The term Penalty has not been defined under the Income Tax Act, 1961 (Act).

2. The term Penalty has not been defined under the Income Tax Act, 1961 (Act). • Punishment; Suffering or loss imposed for breach of a law; a fine or loss agreed upon in case of non-fulfilment of some undertaking; a fine - Chambers 20th Century Dictionary, 1983 Edition • Penalty is a liability composed as a punishment on the party committing the breach of contract. Agreement to pay at default interest at a higher rate does not amount to penalty. - P RamanathaAiyar’s Law Lexicon , 2nd Reprint Edition 2009 PRASHANTH G S, FCA December 29,2012

3. Punishment imposed on wrongdoer, usually in the form of imprisonment or fine; especially a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for the injured party’s loss). Though usually for crimes, penalties are also sometimes imposed for civil wrongs. - Black’s Law Dictionary, 9th Edition PRASHANTH G S, FCA December 29,2012

4. PRASHANTH G S, FCA December 29,2012

5. If the Assessing Officer or Commissioner (Appeals) or Commissioner in the course of any proceedings under this Act, is satisfied that any person – • ................ • has failed to comply with a notice • has concealed the particulars of his income or furnished inaccurate particulars of such income, or • has concealed the particulars of the fringe benefits or furnished inaccurate particulars of such fringe benefits PRASHANTH G S, FCA December 29,2012

6. Gist of the offence under section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. PRASHANTH G S, FCA December 29,2012

7. Hindustan Steel Ltd, 83 ITR 26- SC observed: • Penalty will not be imposed because it is lawful to do so. It is a matter of discretion of the authority to be exercised judicially • Anwar Ali 76 ITR 696 –discussed earlier • Khoday Eswara & Sons, 83 ITR 369- SC : • It is clear that penalty proceedings being penal in character, the department must establish that the receipt in dispute constitutes income of the assessee PRASHANTH G S, FCA December 29,2012

8. Explanation 4.-For the purposes of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded",- • in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; • in any case to which Explanation 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148 ; • in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. PRASHANTH G S, FCA December 29,2012

9. In the course of search initiated after 01.06.2007, assessee found to be the owner of : • Any money, bullion, jewellery etc.. And assessee claims that such asset have been acquired by him utilising wholly or partly his income for previous year; or • Any income based on any entry in any books of account or other documents or transactions and he claims that such entry represents his income wholly or partly for any previous year, ended before search date and • Where return of income has been furnished before the said date without declaring the said income; • Where return of income has not been filed and due date has expired. Notwithstanding that income has been declared by him, in return furnished on or before the date of search, he shall for the purpose of penalty u/s 271(1)(c) be deemed to have concealed the particulars of income. PRASHANTH G S, FCA December 29,2012

10. Suresh Chandra Mittal, 251 ITR 9 –SC : It is well settled that initial burden lies on revenue to establish that the assessee had concealed /furnished inaccurate particulars of income. Burden shifts to assessee if he fails to offer any explanation. However, Expl 1 provides for shifting of this burden again where the explanation offered by the assessee is found to be bonafide. • K C Builders & Another , 265 ITR 562 – SC : The word "concealment" inherently carried with it the element of mensrea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. PRASHANTH G S, FCA December 29,2012

11. Virtual Soft Systems, 289 ITR 83 – SC : • This court as well as the various High Courts of the country have consistently held that the statute creating the penalty is the first and the last consideration and must be construed within the term and language of the particular statute. In Bijaya Kumar Agarwala v. State of Orissa [1996] 5 SCC 1 it has been held by this court in paragraphs 17 and 18 as under: • "17. Strict construction is the general rule of penal statutes. Justice Mahajan in Tolaram Relumal v. State of Bombay, AIR 1954 SC 496, at pages 498-499, stated the rule in the following words: • 'If two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty. It is not competent to the court to stretch the meaning of an expression used by the Legislature in order to carry out the intention of the Legislature.' PRASHANTH G S, FCA December 29,2012

12. Gold Coin Health Food P Ltd , 304 ITR 308 -SC : • Whether the penalty was leviable even in a case where addition of concealed income reduces the returned loss? Finding: Yes. • The court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether the amendment is clarificatory or substantive. PRASHANTH G S, FCA December 29,2012

13. T Ashok Pai ,292 ITR 11- SC : • It is not a case where penalty has been imposed for breach or contravention of a commercial statute where lack of intention to contravene or existence of bona fides may not be of much importance. It is also not a case where penalty is mandatorily imposable. It was, therefore, not a case where the enabling provision should have been invoked. PRASHANTH G S, FCA December 29,2012

14. Penalty – Concealment of “particulars” of income • In order to be covered by section 271 (1)(c), there has to be concealment of particulars by the assessee. Making incorrect claim does not amount to concealment of particulars. • To attract penalty, the details furnished in return must not be accurate or correct. • Mere making of claim which is not sustainable in law will not amount to furnishing of inaccurate particulars. PRASHANTH G S, FCA December 29,2012

15. The role of the Explanation having regard to the principle of statutory interpretation must be borne in mind before interpreting the aforementioned provisions. • Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been noticed in some of the decisions of this court, inheres on the face of the statutory provisions. PRASHANTH G S, FCA December 29,2012

16. Section 271(1)(iii) again provides for a discretionary jurisdiction upon the assessing authority inasmuch as the amount of penalty may not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of his income, but it may not exceed three times thereof. PRASHANTH G S, FCA December 29,2012

17. The question which arises for determination in all these appeals is whether section 11AC of the Central Excise Act, 1944 (in short "the Act") inserted by Finance Act, 1996, with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mensrea as an essential ingredient and whether there is scope for levying penalty below the prescribed minimum. PRASHANTH G S, FCA December 29,2012

18. Conclusion : • It is pointed out that in Dilip N. Shroff's case, the question relating to discretion was not the basic issue. In fact, section 271(1)(c) of the Income-tax Act provides for some discretion and, therefore, that decision has no relevance. So far as the present dispute is concerned, whether the discretion has been properly exercised is a question of fact. PRASHANTH G S, FCA December 29,2012

19. Dilip N. Shroff's case was not correctly decided but Chairman, SEBI's case [2006] 5 SCC 361 has analysed the legal position in the correct perspectives. The reference is answered. PRASHANTH G S, FCA December 29,2012

20. Rajasthan Spinning & Weaving Mills ,23 DTR 158 – SC : • The decision in Dharmendra case must therefore, be understood to mean that once the section is applicable ,the concerned authority would have no discretion in quantifying the amount and penalty must be imposed • M/s Siddhartha Enterprises –184 Taxmann 460–P&H • The judgment in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. PRASHANTH G S, FCA December 29,2012

21. Kanbay Software India P Ltd, 22 DTR 481- Pune Tri. • The views expressed in Dharmendra case cannot be viewed as an authority for the proposition that penalty u/s 271(1)(c) is an automatic consequence being made to addition to the income . • Final conclusion : • By resorting to a process of interpretation, we must not dilute the law laid down by their Lordships in Dharmendra Textiles case. PRASHANTH G S, FCA December 29,2012

22. at pages 561 & 562 Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner and it would, in our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied about the matters referred to in clauses (a) to (c) of sub-section (1) of section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently. PRASHANTH G S, FCA December 29,2012

23. Bhadra Advancing Pvt Ltd vs ACIT, Karnataka HC • Madhushree Gupta vs Union of India and Another, Delhi HC • CIT vs Atul Mohan Bindal, 317 ITR 1 – SC PRASHANTH G S, FCA December 29,2012

24. Sir Shadilal Sugar & General Mills Ltd, 168 ITR 705 –SC : • From agreeing to additions, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission • CIT vs. Saran Khandsari Sugar Works – Allahbad HC • CIT vs Mansa Ram and Sons – Allahabad HC PRASHANTH G S, FCA December 29,2012

25. K P Madhusudhanan, 251 ITR 99 – SC : that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That, it did not follow that the amount agreed to be added was concealed income, is undoubtedly what was laid down by this court in the case of Sir Shadilal Sugar and General Mills Ltd and that, therefore, the Revenue was required to prove the mensrea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to section 271 was added. By reason of the addition of that Explanation, the view taken in this case can no longer be said to be applicable. PRASHANTH G S, FCA December 29,2012

26. Harigopal vs CIT – P&H • CIT vs Sangrur Vanaspati Mills Ltd – P&H • CIT vs Dhillon Rice Mills – P&H • CIT vs Kailash Crockery House – Patna • Teja Constructions vs ACIT – Hyd. PRASHANTH G S, FCA December 29,2012

27. Supreme Court in Rampal vs Rewa Coalfields Ltd, 1962 AIR 361 / 1962 SCR (3) 762 held that - ‘sufficient cause' receiving a liberal construction so as to advance substantial justice when no negligence nor inaction nor want of bona fide is imputable to the appellant PRASHANTH G S, FCA December 29,2012

28. Supreme Court in Price Waterhouse Coopers Pvt Ltd vs CIT, 348 ITR 306 • No penalty on inadvertent ‘silly’ mistakes PRASHANTH G S, FCA December 29,2012

29. The person may be directed to pay penalty : PRASHANTH G S, FCA December 29,2012

30. Assessment order deemed to constitute satisfaction of the Assessing Officer : • On addition or disallowance of any amount in computing the total income in an assessment order; and • The penalty proceedings have been initiated under section 271(1)(c) PRASHANTH G S, FCA December 29,2012

31. Search initiated after 1.06.2007 but before 01.07.12 • Penalty at the rate of 10% of the undisclosed income of the specified previous year • No penalty under section 271(1)(c) in respect of undisclosed income PRASHANTH G S, FCA December 29,2012

32. Search initiated after 1.06.2007 but before 01.07.12 PRASHANTH G S, FCA December 29,2012

33. Search initiated after 01.07.12 PRASHANTH G S, FCA December 29,2012

34. Search initiated after 01.07.12 PRASHANTH G S, FCA December 29,2012

35. Search initiated after 01.07.12 • In any case not covered above, penalty shallnot be less than 30% and shall not exceed 90% of such undisclosed income. PRASHANTH G S, FCA December 29,2012

36. PRASHANTH G S, FCA December 29,2012

37. If any person fails to – • Deduct the whole or any part of tax as per Chapter XVII-B; • Pay the whole or any part of the tax a required by or under • Section 115-O(2); or • the second proviso to section 194B • Attracts Penalty to the extent of tax to be deducted or paid as aforesaid • Penalty shall be imposed by Joint Commissioner PRASHANTH G S, FCA December 29,2012

38. Person in respect of International Transaction or specified domestic transaction Section 271AA : PRASHANTH G S, FCA December 29,2012

39. Person in respect of International Transaction or specified domestic transaction Section 271G : PRASHANTH G S, FCA December 29,2012

40. PRASHANTH G S, FCA December 29,2012

41. Notwithstanding anything contained in the provisions of sections 271 (1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FB, 271G, 271H, 272A(1)( c), 272A(2)(d), 272AA(1), 272B, 272BB(1) & (1A), 272BBB(1),273(1) (b),273(2) (b),(c) • no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. PRASHANTH G S, FCA December 29,2012

42. The Punjab & High Court has held that no penalty is leviable when the assessee has acted in a bonafide manner based on the certificate issued by the Chartered Accountant. • The CA was directed to be examined. • 275 ITR 206 , S D Rice Mills; • 274 ITR 603, Deep Tools Pvt Ltd PRASHANTH G S, FCA December 29,2012

43. The Commissioner may, reduce or waive the amount of penalty under section 271(1)(iii) • On disclosure of full particulars by the assessee of income, prior to Assessing Officer detectingconcealment of income • Co-operation of assessee in all enquiries relating to the assessment of his income • Payment or satisfactory arrangement to make payment of any tax and interest PRASHANTH G S, FCA December 29,2012

44. The Commissioner can waive or reduce penalty only with prior approval of Chief Commissioner or Director General in cases where the income on which the penalty is levied is greater than Rs. 5,00,000 PRASHANTH G S, FCA December 29,2012

45. An Application may be made to Commissioner for granting immunity from penalty, if: • Application is made for settlement u/s 245C and the proceedings for settlement have been abated under section 245HA; and • The penalty proceedings have been initiated under this Act. • Application for grant of immunity of penalty shall not be made after imposition of penalty after abatement PRASHANTH G S, FCA December 29,2012

46. The Commissioner may grant immunity from penalty if he is satisfied that the assessee has given: • Full co-operation with income tax authorities in proceedings before him • Made true disclosure of his income and the manner in which such income has been derived • Immunity granted stands withdrawn if the person fails to comply with any condition subject to which the immunity was granted PRASHANTH G S, FCA December 29,2012

47. No order imposing penalty under this Chapter shall be made : • unless the assessee has been heard or has been given reasonable opportunity of being heard; • No order imposing penalty under this Chapter shall be made : • By the ITO, where the penalty exceeds ten thousand rupees; • By the ACIT or DCIT, where the penalty exceeds twenty thousand rupees except with prior approval of Joint Commissioner PRASHANTH G S, FCA December 29,2012

48. Limitation for passing the order of penalty PRASHANTH G S, FCA December 29,2012

49. Wrong quoting of tax deduction account number or tax collection account number or tax deduction and collection account number in challans, certificates, statements or documents referred to under section 203A(2) • Assessing Officer may direct a penalty of Rs. 10,000 PRASHANTH G S, FCA December 29,2012

50. Penalty in case of an assessee who furnished an advance tax statement u/s 209A(1)(a) which he knew or had reasons to believe to be untrue : • 10% to 1 ½ timesof the amount by which the advance tax paid falls short of : • 75% of the assessed tax as per section 215(5), or • the actual amount of advance tax, had the assessee furnished a correct statement as per section 209A(1), Whichever is less PRASHANTH G S, FCA December 29,2012