Section 271(1)(c) - Sahil Garud
A recent derangement? [B.com,
A.C.A]
Is the recent Judgment in matter of Amruta
Organics Pvt Ltd. Vs, DCIT, Circle 1 (ITA No. 1121/PN/2011) of the Hon’ble
Pune ITAT “A” Bench, a sign of derangement of law governing section 271(1)(c)
of the Income Tax Act and the purpose for which it was brought ? This
particular case is largely different from the case of PWC Pvt. Ltd. Vs. CIT,
Kolkata in which the Hon’ble Supreme Court allowed the appeal of the Assessee
and set aside Calcutta High Court’s Decision upholding the penalty levied u/s
271(1)(c) of the Income Tax Act, on the basis of peculiar and unique
circumstances existing in the evidences placed on record.
The
Hon’ble Pune ITAT “A” Bench has gone a step forward to set and accomplish a new
precedent on lower authorities which might prove adverse for the Income tax
Department. In this instant case, the assessee was admittedly guilty of
incorrect claim of Depreciation which had resulted in increase of his Loss for
that year. The Hon’ble Pune ITAT allowed the Appeal of the Assessee in its 2
page order saying that “The
wrong claim of depreciation in the present case cannot be said to be made with
an intention to evade taxes in as much as even after the disallowance of depreciation,
the resultant income of the assessee remains a loss. In fact, the assessee had
pointed out before the Assessing Officer that it has been incurring losses
since the year 2003 due to the market forces”.
Firstly, there is a settled position
in law on intention of tax evasion in penalty proceedings, after the Judgment
of Hon’ble Supreme Court of India in the case of Dharmendra Textiles [(2007) 295 ITR 244 SC] which said that ‘for violation of rules, there is no implied requirement of mens rea
or culpable mental state.’ The Hon’ble Supreme Court has again in its landmark Judgment in case of Reliance Petroproducts [322 ITR 158] explained
the Dharmendra Textiles Judgment, saying that “decision is an authority only for the proposition that element of
mens rea stands excluded from the scope of the provisions of section 271(1) and
it is only to this extent the decision in the case of Dilip N shroff stands
overruled. It is
further held that conditions of that
section must exist before levy of penalty. It is for revenue to establish that such
conditions exist. It is only the element of mens rea which
is not required to be proved by the revenue”. Thus the Justification of the Hon’ble Pune ITAT in instant
case is erroneous to the extent it talks about the intention of the Assessee to
evade taxes.
The term “amount
of tax sought to be evaded” present in the provisions of penalty u/s
271(1)(c) cannot be ignored. The position with regard to incorrect claim of
depreciation of Rs.2 lacs (approx) was an admitted position and also there were
no peculiar and unique facts present which could prove that it was just a
mistake on the part of the Assessee, unlike those in the case of PWC Pvt. Ltd Vs. CIT [Civil Appeal No. 6924
of 2012 SC]. The fact that ‘Assessee had been incurring losses since few
years due to market forces and wrong Depreciation claim would only further add
to losses’, can’t be conclusive argument to prove the mistake of the Assessee
as a bonafide one. Rather it can be said that if market forces favour the Assessee
in near future, he would have claimed the excess loss of Rs. 2 lacs (approx)
due to depreciation had the Assessing Officer not nipped him into the bud.
The
instant Judgment might result in a situation where unscrupulous Assessees might
claim incorrect deduction on basis of some supporting documents, and try and take a chance that the case is not
selected for Scrutiny / Regular Assessment thereby evading the eyes of Income
tax Department. Even if such Assessees are subsequently caught during
Regular Assessment, the instant Judgment might pose as a helping hand for them.
This truly is a Landmark Judgment!