2007 (3) TMI 240 - HC - Income Tax

Penalty on account of concealment of income - sub-clauses (ii) and (iii) of section 271(1)(c) makes it clear that penalty is a measure of tax payable by the assessee - In other words, if no tax is payable by the assessee, there would be no penalty which could be levied on the assessee hence, Tribunal had properly exercised its discretion and was right in deleting the penalty imposed under section 271(1)(c)

Summary

Issues:
1. Whether the Tribunal properly exercised its discretion in deleting the penalty under section 271(1)(c)?
2. Whether the Tribunal was correct in requiring the Assessing Officer to prove deliberate concealment of income before invoking penalty under section 271(1)(c)?

Analysis:

Issue 1:
The case involved an appeal against the Income-tax Appellate Tribunal's decision to delete the penalty imposed under section 271(1)(c) of the Act. The appellant had declared a loss in the return for the relevant assessment year. The Assessing Officer made additions and levied a penalty as the authenticity of share contributors and sundry creditors was not proven. The Commissioner of Income-tax (Appeals) annulled the penalty, which was further upheld by the Tribunal based on previous decisions. The court analyzed the provisions of section 271(1)(c) and emphasized that penalty is contingent upon tax payable by the assessee. It was held that no penalty could be levied if no tax was payable, as penalty is a measure of tax payable. The court referred to precedents to support this interpretation, concluding that penalty cannot be imposed when the assessee has a net loss, as penalty is linked to taxable income. Therefore, the Tribunal's decision to delete the penalty was upheld, and the appeal was dismissed.

Issue 2:
The court further discussed that penalty under section 271(1)(c) is applicable only when there is taxable income, not a loss. It was reiterated that penalty serves as a deterrent against tax evasion, and if there is no tax payable, there can be no evasion to warrant a penalty. Previous judgments were cited to support this position, highlighting that penalty cannot be levied when the assessment results in a net loss. The court endorsed the Tribunal's decision to delete the penalty, emphasizing that penalty imposition requires the existence of taxable income. As no substantial question of law arose, the appeals were dismissed in line with established legal principles and precedents.

In conclusion, the court's judgment focused on the interpretation of section 271(1)(c) regarding the imposition of penalties for concealment of income. The decision underscored that penalties are tied to taxable income, and no penalty can be levied when the assessee incurs a loss. The court upheld the Tribunal's decision to delete the penalty, citing legal precedents and established principles.