Madras High Court
M/S.Harvey Heart Hospitals Ltd vs The Assistant Commissioner Of ... on 29 August, 2022
Bench: R. Mahadevan, Mohammed Shaffiq
T.C.A.Nos.32 and 311 of 2013
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 29.08.2022
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
AND
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
T.C.A. Nos.32 and 311 of 2013
M/s.Harvey Heart Hospitals Ltd.,
542 T.T.K. Road,
Chennai-600 018,
Presently at 4/10, Ganapathy Colony IInd Street,
Gopalapuram, Chennai-600 086. ... Appellant in both appeals
Versus
The Assistant Commissioner of Income-tax,
Central Circle I (2),
Chennai-600 034. ... Respondent in both appeals
PRAYER in T.C.A.No.32 of 2013: Appeal under Section 260A of the Income
Tax Act, 1961 against the order dated 15.11.2012 of the Income Tax Appellate
Tribunal 'A' Bench, Chennai in I.T.A.No.1397/MDS/2012 for the Assessment
year 2006-07.
PRAYER in T.C.A.No.311 of 2013: Appeal under Section 260A of the Income
Tax Act, 1961 against the order dated 26.02.2010 of the Income Tax Appellate
Tribunal 'A' Bench, Chennai in I.T.A.Nos.1840, 1841 and 1843/MDS/2008 for
the Assessment year 2006-07.
For Appellant : Mr.R.Sivaraman
in both Appeals
For Respondent : Mr.Karthik Ranganathan
https://www.mhc.tn.gov.in/judis in both Appeals
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T.C.A.Nos.32 and 311 of 2013
COMMON JUDGMENT
(Judgment of the Court was made by MOHAMMED SHAFFIQ, J.) There are two tax case appeals preferred by the appellant/ assessee namely TCA No. 311 of 2013 challenging the order of the Tribunal with regard to the assessment made under Section 153 C read with 143 (3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) and the other Tax Case namely TCA No.32 of 2013 wherein the challenge is to the confirmation of levy of penalty by the Tribunal under Section 271 (1)(c) of the Act.
2. At the outset, it may be necessary to clarify that the learned counsel for the appellant had submitted that though TCA No. 311 of 2013 has been filed challenging the orders of the Tribunal, he does not intend to pursue or raise any issue with regard to the above tax case and intends to confine his arguments only with reference to confirmation of levy of penalty under Section 271(1)(c) of the Act by the Tribunal.
3. The following questions of law has been raised and admitted for consideration:
a. Whether the Tribunal was right in law in holding that the penalty levied under Section 271 (1)(c) of the Act is valid in law? https://www.mhc.tn.gov.in/judis 2/12 T.C.A.Nos.32 and 311 of 2013 b. Whether the Tribunal was right in not referring to the jurisdictional aspect of the case relating to invoking Section 271(1)(c) of the Act when the assessee has questioned the very validity of invoking Section 153 C of the Act while passing the order in question.
4. The appellant is in the Health Care Industry and was incorporated in the year 1996. For the assessment year 2006-07, an original return of income was filed on 29.11.2006 declaring “Nil” income. A search was conducted under Section 132 of the Act, on 14.12.2005. Thereafter a notice under Section 153 C of the Act, dated 24.08.2007 came to be issued. There were no seizure nor any unaccounted assets found during the search. The appellant was required to file a return of income within 15 days of receipt of notice dated 24.08.2007. A return came to be filed on 05.11.2007 disclosing “Nil” income. Thereafter notices under Section 143 (2) and Section 142 (1) of the Act came to be issued.
5. The appellant had claimed deduction towards expenditure incurred on Research and Development. It was found by the Assessing Officer that the appellant had not carried on any business activity during the relevant assessment year nor was any business receipts declared. The appellant had however disclosed an expenditure of Rs.32,99,650/- under the Head “Research and https://www.mhc.tn.gov.in/judis 3/12 T.C.A.Nos.32 and 311 of 2013 Development” which resulted in “business loss”. The above expenditure was claimed to have been incurred in connection with Research and Development activity in the area of stem cell and tissue therapy. The Assessing Officer disallowed the claim of deduction of the above expenditure after finding that during the relevant period/ assessment year, the appellant had not carried on any business operation and all fixed assets were sold by the assessee during the preceding accounting year to its sister concern. Importantly, the assessing officer found that the claim of deduction has to be rejected as no evidence whatsoever was furnished by the appellant in support of its claim of the expenditure being made to carry out research and development. On the other hand, the fact that there was no business and the fixed assets were sold were indicative of the fact that no such Research or Development work was undertaken during the relevant assessment year and thus the claim of deduction in respect of the above expenditure ought to be rejected.
6. Aggrieved by the same, the appellant preferred an appeal. The appellate authority set aside the orders of the assessing officer levying penalty on the premise that the foundation for levy of penalty is that no evidence were produced in support of such claim and that the appellant had been reporting loss and only on the disallowance of expenditure towards Research and Development, https://www.mhc.tn.gov.in/judis 4/12 T.C.A.Nos.32 and 311 of 2013 tax became due and consequently, there was no mens rea or motive for furnishing false particulars.
7. The Revenue carried the matter in appeal before the ITAT, the Tribunal restored the levy of penalty after finding that in the appeal against the orders of assessment the Tribunal had recorded a finding that it cannot be accepted that the assessee company has conducted any research and development and thus the claim of deduction towards expenditure under the Head “Research and Development” is unacceptable. It is the above order of the Tribunal which is challenged in these Tax Case Appeals.
8. During the course of the hearing it was submitted by the learned counsel for the appellant that levy of penalty cannot be justified/ unwarranted for the following reasons:
a. The mere inability to furnish documents in support of the claim of the expenditure having been incurred would not by itself warrant penalty under Section 271(1)(c) of the Act.
b. The expression “concealment of particulars” employed in Section 271(1)(c) of the Act would indicate that in the absence of a wilful intent levy of penalty may not be warranted.
https://www.mhc.tn.gov.in/judis 5/12 T.C.A.Nos.32 and 311 of 2013 c. That the appellant had only been reporting loss, in the absence of any income, levy of penalty under Section 271(1)(c) of the Act, would not get attracted.
9. We are not persuaded by the submissions of the learned counsel for the appellant as we find that all the above reasons put across by the appellant lack merit and contrary to judicial precedence and thus the order of the Tribunal may not warrant interference.
10.1. The 1st submission of the appellant that mere rejection of claim of deduction towards expenditure would not warrant penalty, fails to see that the assessing officer as well as the Tribunal found as a matter of fact that no business activity was carried on by the appellant during the relevant assessment years and fixed assets were sold. Thus the claim of research and development during the relevant assessment year was itself found to be untenable. In other words, the claim of research and development was found to be false and bogus. In such circumstances, the plea of the appellant that it was a mere erroneous claim or a claim not supported by evidence would not by itself warrant penalty under Section 271(1)(c) of the Act, is an argument which needs to be rejected for it may https://www.mhc.tn.gov.in/judis 6/12 T.C.A.Nos.32 and 311 of 2013 not apply to the facts of the present case inasmuch as the claim is not erroneous or incorrect but bogus and false.
10.2. Secondly, while dealing with the legality/ correctness of penalty under Section 271(1)(c) of the Act, we are not concerned with mens rea.
The purpose behind Section 271(1)(c) of the Act is to penalise the assessee for—
(a) concealing particulars of income and/or
(b) furnishing inaccurate particulars of such income. Thus, we have only to see as to whether as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word “inaccurate” has been defined as:
“not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript.” 10.3. To our mind there is no doubt that the claim of deduction towards expenditure on Research and Development constitutes furnishing inaccurate particulars in the sense it does not reflect the true state of facts/ affairs inasmuch as the appellant was not carrying on any business operation and has also sold the fixed assets during the relevant years in question.
10.4. The claim of the appellant that there is no mensrea as the appellants are reporting loss is again a submission which proceeds on a https://www.mhc.tn.gov.in/judis 7/12 T.C.A.Nos.32 and 311 of 2013 misconception as to the scope of Section 271(1)(c) of the Act. The above submission appears to suggest that mental element, mens rea or motive is a condition/ requirement for invoking the penalty under Section 271(1)(c) of the Act. We find that the above submission has been rejected by the Hon'ble Supreme Court. In this regard, it may be relevant to note that the Hon'ble Supreme Court on considering Section 271(1)(c) of the Act, came to the conclusion that since Section 271(1)(c) of the Act indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) of the Act read with the Explanations indicate that the said section was for providing remedy for loss of revenue and such a penalty was a civil liability, therefore wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act.The following portions of the judgment are relevant:
(1) Union of India v. Dharamendra Textile Processors, (2008) 13 SCC 369 :
“18.....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 under Section 276-C of the IT Act.” https://www.mhc.tn.gov.in/judis 8/12 T.C.A.Nos.32 and 311 of 2013
(ii) Mak Data (P) Ltd. v. CIT, (2014) 1 SCC 674 :
“10..... It is trite law that the voluntary disclosure does not release the appellant assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.
(emphasis supplied)
11.1. Finally, the submission of the appellant that only losses have been reported and thus penalty under Section 271(1)(c) of the Act is not warranted is an argument which has been rejected by the Hon'ble Supreme Court. As a matter of fact an amendment has also been introduced to Section 271(1)(c) of the Act vide Explanation 4 to the said Section that income would also include losses and merely because an assessee had reported losses, it cannot be submitted that Section 271(1)(c) of the Act would not get attracted.
11.2. It thus appears that whether an assessee reports only loss or otherwise may have no bearing with regard to levy of penalty under Section 271(1)(c) of the Act. In this regard, it may be relevant to refer to the following judgment of the Hon'ble Supreme Court:
CIT v.Gold Coin Health Food (P) Ltd., (2008) 9 SCC 622 14 A combined reading of the Committee's recommendations and the circular makes the position clear that Explanation 4(a) to Section https://www.mhc.tn.gov.in/judis 9/12 T.C.A.Nos.32 and 311 of 2013 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss or a minus figure. Therefore, even during the period between 1-4-1976 to 1-
4-2003 the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss.
15. When the word “income” is read to include losses as held in Harparsad case [(1975) 3 SCC 868 : 1975 SCC (Tax) 158 : (1975) 99 ITR 118] it becomes crystal clear that even in a case where on account of addition of concealed income the returned loss stands reduced and even if the final assessed income is a loss, still penalty was leviable thereon even during the period 1-4-1976 to 1-4-2003. Even in the Circular dated 24-7- 1976 [(1977) 110 ITR 21 (St.)] , referred to above, the position was clarified by the Central Board of Direct Taxes (in short “CBDT”). It is stated that in a case where on setting of the concealed income against any loss incurred by the assessee under any other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure the penalty would be imposable because in such a case “the tax sought to be evaded” will be tax chargeable on concealed income as if it is “total income”.
16. The law is well settled that the applicable provision would be the law as it existed on the date of the filing of the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the previous year concerned. It may also include carried-forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years.” https://www.mhc.tn.gov.in/judis 10/12 T.C.A.Nos.32 and 311 of 2013
12. For all the above reasons it appears that the challenge to the levy of penalty is unsustainable. As Section 271(1)(c) of the Act provides for strict liability and in the present case, deduction have been claimed on the basis of false and non-existent facts, thus the order of the Tribunal restoring the order for levy of penalty is in order.
13. Accordingly, the Tax Case Appeals are dismissed and the orders dated 15.11.2012 and 26.02.2010 of the Income Tax Appellate Tribunal 'A' Bench, Chennai in I.T.A.No.1397/MDS/2012 and I.T.A.Nos.1840, 1841 and 1843/MDS/2008 are confirmed. The questions of law raised are decided in favour of the revenue. No costs.
[R.M.D., J.] [M.S.Q., J.]
29.08.2022
Index : Yes/No
Speaking/Non-Speaking Order
mka/ssn
https://www.mhc.tn.gov.in/judis
11/12
T.C.A.Nos.32 and 311 of 2013
R. MAHADEVAN, J.,
and
MOHAMMED SHAFFIQ, J.,
mka/ssn
To:
1.The Income Tax Appellate Tribunal 'A' Bench,
Chennai.
2. The Assistant Commissioner of Income-tax,
Central Circle I (2),
Chennai-600 034.
T.C.A. Nos.32 and 311 of 2013
29.08.2022
https://www.mhc.tn.gov.in/judis
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