2010 (5) TMI 9 - SC - Income Tax

Penalty u/s 271(1)(C) - Whether, on the facts and in the circumstances of the case, and in law, the Income Tax Appellate Tribunal is right in coming to the conclusion that where assessed income is loss, penalty cannot be levied under section 271 (1) (c) of the Income Tax Act in spite of the fact that Explanation 4 (a) was added in the Income Tax Act with effect from 1.4.1976 and subsequently, further clause (a) was replaced by another clause (a) which is in clarificatory nature, with effect from 1.4.2003? Held that When the word income is read to include losses as held in Harprasad's case it becomes crystal clear that even in a case where on account of addition of concealed income the returned loss stands reduced and even if the final assessed income is a loss, still penalty was leviable thereon even during the period April 1, 1976 to April1, 2003. Even in the Circular dated July 24, 1976, referred to above, the position was clarified by the Central Board of direct Taxes (in short the CBDT ). It is stated that in a case where on setting off the concealed income against any loss incurred by the Assessee under any other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure the penalty would be imposable because in such a case 'the tax sought to be evaded will be tax chargeable on concealed income as if it is total income . Decision in the matter of CIT Vs. Gold Coin Health (P) Ltd. , 2008 -TMI - 30245 - SUPREME COURT confirmed. SC further observed that This Court (SC), time and again, reminded the courts performing judicial functions, the manner in which judgments/orders are to be written but, it is, indeed, unfortunate that those guidelines issued from time - to time are not being adhered to. - No doubt, it is true that brevity is an art but brevity without clarity likely to enter into the realm of absurdity, which is impermissible. This is what has been reflected in the impugned order which we would reproduce hereinafter. Supreme Court has reiterate the guidelines (a to g) for the Courts, while writing orders and judgments to follow the same.

Summary

Issues Involved:
1. Whether penalty under Section 271(1)(c) of the Income Tax Act can be levied when the assessed income is a loss.
2. The adequacy and manner of the High Court's judgment in addressing the legal question.
3. Interpretation of Explanation 4(a) to Section 271(1)(c) of the Income Tax Act.
4. Applicability of the Supreme Court's decision in CIT vs. Gold Coin Health (P) Ltd. to the present case.

Detailed Analysis:

Issue 1: Penalty under Section 271(1)(c) with Assessed Income as Loss
The Supreme Court examined whether penalty under Section 271(1)(c) of the Income Tax Act can be levied when the assessed income is a loss. The factual matrix revealed that the Assessee filed a return showing NIL income, but during assessment, it was found that the Assessee had incorrectly claimed depreciation, leading to disallowance and initiation of penalty proceedings. The Deputy Commissioner imposed a penalty based on the concealed income, even though the taxable income remained NIL. The Income Tax Appellate Tribunal (ITAT) quashed the penalty, but the Division Bench of the High Court dismissed the Revenue's appeal without adequate consideration.

Issue 2: Adequacy and Manner of High Court's Judgment
The Supreme Court criticized the High Court's judgment for being cryptic and not addressing the legal arguments adequately. The Division Bench's order was deemed casual and lacking in detailed reasoning. The Supreme Court reiterated guidelines for writing judgments to ensure clarity, coherence, and comprehensive legal reasoning.

Issue 3: Interpretation of Explanation 4(a) to Section 271(1)(c)
The Supreme Court referred to the legislative intent behind Explanation 4(a) to Section 271(1)(c), clarifying that the amendment was clarificatory in nature and applied retrospectively. The purpose of Section 271(1)(c) is to penalize the Assessee for concealing income or furnishing inadequate particulars, irrespective of whether the income returned was a profit or a loss. The Court emphasized that even if no tax was payable, penalty could still be levied for concealment or misrepresentation.

Issue 4: Applicability of CIT vs. Gold Coin Health (P) Ltd.
The Supreme Court relied on its earlier decision in CIT vs. Gold Coin Health (P) Ltd., which overruled the judgment in Virtual Soft Systems Ltd. vs. CIT. The Court in Gold Coin clarified that the term "income" includes losses, and penalty under Section 271(1)(c) is applicable even if the assessed income is a loss. The Court distinguished the present case from Elphinstone Spinning and Weaving Mills Co. Ltd., noting that the latter dealt with a different context under the repealed Income Tax Act of 1922 and involved the chargeability of additional tax on dividend income.

Conclusion:
The Supreme Court concluded that the penalty under Section 271(1)(c) could be levied even when the assessed income is a loss. The High Court's judgment was set aside for not adequately addressing the legal issues. The decision in CIT vs. Gold Coin Health (P) Ltd. was held applicable, confirming that the term "income" includes losses for the purpose of penalty. The appeal by the Revenue was allowed, and the matter was remanded for further proceedings in accordance with law. The Supreme Court reiterated the importance of detailed and reasoned judgments to ensure clarity and proper legal adjudication.