Delhi High Court
The Commissioner Of Income Tax vs Medsave Healthcare Limited on 27 September, 2010
Author: Manmohan
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 1460/2010
THE COMMISSIONER OF INCOME TAX ..... Appellant
Through: Ms. Sonia Mathur, Advocate
versus
MEDSAVE HEALTHCARE LIMITED ..... Respondent
Through: None
% Date of Decision: 27th September, 2010
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporter or not?
3. Whether the judgment should be reported in the Digest?
MANMOHAN, J
1. The present appeal has been filed under Section 260A of Income
Tax Act, 1961 (for brevity "Act") challenging the order dated 25th
September, 2009 passed by the Income Tax Appellate Tribunal (in
short "Tribunal") in ITA No. 503/Del/2009, for the Assessment Year
2003-2004.
2. Ms. Sonia Mathur, learned counsel for the revenue submitted that
the Tribunal had erred in law in dismissing the revenue‟s appeal
whereby the penalty under Section 271(1)(c) of the Act amounting to
`32,58,703/- imposed by the Assessing Officer (in short, "AO") had
been deleted. Ms. Mathur further relied upon a judgment of the
Supreme Court in Union of India and Ors. Vs. Dharamendra Textile
Processors and Ors. (2008) 13 SCC 369.
3. In fact, Section 271(1)(c) came to be interpreted by the Apex
Court in Union of India & Ors. vs. Dharamendra Textile Processors
& Ors. (2008) 306 ITR 277 (SC). The three Judge Bench of the Apex
Court over-ruled the decision in Dilip N. Shroff vs. Joint CIT (2007)
291 ITR 519 (SC) and approved the decision in Chairman, SEBI vs.
Shriram Mutual Fund and Anr. (2006) 5SCC 361. In the said case,
the Supreme Court held:-
"27. The Explanations appended to section 272(1)(c) of
the Income-tax Act entirely indicate the element of strict
liability on the assessee for concealment or for giving
inaccurate particulars while filing the return. The judgment
in Dilip N. Shroff's case [2007] 8 Scale 304 (SC) has not
considered the effect and relevance of Section 276C of the
Income-tax Act. The object behind the enactment of section
271(1)(c) read with the Explanations indicates that the said
section has been enacted to provide for a remedy for loss of
revenue. The penalty under that provision is a civil liability
as is the case in the matter of prosecution under Section
276C of the Income-tax Act."
4. The aforesaid decision was taken note of in Commissioner of
Income Tax vs. Reliance Petroproducts Pvt. Ltd.(2010) 322 ITR 158
(SC). While considering the phrase „concealment of particulars‟, the
Apex Court referred to Section 271 and held as follows:-
"9.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. In Dilip N. Shroff v.
Joint CIT [2007] 6 SCC 329, thisCourt 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)(c) 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, therefore, it was held that
furnishing of an assessment of the value of the property
may not by itself be furnishing inaccurate particulars. It
was further held that the Assessing Officer must be found to
have failed to prove that his explanation is not only not bona
fide but all the facts relating to the same and material to the
computation of his income were not disclosed by him. It was
then held that the explanation must be preceded by a
finding as to how and in what manner, the assessee had
furnished the particulars of his income. The Court ultimately
went on to hold that the element of mens rea was essential.
It was only on the point of mens rea that the judgment in
Dilip N. Shroff v. Joint CIT was upset. In Union of India
v. Dharamendra Textile Processors, after quoting from
section 271 extensively and also considering section
271(1)(c),the Court came to the conclusion that since
Section 271(1)(c) indicated the element of strict liability on
the assessee for the concealment or for giving inaccurate
particulars while filing return, there was no necessity of
mens rea. The court went on to hold that the objective
behind the enactment of Section 271(1)(c) read with
Explanations indicated with the said section was for
providing remedy for loss of revenue and such a penalty was
a civil liability and, therefore, willful concealment is not an
essential ingredient for attracting civil liability as was
the case in the matter of prosecution under Section 276C of
the Act. The basic reason why decision in Dilip N. Shroff v.
Joint CIT was overruled by this Court in Union of India v.
Dharamendra Textile Processors, was that according to
this Court the effect and difference between Section
271(1)(c) and Section 76C of the Act was lost sight of
in the case of Dilip N. Shroff v. Joint CIT. However, it must
be pointed out that in Union of India v. Dharamendra
Textile Processors, no fault was found with the rasoning in
the decision in Dilip N. Shroff v. Joint CIT, where the court
explained the meaning of the terms "conceal" and
"inaccurate". It was only the ultimate inference in Dilip N.
Shroff v. Joint CIT to the effect that mens rea was an
essential ingredient for the penalty under Section 271(1)(c)
that the decision in Dilip N. Shroff v. Joint CIT was
overruled........."
Thereafter, so stating their Lordships‟ proceeded to hold as
follows:-
"11. .......A mere making of the claim, which is not
sustainable in law, by itself, will not amount for
furnishing inaccurate particulars regarding the
income of the assessee. Such claim made in the
return cannot amount to the inaccurate particulars."
5. In the present case, we find that both the Commissioner of
Income Tax (Appeals) [in short, "CIT(A)"] and the Tribunal have given
cogent reasons for setting aside the penalty levied under Section
271(1)(c) of the Act. The relevant portion of the impugned order of the
Tribunal is reproduced hereinbelow:-
"4. We have considered the rival contentions, carefully gone
through the orders of the authorities below and found from the
record that assessee is engaged in the business of third party
insurance administrative services (in short TPA) and has a
network of branches to carry out such work. The company in
its books recognized TPA fees as its income on the basis of
apportioning 70% of the quarter in which the fees was received
and balance 30% was booked as income in the next three
quarters. Accordingly, the assessee followed matching concept
of income and expenses to be incurred in respect of third party
insurance. As the income was belonging to one year and the
services were to be rendered for the entire one year, the
amount of TPA fees received in the last quarter of the year was
belonging to the period covering three quarters of the next year
also. Keeping in view the expenses to be incurred in next three
quarters, the part of the income was also postponed to the three
quarters of the next year. The AO was of the view that entire
fee should be booked as income in the quarter in which it was
received and invoiced and the apportionment in the next three
quarters was not correct. As per assessee, it adopted principle
of matching concept which requires that expenses for the
accounting period should be matched against related income.
5. In view of the above discussion, it is crystal clear that
assessee has given full disclosure with respect to the nature of
income received and the expenses to be incurred thereon. Even
in the Schedule-14 relating to the significant accounting
policies and the notes annexed thereto, the assessee has clearly
stated that "TPA fees" is invoiced to the insurance company on
quarterly basis which is recognized as income on the basis of
70% of the amount invoiced in the first quarter to meet
initiation car insurance related cost. Balance 30% was
recognized over next three quarters equally. Point A(c) in
Schedule-14 which related to revenue recognition. Entire
information was furnished along with the return of income. We
found that even in the quantum appeal filed by the assessee
against the decline by the revenue authorities, such adoption of
recognition of income, the Tribunal vide its order dated
25.6.2009 directed the AO to allow the claim of the assessee in
this year relating to the corresponding expenses adopted in the
next year and to rework out the income accordingly. AO was
also directed to give consequence effect in the subsequent years
also. The recognition of TPA income in this way and the
justification furnished for the same was bona-fide. There was
no concealment of income nor any furnishing of inaccurate
particulars, therefore we do not find any infirmity in the order
of CIT(A) for deleting the penalty with respect to recognition of
the 30% of the TPA income as having been spread over the next
three quarters, insofar as the TPA fee so received was
belonging to the full year i.e. four quarters."
6. From the aforesaid, it is apparent that the respondent-assessee
had made full disclosure and there was neither any concealment of
income nor furnishing of inaccurate particulars. In fact, both the
CIT(A) and Tribunal have found that the justification furnished by the
respondent-assessee was bonafide. Consequently, keeping in view the
conclusion of facts arrived at by the Commissioner as well as by the
Tribunal, the explanation offered by the respondent-assessee is bona
fide and the respondent-assessee‟s case would fall within the ambit of
Explanation 1 to Section 271 of Act.
7. Accordingly, the respondent-assessee is not liable to pay penalty
under Section 271(1)(c) of Act and thus the present appeal being devoid
of merits is dismissed in limine but with no order as to costs.
MANMOHAN, J
CHIEF JUSTICE
SEPTEMBER 27, 2010
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