No overlap between phrase “concealment of income” & “furnishing inaccurate particulars ” – HC

There is no overlap between two phrases “concealment of particulars of his income” and “furnished inaccurate particulars of income” – High Court upheld ITAT in deleting penalty u/s 271(1)(c) for not specifying limb of applicable charge. 

In a recent judgment, Hon’ble Delhi High Court has held that where the charges are either of concealment of particulars of income or furnishing of inaccurate particulars of income for penalty u/s 271(1)(c), revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both.

ABCAUS Case Law Citation:
4325 (2024) (11) abcaus.in HC Delhi

In the instant case, the assessee had challenged the order passed by the Income Tax Appellate Tribunal (ITAT) for quashing the penalty u/s 271(1)(c)of the Income Tax Act, 1961 (the Act)  for the reason that in the notice under Section 274, the Assessing Officer (AO) had not marked the specified limb for which the penalty notice was issued, although, penalty was also imposed for furnishing inaccurate income as per the penalty order by the AO.

Before the Hon’ble High Court, the main contention of the Revenue was that there is an overlap between the two phrases namely “concealment of particulars of his income” and “furnished inaccurate particulars of such income” and therefore effectively there is no prejudice to the assessee in terms of them not being put to notice.

The Hon’ble High Court observed that the finding in the assessment proceedings is not conclusive and final for the purpose of imposition of the penalty under Section 271(1)(c) of the Act, inasmuch as, such findings may constitute good evidence in the penalty proceedings but it does not mean that penalty for concealment under Section 271(1)(c) is mandatory whenever an addition of disallowance is made. In assessment proceedings, the only concern is with the assessment of the income, quantification and computation of total income as per the provisions of the Act, whereas, in penalty proceedings, the primary concern is with the conduct of the assessee. Penalty is imposed not because an addition is made but because there is concealment or furnishing of inaccurate particulars by the assessee.

The Hon’ble High Court further observed that while dealing with the difference between the phrases “concealment of particulars of his income” and “furnished inaccurate particulars of such income” the Co-ordinate Bench of the High Court had held that the word “conceal” inherently and per-se refers to an element of mens rea, albeit the expression “furnishing of inaccurate particulars” is broader and would refer to inaccuracy which would cause under declaration or escapement of income. It may refer to particulars which should have been furnished or were required to be furnished or recorded in the books of account etc.. At times and it is fairly common, the charge of concealment and “furnishing of inaccurate particulars” may overlap.

The Hon’ble High Court opined that it is apparent that ordinarily the two phrases i.e. “conceal” and “furnishing of inaccurate particulars” are separate and distinct. Concealment of income and furnishing of inaccurate particulars of income in Section 271(1) (c) of the Act carry different meanings and connotation.

The Hon’ble High Court held that in principle where the penalty proceedings are said to be initiated by the Revenue under Section 271(1) (c) of the Act, the specific ground which forms the foundation thereof needs to be spelt out in clear terms. Otherwise, the assessee would not have proper opportunity to put forth his defence. The proceedings for initiating the penalty are penal in nature, which may result in imposition of penalty ranging from 100 to 300% of the taxability and therefore the charge must be unequivocal and unambiguous. Where the charges are either of concealment of particulars of income or furnishing of inaccurate particulars thereof, revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both.

The Hon’ble High Court observed that the decision of the ITAT that in the penalty notice there was no specific charge, on the basis of which penalty was sought to be levied, was covered by the catena of decisions including the decision rendered by the Coordinate Bench of the Court.

Further, the High Court had followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory to hold against the Revenue. In a recent case, the Bombay High Court has also dealt with the aspect of prejudice caused to the assessee when he fully knew in detail the exact charge of the Revenue against him.

Following the decision of the Karnataka High Court and the other decisions of different High Courts, the Hon’ble High Court held that ITAT had rightly held that the levy of penalty under Section 271(1)(c) of the Act in the case of the assessee was not valid.

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