In the instant case appeals were filed before the Karnataka HC regarding imposition of penalty. The HC interpreted section 271 and laid down law as under:
1) Penalty under section 271(1)(c) is a civil liability;
2) Mens rea isn’t an essential element for imposing penalty for breach of civil obligations or liabilities;
3) Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings. Even if these conditions do not exist in the assessment order, at least a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the AO to initiate the proceedings because of the deeming provision contained in section 271(1B);
4) Imposition of penalty even if the tax liability is admitted is not automatic. Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or to impose penalty, unless it is discernible from the assessment order that it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax;
5) Even though explanation offered, has not been substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty can be imposed;
6) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty, though emanate from proceedings of assessment, yet are independent and separate aspect of the proceedings. The findings recorded in the assessment proceedings, in so far as 'concealment of income' and 'furnishing of incorrect particulars' would not operate as res judicata in the penalty proceedings;
7) It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment, in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings;
Thus, in light of the above it was clear that merely because the assessee had agreed for certain addition and, accordingly, assessment order was passed and when the assessee had paid the tax and the interest thereon in the absence of any material on record to show the concealment of income, it couldn’t be inferred that the said addition was on account of concealment – CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka)
1) Penalty under section 271(1)(c) is a civil liability;
2) Mens rea isn’t an essential element for imposing penalty for breach of civil obligations or liabilities;
3) Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings. Even if these conditions do not exist in the assessment order, at least a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the AO to initiate the proceedings because of the deeming provision contained in section 271(1B);
4) Imposition of penalty even if the tax liability is admitted is not automatic. Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or to impose penalty, unless it is discernible from the assessment order that it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax;
5) Even though explanation offered, has not been substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty can be imposed;
6) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty, though emanate from proceedings of assessment, yet are independent and separate aspect of the proceedings. The findings recorded in the assessment proceedings, in so far as 'concealment of income' and 'furnishing of incorrect particulars' would not operate as res judicata in the penalty proceedings;
7) It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment, in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings;
Thus, in light of the above it was clear that merely because the assessee had agreed for certain addition and, accordingly, assessment order was passed and when the assessee had paid the tax and the interest thereon in the absence of any material on record to show the concealment of income, it couldn’t be inferred that the said addition was on account of concealment – CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka)
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