Penalty provisions u/s 271(1)(c) of the Act are not automatic provisions

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH `C’ NEW DELHI

BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

AND

SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER

I.T.A.No.1585/Del/2012

Assessment Year: 2003-04

Asstt.Commissioner of Income Tax,

Circle 27(1), D-Block,

Vikas Bhawan, New Delhi.

(Appellant)

Vs

Indo Monex,

A-31, Naraina Industrial Area,

Phase - II, New Delhi.

(PAN: AAAFI2746K)

 (Respondent)

Appellant by: Shri Satpal Singh, Sr.DR

Respondent by: None

PER CHANDRAMOHAN GARG, JUDICIAL MEMBER

This appeal has been preferred by the Revenue against the order of the Commissioner of Income Tax(A)-XVII, New Delhi dated 31.01.2012 for AY 2003-04 by which the Commissioner of Income Tax(A) deleted the penalty of Rs. 3,06,560 levied by the Assessing Officer u/s 271(1)(c) of the Act (hereinafter referred to as ‘the Act’).

2. Briefly stated, the facts giving rise to this appeal are that the assessee filed a return declaring an income of Rs.53,46,390 for AY 2003-04 which was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and accordingly a notice u/s 143(2) of the Act was issued and duly served on the assessee. The Assessing Officer noted that the appellant had received interest of Rs.23,45,708 on fixed deposits and he excluded 90% of such interest income from profit eligible for deduction as per clause (baa) of the Explanation to section 80HHC of the Act which resulted in part disallowance of the claim of deduction u/s 80HHC of the Act. The Assessing Officer concluded the assessment, assessing taxable income at Rs.60,61,360. Aggrieved, the assessee filed an appeal before Commissioner of Income Tax(A)-XXIV, New Delhi which was dismissed through order dated 21.08.2006. The assessee filed a second appeal before ITAT Delhi ‘E’ Bench in ITA No.3331/D/2006 and the same was allowed with following

observations:-

“Both the parties were fair enough to concede that since this issue stands decided by the decision of ITAT (Special Bench) in the case of Lal Sons Enterprises vs DCIT, 89 ITD 25 (Del) (SB): 82 TTJ 1048 (SB) Del as well as the recent decision of the jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs Shri Ram Honda Power Equip(2007) 289 ITR 475 the assessee is entitled for the netting of the interest, subject to the condition that the assessee fulfills the guidelines laid down by the Tribunal in the case of Lal Sons Enterprises vs DCIT (supra) decided by the Special Bench. In this view of the matter, we restore this issue of netting of interest to the file of the Assessing Officer to decide the same afresh in the light of the guidelines issued in the case of Lal Sons Enterprises (supra) after affording reasonable opportunity of being heard to the assessee. For this limited purpose, the issue is restored to the file of the Assessing Officer for compliance and order of Commissioner of Income Tax(A) is also set aside only to this extent.”

Hence, the matter was restored to the file of the Assessing Officer for limited purpose i.e. to decide the issue whether the assessee was entitled for netting of interest.

3. The Assessing Officer vide his order u/s 254/143(3) of the Act dated 24.12.2008 added back interest of Rs.23,84,176 and initiated the proceedings u/s 271(1)(c) of the Act.

4. Finally, the Assessing Officer held that the assessee had furnished inaccurate particulars of the total income as referred in Section 2(45) of the Act and further held that the assessee is liable to levy of penalty u/s 271(1)(c) of the Act. The Assessing Officer imposed the penalty of Rs.3,06,560 with a finding that the case of the assessee was squarely covered under Explanation 1 of Section 271(1)(c) of the Act.

5. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax(A)-XVII, New Delhi which was allowed with the following observations:-

“4.3 The penalty order is actually silent on the aspect of netting of interest which was set aside by the Hon’ble ITAT. Though, the penalty is levied for furnishing inaccurate particulars of total income, the exact nature of these inaccurate particulars are nowhere mentioned in the penalty order. The Assessing Officer have resorted to Explanation 1 to 271(1)(c) of the I.T. Act, 1961, which are deeming provisions. The addition was made to the returned income as a result of the Hon’ble ITAT order and the same is improper as it was appellant who went on appeal and the Hon’ble ITAT’s order was only on the limited issue of netting of interest. The Assessing Officer instead of limiting herself to the direction of the ITAT expanded the issue to include interest income under the head ‘income from other sources;. The penalty levied for not including interest income under the head ‘income from other sources’ is not sustainable as the Assessing Officer has gone beyond the limited issue set aside by the ITAT and the penalty is levied on an improper addition.

4.4 It appears that the Assessing Officer is of the view that if the appellant had not filed an appeal against an addition, then penalty is required to be levied resorting to Explanation 1 to 271(1)( c) of the Act, 1961. In this connection, it is pertinent to note the observation of the Hon’ble Supreme Court in the case of Reliance Petro products (P) Ltd. where it is pointed out that by the Hon’ble Supreme Court in its decision in the case of Dharmendra Textiles had only ruled that mens rea is no more an essential requirement for levying penalty u/s 271(1)(c) of the I.T. Act, 1961. Therefore, the Department as of now need not prove mens rea in penalty proceedings but the meaning of the word ‘concealment’ and ‘inaccurate’ continues to be good law. The Hon’ble Supreme Court also held in the above case of Reliance Petro Products (P) Ltd. that

“If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.”

4.5 Penalty provisions are not automatic provisions and the words ‘concealment’ and ‘inaccurate’ continue to be good law and in this case the exact reason for the levy of penalty is nowhere mentioned in the penalty order. The penalty levied in this case for not including interest

income under the head ‘income from other sources’ is not sustainable as the same is levied on an improper addition. Therefore, penalty of Rs.3,06,560/- is hereby deleted and this ground of appeal is allowed.”

6. On the date of hearing, neither the assessee appellant nor his representative appeared before us. We also note that there is no application for adjournment from the assessee. On perusal of impugned order and entire record, we find it just and proper to decide the appeal after hearing the DR and accordingly we proceed to adjudicate the appeal.

7. We have heard arguments of the Departmental Representative in the light of material on record before us. Ld. DR submitted that the decision of the Commissioner of Income Tax(A) is not acceptable on the ground that the interest income earned by the assessee has no nexus with the business of export and was rightly treated as income from other sources by the Assessing Officer and this fact was not disputed by the assessee. He also submitted that the Commissioner of Income Tax(A) deleted the penalty for not including interest income under the head “income from other sources” as the same was levied on an improper addition. But in fact, intention of the

assessee was not good because he added interest income to the income of the business of export which was eligible for deduction u/s 80HHC of the Act.

8. On bare reading of the impugned order, we observe that the Commissioner of Income Tax(A) relied on the judgment of the Hon’ble Supreme Court in the case of Reliance Petro Products Ltd. vs Commissioner of Income Tax reported as (2010) 2010 TPI23(SC), SLP )C) No. 27161 of 2008 wherein their lordships held that if the contentions of the revenue are accepted for levy of penalty, then in case of every return where the claim made by the assessee is not accepted by the Assessing Officer for any reason, then the assessee will invite penalty u/s 271(1)(c) of the Act which is not the intention of the legislature.

9. After careful consideration of facts and circumstances of the case, we observe that the penalty provisions u/s 271(1)(c) of the Act are not automatic provisions and the words “concealment” and “inaccurate” must be taken in a good spirit considering the act of the assessee with his intention and in the case in hand, on micro reading of the penalty order, we are unable to see exact reasons for levy of penalty. On the other hand, as per impugned order, the ld. Commissioner of Income Tax(A) considered the facts and circumstances of the case and held that the penalty levied for not including interest income under the head “income from other sources” is not sustainable as the same was levied on improper addition. Accordingly, he rightly deleted the penalty levied by the Assessing Officer without giving any sound or exact reason.

10. In view of above, we finally hold that the Commissioner of Income Tax(A) rightly relied on the judgement of Reliance Petro Products Ltd. (supra) and we have no reason to interfere with the findings given by him. Therefore, we hold that this appeal by the revenue is devoid of merits and deserves to be dismissed. Hence, we dismiss the same.

11. In the result, appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 07.09.2012.

                                                  Sd/-                                      Sd/-

                                  (SHAMIM YAHYA) (CHANDRA MOHAN GARG)

                              ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 07th SEPTEMBER 2012

‘GS’

Copy forwarded to:-

1. Appellant

2. Respondent

3. CIT(A)

4. CIT

5. DR

By Order

Asstt. Registrar