2004 (3) TMI 782 - AT - Income Tax

Summary

Issues:
Revenue's appeal against deletion of penalty under section 271(1)(c) for the assessment year 1989-90.

Analysis:
The main issue in this case was the deletion of a penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The assessee's income tax return showed a loss, which was later assessed at a reduced loss after additions were made for unexplained credits. The Assessing Officer imposed a penalty equivalent to 100% of the tax sought to be evaded. The CIT(A) deleted the penalty based on the precedent set by the Hon'ble Punjab & Haryana High Court, stating that when both the returned and assessed income are negative figures (losses), penalty under section 271(1)(c) is not leviable. The revenue appealed this decision.

The Appellate Tribunal carefully considered the legal position and relevant judgments. They highlighted the observation by the Hon'ble Punjab High Court that penalty is not applicable when there is no tax payable, and evasion of tax is essential for penalty imposition. The Tribunal also noted the subsequent confirmation of this view by the Hon'ble Supreme Court. The Tribunal emphasized that the law did not allow for penalties in situations where assessed losses are reduced compared to returned losses before the amendment to Explanation 4 of section 271(1)(c). The Tribunal found that the Hon'ble Supreme Court's approval of the legal proposition established by the Hon'ble High Court's judgment meant that penalties were not applicable when both returned and assessed income were negative figures.

The revenue raised objections to the legal proposition, arguing that the Hon'ble Supreme Court's judgment was not binding and cited a contradictory judgment by the Hon'ble jurisdictional High Court. However, the Tribunal rejected these objections, emphasizing that the Hon'ble Supreme Court's approval of the legal proposition established by the Hon'ble High Court was significant. The Tribunal also highlighted that the contradictory judgment was passed ex parte and did not consider the relevant binding precedents. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the penalty based on the established legal position.

In conclusion, the Appellate Tribunal dismissed the revenue's appeal and approved the CIT(A)'s decision to delete the penalty under section 271(1)(c) for the assessment year in question. The Tribunal's decision was based on the legal precedents set by the Hon'ble High Court and the subsequent approval by the Hon'ble Supreme Court, indicating that penalties were not applicable in cases where both returned and assessed income were negative figures.