9911796707🚨 Important Update for Our Users
We are transitioning to our new and improved portal - www.taxtmi.com - for a better experience.
Follow us:
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (6) TMI 1646 - HC - Income TaxPenalty u/s. 271 (1) (c) - as per AO explanation of the Assessee in respect of the bonus amount not being found bona fide - 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) ? - HELD THAT - 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 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 in respect of the amount which are yet to be actually paid in view of provisions of Section 43B of the I.T. Act. The claim for additional bonus is disallowed on the ground that the amount was actually paid in the subsequent Accounting Year. In our view the case does not involve making of any false statement by the Assessee and therefore the ratio of Reliance Petroproducts Private Limited 2010 (3) TMI 80 - SUPREME COURT would squarely apply to the present case. As the case involves raising of a bona fide claim by the Assessee that the crystallised liability towards additional bonus could have been claimed as deduction during the relevant year. Whether such claim is tenable in law or not is an altogether different issue. However by no stretch of imagination it can be held that the claim was raised with mala fide intention of concealing the income. 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 2000 (8) TMI 4 - SUPREME COURT 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. 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 in setting aside order passed by the CIT(A) by recording an unsustainable finding that the claim made by the Assessee was baseless . Assessee only raised the claim that the crystalized liability towards additional bonus could be claimed towards deduction which is later found to be inadmissible in law. Thus the case does not involve making of any false statement in the return and therefore the finding of the Tribunal that there is inaccurate furnishing of particulars cannot be sustained. Assessee cannot be penalised for having raised a plausible claim. The essential ingredients of Section 271(1)(c) of the I.T. Act are not met with in the present case. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered by the Court was whether the Income Tax Appellate Tribunal (ITAT) was correct in law in reversing the order of the Commissioner of Income Tax (Appeals) [CIT(A)] and upholding the Assessing Officer's imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (I.T. Act) on the Assessee. More specifically, the issue was whether the Assessee had concealed particulars of income or furnished inaccurate particulars of income by claiming a deduction for an ad-hoc bonus that was not actually paid in the relevant accounting year but claimed as a liability crystallized during that year, thereby attracting penalty under Section 271(1)(c) of the I.T. Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue: Whether the Assessee's claim for deduction of ad-hoc bonus, which was not actually paid in the relevant accounting year but claimed on the basis of crystallized liability, amounted to concealment or furnishing of inaccurate particulars of income under Section 271(1)(c) of the I.T. Act. Relevant Legal Framework and Precedents: The penalty under Section 271(1)(c) is attracted if the Assessing Officer is satisfied that the Assessee has either concealed particulars of income or furnished inaccurate particulars of income. The provision reads: "271(1)(c) has concealed the particulars of his income or furnished inaccurate particulars of such income." The Court referred extensively to the Apex Court's interpretation in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., which clarified that mere making of an incorrect claim in law does not amount to furnishing inaccurate particulars. The particulars mean the details of the claim made by the Assessee in the return. The penalty can be imposed only if the particulars furnished are factually incorrect or inaccurate, not merely because a claim is disallowed on legal grounds. Further, the Apex Court in Dilip N. Shroff v. CIT and subsequent cases clarified that the element of mens rea (intention or knowledge) is essential to impose penalty under Section 271(1)(c), although this was later nuanced by the Court in Union of India v. Dharamendra Textile Processors, which held that penalty under Section 271(1)(c) is a civil liability and does not require wilful concealment as in criminal prosecution. Section 43B of the I.T. Act was also central, which mandates that certain deductions, including employer's contributions and bonuses, are allowable only on actual payment, irrespective of the accounting method employed. Court's Interpretation and Reasoning: The Court analyzed the facts that the Assessee claimed deduction of Rs. 22,21,123/- as additional bonus liability crystallized during the accounting year 1982-83, although actual payment was made only in the subsequent year. The Assessing Officer disallowed this claim relying on Section 43B, which permits deduction only on actual payment, and imposed penalty under Section 271(1)(c) on the ground that the Assessee furnished inaccurate particulars by claiming a deduction not permissible under law. The CIT(A) had allowed the Assessee's appeal, holding the explanation plausible and the claim bona fide, and thus no penalty under Section 271(1)(c) was warranted. The ITAT reversed the CIT(A), holding that the claim was baseless and constituted furnishing inaccurate particulars, thereby justifying penalty. The High Court examined the precedents and held that the Tribunal erred in equating an incorrect legal claim with furnishing inaccurate particulars. The Court emphasized that the Assessee did not make any false statement or conceal any particulars of income; the claim was a bona fide interpretation of the law regarding the timing of liability recognition under mercantile accounting principles. The Court distinguished the Delhi High Court judgment in CIT v. Zoom Communication P. Ltd., which upheld penalty where the claim was wholly untenable and mala fide, noting that the facts there involved deliberate concealment and inaccurate particulars with mala fide intent, unlike the present case. The Punjab and Haryana High Court's decision in The Principal Commissioner of Income Tax I, Chandigarh v. M/s. Torque Pharmaceuticals Pvt. Ltd. was also relied upon, which held that a bona fide claim, even if disallowed, does not attract penalty absent concealment or furnishing inaccurate particulars with mala fide intention. Key Evidence and Findings: - The Assessee's original return declared a loss; subsequently, an amnesty return declared income by adding back unpaid sales tax and gratuity but did not add back the ad-hoc bonus. - The Assessing Officer found that the Assessee did not furnish necessary particulars regarding the nature and date of accrual of the bonus liability and that the claim was discovered only after enquiry. - The Assessing Officer concluded that the Assessee furnished inaccurate particulars and imposed penalty. - CIT(A) found the explanation plausible and the claim bona fide. - ITAT found the claim baseless and upheld penalty. - The High Court found no evidence of concealment or mala fide and held the claim was a bona fide legal interpretation. Application of Law to Facts: The Court applied the legal principles from Reliance Petroproducts and other precedents to the facts, concluding that the Assessee's claim was not a false or inaccurate statement of particulars but a bona fide claim on the timing of liability recognition. The disallowance of the claim was a legal issue, not a factual inaccuracy or concealment. Therefore, penalty under Section 271(1)(c) was not warranted. Treatment of Competing Arguments: The Revenue argued that the bonus was not actually paid in the relevant year and thus deduction was not allowable under Section 43B, and that the claim was inaccurate and concealed income, justifying penalty. The Court acknowledged this legal position but distinguished it from the question of penalty, emphasizing that an incorrect legal claim does not automatically translate into furnishing inaccurate particulars or concealment. The Court rejected the Tribunal's finding that the claim was baseless for the purpose of penalty, holding that mere disallowance of a claim does not imply mala fide concealment or furnishing inaccurate particulars. 3. SIGNIFICANT HOLDINGS "In order to expose the Assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. It is further held all the conditions under Section 271(1)(c) must exist before the penalty is imposed. It further held that the word 'particulars' used in Section 271(1)(c) would mean details of the claim made by the Assessee in the Return. 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." "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." "Mere raising of claim which has no basis, would not attract penalty provisions under Section 271(1)(c) of the I.T. Act." "The essential ingredients of Section 271(1)(c) of the I.T. Act are not met with in the present case." The Court finally answered the substantial question of law in the negative and in favor of the Assessee, setting aside the order of the Tribunal and confirming the order of the CIT(A) deleting the penalty. The Court held that the penalty imposed under Section 271(1)(c) was not sustainable as the Assessee's claim was bona fide and did not involve concealment or furnishing inaccurate particulars of income.
|
