Penalty: Concealment of income-Loss assessed

The income was assessed at a loss. No penalty was leviable.

High Court Of Madhya Pradesh

CIT vs Morena Re-Rolling Industries Dev. Co. (P) Ltd.

IT Ref. No. 4 of 2005

Abhay Gohil and Sanjay Yadav, JJ

5 April 2007

R.D. Jain with D.P.S. Bhadoriya, for the Petitioner
None, for the Respondent

ORDER Abhay Gohil, J :

This reference has been made by the Tribunal, Delhi Bench to answer the following question :

"Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal is justified in law in holding that penalty under s. 271(l)(c) is not leviable in the case where no positive income has been assessed ?"

2. Brief facts of the case are that the respondent company is a private limited company. For the asst. yr. 1982-83, it filed return declaring net loss of Rs. 3,95,000. The AO completed the assessment at net loss of Rs. 3,77,231. For asst. yr. 1983-84, it filed return declaring net loss of Rs. 11,65,020. The AO completed the assessment at net loss of Rs. 1,00,882. Quantum appeal filed by assessee for asst. yr. 1983-84 was dismissed by the CIT(A). Against the order of CIT(A), the assessee filed appeal before Tribunal, however, at the time of hearing the learned counsel for the appellant did not press the appeal and the same was dismissed.

3. The AO levied penalty under s. 271(l)(c) Rs. 7,250 and Rs. 2,23,000 for asst. yrs. 1982-83 and 1983-84 respectively, on the ground that assessee concealed the particulars of income. In appeal, CIT(A), Bhopal confirmed the penalty levied for both the years. Against which assessee has filed two appeals before Tribunal in which the Tribunal held as under :

Heard the appeals and it was held that penalty imposed is paid in addition to the tax payable. When there is no tax payable, the question of any penalty does not arise. In fact, evasion of tax is the sine qua non for imposition of penalty. Sub-cl. (iii), which deals with cases referred to in cl. (c) under sub-s. (1) of s. 271 of the Act, it clearly provides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or the assessed tax for payment during the particular year, the question of evasion and subsequently penalty does not arise. The learned Tribunal also placed reliance on a decision of Punjab and Haryana High Court in the case of CIT vs. Prithipal Singh and Company (1990) 85 CTR (PandH) 26 : (1990) 183 ITR 69 (PandH) in which it was held that when there is loss penalty for concealment of income is not leviable because there cannot be any motive to conceal the income. Tribunal further held that since no contrary judgment of any other High Court is pointed out, therefore the above judgment is binding on us and, therefore, there is no question of tax penalty arises and no penalty under s. 271(c) is leviable and, allowed the appeals filed by the assessee. Thereafter the Revenue filed an application for referring the aforesaid question to this High Court for its opinion and on the request of Revenue the aforesaid question has been referred to this High Court for its opinion.

4. We have heard Shri R.D. Jain, learned senior advocate on the question referred to us and his submission is that in view of Expln. 4 of s. 271(l)(c) which explains the expression "tax sought to be evaded" penalty is leviable even in case of loss. However, he could not point out any decision in support of his submission.

5. We have perused the provisions of s. 271(l)(c)(iii) of the IT Act and Expln. 4 which is quoted hereinbelow :

"Failure to furnish returns, comply with notices, concealment of income, etc.

Sec. 271(1)"If the AO or the CIT(A) or the CIT in the course of any proceedings under this Act, is satisfied that any person

(a) ******

(b) ******

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or

(d) ******

he may direct that such person shall pay by way of penalty

(i) ****** (ii) ******

(iii) in the cases referred to in cl. (c) in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits.

Explanation 4For the purposes of cl. (iii) of this sub-section, the expression "the amount of tax sought to be evaded"

(a) 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;

(b) in any case to which Expln. 3 applies, means the tax on the total income assessed;

(c) 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."

6. In view of the aforesaid provision, we are in full agreement with the decision of the Punjab and Haryana High Court in the case of CIT vs. Pnthipal Singh and Company (1990) 85 CTR (PandH) 26 : (1990) 183 ITR 69 (PandH) that the penalty imposed is paid in addition to the tax payable and the evasion of tax is the sine qua non for imposition of penalty and in sub-cl. (iii) of cl. (c) under sub-s. (1) of s. 271 of the IT Act, it is clearly provided that the penalty or further sum payable by a person would be in addition to any tax payable by him and Explns. 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or the assessed tax for payment during the particular year, the question of evasion and subsequently penalty does not arise. So far as the Expln. 4 is concerned, the same will apply 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.

7. In the case in hand, it is clear that in the enquiry no concealment of income was found and it was also not found that inaccurate particulars have been effected as declared in the return. Therefore, clearly the provision of Expln. 4 will not provide any help to the Revenue. As per the provisions of s. 271(l)(c) that penalty imposed is paid in addition to the tax payable. When there is no tax payable, the question of any penalty does not arise. In fact, the evasion of the tax is the sine qua non for imposition of penalty. If the penalty or further sum payable by a person would be in addition to any tax payable by him. If losses are shown certainly no penalty can be imposed. The income under the provisions of law taxable is presupposed with regard to the assessment year herein question. If there is no taxable income or the assessed tax for payment during the particular year in any case it cannot be presumed that it is the case of evasion of tax and penalty can be imposed. Penalty can only be imposed when there is concealment of income. If on enquiry losses were found justified, they cannot be reduced and the positive income cannot be assessed. The AO and the other authorities though have reduced the losses from Rs. 11,65,020 to the tune of Rs. 1,00,882 but there is no finding that the losses have been converted into the income or there is concealment of income. Therefore, in view of the aforesaid factual aspect of the matter the Expln. 4 will not be applicable in this case as has been argued by learned counsel for Revenue. Therefore, we answer that the Tribunal was justified in holding that when total income is assessed at a loss and no tax leviable income is assessed or found that no tax is payable, no penalty under s. 271(l)(c) is leviable and can be imposed.

8. Thus, the reference is accordingly answered.