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TMI Blog2005 (5) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 29-1-1999 became final. In the assessment order, the Assessing Officer mainly made two additions, viz., 1. Bottler's support expenses of Rs. 80 lakhs 2. Bogus purchases at Rs. 10 lakhs. About these two additions, the Assessing Officer had discussed in detail in paras 5 and 6 of his penalty order, for the sake of convenience the same is reproduced as under : "Bottlers support expenses Rs. 80 lakhs : It was mentioned in assessment order that assessee has claimed Bottler's support expenses of Rs. 80 lakhs. In the profit and loss account, the assessee has booked the expenditure of Rs. 67,71,527 under the head 'Distribution related cost'. The assessee was required to justify this claim of expenditure and to file the complete particulars of these expenses. In response to this, the assessee filed a revised computation of income along with a copy of revised audited balance sheet and profit and loss account and in this revised computation, the assessee has added back amount of Rs. 44,50,000 being the excess provision under the head 'Distribution related cost'. Accordingly, distribution related costs were claimed in the revised computation at Rs. 23,21,527 as against Rs. 67,71,527 booke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s why assessee should pay to the creditors of Pure Drinks (New Delhi) Ltd. It was also observed that out of the provision of Rs. 80 lakhs, subsequently, the assessee has itself written off Rs. 44,50,000 in the revised computation and further Rs. 19,75,876 in assessment year 1998-99. In the absence of any contract to make payment or to bear the liability of payment of the creditors of Pure Drinks (New Delhi) Ltd. it is not possible to accept that it was a contractual obligation of the assessee to make the payment. Hence, there was no liability, which can be claimed as expenses incurred for the business in commercial expendiency. 6. Bogus purchases Rs. 10 lakhs : In the purchase account, the assessee has booked expenditure of Rs. 63,49,316. It was noticed during assessment proceedings that under this head, the assessee had also booked expenditure of Rs. 10 lakhs payable to Pure Drinks (New Delhi) Ltd. The assessee was required to justify this cost of purchases. The assessee has simply filed copy of account of Pure Drinks (New Delhi) Ltd. as appearing in the books of assessee. Despite opportunities given by the Assessing Officer, the assessee has not furnished the copy of any purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs in all, the Assessing Officer drew the conclusion that the assessee had furnished inaccurate particulars of income and is liable for penalty under section 271(1)(c) read with Explanation 1 thereunder. The assessee relied on the following decisions before Assessing Officer in support of his argument that it is a case of loss returned and loss assessed and as there is no positive income, penalty cannot be levied under section 271(1)(c) : (1)CIT v. N. Krishanan [1999] 240 ITR 47 (Ker.), (2)CIT v. Prithipal Singh & Co. [1990] 183 ITR 69 (Punj. & Har.), (3)ITO v. Sudhir Pharmaceuticals [1983] 17 TTJ (Chd.) 518. 4. The Assessing Officer, however, relied on the following decisions for levying the penalty : (1)Atul Kumar Deovrat & Co. v. CIT [1987] 168 ITR 286 (Cal.), (2)P.R. Basavappa & Sons v. CIT [2000] 243 ITR 776 (Kar.). The CIT(A) while confirming the penalty observed as under : "I have very carefully gone through the facts of the case and rival submissions. I do not find much force in the arguments of the AR of the appellant. Her fundamental argument as mentioned in serial (viii) above that after all additions or disallowances made by the Assessing Officer, the loss has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the decision of Hon'ble Bombay High Court in CIT v. Chemiequip Ltd. [2004] 265 ITR 265, which is the decision of jurisdictional High Court on the issue and supported the orders of authorities below. 7. We have heard the rival submissions and perused the material on record. So far as the question of concealment is concerned, we are of the view that the assessee had not filed accurate particulars of income regarding has income/loss, as found by Assessing Officer and CIT(A) and not contested by the assessee. In penalty proceedings, the assessee had filed incorrect audit report under section 44AB with the original return. The circumstances under which the assessee had to carry out second audit on 19-5-1997 was not spelt out and above all the assessee could have revised its return after it received second audit report on 19-5-1997 but it chose not to do so. It was compelled to disclose the second audit report when scrutiny was carried out and after being asked to explain about the inflation of cost. The assessee incorrectly made a claim of liability in the return even after being pointed out in the revised audit, did not revise the computation suo motu and allowed the limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by Punjab & Haryana High Court in the case of N. Krishnan (supra). 22. In the case of CIT v. Vegetable Products Ltd. (supra), the Apex Court held at page 195 of the report as under : '. . .On the other hand, if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted. This is well accepted rule of construction recognised by this Court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in section 271(1)(a)( i). If we find that language to be ambiguous is capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so, because the provision relates to imposition of penalty.'" Thus, following an interpretation that is favourable to the assessee, the Special Bench in Apsara Processors (P.) Ltd.'s case, did not upheld the levy of penalty for concealment. In Galaxy Dyeing & Printing Mills' case (supra), there was no finding as to the filing of inaccurate particulars of income and on applicability of Explanation 1 to section 271(1)(c). Further, the question as to why the decision of Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income. This amendment is clarificatory in nature, it is so stated in the Finance Bill, 2002; Notes on clauses [see [2002] 254 ITR (St.) 175, 176]. Therefore, the view, which we have taken is also supported by subsequent amendment. In the circumstances, the Tribunal erred in holding that section 271(1)(c) was not applicable as the final assessed income was a reduced loss. The Tribunal has failed to take into account clause (a) of Explanation 4 as it stood at the relevant time. Question No. 1 is, therefore, answered in negative, i.e., in favour of the department and against the assessee." 11. Hon'ble Supreme Court in Prithipal Singh & Co.'s case (supra) declined to interfere on the facts of the case and confirmed the order of Hon'ble Punjab & Haryana High Court in Prithipal Singh & Co.'s case (supra) as under : "We have heard learned counsel and find that on the facts of this case, no interference is called for." Thus, interference was not called for in the decision of Hon'ble Punjab & Haryana High Court's verdict in Prithipal Singh & Co.'s case (supra) "on fats of this case" i.e., the case of Prithipal Singh & Co. (supra) one of the important fact in that case, was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision is binding not because of its conclusions but in regard to its ratio and principles laid down therein.' Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be a declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for a sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law." [Emphasis supplied] 12.2 In Krishena Kumar v. Union of India [1990] 4 SCC 207 the Constitution Bench held that a decision of the Supreme Court which does not set out the facts or the reasons for the conclusions or direction given, cannot be treated as a binding precedent under article 141 of the Constitute (Para 19 of the judgment). "Para 20. In other words, the enunciation of the reasons or principle upon which a question before a court has been decided is alone binding as a precedent. The ratio decidendi is the underlying principle, namely, the general reasons or the general grounds upon which the decision is based on the test or abstract from the specific peculiarities of the particular case which gives rise to decision. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1976-77 onwards. 13. By a resolution dated 2nd March, 1970, the Govt. of India appointed a committee of experts headed by Justice K.N. Wanchoo to examine and suggest legal and administrative measures for countering tax evasion and avoidance in the field of Direct Taxes and to recommend concrete and effective measures for preventing tax evasion. In its final report, the Wanchoo Committee observed (Pages 24-27), in respect of levy of penalty in cases where returned income is a loss and after detecting concealment the assessed income becomes either a positive income or a reduced loss. In Para 2.74 it recommended- "2.74 We are not unaware that linking concealment penalty to tax sought to be evaded can, at times, lead to anomalies. We would recommend that, in cases where the concealed income is to be set off against losses incurred by an assessee under other heads of income or against losses brought forward from earlier years, and the total income thus, gets reduced to a figure smaller than the concealed income or even to a minus figure, the tax sought to be evaded should be calculated as if the concealed income were the total income." 13.1 As a result of this recommendation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the penalty was with reference to the actual concealed income or tax thereon. The word 'income' has been defined under section 2(24) of the Act which is an inclusive definition. Section 4 is the charging section which creates the liability of tax on total income. The word 'income' includes loss also - CIT v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC). In Atul Kumar Deovrat & Co. v. CIT [1987] 168 ITR 286, the Calcutta High Court has upheld the levy of penalty under section 271(1)(c) in respect of the claim for loss on purchase and sale of shares which was not allowed in the assessment proceedings. It is contended that income in section 271(1)(c) should be of positive figure. In CIT v. Prithipal Singh and Co. [1990] 183 ITR 69, the Punjab and Haryana High Court held that the income as envisaged in section 271(1)(c) means positive income. If the loss declared has been reduced penalty under section 271(1)(c) cannot be levied. This decision is in respect of the assessment year 1970-71, i.e., before the insertion of the above Explanation and, hence, cannot help the case of the assessee. For the same reason the decisions given in CIT v. India Sea Foods [1976] 105 ITR 708 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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