1.1 Mr. Haridasani was a resident of Dubai for a number of years. Later, he moved to India and started business.
1.2 For F.Y.2005-06, relevant to A.Y.2006-07, Mr. Haridasani had acquired the status of Resident and Ordinarily Resident. Since the business operations of Mr. Haridasani were low and since Mr. Haridasani had only the income from investments held abroad, he had not engaged services of any professional to assist him in preparation of his return of income.
1.3 Mr. Haridasani declared only his Indian income in the return for A.Y.2006-07. He filed his full personal accounts with the return of income showing all his investments in India and abroad and also filed full extracts of bank accounts showing credit in respect of all income including income earned abroad. He had filed his earlier returns similarly in respect of the preceding years. The case for A.Y. 2006-07 was for the first time selected for scrutiny under 5.143. The A.O., on finding his income abroad, brought it to tax and imposed penalty for concealment of income. Mr. Haridasani had pleaded innocence and lack of familiarity with the Indian laws since he had stayed abroad for a number of years and also for the fact that he had not engaged any professional to advise him. His pleas were turned down and penalty for concealment of income was imposed. The A.a. also mentioned in”his penalty order that innocence, or lack of mens rea, was no longer available as a defence since the promulgation of the SC decision in the case of UoI. vs. Dharmendra Textiles Processors, 306 ITR 277. Mr. Haridasani had preferred an appeal against the order imposing penalty and seeks your advice in preparing arguments to be made before CIT(A).
2.0 Submissions:
2.1 The penalty in this case is imposed for the act of ‘concealment of income’ as opposed to the act of ‘furnishing inaccurate particulars of income’. The two acts, namely, of ‘concealment of income’ and of ‘furnishing inaccurate particulars of income’ are two different circumstances both leading to penalty under S.271(1)(c) — Please refer to eIT vs. Indian Metal & Ferro Alloys Ltd., 117 CTR (Ori) 378, which succinctly draws distinction between the two circumstances and explains what they mean. The following passage from the said decision is self explanatory.
“The expressions ‘has concealed the particulars of income’ and ‘has furnished inaccurate particulars of income’ have not been defined either in Section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in details although they may lead to the same effect, namely, keeping off a certain portion of income. The former is direct and the latter may be indirect in its execution. The word ‘conceal’ is derived from the Latin word ‘concolare’ which implies ‘to hide’. Webster’s New International Dictionary equates its meaning to ‘hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of’. The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of the Income-tax authorities. In furnishing its return of income, an assessee is required to furnish particulars and accounts on which such returned income has been arrived at. These may be particulars as per its books of account if it has maintained them, or any other basis upon which it has arrived at the returned figure of income. Any inaccuracymade in such books of account or otherwise which results in keeping off or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income.”
2.2 Once the position is admitted that the circumstance leading to penalty is ‘concealment of income’, one must proceed to find out the applicability of the ratio of the SC decision in the case of UoI. vs. Dharmendra Textiles Processors, 306 ITR 277.
2.3 It is true that the said decision does lay down the principle that the presence of mens rea need not be proved in civil matters before imposing penalty unlike in criminal matters. However, the said principle comes with a caveat. The caveat is that mens rea need not be proved only if the language of a provision imposing penalty does not require the presence of mens rea to be proved. In other words, if the language requires that a penalty cannot be imposed unless the assessee had a guilty mind before committing the act leading to the penalty, then the presence or absence of a guilty mind assumes importance. As per the decision in the case of Dharmendra Textiles Processors what is of paramount importance is the language of the provisions imposing penalty. The Honourable SC has also relied on the language of S.276C providing for prosecution in cases where a person wilfully attempts to evade tax, to make the point since this provision requires the element of mens rea to be proved before the person can be prosecuted because the language of the provision clearly requires so, the person cannot be prosecuted unless he had a guilty mind. Moreover, while deciding the case of Dharmendra Textiles Processors, the SC has approvingly quoted from its earlier decision in the case of Gujarat Travancore Agency vs. CIT, 177 ITR 455. According to the said decision which was rendered in the context of S.271(1)(a) of the Act, the SC confirmed penalty imposed under S.271(1)(a)where the appellant had no malafide in filing his return late because the Court did not find anything in the language of S.271(1)(a) which required the presence of mens rea to be established before a penalty could be imposed. Thus, what is important is not whether the presence of mens rea is essential or not before imposing penalty in civil matters, but the language of the particular provision under which the penalty is sought to be imposed.
2.4 With the above back ground let us see whether the language of S.271(1)(c) requires the presence of mens rea when the penalty is sought to be imposed on the ground that the assessee has concealed the particulars of his income.
2.5 The words used in these provisions are ‘the assessee has concealed … ‘. As per the standard dictionary the word ‘conceal’ in ordinary English means, ‘I. to hide; withdraw or remove from observation; cover or keep from sight: e.g., He concealed the gun under his coat. 2. to keep secret; to prevent or avoid disclosing or divulging: e.g., to conceal one’s identity by using a false name. In this regard, please also refer to the decision in CIT vs. Indian Metal & Ferro Alloys Ltd., 117 CTR (Ori.) 378 and particularly to the passage reproduced in paragraph 2.1 above which explains the meaning of the word ‘conceal’.
2.6 One may appreciate that the idea of deliberateness is implicit in the word ‘conceal’. Concealment is not accidental or involuntary, it is planned and voluntary. The following observations of the Honourable SC made in the case of T. Ashok Pai vs. CIT, 292 ITR 11 still hold good:
“concealment of income’ and ‘furnishing of inaccura te particulars’ carry different connotations. Concealment refers to a deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi”.
2.6 Therefore, it is submitted that if the charge on the assessee is of concealing particulars of his income, the assessee can rebut the charge by proving lack of mens rea. This construction of the provision is not inconsistent with the ratio of the Honourable SC’s decision in the case of Dharmendra Textiles Processors (supra) for the reason that the said decision also lays stress on the language of particular provision imposing penalty. The decision merely forbids the presumption of requirement of proving mens rea; it does not say that one should ignore such requirement if it is demanded by the very provision imposing penalty.
2.7 In view of the submissions and the facts of the case, penalty should be deleted.
Author’s Note:
The stand taken in these case studies seems to be vindicated by the recent decision of the Supreme Court in the case of Uol vs. Rajasthan Spinning & Weaving Mills – Civil Appeal No. 2523 of 2009, where the Supreme Court has explained its decision in Dharmendra Textile Processor’s case.
