not required; Explanation 1 deems unsubstantiated additions concealed income

The SC held that penalty under s.271(1)(c) for concealment or furnishing inaccurate particulars is a civil, strict liability and mens rea is not required; ... Penalty proceedings under Section 271(1)(c) - concealment of income and furnishing inaccurate particulars - earned interest income from Bank of India which was not included by him in the total income but he offered for tax the said amount - HELD THAT:- 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 or 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. As noticed, the High Court relied upon its earlier decision in Ram Commercial Enterprises [1998 (10) TMI 13 - DELHI HIGH COURT] which is said to have been approved by this Court in Dililp N. Shroff [2007 (5) TMI 198 - SUPREME COURT]. However, Dillip N. Shroff has been held to be not laying down good law in Dharamendra Textiles [2008 (9) TMI 52 - SUPREME COURT]. 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 [2009 (5) TMI 15 - SUPREME COURT]. In the result, appeal is allowed and the judgment of the High Court of Delhi passed on January 25, 2008 is set aside. Issues Involved:1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.2. Interpretation and application of Section 271(1)(c) and its Explanation 1.3. Bona fide belief and inadvertent omission by the assessee.4. Relevance of precedents: Dilip N. Shroff, Dharamendra Textile Processors, and Rajasthan Spinning & Weaving Mills cases.Detailed Analysis:1. Validity of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961:The core issue in this case revolves around whether the penalty proceedings initiated under Section 271(1)(c) against the assessee were valid. The Assessing Officer (AO) added Rs. 17,81,952/- (salary earned in Singapore), Rs. 5,00,000/- (retrenchment compensation), and Rs. 22,812/- (interest income) to the assessee's declared income. Subsequently, a penalty of Rs. 7,75,211/- was imposed under Section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars.2. Interpretation and Application of Section 271(1)(c) and its Explanation 1:Section 271(1)(c) and Explanation 1 provide that if a person conceals income or furnishes inaccurate particulars, a penalty may be levied. Explanation 1 specifies that if the explanation offered by the assessee is found to be false or unsubstantiated, and the assessee fails to prove it bona fide, the amount added or disallowed will be deemed concealed income. The Supreme Court emphasized that penalty under Section 271(1)(c) is a civil liability and does not require mens rea, as clarified in Dharamendra Textile Processors.3. Bona Fide Belief and Inadvertent Omission by the Assessee:The CIT (Appeals) and the Tribunal both found that the assessee did not conceal income or furnish inaccurate particulars. The CIT (Appeals) observed that the assessee had a bona fide belief regarding the non-taxability of his Singapore salary due to the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. The retrenchment compensation claim was based on the assessee's honest belief that he was a workman, and the interest income omission was due to the non-availability of bank certificates. The Tribunal upheld these findings, stating that all facts were disclosed by the assessee and the additions were based on the assessee's own disclosures.4. Relevance of Precedents: Dilip N. Shroff, Dharamendra Textile Processors, and Rajasthan Spinning & Weaving Mills Cases:The High Court initially relied on its earlier decision in Ram Commercial Enterprises, approved by the Supreme Court in Dilip N. Shroff. However, the Supreme Court in Dharamendra Textile Processors held that Dilip N. Shroff did not lay down the correct law, emphasizing that Section 271(1)(c) involves strict liability without the need for mens rea. This was further clarified in Rajasthan Spinning & Weaving Mills, which stated that once Section 271(1)(c) applies, the authority has no discretion in penalty quantification.Conclusion:The Supreme Court set aside the High Court's judgment and remitted the matter back for reconsideration in light of the decisions in Dharamendra Textile Processors and Rajasthan Spinning & Weaving Mills. The High Court must re-evaluate whether the conditions for imposing a penalty under Section 271(1)(c) were met, considering the strict liability framework and the bona fide explanations provided by the assessee. No costs were ordered as the assessee did not appear.