Bombay High Court
Pr. Commissioner Of Income Tax - 3 vs Tcfc Finance Ltd. on 26 February, 2026
Author: M. S. Karnik
Bench: M. S. Karnik
2026:BHC-OS:6267-DB
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.2495 OF 2018
The Pr. Commissioner of Income Tax-3 ]
Room No.612, Ayakar Bhavan ]
M. K. Road, Mumbai - 400 020 ] .... Appellant.
V/s
TCFC Finance Ltd., ]
501-502, Raheja Chambers, ]
Nariman Point, Mumbai-400 021 ] ....Respondent.
Mr. Suresh Kumar, advocate for the Appellant.
Mr. Sameer Dalal, advocate for the Respondent.
CORAM : M. S. KARNIK AND
GAUTAM A. ANKHAD, JJ.
DATE : 26TH FEBRUARY 2026
ORAL JUDGMENT: (PER M. S. KARNIK, J.)
1. We have heard Mr. Suresh Kumar, learned counsel for the Appellant and Mr. Sameer Dalal, learned counsel for the Respondent.
2. The learned counsel for the Appellant submits that present appeal involves the following substantial questions of law for determination of this Court :-
SUBSTANTIAL QUESTIONS OF LAW
(i) "Whether, on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in upholding the order of the Ld.CIT(A) in deleting the penalty levied u/s.271(1)(c) of the I.T.Act, 1961 without appreciating 1/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 ::: that the assessee had reduced and understated its income by furnishing inaccurate particulars of its income and concealing particulars of income, which were detected during the course of assessment proceedings only and therefore, provisions of section 271(1)(c) are clearly attracted in this case?"
(ii) "Whether, on the facts and circumstances of the case and in law, the Hon'ble ITAT is correct in not giving credence to the finding of AO that the loss of Rs.
16,55,35,272/- was not due to purchase and sale of shares but only by valuation/ book loss which was speculative in nature as what was disclosed in Return of Income by the assessee was only gross loss in the business & profession of trading in shares and specifically when the correct facts came to notice only during assessment proceedings?"
(iii) "Whether, on the facts and circumstances of the case and in law, the Hon'ble ITAT order is perverse in upholding the order of the Ld.CIT(A) deleting the penalty levied u/s.271(1)(c) of the I.T.Act, 1961 stating that there was disclosure of these losses without appreciating that the assessee in its Return of Income disclosed carried forward of loss of Rs. 16,55,35,840/-
and stated Zero under the head Profits & Gains from Business other than Speculation Business as also in respect of Profits & Gains of Speculation Business and short term capital gains and did not identify the diminution of value claimed as loss?"
3. With the assistance of the learned counsel for the parties, we have perused the findings recorded by the Commissioner of Income Tax (Appeals) ["CIT (A)"] and the Income Tax Appellate Tribunal ["ITAT"]. This appeal is filed by the Revenue against the order of the 2/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 ::: ITAT for the Assessment Year 2009-10 for deleting the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied by the Assessing Officer for furnishing inaccurate particulars and concealing particulars of income by the assessee. The main business of the appellant is dealing in shares. We find that it is a settled position of law that mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. The CIT (A) found that the tenets for determining concealment or furnishing of inaccurate particulars have been laid down in the decisions relied upon by it and after appreciating the facts and circumstances of the case it was of the opinion that penalty under Section 271(1)(c) of the Income Tax Act, 1961 of Rs. 5,13,34,934/- levied for alleged inaccurate claim of business loss should be deleted.
4. The ITAT recorded a finding that mere treatment of business loss as speculation loss by the Assessing Officer did not automatically warrant inference of concealment of income. There is nothing on record to show that while furnishing return of income, the assessee had either concealed the income and/or furnished an inaccurate particulars of income. We therefore do not find any reason to 3/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 ::: interfere with such finding of fact recorded by the ITAT as well as CIT(A). The Hon'ble Supreme Court in Commissioner of Income-tax, Ahmedabad v. Reliance Petroproducts (P.) Ltd., [2010] 189 Taxman 322 (SC) has, in paragraphs 7 to 10, observed thus :
"7. As against this, learned Counsel appearing on behalf of the respondent pointed out that the language of section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under:-
"271.(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income."
A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and 4/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 ::: simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that:-
"13. It goes without saying that for applicability of section 271(1)(c), conditions stated therein must exist."
8. Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff v. Jt. CIT [2007] 6 SCC 329, this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff's case (supra) was upset. In Dharamendra Textile Processors' case (supra), after quoting from 5/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 ::: section 271 extensively and also considering section 271(1)(c), the Court came to the conclusion that since section 271(1)(c) 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) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff's case (supra) was overruled by this Court in Dharamendra Textile Processors' case (supra), was that according to this Court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight of in case of Dilip N. Shroff (supra). However, it must be pointed out that in Dharamendra Textile Processors' case (supra), no fault was found with the reasoning in the decision in Dilip N. Shroff's case (supra), where the Court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff's case (supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff's case (supra) was overruled.
9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, 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."
We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.
10. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form 6/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 ::: part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. 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 27(1)(c). That is clearly not the intendment of the Legislature."
5. The learned counsel for the Respondent has also relied upon the decision of this Court in Income Tax Appeal No.176 of 2017 ( Pr.
Commissioner of Income Tax-4 v. M/s. Claridges Investment & Finance P Ltd) decided on 19th March 2019. Paragraphs 2 and 3 of the said decision are relevant which we extract:
"2. Following question is presented for our consideration:-
" Whether on the facts and in circumstances of the case and in law, the Tribunal was justified in deleting penalty of Rs. 95,00,000/- levied u/s 271(1)(c) of the Income Tax Act, 1961 only on the technical ground that the Assessing Officer had initiated penalty for furnishing of inaccurate particulars of income but levied it on account of 7/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 ::: concealment of income?"
3. The respondent assessee is a Private Limited Company. In the assessment for the assessment year 2007-08, there was disallowance of Rs. 1.83 crores on account of valuation of loss of shares converted from investment to stock-in-trade. This was confirmed upto the level of the Tribunal. The Assessing Officer had instituted penalty proceedings, he eventually imposed a penalty. The Tribunal, by the impugned judgment, deleted the penalty holding that the claim made having been erroneous, same was not made malafide. We are broadly in agreement with the view of the Tribunal. Every case of disallowance or addition would not necessarily resulted into penalty proceedings. In present case, when the Tribunal has come to the conclusion that the claim of the assessee was not malafide, no question of penalty arises. Hence, the Income Tax Appeal is dismissed."
6. The aforesaid decisions support the assessee's case. We therefore do not see any reason to interfere with the orders passed by the ITAT and CIT (A) deleting the penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
7. Appeal is dismissed.
[ GAUTAM A. ANKHAD, J. ] [ M. S. KARNIK, J. ] BHARAT DASHARATH PANDIT Digitally signed by BHARAT DASHARATH PANDIT Date: 2026.03.11 11:26:33 +0530 8/8 20 ITXA-2495-2018.doc bdpsps ::: Uploaded on - 11/03/2026 ::: Downloaded on - 13/03/2026 21:14:36 :::