Concealment Penalty — Whether mens rea is essential ?

(ii) While considering the scope of the Explanation, the Court stated that if the ingredients contained in the main provisions as also the Explanation appended thereto are to be given effect to, despite deletion of the word’ deliberate’, it may not ‘be of much significance. The expression ‘conceal’ is of great importance. It signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of ‘Concealment of Income’ or ‘Furnishing Inaccurate Particulars’.

(iii) The term ‘inaccurate  particulars’ is not defined.
 
Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the Explanations are taken recourse to, a finding has to be arrived at having regard to clause (A) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which were material to the computation of his income.

iv) The order imposing penalty is quasi-criminal in nature and, thus, the burden lies on the Department to establish that the assessee had concealed his income. Since the burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceedings. In the penalty proceedings, thus, the authorities must consider the matter afresh, as the question has to be considered from a different angle.

v) Before a penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income, and that the assessee had consciously concealed the particulars of his income or had furnished inaccurate particulars thereof.

vi) ‘Concealment of Income’ and ‘Furnishing Inaccurate Particulars’ are different and both refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressioveri or suggestiofalsi. Although it may not be very accurate or apt, but suppressioveri would amount to concealment, suggestiofalsi would amount to furnishing of inaccurate particulars.

Union of India and Others v. Dharmendra Textiles Processors and Others, 306 ITR 277 (SC) :

3.1 In the above case (as well as other cases), when it came up before another Division Bench, the question was whether the provisions of S. llAC of the Excise Act (as inserted by the Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of taxes) should be read to contain mens rea as essential ingredient, and whether there is scope of levying penalty below the prescribed minimum. The Revenue’s stand was that the said Section should be read as penalty for statutory offence and once there is a default, the authority has no discretion in the matter of imposing penalty and the authority, in such cases, was duty bound to impose penalty as prescribed. On the other hand, on behalf of the assessee reference was made to S. 271(1)(c) of the Act taking the stand that S. llAC of the Excise Act is identically worded and in a given case, it was open to the authority not to impose any penalty. Reliance was placed on the judgment of the Apex Court in the case of Dilip N. Shroff (supra). The Division Bench was of the view that the basic scheme for the imposition of Concealment Penalty under the Act and penalty u/s.llAC of the Excise Act is common, and was of the view that the law laid down in Chairman, SEBI’S case (supra) is correct and had doubted the correctness of the above principle laid down in the case of Dilip N. Shroff (supra). Accordingly, the matter was referred to Larger Bench, effectively to decide whether mens rea is essential ingredient of S. llAC of the Excise Act, and whether the authority has any discretion in the matter of levy of penalty u/s.llAC of the Excise Act, when there is a breach. We are not concerned with the issue relating to discretion of the authority as to levy or not to levy the penalty under the said S. llAC (as, in this context, there is a difference between the two provisions, particularly on account of the said Explanation) and other background of the said case in this write-up and therefore, the same is not referred to.

3.2 On behalf of the Revenue, it was, inter alia, contended that in S. 11AC of the Excise Act, no reference to any mens rea is made and this is clear from the other relevant provisions also. It was further contended that the reliance on the judgment in the case of Dilip N:Shroff (supra) is misplaced, as in that case the question relating to discretion of the authority as to levy or not to levy the penalty was not the basic issue. In fact, S. 271(1)(c) of the Act provides for some discretion and therefore, that decision has no relevance. S. nxc provides for a mandatory penalty once the breach is committed. So far as the present case is concerned, the only dispute is whether the discretion has been properly exercised, which is a question of fact. Reliance was placed on the Chairman, SEBI’s case (supra).

3.3 On behalf of the assessee, it was, inter alia, contended that the factual scenario in each case has to be examined. It was further contended that S. 271C of the Act uses the expression ‘shall be liable’, whereas S. 271B uses the expression ‘shall pay’ in support of the contention that there is a discretion to reduce the penalty. The reference, for this purpose, was also made to S. 271F and S. 272A of the Act. It was further contended that even if it is held that the Section gives the impression that the imposition of penalty is mandatory, yet there was scope for exercise of discretion as held by the Apex Court in the case of State of M.P. v. Bharat Heavy Electricals Limited, (106 STC 604). It was also contended that various degrees of culpability envisaged in S. llAC cannot be placed on the same pedestal. Certain further arguments were made with reference to S. llAC of the Excise Act and the rules made there under, with which we are not concerned in this write-up, as the same primarily may be relevant in the context of the Excise Act.

3.4 After considering the arguments of both the sides, the Court referred to the relevant provisions of the Excise Act and the rules made thereunder as well as the provisions of S. 271 and S. 271C of the Act. The Court then stated that in Chairman, SEBI’s case (supra), after referring to the statutory scheme, it was pointed out that there was a scheme attracting the imposition of penalty in that Act (SEBIAct) under different circumstance (i.e., penalty with reference to breach of civil obligation and penalty related to criminal proceedings). The Court further stated that in that case, after referring to certain provisions of the SEBI Act, the Court has held as under (pages 294/295) :

“The scheme of the SEBI Act of imposing penalty is very clear. Chapter VI-A nowhere deals with criminal offences. These defaults for failures are nothing but failures or default of statutory civil obligations provided under the Act and the Regulations made thereunder. It is pertinent to note that S. 24 of the SEBI Act deals with the criminal offences under the Act and its punishment. Therefore, the proceedings under Chapter VI-A are neither criminal nor quasi-criminal. The penalty leviable under the Chapter or under these Sections is penalty in cases of default or failure of statutory obligation or in other words breach of civil obligation. In the provisions and scheme of pen-alty under Chapter VI-A of the SEBI Act, there is no element of any criminal offence or punishment as contemplated under criminal proceedings. Therefore, there is no question of proof of intention or any mens rea by the appellants and it is not an essential element for imposing penalty under the SEBI Act and the Regulations …. “.

3.5 After referring to the view expressed by the Apex Court in Chairman, SEBl’s case (supra), the Court stated that the Apex Court in catena of decisions has held that mens rea is not an essential element of imposing penalty for breach of civil obligation. For this, the Court made reference to various decisions of the Apex Court under different statutes dealing with this issue and taking similar view. Amongst this, the Court also referred to the judgment of the Apex Court in the case of Gujarat Tranvancore Agency (171 ITR 455), in which the Court was concerned with the levy of penalty u/ s. 271(I)(a) (since omitted from A.Y. 1989-90) for failure to furnish the return of income as required u/s.139(1) of the Act. In that case, the Court compared these provisions with S. 276C of the Act dealing with prosecution in cases where the person willfully fails to furnish the return of income as required u/s. 139(1) of the Act. In that case, having referred to both these Sections, the Court has stated that “it is clear that in the former case what is intended is a civil obligation, while in the latter what is imposed is a criminal sentence”. In that case, the Court has concluded that in the proceedings u/ s.271(I)(a) of the Act, the intention of the Legislature seems to emphasis the fact of loss of revenue and to provide a remedy for such a loss, although no doubt, an element of coercion is present in the penalty. Therefore, accordingly to the Court in that case, there is nothing in S. 271(I)(a), which required that mens rea must be proved before the penalty can be levied under that provision.

3.6 Dealing with the judgment of the Apex Court, in the case of Bharat Heavy Electricals Limited (supra), on which also heavy reliance was placed on behalf of the .assessee, the Court stated that the same is not of any assistance, because the same proceeded on the basis of a concession and in any event, did not indicate the correct position in law.

3.7 The Court then referred to settled position of interpretation that the Court cannot read anything into the statutory position or stipulated condition, when the language is plain and unambiguous. The Court also referred to various decisions of the Apex Court relating to the principle of construction of statutory provisions. The Court, then, dealing with the principle of interpretation of the statute, stated as under (pages 300-301) :

“Two principles of construction – one relating to casus omissus and the other in regard to reading the statute as a whole, appear to be well settled. Under the first principle a casus omissus cannot be supplied by the Court except in the case of clear necessity, and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or Section must be construed together and every clause of a Section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature. ‘An intention to produce an unreasonable result’ said Danckwerts L.J. in Artemiou v. Procopiou, (1965) 3 All ER 539 (CA) (All ER page 544 I) ‘is not to be imputed to a statute if there is some other construction available’. Where to apply words literally would ‘defeat the obvious intention of the legislation and produce a wholly unreasonable result’, we must ‘do some violence to the words’ and so achieve that obvious intention and produce a rational construction (Per Lord Reid in Luke v. IRe, (1963) AC 557(HL) where at AC page 577 he also observed: (All Er page 664-1)’. This is not a new problem, though our standard of drafting is such (that it rarely emerges)”.

3.8 Dealing with the judgment in the case of Dilip N. Shroff (supra), the Court stated as under (page 302) :

“It is of significance to note that the conceptual and contextual difference between S. 271(I)(c) and S. 276C of the Income-tax Act was lost sight of in Dilip N. Shroff’s case (2007) 8 Scale 304 (sc)

The Explanations appended to S. 271(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 S. 276C of the Income-tax Act. The object behind the enactment of S. *272(1)(c) read with the Explanations indicates that the said section has been enacted to provide for remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/ s.276C of the Income-tax Act”.

should be read as 271(1)(c)

3.9 Finally, in the context of the issue under consideration, the Court took the view (so far as it is relevant for this write-up) that Dilip N. Shroff’s case was not correctly decided. In this context, the Chairman, SEBI’s case has analysed the legal position in the correct perspective. The Court then stated that the matter shall now be placed before the Division Bench to deal with the matter in the light of this decision, only so far as cases where there is challenge to the vires of the relevant provisions and rules made under the Excise Act.

Conclusion:

4.1 From the above judgment of the larger Bench of the Apex Court, it is now clear that mens rea is not an essential ingredient of the provisions dealing with Concealment Penalty u/s.271(1)(c). It is also clear that the nature of such Concealment Penalty is not quasi-criminal, but the same is for breach of civil obligation and therefore, willful concealment is not essential for levy of such penalty.

4.2 In view of the above, the cases relating to the levy of Concealment Penalty u/s.271(1)(c) will have to be decided on the basis of provisions of S. 271(1)(c) read with the Explanations (Explanation 1 in particular) to S. 271.

4.3 From the judgment of the larger Bench of the Apex Court, it seems that the same overrules the judgment of the Apex Court in the Dilip N. Shroff’s case only to the extent it holds that deliberate act on the part of the assessee will have to be proved for levy of Concealment Penalty (i.e., mens rea is essential ingredient of the provisions) and the order imposing such penalty is quasi-criminal in nature. It seems that the other observations made by the Apex Court in Dilip N. Shroff ‘s case in the context of Concealment Penalty u/s.271(1)(c) should continue to hold good, as the larger Bench of the Apex Court was not specifically concerned with those points as well as the language of the S. 271(1) (and the Explanations thereto) of the Income-tax Act.