2014 (1) TMI 807 - HC - Income Tax

Whether penalty u/s 271(1)(c) be levied in case of negative income - Held that - Following Income Tax vs. Gold Coin Health Food Pvt. Ltd. 2008 (8) TMI 5 - SUPREME COURT - Explanation 4(a) to section 271(1)(c)(iii) intended to levy 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 - The learned ITAT has not gone into other grounds and has not entered into the merits of the case whether penalty order is justified or not more particularly when the assessee had not preferred the appeal against the quantum additions - The issue has been restored for fresh adjudication at Tribunal level.

Summary

Issues:
1. Whether penalty u/S.271(1)(c) can be levied in a case of negative income?

Analysis:
The case involved an appeal against the order passed by the Income Tax Appellate Tribunal (ITAT) regarding the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (AO) had initiated penalty proceedings against the assessee for certain additions made in the assessment. The AO imposed a penalty, which was later cancelled by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Revenue then appealed to the ITAT, which upheld the CIT(A)'s decision to delete the penalty.

The main contention raised by the Revenue was that the ITAT erred in holding that penalty cannot be levied in a case of negative income. The Revenue argued that the ITAT did not consider whether the penalty order was justified on merits, especially since the assessee had not appealed against the quantum additions. The Revenue relied on the decision of the Supreme Court in the case of Income Tax vs. Gold Coin Health Food Pvt. Ltd., which held that penalty can be levied even in cases where concealed income reduces the returned loss.

On the other hand, the respondent, represented by an advocate, did not dispute the Supreme Court's decision but contended that the ITAT did not assess the merits of the penalty order. Therefore, the respondent suggested that the matter should be sent back to the ITAT for a detailed review.

After hearing both parties, the High Court noted that the ITAT's decision that penalty cannot be levied in cases of negative income was not in line with the Supreme Court's ruling in the Gold Coin Health Food Pvt. Ltd. case. The Court emphasized that penalty can be imposed even if concealed income reduces the returned loss. However, the Court also observed that the ITAT did not delve into the merits of the case regarding the penalty order, especially in light of the assessee's failure to appeal against the quantum additions.

Consequently, the High Court allowed the tax appeal, quashed the ITAT's order, and remanded the matter back to the ITAT for a comprehensive review considering all relevant grounds and merits. The Court directed the ITAT to assess whether the penalty order was justified, particularly in the absence of an appeal against the quantum additions. No costs were awarded in the case.