Delhi High Court
The Commissioner Of Income Tax vs Manor Hotels Pvt. Ltd. on 28 September, 2010
Author: Manmohan
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 1477/2010
THE COMMISSIONER OF INCOME TAX ..... Appellant
Through: Mr. Sanjeev Sabharwal, Advocate
versus
MANOR HOTELS PVT. LTD. ..... Respondent
Through: Ms. Shashi M. Kapila, Advocate
with Mr. Pranav Bhaskar,
Mr. Siddharth Kapila and
Mr. Pravesh Sharma, Advocates.
% Date of Decision: 28th 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 24th July,
2009 passed by the Income Tax Appellate Tribunal (in short
"Tribunal") in ITA No. 180/Del/2009, for the Assessment Year 2002-
2003.
2. Mr. Sanjeev Sabharwal, 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 ` 46,78,832/- imposed by the Assessing Officer (in short,
"AO") had been deleted. Mr. Sabharwal 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:-
"7. We have considered the rival submissions. We find that
the assessee had incurred expenditure on addition/alteration
and renovation of the premises which was taken on 10 years
lease. After the period of lease the premises were to revert
back to the lesser. Therefore, the benefit available to the
assessee in respect of such expenditure were to extend to 10
years. In such a situation, the claim of assessee is bonafide.
The assessee has disclosed all the particulars in this regard.
Therefore, though the claim was not upheld by the Tribunal, it
cannot be said that assessee has furnished inaccurate
particular and concealed particulars of his income. From the
same facts disclosed, the opinion of the assessee is that the
same is allowable for period of 10 years whereas the opinion of
Assessing Officer is that the same is capital expenditure and
only depreciation is allowable. Even if, depreciation is
allowable the same would be 10% of such expenditure.
However, it did not mean to furnish inaccurate particulars of
income. Since the assessee has offered an explanation for his
opinion which he is able to substantiate, in terms of
explanation-1 to section 271(1(c) of the Act, the disallowance
of claim didn't mean to concealment of particulars of income.
Therefore, the Ld. CIT(A) was justified in deleting the penalty
levied in respect of such income."
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 28, 2010
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