Earlier posts here have considered the issue of whether the penalty under section 271(1)(c) of the Income Tax Act, 1961 is a criminal, quasi-criminal or civil liability, which in turn has implications on whether mens rea is needed for awarding penalty under the section. The Supreme Court had held in Dilip Shroff that mens rea is needed for the non-disclosure of penalty to result in penalty, but this was subsequently overruled by the Court in Dharmendra Textiles. This was followed by decisions of some High Courts and Tax Tribunals narrowing the applicability of Dharmendra Textile to facts, making it possible that a subsequent consideration of the issue by the Supreme Court may reverse the position again.
However, having been presented with the opportunity in CIT v. Atul Mohan Bindal, the Supreme Court has specifically reaffirmed Dharmendra, holding that the penalty is a civil liability, and hence no mens rea is required under the provision. The Court held-
A close look at Section 271(1) (c) and Explanation (1) appended thereto would show that in the course of any proceedings under the Act, inter alia, if the Assessing Officer is satisfied that a person has concealed the particulars of his income for furnished inaccurate particulars of such income, such person may be directed to pay penalty. The quantum of penalty is prescribed in Clause (iii). Explanation 1, appended tosection 271(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false or the explanation offered by him is not substantiated and he fails to prove that such explanation is bona fide and that all the facts relating the same and material to the computation of his total income has been disclosed by him, for the purposes ofSection 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income. The penalty spoken of in Section 271(1)(c) is neither criminal nor quasi criminal but a civil liability; albeit a strict liability. Such liability being civil in nature, mens rea is not essential.
It had been discussed earlier that the issue before the Court in Dharmendra Textiles was section 11AC, Central Excise Act, and not section 271(1)(c), Income Tax Act. On this basis, there was scope for the argument that the finding on section 271(1)(c) was obiter and could be departed from. However, after the decision in Bindal, this line of argument has been unquestionably foreclosed, and the nature of penalty under section 271(1)(c) is now a strict civil liability, with no requirement of mens rea. A summary of the decision is available here.