Not every mistake is committed with a malafide mindset which is why not every error gives rise to penal provisions. Making an incorrect claim while filing a Return of Income is something that might have been done unintentionally or knowingly. In cases where the intent is bonafide, any apprehension of being penalized should be resolved in order to eliminate the unnecessary unrest caused, provided the mistake committed is not seen as sinister by the Law.
Reference is drawn to Section 271(1)(c) which reads as “If the Assessing Officer or the Commissioner(Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty”.
Quite often it is argued as to what constitutes concealment of income or furnishing of inaccurate particulars. There have been instances where the Revenue contended that an item of expenditure falsely (or in an exaggerated amount) claimed leads to reduction in the taxable income and, therefore, amounts to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income.
In this regard, it has been held by the Supreme Court in the case of CIT Vs. Reliance Petroproducts, 322 ITR 158 (SC) that the mere claim of incorrect deduction in the return of income does not attract penalty under section 271(1)(c) of the Act where the requisite details have been furnished by the assessee, including the relevant documents and other evidence, and the same are not found to be incorrect nor can they be viewed as concealment of income on his part. In such cases, it is for the department to decide whether to accept or reject the claim made by the assessee. But, the act of levying penalty in such situations under Section 271(1)(c) is ultra vires since no incorrect information has been supplied or any information suppressed. If such incorrect claims were to be viewed as attracting Section 271(1)(c) then there would have been cases in abundance weighing people down by the ordeal caused on account of the penalty imposed.
The above judgment has been cited and reiterated in numerous cases.
Hence, an incorrect claim in Return of Income (ROI), which is not sustainable in law, by itself, will not give rise to penalty under Section 271(1)(c) since the same doesn’t amount to furnishing of inaccurate particulars or concealment of income.
