2007 (4) TMI 188 - HC - Income Tax

Tribunal was justified in holding that when total income is assessed at a loss and no tax leviable income is assessed or found that no tax is payable, no penalty under Section 271(1)(c) is leviable and can be imposed As per explanation 3 and 4 to sub-clause (iii) of Section 271(1)(c), when there is no tax payable during the particular year, the question of evasion and subsequently penalty do not arise

Summary

Issues Involved:
Interpretation of penalty under Section 271(1)(c) of the Income Tax Act when no positive income has been assessed.

Analysis:
The case involved a Private Limited Company that declared net losses for two consecutive assessment years. The Assessing Officer completed the assessment at a reduced loss amount for both years. The company's appeals against the assessments were dismissed. Subsequently, the Assessing Officer levied penalties under Section 271(1)(c) for concealing income. The penalties were confirmed by the CIT(A) Bhopal, leading to appeals before the ITAT. The Tribunal held that penalties are imposed in addition to tax payable, and if there is no tax payable due to losses, then no penalty arises. The Tribunal cited a decision of the Punjab and Haryana High Court to support its reasoning that penalty for concealment of income is not leviable when there is a loss as there is no motive to conceal income.

The Revenue sought the High Court's opinion on whether penalties should be levied even in cases of losses. The Senior Advocate for the Revenue argued that penalties should apply even in cases of loss based on Explanation 4 of Section 271(1)(c). However, the High Court examined the relevant provisions and agreed with the Punjab and Haryana High Court's decision that penalties are additional to tax payable, and evasion of tax is necessary for imposing penalties. The High Court emphasized that penalties presuppose taxable income, and if there is no taxable income or assessed tax, penalties cannot be imposed.

The High Court concluded that since there was no concealment of income or inaccurate particulars found, and losses were justified, no penalty under Section 271(1)(c) should be levied when total income is assessed at a loss and no tax is payable. The High Court held that penalties can only be imposed in cases of income concealment, and in this instance, where losses were not converted into income or concealed, penalties were not justified. Therefore, the High Court upheld the Tribunal's decision that no penalty was leviable in the given scenario.

In summary, the High Court's detailed analysis focused on the interpretation of penalty provisions under Section 271(1)(c) of the Income Tax Act in cases where no positive income has been assessed. The judgment clarified that penalties are additional to tax payable, and evasion of tax is a prerequisite for imposing penalties. The High Court's decision aligned with the principle that penalties can only be imposed in cases of income concealment, not in instances of justified losses where no tax is payable.