2001 (12) TMI 217 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) for concealment of income.
2. Applicability of Explanation 4 to section 271(1)(c) in cases where both returned and assessed income are losses.
3. Interpretation of legislative intent regarding penalty provisions in cases of reduced loss.
4. Judicial precedents and their impact on the interpretation of section 271(1)(c).

Detailed Analysis:

Imposition of Penalty under Section 271(1)(c):
The Revenue appealed against the order of the CIT (Appeals) cancelling the penalty imposed by the Assessing Officer under section 271(1)(c). The penalty was initially imposed due to the addition of Rs. 85,776 sustained by the ITAT, which was treated as concealment of income. The CIT (Appeals) deleted the penalty, observing that no penalty could be imposed since both the returned and assessed figures were negative.

Applicability of Explanation 4 to Section 271(1)(c):
The Revenue argued that Explanation 4 to section 271(1)(c), inserted with effect from 1-4-1976, allows for the imposition of penalty even when the returned income and assessed income are losses. This explanation defines "the amount of tax sought to be avoided" to include tax on the income in respect of which particulars have been concealed, had such income been the total income. The Revenue cited the decision of the Karnataka High Court in P.R. Basavappa & Sons, which supported this interpretation.

Interpretation of Legislative Intent:
The assessee contended that section 271(1)(c) refers to the concealment of positive income alone and does not indicate that the legislative intent was to levy penalties for concealment of negative income. The assessee pointed out that similar provisions in section 143(1A) were specifically amended to levy additional tax even when declared losses were reduced, but no such amendment was made to section 271(1)(c). This indicated that the legislative intent was not to levy penalties for reduced losses.

Judicial Precedents:
The assessee relied on the decisions of the Madhya Pradesh High Court in Jaora Oil Mill and the Madras High Court in C.R. Niranjan, which held that no penalty under section 271(1)(c) can be imposed when the returned loss is merely reduced. The Punjab & Haryana High Court in Prithipal Singh & Co. also held that penalty could not be imposed where only the loss had been reduced. This decision was upheld by the Supreme Court. The Tribunal noted that different High Courts had expressed contrary opinions on this issue, but in such circumstances, the Tribunal is bound to follow the view favorable to the assessee.

Conclusion:
The Tribunal upheld the order of the CIT (Appeals) cancelling the penalty imposed under section 271(1)(c), agreeing that the legislative intent was not to levy penalties in cases where both the returned and assessed figures were losses. The Tribunal found merit in the argument that the Explanation 4 could not widen the scope of the main section 271(1)(c) to include penalties for reduced losses. The cross objection filed by the assessee, being supportive in nature, was dismissed as infructuous. Thus, the appeal of the Revenue and the cross objection of the assessee were both dismissed.