CIT vs. Haryana Warehousing (Punjab & Haryana High Court)

UOI vs. Dharmendra Textile 306 ITR 277 (SC) on 271 (1) (c) penalty distinguished

The assessee claimed that its entire receipts were exempt from tax u/s 10 (29). The AO took the view that only income “derived” from warehousing was exempt and not other income. The AO’s stand was confirmed by the ITAT. The AO levied penalty u/s 271 (1) (c) for concealment of income which was deleted by the Tribunal with the finding that though the claim was wrong, the assessee had not furnished any inaccurate particulars nor concealed its income. On appeal by the department, HELD dismissing the appeal:

(i) The contention that the claim for exemption was not bona fide was misconceived as the legal position at the date of the claim was in flux and had not attained finality. The acceptance of the revenue’s plea would lead to the inference that an assessee who canvasses a claim on the basis of its (assessee’s) interpretation of the law would be liable to penal action in case the revenue finds that the claim raised by the assessee is not acceptable. Such a determination would place curbs on the rights of an assessee to raise claims it believes to be genuine under the law. No such fetters can be placed on the rights of the assessee to raise genuine claims in its return.

(ii) The reliance on UOI v. Dharamendra Textile Processors 306 ITR 277 and the contention that the law on penalty had “drastically changed” and that penalty becomes “automatically leviable” whenever an addition is made in quantum proceedings which attains finality is “to state the least, absolutely absurd”. S. 271 (1) (c) can be imposed only if there is concealment of income or furnishing incorrect particulars and not for an unacceptable plea for exemption of tax-liability.

(iii) Dharamendra Textile was concerned with whether mens-rea was an essential ingredient for penalty under s. 11AC of the Excise Act. The issue of mens-rea does not arise in s. 271 (1) (c).

(iv)The appeal was frivolous and was filed without due application of mind and examining the controversy in its correct perspective. Though the Court had made it clear that costs would be imposed on the department if reasonable cause was not shown, the appeal was still pressed and this showed that the revenue shirked its responsibility of genuine decision making. The revenue must seriously take the responsibility of genuine decision making so as to avoid frivolous litigation and/or wasting Court time and expense and harassment to an innocent litigant.