Penalty u/s 271 (l) (c) is a civil liability – HC – Income Tax

In the process of any proceedings or hearing under the Act, if the AO (assessing officer) or Commissioner is found that any tax payer has concealed the part of his income or if he has furnished particulars of his income inaccurately, then in this case such tax payer will have to pay by way of penalty notice i.e. penalty under section 271 (1) (c). Assessing officers use this section as a sword. The assessee may have the quite logical and strong ground for arguing and proving that concealing or furnishing inaccurate particulars was not intentionally.

Penalty under section 271(1) (c) is a normal tendency in all cases; where filing an appeal is refrained by the assessee, with a hope in order to end the worst nightmare (selection of case for scrutiny). Penalty is considered as straightaway levied because against the quantum order, not a single appeal has been filed. But only the judiciary can check the misuse of power.

Why not an appeal is filed by the Assessee even if he is sure and confident about no wrong doing, no evasion, and no concealment?  These questions have been correctly answered by SC (Supreme Court) in the case of Sir Shadilal Sugar Mills:

• The pains of continuous litigations can be avoided, mental tensions and numerous hearings borne in it;
• At the first appellate authority, there is a risk of enhancement on some technical issues;
•  Common attitude of assessment can be seen in Appellate proceedings
• Representative’s  litigation cost is heavy

The High Court (HC) had to consider that penalty under section 271((1) c) can be levied where the assessee is greed to an addition made by the Assessing Officer to buy a peace of mind held by the HC. The fact is that the assessee rarely agrees to pay tax and his conduct is not mala fide if he is not challenging the assessment order. There are following principles that are applied:

(1) Penalty u/s 271 (l) (c) is a civil liability.

(2) Mens rea cannot be considered as an important factor for imposing penalty (for breach of civil liabilities or obligations).

(3) For attracting civil liability, wilful concealment cannot be an essential ingredient.

(4) The conditions that are stipulated in penalty Section 271 (l) (c) can be considered as sine qua non for starting of proceedings under the penalty Section 271.