2007 (9) TMI 268 - HC - Income Tax

Penalty u/s 271(1)(c) - In view of the unambiguous declaration of the law by the Supreme Court, it is beyond doubt that no penalty can be levied under section 27 of the Act on the assessee for the assessment year in question that is 1996-97 since there is no positive assessed income on which any tax is payable - Given the definition of total income and the requirement that it is the assessed income, computed in the manner indicated in the Act, which is to be considered for the purposes of penalty, the penalty in the instant case cannot be sustained for the simple reason that the assessed income is nil. It matters little that the assessed income was nil because of adjustment of brought forward losses or for any other reason

Summary

Issues:
Penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 1996-97.

Analysis:
The case involved penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 1996-97. The assessee had initially declared a loss but later revised its computation, resulting in a nil total income. The Assessing Officer initiated penalty proceedings separately, leading to the imposition of a penalty of Rs. 4,43,28,488 on the assessee. However, the Commissioner (Appeals) allowed the appeal by the assessee, stating that since the tax payable on the total income was nil, no penalty could be levied.

The Tribunal considered the case and relied on a previous court decision to determine that the Assessing Officer had not recorded specific satisfaction before initiating the penalty proceedings. Therefore, the Tribunal set aside the penalty proceedings. The Revenue challenged this decision, arguing that the satisfaction of the Assessing Officer could be inferred from the assessment order. The Revenue also attempted to distinguish a Supreme Court judgment regarding the imposition of penalties in cases of nil income.

The assessee's representative highlighted the relevant sections of the Income Tax Act, emphasizing that the assessed income as computed by the Assessing Officer is crucial for determining the penalty under section 271(1)(c). The representative argued that since the assessed income was nil, no penalty should be imposed unless the income is subsequently assessed as positive. The representative also discussed the amendment to section 271(1)(c) and its implications on penalty imposition, clarifying that prior to the amendment, a penalty could only be imposed if tax was payable.

The High Court dismissed the appeal, stating that no substantial question of law arose. The Court concurred with the assessee's argument that no penalty could be levied for the assessment year 1996-97 due to the nil assessed income. The Court emphasized that the penalty cannot be sustained when the assessed income is nil, regardless of the reason for the nil income, such as adjustments for brought forward losses. The Court's decision was based on the clear legal position established by the Supreme Court regarding the imposition of penalties in cases of nil assessed income.

In conclusion, the High Court upheld the decision of the Tribunal, dismissing the appeals and ruling that no penalty could be levied under section 271(1)(c) for the assessment year 1996-97 due to the nil assessed income.