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16,10,000/- under Section 271(1)(c) of Act, 1961.

3. She lastly submitted that making a provision for encashment of leave amounted to furnishing of inaccurate particulars regarding the income of the respondent-assessee. In this connection, she relied upon a judgment of the Supreme Court in Union of India (UOI) and Ors.

Vs. Dharamendra Textile Processors and Ors. reported in (2008) 306 ITR 277 (SC).

4. Upon a perusal of the impugned order, we find that the respondent-assessee had made full disclosure in the income tax return about the method of accounting employed for the subsidies. Moreover, the assessee's provision for encashment of leave, per se cannot be said to be mala fide. In fact, ITAT in the impugned order has observed as under :-

3.2 Thus, we are of the view that the assessee has furnished reasonable explanation in respect of both the items, which meets the requirement of the provision contained in Explanation-1 to section 271(1)(c) of the Act. In view thereof, the levy of penalty is deleted.

4. In the result, the appeal is allowed."

5. In our opinion, the Supreme Court in Dharamendra Textile Processors and Ors. (supra) has only held that mens rea is not essential for imposing penalty for breach of civil obligations. However, it has not been stipulated by the Apex Court that by merely making a claim, which is not sustainable in law by itself, will amount to furnishing of inaccurate particulars within the meaning of 271(1)(C) of Act, 1961.

6. In fact, recently the Supreme Court in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) has observed as under :-

"9. 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. Joint 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)(c) 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 Assessing Officer 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 v. Joint CIT was upset. In Union of India v. Dharamendra Textile Processors, after quoting from 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 the 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 v.

Joint CIT was overruled by this Court in Union of India v. Dharamendra Textile Processors, 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 the case of Dilip N. Shroff v. Joint CIT.

However, it must be pointed out that in Union of India v. Dharamendra Textile Processors, no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint CIT, where the court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Joint CIT 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 v. Joint CIT was overruled.