2008 (6) TMI 271 - AT - Income Tax

Summary

Issues:
- Appeal against cancellation of penalty under section 271(1)(c) of the Act.
- Interpretation of the decision of Hon'ble Supreme Court in the case of Virtual Soft Systems Ltd.
- Application of penalty provisions in cases involving set off of brought forward losses.

Analysis:
1. The appeal was filed by the Revenue against the cancellation of a penalty of Rs. 3 lakhs imposed under section 271(1)(c) of the Act. The learned CIT(A) had cancelled the penalty based on the argument that the case of the assessee fell within the purview of the decision of Hon'ble Supreme Court in the case of Virtual Soft Systems Ltd.

2. The facts of the case involved the filing of a return disclosing income of Rs. 1,27,219, which was later adjusted against brought forward business losses during assessment proceedings. Various additions were made during the assessment, leading to a final assessed income of Rs. 24,62,160. The penalty was imposed by the AO based on a cash credit of Rs. 4,24,340 being treated as concealed income.

3. The Revenue contended that the decision in Virtual Soft Systems Ltd. was not applicable in this case as the returned income was a positive figure and so was the assessed income. The Revenue argued that the penalty should be decided on merits, emphasizing that the Hon'ble Supreme Court's decision was not directly applicable due to the differences in the factual scenario.

4. The assessee argued that the penalty provisions should not be applied as there was no tax payable by the assessee after setting off brought forward losses. The assessee maintained that the principles laid down in the Virtual Soft Systems case should be applied in this scenario as well.

5. The Tribunal analyzed the provisions of section 271(1)(c) of the Act and the explanation provided by the Hon'ble Supreme Court in the Virtual Soft Systems case. It was noted that the penalty could not be levied where there was no tax payable, as emphasized in the decision. The Tribunal held that the learned CIT(A) was justified in applying the principles of the Virtual Soft Systems case and subsequently dismissed the appeal filed by the Revenue.