2001 (12) TMI 530

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..... 80. The Assessing Officer had completed a best judgment assessment. He observed that the loss had arisen mainly due to claim for interest on borrowings. He further observed that the loans in the context of which the interest had been claimed were not accepted as genuine and were assessed as assessee s income from undisclosed sources. On that basis, he disallowed the assessee s claim for interest of Rs. 3,86,175 and completed the assessment on a total income of Rs. 800. For the assessment year 1989-90, the assessee had filed return declaring a loss of Rs. 4,22,800 and for the same reasons as were given in the assessment order for the assessment year 1988-89, the Assessing Officer disallowed the assessee s claim for interest for Rs. 4,31,802 .....

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..... ssessee submitted that in the circumstances of the case, no penalty under section 271(1)(c) of the Act was legally imposable. He pointed out that in both the years, returns were filed declaring loss and the assessments were completed on incomes below taxable limit. Hence, no tax was payable by the assessee. Relying on the decision of the Punjab Haryana High Court in the case of CIT v. Prithipal Singh Co. [1990] 183 ITR 70, affirmed by the Apex Court in the decision reported in CIT v. Prithipal Singh Co. [2001] 249 ITR 670, it was submitted that penalty order deserved to be cancelled. In this very connection, reliance was also placed on the Punjab Haryana High Court decision in the case of CIT v. Varindra Co. [2001] 118 Taxman 946. .....

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..... at the decision of the Punjab Haryana High Court in the case of Prithipal Singh Co. (supra) related to period before insertion of Explanation 4 to section 271(1)(c), I may point out that the said explanation merely defines the term "the amount of tax sought to be evaded." In this connection, it would be relevant to extract below the observations of the Hon ble High Court at page 71 : "Penalty impose is paid in addition to the tax payable. When there is no tax payable, the question of any penalty does not arise. In fact, evasion of tax is the sine qua non for imposition of penalty. Clause (iii) deals with cases referred to in clause (c) under sub-section (1) of section 271 of the Act and it clearly provides therein that the penalty or .....

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