Section 271(1)(c) of the Income-tax Act, 1961 —Concealment penalty — Whether in a case where an assessee in penalty proceedings successfully explains his position and is not trapped within the parameters of clause (c) of S. 271(1)(c) along with the Explan

ACIT vs. VIP Industries Ltd.

A.Y. : 2000-2001. Date of Order : 20.3.2009

Section 271(1)(c) of the Income-tax Act, 1961 —Concealment
penalty — Whether in a case where an assessee in penalty proceedings
successfully explains his position and is not trapped within the parameters of
clause (c) of S. 271(1)(c) along with the Explanations deeming the concealment
of income, penalty cannot be imposed — Held : Yes. Whether ratio decidendi of
the judgment of Apex Court in Dharmendra Textiles Processors and Ors. is
confined to treating willful concealment as not vital for imposing penalty
u/s. 271(1)(c) and not that in all cases where addition is confirmed, the
penalty shall mechanically follow — Held : Yes.

 

Facts :

The assessee claimed deduction u/s. 35 for scientific
research expenditure @ 100% inter alia towards cost of motor car
purchased during the year. The tax audit report filed by the assessee
categorically mentioned that deduction was claimed on Research & Development
Expenditure including deprecia-tion. The Assessing Officer (AO) added back
this amount and allowed depreciation @ 20% by treating it as car used for
ordinary business purpose not connected with the scientific research and
development activity. This addition was confirmed by the Tribunal.

The AO levied penalty u/s. 271(1)(c).

The CIT(A) allowed the appeal of the assessee and deleted
the penalty levied by the AO.

In an appeal by the Revenue to the Tribunal heavy reliance
was placed on the decision of the Apex Court in the case of Dharmendra
Textiles Processors and Ors. (306 ITR 277).

Held :

The Tribunal after considering the decision of the Apex
Court in Dharmendra Textiles Processors held that :

(a) the mere fact that addition is confirmed cannot
per se lead to the confirmation of penalty because quantum and penalty
proceedings are independent of each other;

(b) Explanation 1 to S. 271(1)(c) is attracted when
either of the following three ingredients is satisfied viz. :

(i) the assessee fails to offer an explanation; or

(ii) he offers an explanation which is found by the
authorities to be false; or

(iii) the person offers an explanation which he is not
able to substantiate and fails to prove that such explanation is bona
fide and that all the facts relating to the same have been disclosed
by him.

(c) the judgment of the Supreme Court in Dharmendra
Textiles Processors which holds that penalty u/s. 271(1)(c) is a civil
liability and that ‘willful concealment’ and ‘mens rea’ are not
essential ingredients for imposing penalty cannot be read to mean that in
all cases where addition is confirmed, penalty shall automatically follow.
In order to attract S. 271(1)(c), there must be concealment — the fact that
the same is willful or unintentional is irrelevant;

(d) where an assessee genuinely claims a deduction after
disclosing necessary facts, there is no ‘concealment’ even if the claim is
rejected. If penalty is imposed under such circumstances also there will
remain no course open to an assessee to raise disputed claims and such
proposition is beyond recognised canons of law.

The Tribunal upon examining the facts found that the
assessee had bona fide made a claim for deduction u/s. 35 in respect of
cost of car purchased for the purpose of R & D activity by disclosing all the
necessary particulars in the audit report. The Tribunal found this to be a
case of genuine difference of opinion between the assessee and the AO. The
Tribunal held that the assessee had not concealed its income and also none of
the ingredients necessary to be satisfied for invoking Explanation 1 was
satisfied. The Tribunal confirmed the action of CIT(A) and dismissed the
appeal of the Revenue.