2025 (1) TMI 448 - AT - Income Tax

Penalty upheld for double deduction claim treating capital expenses and depreciation as income application under section 270A

ITAT Bangalore upheld penalty under section 270A against assessee for claiming double deduction by treating both capital expenses and depreciation as ... Penalty u/s 270A - willful negligence or a misreporting of income - assessee has claimed both the capital expenses and depreciation as application of income - scope of mens rea - HELD THAT:- It is well settled law that mens rea is not an essential condition for imposing penalties under civil acts. This is because the intention of the legislation is clear, and the penalty is levied once a specific eventuality occurs as prescribed under section 270A of the Act. The Apex Court has also ruled that penalty provisions are for breach of civil obligation, so mens rea is not an essential ingredient. Further the Mens rea is not necessary for a conviction in strict liability crimes. This means that someone can be held accountable for the deed itself, regardless of whether they intended to commit the crime. Therefore, following the precedent set in Dharmendra Textile Processors [2008 (9) TMI 52 - SUPREME COURT] we hold that mens rea is not an essential element for imposing penalties for breach of civil obligations as held by the ld. CIT(A)/NFAC and finding of the contravention is sufficient to attract penalties under the Income Tax Act, irrespective of the intention behind the contravention. Thus, even in the Audit report filed way before the filing of return of Income, the total revenue expenditure claimed as application of income includes the depreciation claim and the assessee has also claimed the capital expenditure as application of income which amounts to claim of double deduction. Further in the present case as observed by the AO, the assessee had option to rectify its mistake by filing revised return of income as per section 139(5) of the Act and during the proceedings it was noticed by AO that assessee has not filed it voluntarily. More remarkably during the course of Assessment proceedings, as observed by the AO, the assessee submitted that depreciation on assets has not been claimed as application of Income. Thus we set aside the Order of the ld. CIT(A)/NFAC & sustain the order of the AO in levying the Penalty U/s 270A of the Act by allowing the appeal filed by the Revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the interpretation and application of Section 270A of the Income Tax Act, 1961, by the CIT(A)/NFAC, were correct, particularly concerning the requirement of mens rea for imposing penalties for misreporting of income.Whether the deletion of the penalty imposed under Section 270A by the CIT(A)/NFAC was justified given the circumstances of the case, including the alleged double deduction claimed by the assessee.Whether the assessee's actions constituted misreporting of income under Section 270A, warranting the imposition of a penalty.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Interpretation and Application of Section 270ARelevant legal framework and precedents: Section 270A of the Income Tax Act, 1961, deals with penalties for under-reporting and misreporting of income. The section outlines specific instances of misreporting, such as misrepresentation or suppression of facts, and does not explicitly require mens rea for imposing penalties.Court's interpretation and reasoning: The Tribunal disagreed with the CIT(A)/NFAC's interpretation that mens rea is required for imposing penalties under Section 270A. The Tribunal emphasized that mens rea is not necessary for civil penalties, referencing the precedent set by the Supreme Court in Union of India v. Dharamendra Textile Processors.Key evidence and findings: The Tribunal found that the CIT(A)/NFAC erred in interpreting Section 270A as requiring willful negligence or misreporting with full knowledge for imposing penalties.Application of law to facts: The Tribunal applied the legal principle that mens rea is not required for civil penalties, focusing on the statutory language of Section 270A, which does not mention mens rea.Treatment of competing arguments: The Tribunal rejected the CIT(A)/NFAC's reliance on mens rea and upheld the Revenue's argument that penalties can be imposed without establishing mens rea.Conclusions: The Tribunal concluded that the CIT(A)/NFAC's interpretation of Section 270A was incorrect and that penalties could be imposed without proving mens rea.Issue 2: Justification for Deletion of PenaltyRelevant legal framework and precedents: Section 270A outlines the conditions under which penalties for misreporting of income can be imposed. The CIT(A)/NFAC had deleted the penalty, citing the absence of mens rea and the assessee's claim of inadvertent error.Court's interpretation and reasoning: The Tribunal found that the CIT(A)/NFAC's decision to delete the penalty was based on an incorrect interpretation of the law, as mens rea is not a requirement for imposing penalties under Section 270A.Key evidence and findings: The Tribunal noted that the assessee had not corrected the error by filing a revised return, and the auditor's report indicated a double deduction claim, which the assessee accepted.Application of law to facts: The Tribunal applied the legal principle that penalties can be imposed for misreporting without mens rea and found that the CIT(A)/NFAC's deletion of the penalty was unjustified.Treatment of competing arguments: The Tribunal rejected the CIT(A)/NFAC's reliance on the absence of mens rea and the assessee's claim of inadvertent error, emphasizing the statutory framework of Section 270A.Conclusions: The Tribunal concluded that the deletion of the penalty was not justified and that the penalty should be reinstated.Issue 3: Misreporting of IncomeRelevant legal framework and precedents: Section 270A defines misreporting of income and outlines specific instances that constitute misreporting.Court's interpretation and reasoning: The Tribunal found that the assessee's actions constituted misreporting of income, as the double deduction claim was evident from the auditor's report and the assessee's failure to rectify the error.Key evidence and findings: The Tribunal noted the auditor's report and the assessee's acceptance of the double deduction claim as evidence of misreporting.Application of law to facts: The Tribunal applied the statutory definition of misreporting under Section 270A and found that the assessee's actions fit within this definition.Treatment of competing arguments: The Tribunal rejected the assessee's argument of inadvertent error, emphasizing the statutory framework and the evidence presented.Conclusions: The Tribunal concluded that the assessee's actions constituted misreporting of income, warranting the imposition of a penalty under Section 270A.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'Mens rea is not an essential condition for imposing penalties under civil acts. This is because the intention of the legislation is clear, and the penalty is levied once a specific eventuality occurs as prescribed under section 270A of the Act.'Core principles established: The Tribunal established that mens rea is not required for imposing penalties under Section 270A of the Income Tax Act, 1961, and that penalties can be imposed for misreporting of income based on the statutory framework.Final determinations on each issue: The Tribunal determined that the CIT(A)/NFAC's interpretation of Section 270A was incorrect, the deletion of the penalty was unjustified, and the assessee's actions constituted misreporting of income, warranting the imposition of a penalty.