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Penalty us/ 271 (1) (c)

TELUGU SATYANARAYANA (ADVOCATE and TAX CONSULTANT) (172 Points)

27 May 2011

hai

can one help me! the ao had issued a hearing notice u/s 271 (1) (c) why it should not be imposed? can any one tell the latest judgements on it.

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13 Replies

CA Rakesh Garg (Asst. MGR Taxation) (510 Points)
Replied 27 May 2011

it is a penalty for concealment of income. penalty is excess of tax payable.

it may be maximum 3 times of tax avaded.

(Guest)

But penalty is levied on what matter ? may i know somewhat subject matter in addition.....

CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 27 May 2011

WHEN EVER ASSESSING OFFICER FEELS FROM YOUR RETURN YOU SUBMITTED OR BALANCE SHEET OR ANY OTHER DOCUMENTS YOU SUBMITTED OR AO HAS THE ACCESS TO SOME INFORMATION FROM THIRD PARTIES THAT THE INCOME YOU HAVE MENTIONED IS NOT CORRECT AND YOU HAVE DELIBERATLY CONCELAED THE INCOME THAT IS YOU HAVE MENS REA IN YOUR MIND. THEN HE CAN SLASH A PENALTY UNDER 271 1 C THE AMOUNT OF PENALTY WILL BE 100 TO 300% OF TAX ON THE INCOME YOU HAVE CONCEALED. IN REPLY OF YOUR S FOR THE INTIMATION YOU RECCIVED YOU HAVE TO PROVE TO A O THAT YOU DINT HAD ANY MENS REA BEHIND CONCELAING THE INCOME. THEN YOU CAN ESCAPE THE PENALTY HERE

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 27 May 2011

@ Nimit - Ther is nothing called "AO FELLS" ....in Income tax act. The sec reads as follows:-

"If AO /CIT(A)/CIT in the course of his proceedings under the act, is SATISFIED that anyperson -

Clause c - has concelaed the particulars of his income or furnished inaccurate particulars of such income"

thn he may direct by way of penalty which shal not exceed 3 times the amount of tax sought to be evaded by the reason mentioned in clause c above "

Caeses tocbe referred are DILIP N SHROFF V/S CIT (2007)161 TAXMANN 221,

UOI V/S DHARMENDRA TETILE PROCESSORS (2008) 306 ITR277/174 TAXMANN 571

UOI V/S RAJASTHAN SPNG WVING MILLS (2009)180 TAXMANN 609

2 Like

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 27 May 2011

Originally posted by : NIMIT MEHTA
	WHEN EVER ASSESSING OFFICER FEELS FROM YOUR RETURN YOU SUBMITTED OR BALANCE SHEET OR ANY OTHER DOCUMENTS YOU SUBMITTED OR AO HAS THE ACCESS TO SOME INFORMATION FROM THIRD PARTIES THAT THE INCOME YOU HAVE MENTIONED IS NOT CORRECT AND YOU HAVE DELIBERATLY CONCELAED THE INCOME THAT IS YOU HAVE MENS REA IN YOUR MIND. THEN HE CAN SLASH A PENALTY UNDER 271 1 C THE AMOUNT OF PENALTY WILL BE 100 TO 300% OF TAX ON THE INCOME YOU HAVE CONCEALED. IN REPLY OF YOUR S FOR THE INTIMATION YOU RECCIVED YOU HAVE TO PROVE TO A O THAT YOU DINT HAD ANY MENS REA BEHIND CONCELAING THE INCOME. THEN YOU CAN ESCAPE THE PENALTY HERE

@ Nimit - Ther is nothing called "AO FELLS" ....in Income tax act. The sec reads as follows:-

"If AO /CIT(A)/CIT in the course of his proceedings under the act, isSATISFIED that anyperson -

Clause c - has concelaed the particulars of his income or furnished inaccurate particulars of such income"

thn he may direct by way of penalty which shal not exceed 3 times the amount of tax sought to be evaded by the reason mentioned in clause c above "

Caeses tocbe referred are DILIP N SHROFF V/S CIT (2007)161 TAXMANN 221,

UOI V/S DHARMENDRA TETILE PROCESSORS (2008) 306 ITR277/174 TAXMANN 571

UOI V/S RAJASTHAN SPNG WVING MILLS (2009)180 TAXMANN 609

CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 27 May 2011

yes sorry loosly used words tushar is correct

CA Asfar Hashmi (Research Associate) (81 Points)
Replied 27 May 2011

Agree with the above reply.

However, a recent Supreme Court Ruling in Case of CIT, AHMD VS RELIANCE PETROPRODUCTS LTD (2010) said that penalty u/s 271(1)(c) cant be automatic i.e with every addition to the returned income, penalty is leviable. So the law laid down by judgements like Dharmendra Textile might still hold good however, this very SC ruling is a break through.

Hope this helps !!

1 Like

Vijay Kalia (Chartered Accountants) (1705 Points)
Replied 28 May 2011

This one comes from me to dispel doubts about "mens rea".There is no need to prove mens rea in a penalty u/s.271(1)(c) for the department and a penalty can be imposed for cocealing or furnishing inacurrate particulars of income.The citation in Anwar Ali's case in respect of mens rea is no longer a good law after the amendment in S.271(1)(c) long back.It does not hold ground in taxation though in a criminal case it may be fit to state so.Penalty proceedings are quasi criminal proceedings-Hindustan Steel Ltd.V.State of Orissa-1972-83ITR26(SC).The burden is on the assessee to prove his bonafide once a notice for imposition is issued to him.

Mr.Smpath/Asraf are right stating the current scenario with Reliance Petro Products decided by SC ruling the roost and the Dilip N Shroff and DharmendraTextile (A judgment in Excise case under penalty S.11AC imported into S.271(1)(c)-and in my view there is no parallel both have different naunces-but it is with respect so derived by the honourable SC)-the later case of Dharamendra is distinguished by the Rajasthan Spinning case that comes to the rescue of the assessee by drawing the correct position of law and interpretation of penalty proceedings u/s.271(1)(c).

There are many cases on different aspect and one may, if has the stamina, can write a book replete with many case laws covering different aspects.The penaty can be levied if it satisfies the conditions laid down in the sections and not automatic.All disallowances can not result in penalty.The act of the assessee must be such as to conceal and not disclose full particulars of his income.The sections needs to be read with explanations and each case stands on different facts and footing. Therefore, disclosure is always better while claiming some deduction by furnishing accurate particulars.Contumacious act of the assessee may get no respite.

2 Like

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 28 May 2011

Thank You Vijay sir for discussing in depth.

TELUGU SATYANARAYANA (ADVOCATE and TAX CONSULTANT) (172 Points)
Replied 28 May 2011

thanks for your suggestion

Pankaj Gandhi Jaiswal (Chartered Accountant) (2629 Points)
Replied 21 February 2012

Very recent judgment of Supreme Court in CIT vs Reliance Petroproducts Pvt Ltd delivered on 17/3/2010, is a great relief to taxpayers as it has cleared the confusion in minds of Authorities regarding the imposistion of penalty. In fact the decision of Apex Court in Dharmendra Textile embolden Authorities to the extent that penalty proceeding was turned into just a procedure contrary to the scheme framed by law makers . In the very recent judgment, the facts of the case was as under

The assessee is a company and the relevant Assessment Year is 2001-02. The Return was filed on 31.1.2001 declaring loss of Rs.26,54,554/-. This assessment was finalized under Section 143(3) of the Act on 25.11.2003 whereby the total income was determined at Rs.2,22,688/-. In this assessment the addition in respect of interest expenditure was made. Simultaneously penalty proceedings under Section 271(1)(c) of the Act were also initiated on account of concealment of income/furnishing of inaccurate particulars of income. The said expenditure was claimed by the assessee on the basis of expenditure made for paying the interest on the loans incurred by it by which amount the assessee purchased some IPL shares by way of its business policies. However, admittedly, the assessee did not earn any income by way of dividend from those shares.

The company in its Return claimed disallowance of the amount of expenditure for Rs.28,77,242/- under Section 14A of the Act.

5. By way of response to the Show Cause Notice regarding the penalty in its reply dated 22.3.2006, the assessee claimed that all the details given in the Return were correct, there was no concealment of income, nor were any inaccurate particulars of such income furnished. It was pointed out that the disallowance made by the Assessing Authority in the Assessment Order under Section 143(3) of the Act were solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income. It was claimed that mere disallowance of the claim in the assessment proceedings could not be the sole basis for levying penalty under Section 271(1)(c) of the Act

The Supreme Court made following observation while dismissing the petition by Income Tax Department.

1. For every penalty u/s 271(1)(c) , one of the two conditions must be satisfied

· there must be concealment ; or

· assessee must have furnished inaccurate particulars of income.

If none of these are alleged by A.O vide his order of assessment, penalty u/s 271(1)(c) can not be imposed.

2. The decision of Supreme Court in Dharmendra Textile Processors & Others [2008] 306 ITR 277 merely overrules the decision of Dilip N Shroff vs JCIT [2007] 291 ITR 519 (SC) related to mense rea i.e A.Oneed noot prove that the concealment or inaccurate particluars of income was done by assessee with an intention to evade tax and in guilt mind. The decision in Dharmendra Textile does not make the penalty proceeding a mere procedure , but the two conditions given in section 271(1)(c) are fundamental for imposing penalty.

3. The word “inaccurate particulars” must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous.

4. Most important was this observation

It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section

271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.

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Anumanchipalli Sathikonda (Tax Consultant) (1349 Points)
Replied 21 February 2012

Sri Telugu Satyanarayana Gaaru

Imposition of penalty u/s 271(1)(c) depends upon the facts of each case. You have to furnish the entire details of your case then only you can get an appropriate answer.

Best Wishes

Sathikonda