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1885 & 1886/11

e) Kanbay Software India (P) Ltd vs The Dy. CIT , 31 SOT 153 Pune.

i) The decision of Supreme Court in the case of Union of India vs Dharmendra Textile Processors does not lay down the proposition that a penalty u/s 271(1)(c) is an automatic consequence of an addition made to the income.

ii) The proposition that since penalty 271(1)(c) is a civil penalty, it means that penalty can be automatically levied on the basis of any addition to income is not correct.

is found to have been committed by the assessee. These are two different omissions or defaults albeit they refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of either suppressio veri or suggestio falsy. By the mere reason of such concealment or of furnishing of inaccurate particulars alone, the assessee does not, ipso facto, become liable to a penalty. Imposition of penalty is not at all automatic. Meaning thereby, any addition in quantum would not lead to automatic levy of penalty and this is also true in respect of furnishing of inaccurate particulars of income. Not only is the levy of penalty discretionary in nature but the discretion has to be exercised keeping the relevant factors in mind and the approach of the taxman must be fair and objective. This 1885 & 1886/11 subject has been a matter of great controversy. Finally, after referring to the decisions in the case of Dilip N. Shroff vs JCIT & Another, 291 ITR 519, Union of India vs. Dharmendra Textile Processors [2008] 13 SCC 369, as well as Union of India vs Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448, the Hon'ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt. Ltd, 322 ITR 158, has recently held as under:

The first decision of the Hon'ble Supreme Court relied on by the ld.DR in the case of CIT vs Reliance Petroproducts, has already been discussed by us which, in our opinion, supports the case of the assessee because it has been held therein that making an incorrect claim cannot by any stretch of imagination tantamount to furnishing inaccurate particulars of income. There is no finding by the Revenue that the details supplied by the assessee in its return are incorrect or erroneous or false. The assessee has made a claim which was not found to be sustainable in law and quantum addition has been made. So, it would not amount to furnishing of inaccurate particulars of income. The Court specifically rejected the Revenue's contention that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. The other decision relied on by the ld.DR is of Hon'ble Madras High Court rendered in the case of Aries Advertising, 255 ITR 510. In fact, this case does not relate to penalty proceedings and the ratio of the decision is that unclaimed balances written off and transferred to general reserves are assessable as income of the assessee chargeable to income-tax. Therefore, this case does not help the case of the Revenue in so far as penalty proceedings are concerned. The other decision relied on is in the case of Union of India & Others vs Dharmendra Textiles Processors and Others, 306 ITR 277(SC). This case is also not relevant for the present appeal because there is no issue regarding proof of mens rea. Moreover, this case was rendered in the case of Central Excise Act, 1944 and thereafter many other decisions have come whereby this decision has been diluted [UOI vs Rajasthan Spinning & Weaving Mills, 13 SCC 448, CIT vs Atul mohan Bindal, 317 ITR 1 (SC)]. The decision of Hon'ble Madras High Court in the case of T.N. Power Finance & Infrastructure Development Corporation vs JCIT, 280 ITR 491, relied on by the ld.DR is also on quantum additions 1885 & 1886/11 whereby it has been held that merely because the RBI had directed the assessee to provide for non-performing assets that direction could not override the mandatory provisions of Income-tax Act contained in section 36(1)(viia) of the Act which stipulate a deduction not exceeding 5% of the total income only in respect of the provision for bad and doubtful debts which are predominately revenue in nature or trade related and not for provision for non-performing assets which are of predominately capital nature. In such cases, the assessee is not entitled for deduction and as a matter of fact, the quantum addition has been confirmed even upto the Tribunal. But here we are concerned with different provision i.e section 271(1)(c) of the Act, which operates in an entirely different sphere and therefore, entirely different parameters are applicable to this penalty provision as discussed in the earlier part of the order.