TaxTMI 
TaxTMI 
2025 (1) TMI 448
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....e Income Tax Act, 1961, without appreciating the fact that Section 270A of the Income Tax Act, 1961 suggests a willful negligence or a misreporting of income which was made with full knowledge. However, it is nowhere stipulated in section 270A of the Income Tax Act, 1961 that there should be a willful negligence or a misreporting of income which was made with full knowledge on the part of the assessee to levy Penalty. 3. The Ld.CIT(A) has erred in holding that the AO had nowhere been able to establish that any mens rea was involved in this Act, without appreciating that Penalty is a deterrent provision and presence of mens rea is not necessary for levy of Penalty and is required when Prosecution is launched. 4. The Ld.CIT(A) has erred in deleting the Penalty levied u/s. 270A of the Income Tax Act, 1961 despite the fact that the Assessing Officer, in the Assessment Order, had clearly brought on record that the assessee had claimed Capital Expenditure incurred on acquisition/procurement of Assets as application of Income as well as depreciation, which amounted to double deduction. 5. The Ld.CIT(A) has erred in deleting the Penalty levied u/s. 270A of the In....
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....the depreciation claim is also made in the computation of Income and Income & expenditure submitted by the assessee. Accordingly the AO held that revenue expenditure claimed as application of income includes the depreciation claim and the depreciation claim is in contravention of section 11(6) of the Act as the assessee has also claimed the capital expenditure as application of income which according to AO amounts to claim of double deduction and accordingly disallowed the claim of depreciation amounting to Rs. 7,53,66,656/- claimed by the assessee trust as it violates section 11(6) of the Act. 3.5 Further, with regard to claim of Loss on sale of vehicle amounting to Rs. 1,77,853/- as application of Income, the AO disallowed the same & not treated as application of Income on the ground that the assessee trust has not expended any amounts towards the items of expenditure & further the entire cost of acquisition of vehicle was allowed as application in earlier years & thus held that the loss cannot be treated as application again. 3.6 Finally, on or before completing the assessment proceedings, the AO initiated the penalty proceedings u/s 270A of the Act in respect of disallowa....
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....sreported income is Rs. 7,53,66,656/-. As per sub-section (8) of section 270A of the Act, the penalty on misreported income shall be a sum equal to two hundred percent of the amount of tax payable on misreported income and accordingly the AO levied penalty of Rs. 5,31,48,508/- U/s 270A of the Act. 4. Aggrieved by the penalty order passed u/s 270A of the Act dated 26.2.2022, the assessee had preferred an appeal before the ld. CIT(A)/NFAC. 5. The Ld. CIT(A)/NFAC however allowed the appeal of the assessee by deleting the penalty levied u/s 270A of the Act amounting to Rs. 5,31,48,508/- mainly on the following grounds /observations:- 5.1 The Sub section (9) of section 270A details the specific acts of omission or commission that would amount to misrepresentation of facts. The above suggests a willful negligence or a misreporting of income which was made with full knowledge. Hence the assessee should have misreported with full intention of evading taxes and mens rea should be present. 5.2 The AO has not been able to prove that the assessee had engaged in willful misreporting. 5.3 The AO has not anywhere been able to establish that any mens rea was involved in this act, an....
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..... The AO has passed an order u/s 143(3) of the Act on 23.12.2019 by making two disallowances in the assessment order viz. (a) Disallowance of Depreciation amounting to Rs. 7,53,66,656/- and (b) disallowance of loss on sale of vehicles amounting to Rs. 1,77,853/-. The AO initiated the penalty proceedings U/s 274 read with 270A of the Act with regard to disallowances made towards the claim of depreciation on the ground that the revenue expenditure claimed as application of income includes the depreciation claim and the depreciation claim is in contravention of section 11(6) of the Act as the assessee has also claimed the capital expenditure as application of income which according to AO amounts to claim of double deduction. During the course of penalty proceedings the assessee submitted that by oversight while computing the income, the assessee trust omitted to add back depreciation which is purely a clerical error and not deliberate. 9.1 It is an undisputed fact that the assessee trust had not corrected the said mistake by filing the revised return as per the provisions contained u/s 139(5) of the Act as correctly observed by the AO in his penalty Order. It is only during the cou....
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....he opinion that everything would depend upon the Return of Income filed because that is the only document where the assessee trust can under report its Income or mis-report its Income. When such Income are found to be under reported in the return of Income or misreported in the return, then only the liability would arise. Therefore the contention of the assessee that while computing the income, the assessee trust by sight omitted to add back depreciation cannot be accepted at all. 9.3 On going through the rationale in allowing the appeal of the assessee, we find that the ld.CIT(A)/NFAC is of the view that section 270A(9) of the Act suggest a willful negligence or a misreporting of income which is made with full knowledge. Thus the main contention of the ld. CIT(A)/NFAC is that the assessee should have misreported with full intention of evading taxes & mens-rea should be present in order to levy penalty U/s 270A of the Act. In the opinion of ld. CIT(A)/NFAC the AO has failed to establish that any mens rea was involved & the assessee willfully misrepresented or suppressed the facts. 9.4 For the purpose of evaluating the correctness of rival submissions addressed we deem it appo....
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....ount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula- (A - B) + (C - D) where, A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of underreported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total i....
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....l Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclose....
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....b-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order. (11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year. (12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be. 9.5 On going through the above, we find no reference of any mens rea in section 270A of the Act & therefore we find force in the contention of the ld. CIT-DR that the ld. CIT(A)/NFAC has erred in interpreting sub section (9) of section 270A of the Act by stating that 270A(9) suggests a willful negligence or a misreporting of income which made with full knowledge. Further on going through the Section we also agree with the ld. DR that nowhere in the section 270A of the Act specifically refers necessity of the presence of mens rea for levy of penalty. 9.6 It is well settled law that mens rea is not an essential con....
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....the commission of an offence under the penal law . . . ****** 12. In Corpus Juris Secundum, Vol. 85, at p. 580, para 1023, it is stated thus: 'A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.' 13. We are in agreement with the aforesaid view and in our opinion, what applies to 'tax delinquency' equally holds good for the 'blameworthy' conduct for contravention of the provisions of FERA, 1947. We, therefore, hold that mens rea (as is understood in criminal law) is not an essential ingredient for holding a delinquent liable to pay penalty under section 23(1)(a) of FERA, 1947 for contravention of the provisions of section 10 of FERA, 1947 and that penalty is attracted under section 23(1)(a) as soon as contravention of the statutory obligation contemplated by section 10(1)(a) is established. The High Court apparently fell in error in treating the 'blameworthy conduct' under the Act as equivalent to the commission of a 'criminal offence', overlooking the position....
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....tion 276C which provides that if a person wilfully fails to furnish in due time the return of income required under section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of section 276C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability, the intention of the Legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under section 271(1)(a), however, it seems that the intention of the Legislature is to emphasise the fact of loss of revenue and to provide a remedy for such ....
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.... regulate the securities market and the related aspects, the imposition of penalty, in the given facts and circumstances of the case, cannot be tested on the ground of 'no mens rea, no penalty'. For breaches of provisions of the SEBI Act and Regulations, according to us, which are civil in nature, mens rea is not essential. On particular facts and circumstances of the case, proper exercise of judicial discretion is a must, but not on foundation that mens rea is essential to impose penalty in each and every breach of provisions of the SEBI Act. 53.****** 54. However, we are not in agreement with the Appellate Authority in respect of the reasoning given in regard to the necessity of mens rea being essential for imposing the penalty. According to us, mens rea is not essential for imposing civil penalties under the SEBI Act and Regulations." [Emphasis supplied] (pp. 366, 369, 372) 11. The decision in Bharat Heavy Electrical's case (supra) cannot be of any assistance to the assessee because the same proceeded on the basis of concession. Even otherwise, it was not open to the Bench to read, into a statute which was specific and clear, something which is not spe....
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....ision as it stands is meaningless or of doubtful meaning. The courts are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself. (Per Lord Loreburn, L.C. in Vickers Sons) 15. The question is not what may be supposed and has been intended but what has been said. 'Statutes should be construed not as theorems of Euclid', Judge Learned Hand said, 'but words must be construed with some imagination of the purposes which lie behind them'. (See Lenigh Valley Coal Co. v. Yensavage 218 FR 547). The view was reiterated in Union of India v. Filip Tiago De Gama of Vedem Vasco De Gama [1990] 1 SCC 277 (SCC p. 284, para 16). 16. In D.R. Venkatachalam v. Dy. Transport Commr. [1977] 2 SCC 273, it was observed that the courts must avoid the danger of a prior determination of the meaning of a provision based on their own preconceived notions of ideological structure or scheme into which the provision to be interpreted is somewhat fitted. They are not entitled to usurp legislative function under the disguise of interpretation. 17. While interpreting a provision the court only interprets the law....
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....e Fenton v. Hampton [1858] 11 MOO PC 347. 20. A casus omissus ought not to be created by interpretation, save in some case of strong necessity. Where, however, a casus omissus does really occur, either through the inadvertence of the Legislature, or on the principle quod enim semel aut bis existit praetereunt legislatores, the rule is that the particular case, thus left unprovided for, must be disposed of according to the law as it existed before such statute - casus omissus et oblivioni datus dispositioni communis juris relinquitur; "acasus omissus", observed Buller, J. in Jones v. Smart 1785 (1) TR 44 : 99 ER 963 (ER p. 967) "can in no case be supplied by a court of law, for that would be to make laws". The principles were examined in detail in Maulavi Hussein Haji Abraham Umarji v. State of Gujarat [2004] 6 SCC 672. 21. The golden rule for construing all written instruments has been thus stated : "The grammatical and ordinary sense of the words is to be adhered to unless that would lead to some absurdity or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so....