2016 (10) TMI 779 - HC - Income Tax

Levy of penalty u/s 271 (1)(c) - Effect of amendment to clause 3 (iii) and Explanation 4 to section 271(1)(c) of the Income Tax Act by the Finance Act, 2002 - Prospective or retrospective amendment - Held that - in view of the law laid down by the Apex Court in the case of Commissioner of Income Tax versus Gold Coin Health Food P.Ltd. 2008 (8) TMI 5 - SUPREME COURT wherein the Apex Court has come to the conclusion that Explanation 4 to section 271(1)(c) of the Act is clarificatory and not substantive and would apply even to assessment year prior to April 1, 2003, the date on which the amendment was brought into force. Levy of penalty @100% confirmed as against @150% as levied by the AO - Decided partly in favor of revenue.

Summary

Issues:
1. Penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 1985-86.
2. Reduction of penalty amount by the Commissioner of Income Tax (Appeal).
3. Deletion of penalty by the tribunal based on assessed income being nil.

Analysis:
1. The case involved an appeal by the department under section 260A of the Income Tax Act, 1961 against the tribunal's order dated 28.7.2006. The assessment was completed under section 143(3) on 28.3.1998, with an addition of &8377; 32,34,250 under section 68 of the Income Tax Act leading to a penalty under section 271(1)(c) of &8377; 28,01,670. The penalty was reduced to &8377; 18,67,670 by the Commissioner of Income Tax (Appeal), Kanpur. The tribunal later deleted the penalty based on the assessed income being nil, citing the decision in the case of M/s. Zam Zam Tanners Ltd. The tribunal held that penalty under section 271(1)(c) was not leviable when the assessed income is nil.

2. The department and the assessee both appealed against the Commissioner of Income Tax (Appeal)'s order. The tribunal, in its decision, relied on the case of M/s. Zam Zam Tanners Ltd. and concluded that penalty under section 271(1)(c) was not applicable due to nil assessed income. The tribunal also noted that certain amendments to the Income Tax Act were not applicable to the relevant assessment year of 1985-86, further supporting the decision to delete the penalty.

3. The questions of law raised included whether the tribunal was justified in deleting the penalty and reducing the quantum of penalty. The High Court answered the first question in favor of the department, citing a Supreme Court decision that Explanation 4 to section 271(1)(c) is clarificatory and applies even to assessment years before April 1, 2003. However, the High Court ruled in favor of the assessee on the second question, upholding the reduction of penalty to 100% by the Commissioner of Income Tax (Appeal). The appeal was disposed of accordingly.