2004 (8) TMI 87 - HC - Income Tax

Penalty Revenue submits that there is a legal fiction introduced in Explanation 1 to section 271(1) that concealment ipso facto will attract penalty - it cannot be said that there is any legal fiction countenancing the establishment of mens rea. This is not a case of levy of tax for the differential amount of investment made on the construction of kalyana mandapam but this is a case of levy of penalty on the said differential amount of tax. The amount of tax is always looked differently than the levy of penalty and in the case of levy of penalty always there should be mens rea. There being no legal fiction and mens rea and the question raised being a question of fact recorded in favour of the assessee no question of law arises appeal of revenue dismissed

Summary

Issues: Challenge to order of Income-tax Appellate Tribunal confirming Commissioner of Income-tax (Appeals) order; Interpretation of legal fiction in Explanation 1 to section 271(1) of the Income-tax Act, 1961; Mens rea requirement for penalty levy; Question of law arising from concurrent factual findings by authorities.

The judgment delivered by the High Court of Madras, with Judges B. Subhashan Reddy and M. Karpagavinayagam, addressed the challenge to the order of the Income-tax Appellate Tribunal confirming the Commissioner of Income-tax (Appeals) order. The key contention revolved around the interpretation of a legal fiction in Explanation 1 to section 271(1) of the Income-tax Act, 1961, concerning the imposition of penalties for concealment. The court noted that the Explanation 1 includes sub-clauses (A) and (B) outlining scenarios where a person fails to offer a valid explanation or fails to substantiate an explanation, leading to a presumption of concealed income. However, the court rejected the argument that this Explanation introduced a legal fiction countenancing the establishment of mens rea for penalty imposition.

The court emphasized that in cases of penalty imposition, mens rea is crucial, and the absence of a legal fiction in the provision indicates the necessity of proving intent. The judgment distinguished between the levy of tax and the levy of penalty, highlighting that mens rea is typically required for the latter. Given the absence of a legal fiction and the factual findings in favor of the assessee by both the Commissioner of Income-tax and the Income-tax Appellate Tribunal, the court concluded that no question of law arose for consideration. The court further cited a precedent from a Division Bench of the same court in the case of CIT v. Apsara Talkies [1985] 155 ITR 303 (Appex) to support its decision. Consequently, the appeal challenging the penalty levy was dismissed by the High Court of Madras.