TaxTMI 
TaxTMI 
2025 (6) TMI 1646
X X X X Extracts X X X X
X X X X Extracts X X X X
....to filing of the Appeal, briefly stated, are that the Assessee is engaged in the business of manufacture and sale of footwear. The Assessee had filed the return of income for the Assessment Year 1984-85. 3) The Appeal was admitted on the following substantial question of law:- Whether on the facts and circumstances of the case, the ITAT was right in law in reversing CIT (A)'s orders and upholding the Income Tax Officer's order in imposing penalty on the Appellant u/s. 271 (1) (c) of the Income Tax Act, 1961?" 4) A demand was raised by its employees' union for increase in the bonus on 26 August 1983. A joint meeting of the representatives of the Trade Union and Assessee's Management was held with the Labour Minister on 25 October 1983. In pursuance of the said demand and meetings, it was decided on 2 November 1983 that till finalisation of quantum of bonus, the Assessee shall pay additional 2% bonus to the employees before Diwali. The final settlement with regard to bonus was reached with the Union on 16 March 1984 and accordingly, additional bonus was paid to the employees. On 30 September 1985, the Assessee filed return of income declaring loss of Rs. 77,92,340/-. O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tribunal, the Assessee has preferred the present Appeal. 7) We have heard Ms. Sathe, the learned counsel appearing for the Appellant/Assessee in support of the Appeal. She would submit that the Tribunal has grossly erred in setting aside well-reasoned order passed by the CIT(A). That the case clearly falls outside the purview of Section 271(1)(c) of the I.T. Act. That the essential ingredients for maintaining a penalty order under Section 271(1)(c) of the I.T. Act are (i) concealment of particulars of income or (ii) furnishing of inaccurate particulars. That mere making of claim by an Assessee, which is ultimately found to be unacceptable, cannot ipso-facto amount to either concealment of income or furnishing of inaccurate particulars. That Assessee made bonafide claim and there is no finding in the orders passed by the Assessing Officer or the Tribunal that the claim was made by the Asssessee with mala fide intentions. 8) Ms. Sathe, would further submit that Assessee bona fidely believed that under the mercantile accounting system, a business liability can be allowed for deduction for the year in which it has arisen and accrued; and not when it is actually paid by the Assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owards unpaid amount of bonus, which was never actually paid during the relevant accounting year. That therefore the Assessing Officer had rightly invoked the provisions of Section 271(1)(c) of the I.T. Act. Ms. Goel would also rely upon judgment of the Apex Court in CIT Versus. Reliance Petroproducts Pvt. Ltd. (supra) in support of her contention that the words 'inaccurate' and 'particulars' used in Section 271(1)(c) of the I.T. Act, when read in conjunction, would mean details supplied in Income Tax Return which are not accurate, exact, correct, truthful and are erroneous. That the claim of the Assessee about liability being crystalised in Assessment Year 1983-84 is totally baseless in the light of provisions of Section 43B of the I.T. Act, which provides for deduction only in the event of actual payment. She would rely upon judgment of Delhi High Court in Commissioner of Income-tax Versus. Zoom Communication P. Ltd. 2010 SCC OnLine Del 2088 in support of her contention that incorrect claim without having any basis would attract penalty under Section 271(1)(c) of the I.T. Act. Ms. Goel would submit that all the ingredients of Section 271(1)(c) of the I.T. Act are fulfilled in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him, 14) It is by relying on provisions of Section 43B of the I.T. Act that the Assessing Officer proceeded to disallow the bonus claim of the Assessee and added the same in computation of its income. While passing the assessment order under Section 143(3) of the I.T. Act, the Assessing Officer made following observations against the Assessee:- The claim was made without giving any necessary particulars of the nature and date of accrual of the liability. The particulars have been discovered only after making necessary enquiries from the assessee. I further hold that but for making such enquiries the item of expenditure would have been wrongly claimed by the assessee and allowed as such. I therefore hold that the assessee had furnished inaccurate particulars of its income by cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. (emphasis added) 16) For the purpose of the present Appeal, provisions of Section 271(1)(c) are relevant which deal with concealment of particulars of income or furnishing inaccurate particulars of such income. Thus, sine qua non for invoking penalty provisions under Section 271(1)(c) is recording of satisfaction by the Assessing Officer that the Assessee has either - (i) concealed the particulars of his income; or (ii) there were inaccurate particulars of such income. 17) The Apex Court in Commissioner of Income Tax Versus. Reliance Petroproducts Private Limited (supra) has considered and interpreted the provisions of Section 271(1)(c) of the I.T. Act and has held as under:- 10. Section 271(1)(c) is as under: "271. Failure to furnish returns, comply with notices, concealment of income, etc.-(1) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person- * * * (c) has concealed the particulars of his income or furnished inaccurate particulars of such inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. 13. In Dilip N. Shroff v. CIT [(2007) 6 SCC 329] this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order 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 or omission on behalf of the assessee. It went on to hold that clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the assessing authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The Apex Court held that in cases where a statement is made by the Assessee in the return is found to be incorrect, it can be held that the Assessee has furnished inaccurate particulars of the income. It is further held that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. It is also held that the element of mens rea is essential. 19) The issue for consideration here is whether the two ingredients of (i) concealment of particulars of income, or (ii) furnishing inaccurate particulars of income are made out for the purpose of attracting the provisions of Section 271(1)(c) of the I.T. Act. There is nothing on record to indicate that the Assessee made a wrongful claim of having actually paid any amount towards additional bonus to the employees in the relevant Accounting Year. On the contrary, the claim of the Assessee for deduction of amount of Rs. 22,21,123/- towards additional bonus was premised on statement that it was a future liability crystalised in the relevant year. Thus, the case does not involve making of any false statement by the Assessee. What is ultimately found to be incorrect is entitlement of the Assessee to claim deductions i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....21) The judgment of Co-ordinate Bench of Delhi High Court would not bind us but would have persuasive value while deciding the issue at hand. However, we find that the judgment has been rendered in the light of facts of that case. In case before the Delhi High Court, it was noticed during the course of scrutiny assessment, that a sum of Rs. 1,21,49,861/- was wrongfully deducted by the Assessee under the head 'equipment written off' and the Assessee claimed during the course of scrutiny of assessment that the same happened due to oversight and that the amount ought to have been actually adjusted in the block of assets. The amount was accordingly added back to the income of the Assessee in the scrutiny assessment. During the scrutiny assessment it was also noticed that another amount of Rs. 1,00,000/- was wrongfully debited under the head 'Income-tax paid' and again pretext of oversight was cited by the Assessee during scrutiny assessment. Upon initiation of penalty proceedings, Assessee took defence of bonafide mistake whereas the Assessing Officer arrived at the conclusion that there was no room for such mistake by a big company assisted by a team of tax auditors and that the case ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te material against the assessee to prove that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income. The appeal of the assessee on substantial question of law with regard to disallowance under the provision had been admitted by the hon'ble Punjab and Haryana High Court. The hon'ble Punjab and Haryana High Court in the case of CIT v. Haryana Warehousing Corporation (2009) 314 ITR 215 (P&H) held as under (headnote): "Held, dismissing the appeal, that the deduction claimed by the assessee was legitimate and bona fide in terms of the conflicting determination of law on the proposition in question. The categorical finding at the hands of the Tribunal in its order was that the assessee had disclosed the entire facts without having concealed any income. There was no allegation against the assessee that it had furnished inaccurate particulars of its income. The determination of the Tribunal had not been controverted even in the grounds raised in the appeal. The assessee was guilty of neither of the two conditions. Therefore, in the absence of two pre-requisites postulated under section 271(1)(c) it was not open to the Reven....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se for the purpose of attracting provisions of Section 271(1)(c) of the I.T. Act. The CIT(A) held in para-6 of his order as under:- 6. I have carefully considered the facts of the case. The point to be decided in whether the appellant's claim towards additional bonus in its return amounted to either concealment of income or furnishing of inaccurate particulars. It is true that the claim of the appellant was disallowed by the A./O. and the said disallowance was upheld by the appellant authorities. However, it cannot also be said that the explanation of the appellant was not plausible and at any rate the question of treating the said explanation as false does not arise. It is also not a case that the appellant had furnished all the particulars in support of its claim, which was evident from the relevant notes in its Annual report. The claim was based on the understanding that the appellate had as to the admissibility of the said claim but it cannot be said at the same time that the appellant had no bona fide in entertaining such a claim. It is well settled that before a penalty can be imposed the entirity of circumstances must reasonably point to the conclusion that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igh Court was not right in taking the view to the contrary. (emphasis supplied) 27) Though the view expressed by the Apex Court in Bharat Earth Movers may have been relevant for the purpose of challenging the Assessment Order passed by the Assessing Officer disallowing the bonus claimed by the Assessee of Rs. 22,21,123/-, it appears that the Assessee has not assailed the said order and has apparently paid tax on the disallowed amount of Rs. 22,21,123/- towards bonus claim. What is however relevant to note is that the claim raised by the Assessee for claiming deduction in respect of the crystalised liability towards additional bonus was a plausible claim. Whether it could be sustained or not in the light of judgment of the Apex Court in Bharat Earth Movers is an altogether different issue. What is relevant to note is the position that the claim made by the Assessee can, by no stretch of imagination, be treated as mala fide act of concealment of income so as to attract the provisions of Section 271(1)(c) of the I.T. Act. 28) In our view, therefore the ingredients of Section 271(1)(c) of the I.T. Act are not satisfied in the present case. The Tribunal has grossly erred ....