2004 (12) TMI 284 - AT - Income Tax

Levy Of Penalty u/s 271(1)(c) - Whether penalty can be levied u/s. 271(1)(c) in cases where the assessed income is loss having regard to the amendment made by the Taxation Laws (Amendment) Act, 1975, and by the Finance Act, 2002? - HELD THAT - From the Expln. 4(a) of s. 271(1)(c), it is clear that now the legislature clearly provides for the levy of penalty where the loss declared in the return of income is reduced or converted into income. Therefore, in our opinion, before the amendment by Finance Act, 2002, it cannot be held that the penalty u/s. 271(1)(c) can be levied where the assessed income is loss. In the case of CIT vs. Omkar Sharan Sons 1992 (3) TMI 1 - SUPREME COURT , the Hon'ble apex Court has held that the penalty for concealment would be governed by the law as it stood at the time when the original return was filed. Similar view was expressed by Their Lordships of Hon'ble apex Court in the case of Brij Mohan vs. CIT 1979 (8) TMI 2 - SUPREME COURT . It is undisputed that the return in the case of all the assessee's before us were filed much prior to the amendment by the Finance Act, 2002. As per the law prevailing at that time, penalty u/s 271(1)(c) was not to be levied if the assessed income is loss. Therefore, the subsequent amendment cannot fasten the liability of penalty upon the assessees unless the legislature expressly provided for the same. As the Finance Act, 2002 made the amendment in s. 271(1)(c) w.e.f. 1st April, 2003, it cannot be said that the amendment was clarificatory and, therefore, retrospective in operation. We have already noticed that under s. 143(1A), as it stood prior to the amendment by Finance Act, 1993, there was provision for levy of additional tax for any variation in the returned income. Courts have held that additional tax cannot be levied when the assessed income is loss. For taking such view, the Hon'ble Allahabad High Court in the case of Indo Gulf Fertiliser and Chemical Corporation Ltd. 1992 (2) TMI 78 - ALLAHABAD HIGH COURT has noticed the provision of s. 271(1)(c) and has stated that the provisions of s. 143(1A) are similar to s. 271(1)(c) and thereafter came to the conclusion that levy of additional tax was not permissible where the assessed income is loss. The legislature has amended s. 143(1A) by Finance Act, 1993, with retrospective effect from 1st April, 1989. However, when s. 271(1)(c) is amended by Finance Act, 2002, it has been made effective from 1st April, 2003, and not retrospectively. Therefore, the only inference can be drawn that the legislature did not intent to effect the amendment in s. 271(1)(c) retrospectively. Thus, having regard to the amendment made by Taxation Laws (Amendment) Act, 1975 and by Finance Act, 2002, we hold that for the assessment years under appeal before us, penalty cannot be levied u/s 271(1)(c) in the cases where the assessed income is loss. In all the cases under appeal before us, the assessed income is loss and, therefore, the levy of penalty u/s 271(1)(c) is not justified and the same is cancelled. Accordingly, the Revenue's appeals are dismissed while the assessee's appeals in the case are allowed. In the result, the appeals are disposed of pro tanto.

Summary

Issues Involved:
1. Whether penalty can be levied u/s 271(1)(c) in cases where the assessed income is a loss.
2. Applicability of amendments made by the Taxation Laws (Amendment) Act, 1975, and the Finance Act, 2002, to such cases.
3. Retrospective effect of the Finance Act, 2002 amendments.

Summary:

Issue 1: Penalty u/s 271(1)(c) in Loss Cases
The primary question was whether penalty u/s 271(1)(c) could be levied when the assessed income is a loss, considering amendments by the Taxation Laws (Amendment) Act, 1975, and the Finance Act, 2002. The Tribunal noted that the assessees had declared losses in their returns and the final assessments also resulted in losses. The Tribunal referred to the decision in CIT vs. Prithipal Singh & Co., where it was held that the penal provisions of s. 271(1)(c) apply only in cases of positive income and not losses, as the question of concealment to avoid tax arises only in the former case.

Issue 2: Applicability of Amendments
The Tribunal examined the amendment by the Taxation Laws (Amendment) Act, 1975, which introduced Explanation 4 to s. 271(1)(c) and the Finance Act, 2002, which further clarified the provision. The Tribunal held that the law applicable for the levy of penalty is the one prevailing at the time of filing the return. Therefore, amendments made by the Finance Act, 2002, effective from 1st April 2003, could not be applied retrospectively to the assessment years under consideration.

Issue 3: Retrospective Effect of Finance Act, 2002
The Tribunal rejected the Revenue's contention that the amendment by the Finance Act, 2002, was clarificatory and thus retrospective. It relied on the principle that penal provisions cannot be applied retrospectively unless explicitly stated. The Tribunal cited several decisions, including K.M. Sharma vs. ITO, which held that the law imposing liability is presumed not to be retrospective unless expressly provided.

Conclusion:
The Tribunal concluded that for the assessment years under appeal, penalty u/s 271(1)(c) cannot be levied where the assessed income is a loss. Consequently, the penalties imposed were cancelled, and the appeals of the Revenue were dismissed while those of the assessees were allowed. The Tribunal's decision was consistent with the Supreme Court's ruling in Prithipal Singh & Co., reinforcing that the penal provisions apply only to positive income cases.