My bank's tax department prepared my return and got it wrong. I corrected it by revised returns which were accepted. Can concealment penalty still be levied on me?
Not on these facts. The Supreme Court set aside the Karnataka High Court's judgment and allowed the assessee's appeal. The Tribunal had found the assessee bona fide, the fault lying with the professional group at his bank that handled his tax affairs, and had held that penalty could not be sustained where the revised return was accepted and no penalty was levied by reference to the original return. The reference to the High Court was general and raised no question of perversity, and the existence of mens rea is essentially a question of fact for the Tribunal. The Court also held that concealment of income and furnishing inaccurate particulars carry different connotations.
Decided by the Supreme Court (Supreme Court of India - S.B. Sinha and Markandey Katju, JJ; judgment by S.B. Sinha, J) on 2007-05-18, reported as (2007) 292 ITR 11 (SC); Civil Appeal No. 2747 of 2007. It bears on section 271(1)(c), section 256(1) of the Income Tax Act 1961, in Penalty and Appeals matters.
This judgment is cited for three propositions and a practitioner should keep them apart. First, that concealment and furnishing inaccurate particulars are distinct charges: concealment means a deliberate act, and mere omission or negligence is not suppressio veri or suggestio falsi. Second, that penalty proceedings are quasi-criminal, the burden lies on the department, and a finding in the assessment that a receipt is income is good evidence but is not automatically carried into the penalty proceeding, which must be considered afresh. Third, the appellate point later applied in Sudarshan Silks - that where no question of perversity is referred, the High Court must take the Tribunal's findings of fact as it finds them. The first proposition must now be read against later authority, noted below.
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The appellant, an engineering graduate, had salary income, shares of profit from a number of firms, income from a proprietorship business and dividend and interest income. Syndicate Bank held his power of attorney; his shares were lodged with the bank, which bought and sold them on his instructions, held them physically, delivered them to brokers and received and banked the proceeds. His tax matters had for years been handled by the Law Agency Division of Syndicate Bank at Manipal, which was authorised to file his returns. The return for assessment year 1985-86 was filed on 13 February 1989. The department asked for better particulars of his investments and a revised return was filed on 12 January 1990 furnishing them. An application to the Settlement Commission made on about 17 January 1990 was rejected on 26 September 1990. A second revised return was then filed and was accepted in the assessment. Penalty proceedings under section 271(1)(c) followed. The appellant's explanation that he had acted bona fide because his tax affairs were handled by the bank's professional group was rejected by the Assessing Officer. The Tribunal cancelled the penalty. On the Revenue's reference the Karnataka High Court, comparing the income tax and wealth tax returns, held that a principal is responsible for his agent's acts, that the bank had prepared the return on the information the assessee gave it, and that an experienced taxpayer could not shelter behind his attorney; it answered against the assessee on 29 September 2005.
The appeal was allowed and the High Court's judgment set aside, with no order as to costs. The question referred was general and no question was referred as to whether the Tribunal's finding was perverse. The existence of mens rea is essentially a question of fact which the Tribunal, as the highest authority to determine facts, was entitled to go into, and a High Court should not ordinarily disturb the Tribunal's findings, a question of law generally arising only on accepting them as correct. Where the explanation given by an assessee for his mistake has been treated as bona fide and it has been found as a fact that he acted on wrong legal advice, no question arises of his failing to discharge the burden under the Explanation to section 271(1)(c). The Court added that this was not a penalty for contravention of a commercial statute where intention matters little, nor one that was mandatory.
On the appellate question the Court applied Mukundray K. Shah, K. Ravindranathan Nair and Century Flour Mills: the only jurisdiction of the High Court in a reference is to answer the questions of law placed before it, and a question of law arises on a factual finding only when it is challenged as perverse. On the substantive question it worked from the language of the section. Conceal means to hide or keep secret, and the offence of concealment is a direct attempt to hide an item of income from the knowledge of the authorities; inaccurate means not exact or correct, not according to truth. Concealment of income and furnishing of inaccurate particulars therefore carry different connotations, concealment importing a deliberate act, so that mere omission or negligence is not enough. Even where the Explanation is invoked, the officer must find that the explanation offered was false, or that it was not bona fide and that all material facts were not disclosed. The order imposing penalty is quasi-criminal, the burden lies on the department, and because the burden differs from that in assessment, an assessment finding that a receipt is income is good evidence but cannot be adopted automatically; the penalty question must be considered afresh from a different angle. Section 271(1)(c) remains a penal statute to be strictly construed, its deterrent purpose being shown by the rise in the maximum penalty from twenty per cent under the 1922 Act to three hundred per cent in 1985, and the omission of the word deliberately from the provision does not change its ingredients, as K.C. Builders and Jeevan Lal Sah show.
'Concealment of income' and 'furnishing of inaccurate particulars' carry different connotations. Concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi.
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Handle my notice → Ask a CA on WhatsAppNot on these facts. The Supreme Court set aside the Karnataka High Court's judgment and allowed the assessee's appeal. The Tribunal had found the assessee bona fide, the fault lying with the professional group at his bank that handled his tax affairs, and had held that penalty could not be sustained where the revised return was accepted and no penalty was levied by reference to the original return. The reference to the High Court was general and raised no question of perversity, and the existence of mens rea is essentially a question of fact for the Tribunal. The Court also held that concealment of income and furnishing inaccurate particulars carry different connotations. This was decided by the Supreme Court (Supreme Court of India - S.B. Sinha and Markandey Katju, JJ; judgment by S.B. Sinha, J) and bears on section 271(1)(c), section 256(1) of the Income Tax Act 1961. It is reported as (2007) 292 ITR 11 (SC); Civil Appeal No. 2747 of 2007. This judgment is cited for three propositions and a practitioner should keep them apart. First, that concealment and furnishing inaccurate particulars are distinct charges: concealment means a deliberate act, and mere omission or negligence is not suppressio veri or suggestio falsi. Second, that penalty proceedings are quasi-criminal, the burden lies on the department, and a finding in the assessment that a receipt is income is good evidence but is not automatically carried into the penalty proceeding, which must be considered afresh. Third, the appellate point later applied in Sudarshan Silks - that where no question of perversity is referred, the High Court must take the Tribunal's findings of fact as it finds them. The first proposition must now be read against later authority, noted below. If it applies to you, the first step is this: Identify which limb of section 271(1)(c) the notice and the order actually rest on; the two charges are distinct and an order that does not say which is vulnerable.
The appellant, an engineering graduate, had salary income, shares of profit from a number of firms, income from a proprietorship business and dividend and interest income. Syndicate Bank held his power of attorney; his shares were lodged with the bank, which bought and sold them on his instructions, held them physically, delivered them to brokers and received and banked the proceeds. His tax matters had for years been handled by the Law Agency Division of Syndicate Bank at Manipal, which was authorised to file his returns. The return for assessment year 1985-86 was filed on 13 February 1989. The department asked for better particulars of his investments and a revised return was filed on 12 January 1990 furnishing them. An application to the Settlement Commission made on about 17 January 1990 was rejected on 26 September 1990. A second revised return was then filed and was accepted in the assessment. Penalty proceedings under section 271(1)(c) followed. The appellant's explanation that he had acted bona fide because his tax affairs were handled by the bank's professional group was rejected by the Assessing Officer. The Tribunal cancelled the penalty. On the Revenue's reference the Karnataka High Court, comparing the income tax and wealth tax returns, held that a principal is responsible for his agent's acts, that the bank had prepared the return on the information the assessee gave it, and that an experienced taxpayer could not shelter behind his attorney; it answered against the assessee on 29 September 2005. The matter was decided on 2007-05-18 by the Supreme Court (Supreme Court of India - S.B. Sinha and Markandey Katju, JJ; judgment by S.B. Sinha, J). On those facts the Supreme Court held as follows. The appeal was allowed and the High Court's judgment set aside, with no order as to costs. The question referred was general and no question was referred as to whether the Tribunal's finding was perverse. The existence of mens rea is essentially a question of fact which the Tribunal, as the highest authority to determine facts, was entitled to go into, and a High Court should not ordinarily disturb the Tribunal's findings, a question of law generally arising only on accepting them as correct. Where the explanation given by an assessee for his mistake has been treated as bona fide and it has been found as a fact that he acted on wrong legal advice, no question arises of his failing to discharge the burden under the Explanation to section 271(1)(c). The Court added that this was not a penalty for contravention of a commercial statute where intention matters little, nor one that was mandatory.
On the appellate question the Court applied Mukundray K. Shah, K. Ravindranathan Nair and Century Flour Mills: the only jurisdiction of the High Court in a reference is to answer the questions of law placed before it, and a question of law arises on a factual finding only when it is challenged as perverse. On the substantive question it worked from the language of the section. Conceal means to hide or keep secret, and the offence of concealment is a direct attempt to hide an item of income from the knowledge of the authorities; inaccurate means not exact or correct, not according to truth. Concealment of income and furnishing of inaccurate particulars therefore carry different connotations, concealment importing a deliberate act, so that mere omission or negligence is not enough. Even where the Explanation is invoked, the officer must find that the explanation offered was false, or that it was not bona fide and that all material facts were not disclosed. The order imposing penalty is quasi-criminal, the burden lies on the department, and because the burden differs from that in assessment, an assessment finding that a receipt is income is good evidence but cannot be adopted automatically; the penalty question must be considered afresh from a different angle. Section 271(1)(c) remains a penal statute to be strictly construed, its deterrent purpose being shown by the rise in the maximum penalty from twenty per cent under the 1922 Act to three hundred per cent in 1985, and the omission of the word deliberately from the provision does not change its ingredients, as K.C. Builders and Jeevan Lal Sah show. In the words reproduced by the source cited on this page: "'Concealment of income' and 'furnishing of inaccurate particulars' carry different connotations. Concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi."
It was decided by the Supreme Court on 2007-05-18 and is reported as (2007) 292 ITR 11 (SC); Civil Appeal No. 2747 of 2007. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(c), section 256(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed and the High Court's judgment set aside, with no order as to costs. The question referred was general and no question was referred as to whether the Tribunal's finding was perverse. The existence of mens rea is essentially a question of fact which the Tribunal, as the highest authority to determine facts, was entitled to go into, and a High Court should not ordinarily disturb the Tribunal's findings, a question of law generally arising only on accepting them as correct. Where the explanation given by an assessee for his mistake has been treated as bona fide and it has been found as a fact that he acted on wrong legal advice, no question arises of his failing to discharge the burden under the Explanation to section 271(1)(c). The Court added that this was not a penalty for contravention of a commercial statute where intention matters little, nor one that was mandatory. It arises in Penalty and Appeals matters, on section 271(1)(c), section 256(1) of the Income Tax Act 1961, and was decided by Supreme Court of India - S.B. Sinha and Markandey Katju, JJ; judgment by S.B. Sinha, J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Argue the penalty proceeding on its own material rather than letting the assessment findings be carried over, and put the department to proof. Where a professional prepared the return, produce the engagement, the instructions given and the correspondence; the Tribunal's finding that the bank's tax division was at fault is what carried this case. Before relying on the mens rea reasoning, check the later Supreme Court authority on strict liability under section 271(1)(c); the appellate and burden-of-proof points are on safer ground.
Partly overruled — read this first. The mens rea reasoning rests on Dilip N. Shroff, delivered the same day. The Delhi High Court in Madhushree Gupta v Union of India, whose judgment was read for this batch, records that a three-judge bench of the Supreme Court in Union of India v Dharmendra Textile Processors (2008) 306 ITR 277 was constituted on a reference doubting Dilip N. Shroff, and held that the principle of strict liability applies to concealment or furnishing of inaccurate particulars, penalty under the provision being a civil liability for which wilful concealment is not an essential ingredient. The Dharmendra Textile judgment itself was not read. The appellate propositions in T. Ashok Pai on the limits of reference jurisdiction were applied without qualification by the Supreme Court in Sudarshan Silks & Sarees in 2008, which was read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line carried no reporter citations; the citation (2007) 292 ITR 11 (SC) is taken from the Supreme Court's own reference to this decision in Sudarshan Silks & Sarees, also read for this batch. The judgment does not state the amount of income in dispute or the amount of penalty. Neither Dilip N. Shroff nor Dharmendra Textile Processors was read; what is said about them comes from the passages quoted in this judgment and in Madhushree Gupta. Paragraph 28 refers to section 271A when discussing M. Janardhana Rao, which is about substantial questions of law under section 260A; the reference appears to be a slip in the text and is not relied on here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed and the High Court's judgment set aside, with no order as to costs. The question referred was general and no question was referred as to whether the Tribunal's finding was perverse. The existence of mens rea is essentially a question of fact which the Tribunal, as the highest authority to determine facts, was entitled to go into, and a High Court should not ordinarily disturb the Tribunal's findings, a question of law generally arising only on accepting them as correct. Where the explanation given by an assessee for his mistake has been treated as bona fide and it has been found as a fact that he acted on wrong legal advice, no question arises of his failing to discharge the burden under the Explanation to section 271(1)(c). The Court added that this was not a penalty for contravention of a commercial statute where intention matters little, nor one that was mandatory.
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