2004 (4) TMI 31 - HC - Income Tax

Penalty u/s 271(1)(c) - Whether Tribunal is right in holding that penalty is not exigible where loss is reduced resulting in the net assessed loss in spite of the fact that positive concealment was detected or the assessee had furnished deliberately inaccurate particulars to evade the tax? - Penalty cancelled on the ground that since there was no positive income assessed, it could not be said that any tax was sought to be evaded. No infirmity in tribunal s order revenue s appeal dismissed

Summary

Issues:
1. Refusal of the Tribunal to refer a question of law under section 256(2) of the Income-tax Act, 1961 regarding cancellation of penalty under section 271(1)(c) due to no positive income assessed.
2. Assessment of net loss by the Assessing Officer and subsequent penalty proceedings initiated under section 271(1)(c) based on disallowances/additions in the assessment.
3. Cancellation of penalty by the Commissioner of Income-tax (Appeals) on the ground of no positive income assessed.
4. Upholding of the cancellation of penalty by the Tribunal based on previous court judgments.

Analysis:

1. The Revenue filed a petition under section 256(2) of the Income-tax Act, 1961, seeking a direction to the Income-tax Appellate Tribunal to refer a question of law arising from the cancellation of a penalty under section 271(1)(c) due to no positive income being assessed. The Tribunal had earlier declined a similar request under section 256(1) of the Act. The Tribunal upheld the cancellation of penalty, citing a judgment by the High Court and affirmed by the apex court. The court dismissed the petition as no referable question of law arose from the Tribunal's order.

2. The assessee had initially declared a loss in its income tax return for a specific assessment year. The Assessing Officer assessed a net loss after making certain additions based on understatement of stocks, disallowed expenses, and unexplained cash credit. Subsequently, penalty proceedings were initiated under section 271(1)(c) for these additions, resulting in the levying of a penalty. The Commissioner of Income-tax (Appeals) cancelled the penalty, emphasizing the absence of positive income assessed, which led to the Revenue's appeal before the Tribunal.

3. The Commissioner's cancellation of the penalty was based on the rationale that in the absence of positive income assessed, it could not be concluded that tax evasion was attempted. This decision was upheld by the Tribunal, which relied on a previous court judgment. The Tribunal's decision was in line with the legal principles established by the apex court, leading to the dismissal of the Revenue's petition seeking a reference of a question of law.

4. The Tribunal's decision to cancel the penalty was supported by the legal precedent set by the High Court and affirmed by the apex court. Since the Tribunal's order aligned with established legal principles, the court found no basis for referring a question of law for further adjudication. The absence of representation from the respondent resulted in no order as to costs being issued in the matter.