2013 (10) TMI 1022 - HC - Income Tax

Whether penalty under section 271(1)(c) of the Income-tax Act cannot be levied in a case where the assessed income is a loss Held that - Reliance has been placed on Division Bench judgment of the Supreme Court in CIT v. Gold Coin Health Food P. Ltd. 2008 (8) TMI 5 - SUPREME COURT , wherein it was held that Explanation 4(a) to section 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss or a minus figure. Therefore, even during the period between April 1, 1976 and April 1, 2003, the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss - The ratio in Gold Coin Health Food P. Ltd., therefore, would leave no scope for us except to hold that penalty under section 271(1)(c) of the Act would be attracted and can be levied even in a case where the assessed income is a loss Decided in favor of Revenue.

Summary

Issues:
1. Interpretation of penalty provisions under section 271(1)(c) of the Income-tax Act when the assessed income is a loss.

Analysis:
The case involved a reference to the High Court by the Commissioner of Income-tax regarding the justification of levying a penalty under section 271(1)(c) of the Income-tax Act when the assessed income is a loss. The assessee, a civil contractor, filed a return of income showing a loss, which was later adjusted by the Income-tax Officer. Penalty proceedings were initiated under section 271(1)(c), resulting in a penalty being imposed. The Tribunal allowed the appeal against the penalty order, stating that the levy of penalty for concealment in a case with assessed loss is not permissible under the law.

The main contention revolved around the interpretation of section 271(1)(c)(iii) with Explanation 4 of the Act. The Income-tax Department argued that even if an assessee files a loss return, the provisions of section 271(1)(c) are applicable. They relied on Explanation 4, stating that any concealment affecting the loss return or converting the loss into income falls under "the amount of tax sought to be evaded." The Department cited a Supreme Court judgment to support their argument.

The High Court emphasized the strict interpretation of taxing statutes, stating that the clear language used by the Legislature must be given a plain meaning. They highlighted that Explanation 4, which deals with the effect of concealment on a loss return, cannot be interpreted differently. The Court also discussed the retrospective operation of Explanation 4(a), which was substituted in 2002, in a case related to the assessment year 1990-91.

Referring to a Supreme Court case and a Division Bench judgment, the Revenue argued that the purpose of section 271(1)(c) was to penalize concealment of income particulars, regardless of whether the return shows a profit or loss. They contended that Explanation 4 was clarificatory and applied to assessments before 2003-04. After considering various legislative provisions and case law, a three-judge Bench reversed a previous decision and held that the penalty under section 271(1)(c) can be levied even when the assessed income is a loss.

In conclusion, the High Court ruled in favor of the Revenue, stating that penalty under section 271(1)(c) of the Act can be attracted and levied in cases where the assessed income is a loss. The judgment was based on the interpretation of relevant provisions and previous judicial decisions, ultimately answering the reference against the assessee and in favor of the Revenue.