“REPORTABLE”

IN THE SUPREME COURT OF INDIA

(CIVIL APPELLATE JURISDICTION)

CIVIL APPEAL No.  2463___OF 2010 (Arising out of SLP (C) No.27161 of 2008)

C.I.T., Ahmedabad …. Appellant

Versus

Reliance Petroproducts Pvt. Ltd. …. Respondent

J U D G M E N T

V.S. SIRPURKAR, J.

1. Leave granted.

2. The only question in this appeal which has been filed by the Commissioner of  

Income  Tax-III  is  as  to  whether  the  respondent-assessee  is  liable  to  pay  the  penalty  

amounting to Rs.11,37,949/- under Section 271(1)(c) of the Income Tax Act (hereinafter  

referred to as “the Act”) ordered by the Assessing Authority.  The Commissioner of Income  

Tax  (Appeals),  however,  deleted  the  said  penalty.   The  order  of  the  Commissioner  

(Appeals)  was  appealed  against  before  the  Income Tax Appellate  Tribunal  (hereinafter  

referred to “the Tribunal”) which confirmed the order of the Commissioner (Appeals) and  

dismissed the appeal filed by the Revenue.   However,  the Revenue challenged the said  

order  before  the  High Court  which  confirmed  the  orders  passed  by the  Commissioner  

(Appeals) and the Tribunal while dismissing the Tax Appeal filed by the Revenue.   

3. Few facts would be relevant.

4. The assessee is a company and the relevant Assessment Year is 2001-02.  The

Return  was  filed  on  31.1.2001  declaring  loss  of  Rs.26,54,554/-.   This  assessment  was  

finalized under Section 143(3) of the Act on 25.11.2003 whereby the total income was  

determined  at  Rs.2,22,688/-.   In  this  assessment  the  addition  in  respect  of  interest  

expenditure was made.  Simultaneously penalty proceedings under Section 271(1)(c) of the  

Act  were  also  initiated  on  account  of  concealment  of  income/furnishing  of  inaccurate  

particulars of income.  The said expenditure was claimed by the assessee on the basis of  

expenditure made for paying the interest on the loans incurred by it by which amount the  

assessee purchased some IPL shares by way of its business policies.  However, admittedly,  

the assessee did not earn any income by way of dividend from those shares.  The company  

in its Return claimed disallowance of the amount of expenditure for Rs.28,77,242/- under  

Section 14A of the Act.

5. By way of response to the Show Cause Notice regarding the penalty in its reply  

dated 22.3.2006, the assessee claimed that all the details given in the Return were correct,  

there was no concealment of income, nor were any inaccurate particulars of such income  

furnished.  It was pointed out that the disallowance made by the Assessing Authority in the  

Assessment Order under Section 143(3) of  the Act  were solely on account of  different  

views taken on the same set of facts and, therefore, they could, at the most, be termed as  

difference of opinion but nothing to do with the concealment of income or furnishing of  

inaccurate particulars of such income.  It was claimed that mere disallowance of the claim  

in the assessment proceedings could not be the sole basis for levying penalty under Section  

271(1)(c) of the Act.  It was submitted specifically that it was an investment company and  

in its own case for Assessment Year 2000-01 the Commissioner (Appeals) had deleted the  

disallowance  of  interest  made  by  the  Assessment  Officer  and  the  Tribunal  has  also  

confirmed the stand of the Commissioner (Appeals) for that year and, therefore, it was on  

the basis of this that the expenditure was claimed.  It was further submitted that making a

claim  which  is  rejected  would  not  make  the  assessee  company  liable  under  Section  

271(1)(c) of the Act.  It was again reiterated that there was absolutely no concealment, nor  

were any inaccurate particular ever submitted by the assessee-company.

6. Shri  Bhattacharya,  Learned  ASG  submits  that  Commissioner  (Appeals),  the  

Tribunal as well as the High Court have ignored the positive language of Section 271(1)(c)  

of the Act.  He pointed out that the claim of the interest expenditure was totally without  

legal basis and was made with the malafide intentions.  It was further pointed out that the  

claim made for the interest expenditure was not accepted by the Assessing Authority nor by  

the Commissioner (Appeals) and, therefore, it was obvious that the claim for the interest  

expenditure did not have any basis.  He further pointed out that the contention about the  

earlier claims being finalized was also not correct as the appeal was pending before the  

High Court  against  the  order  of  the  Tribunal  for  the  year 2000-01.   According to  the  

Learned ASG, even otherwise, the expenditure on interest could not have been claimed in  

law,  as  under  Section  36(1)(iii),  only the  amount  of  interest  paid  in  respect  of  capital  

borrowed for the purposes of the business or profession could have been claimed and it was  

clear that the interest in the present case was not in respect of the capital borrowed.  Our  

attention was also invited to Section 14A of the Act,  which provides that no deduction  

could  be  allowed in  respect  of  the  expenditure  incurred  by the  assessee  in  relation  to  

income which does not form part of the total income under this Act.  The Learned ASG  

also invited our attention to provision of Section 10(33) to show that the income arising  

from the transfer of a capital asset could not be reckoned as an income which can form the  

part of the total income.  In short, the contention was that the assessee in this case had made  

a claim which was totally unacceptable in law and thereby had invited the provisions of  

Section 271(1)(c) of the Act and had, therefore, exposed itself  to the penalty under that  

provision.

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 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  Commissioner of Income  

Tax, Delhi Vs. 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 Vs.   

Dharamendra Textile Processors [2008(13) SCC 369],  as also, the decision in  Union of  

India Vs.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 Vs. Joint Commissioner  of Income Tax,   

Mumbai  & Anr.  [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 Vs. Joint Commissioner of Income Tax, Mumbai & Anr.   

was upset.  In  Union of India Vs. Dharamendra Textile Processors (cited supra),  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  

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 276-C of the Act.  The basic reason  

why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr.   

(cited supra)  was overruled by this Court in  Union of India Vs. Dharamendra Textile   

Processors (cited supra), was that according to this Court the effect and difference between  

Section 271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff   

Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra).  However, it must  

be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra),  

no  fault  was  found  with  the  reasoning  in  the  decision  in  Dilip  N.  Shroff  Vs.  Joint   

Commissioner of Income Tax, Mumbai & Anr. (cited supra), where the Court explained  

the meaning of the terms “conceal” and inaccurate”.  It was only the ultimate inference in  

Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited 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 Vs. Joint Commissioner of Income Tax, Mumbai &  

Anr. (cited 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 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 271(1)(c).  That is clearly not the intendment of the Legislature.

11. In this behalf the observations of this Court made in Sree Krishna Electricals v.   

State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite.  

In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu  

General Sales Tax Act, the Court had found that the authorities below had found that there  

were some incorrect statements made in the Return.  However, the said transactions were  

reflected in the accounts of the assessee.  This Court, therefore, observed:

“So far as the question of penalty is concerned the items which were not included in the  turnover were found incorporated in the appellant’s account books.  Where certain items  which are not included in the turnover are disclosed in the dealer’s own account books and  the  assessing  authorities  include  these  items  in  the  dealer’s  turnover  disallowing  the  exemption, penalty cannot be imposed.  The penalty levied stands set aside.”

The situation in the present case is still better as no fault has been found with the  

particulars submitted by the assessee in its Return.

12. The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the  

High Court have correctly reached this conclusion and, therefore, the appeal filed by the  

Revenue has no merits and is dismissed.

                                                                                                        ………………………………….J.

(V.S. Sirpurkar)

                                                                                     …………………………………….J. (Dr. Mukundakam Sharma)

New Delhi; March 17, 2010.

Digital  Performa

Case  No.  : Civil Appeal No…… of 2010 (Arising out of SLP(C) No. 27161 of 2008)

Date of Decision : 17.03.2010

Cause Title :  C.I.T., Ahmedabad             

   Versus

Reliance Petroproducts Pvt. Ltd.  

Coram :   Hon’ble Mr. Justice V.S. Sirpurkar      Hon’ble Dr. Justice Mukundakam Sharma

C.A.V. On : 09.02.2010

Judgment  delivered by :  Hon’ble Mr. Justice V.S. Sirpurkar

Nature of Order  : Reportable