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TMI Blog2004 (12) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... Brij Mohan vs. CIT [ 1979 (8) TMI 2 - SUPREME COURT] . It is undisputed that the return in the case of all the assessee s before us were filed much prior to the amendment by the Finance Act, 2002. As per the law prevailing at that time, penalty u/s 271(1)(c) was not to be levied if the assessed income is loss. Therefore, the subsequent amendment cannot fasten the liability of penalty upon the assessees unless the legislature expressly provided for the same. As the Finance Act, 2002 made the amendment in s. 271(1)(c) w.e.f. 1st April, 2003, it cannot be said that the amendment was clarificatory and, therefore, retrospective in operation. We have already noticed that under s. 143(1A), as it stood prior to the amendment by Finance Act, 1993, there was provision for levy of additional tax for any variation in the returned income. Courts have held that additional tax cannot be levied when the assessed income is loss. For taking such view, the Hon ble Allahabad High Court in the case of Indo Gulf Fertiliser and Chemical Corporation Ltd. [ 1992 (2) TMI 78 - ALLAHABAD HIGH COURT] has noticed the provision of s. 271(1)(c) and has stated that the provisions of s. 143(1A) are similar to s. 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That s. 271(1)(c) provides for levy of penalty for concealment of particulars of income or for furnishing inaccurate particulars of such income. Now, sub-cl. (iii) provides for levy of penalty in addition to any tax payable by the assessee. Thus, penalty under s. 271(1)(c) is leviable only when some tax is payable by the assessee because levy of penalty is in addition to the tax payable by the assessee. Sub-cl. (iii) of s. 271(1)(c) has been amended by Finance Act, 2002 w.e.f. 1st April, 2003, and by the amendment the words "in addition to tax payable" have been replaced by the words "in addition to tax, if any, payable by the assessee". Thus, before the amendment, the penalty could have been levied only if some tax was payable. Once the penalty is leviable then the computation provision comes into play and for computing the penalty, Expln. 4 can be resorted to. However, if no tax is payable, then penalty provision is inapplicable and the question of invoking Expln. 4 does not arise. In other words, the Expln. 4 had no meaning and was ineffective till sub-cl. (iii) is amended by the Finance Act, 2002. The learned counsel further submitted that the amendment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remier Soya Oil Ltd. (1998) 62 TTJ (Ind) 523 (x) Dy. CIT vs. Continental Engg. Ind. (1994) 50 TTJ (Ahd) 209 (xi) Gyanchand Jain vs. Dy. CIT (2004) 84 TTJ (Jd) 337 3.2 The learned counsel further submitted that the amendment by Finance Act, 2002, w.e.f. 1st April, 2003, in sub-cl. (iii) and Expln. 4 of s. 271(1)(c) cannot be given retrospective effect because for levy of penalty for concealment of income the material date is the date of filing of the return and the law applicable on the date when the return is filed is to be applied. Therefore, any amendment subsequent to the date of filing of the return cannot be considered for concealment, if any, occurred on the filing of the return. He has also relied upon the following decisions to support his contention that the amendment by Finance Act, 2002, cannot be given retrospective effect: (i) CIT vs. Patel Brothers (1995) 126 CTR (SC) 104 : (1995) 215 ITR 165 (SC) (ii) K.M. Sharma vs. ITO (2002) 174 CTR (SC) 210 : (2002) 254 ITR 772 (SC) (iii) CIT vs. S.R. Patton (1991) 92 CTR (Ker) 197 : (1992) 193 ITR 49 (Ker) affirmed by Supreme Court in CIT vs. S.R. Patton (1999) 151 CTR (SC) 235 : (1998) 233 ITR 166 (SC) (iv) CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions cited by Shri Kaji. 4.1 Elaborating the issue of retrospectivity, the learned counsel submitted that there is a normal presumption that the fiscal legislation imposing penalty are generally prospective by the reason of restrictions imposed by Art. 20 of the Constitution. He further stated that the quantum of the penalty is determined with reference to law prevailing on the day when the act of concealment was committed, i.e., on the date when the return was filed. Therefore, once having filed such return, the subsequent amendment to the law relating to the penalty for concealment cannot affect the position as prevailing on the date of filing of the return. He further contended that whenever the legislature intended to give retrospective effect to any Explanation, it expressly so stated while inserting the Explanation. In support of the above argument, he has relied upon the following decisions: (i) Pyare Lal Sharma vs. J.K. Industries Ltd. AIR 1989 SC 1854 (ii) Brij Mohan vs. CIT (iii) Balvantrai & Co. vs. CIT (2004) 190 CTR (All) 337. (iv) CIT vs. Kerala Electric Lamp Works Ltd. (v) K.M. Sharma vs. ITO (vi) Govind Das vs. ITO 1976 CTR (SC) 192 : (1976) 103 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to cover the cases where loss is reduced by prima facie adjustment. However, with regard to the levy of penalty for concealment, the law was not amended retrospectively and, therefore, the amendment made by Finance Act, 2002, would be applicable prospectively and not retrospectively. He also relied upon the following decisions to support his contention that penalty for concealment is not leviable where loss is reduced. (i) Modi Cement Ltd. vs. Union of India (1991) 100 CTR (Del) 48 : (1992) 193 ITR 91 (Del) (ii) Indo Gulf Fertilisers & Chemicals Corpn. vs. Union of India & Anr. 8. Shri S.S. Phadkar, advocate, appeared for and on behalf of M/s Ketan Mehta Films (P) Ltd. who is intervener in these appeals. Shri Phadkar reiterated the arguments as already advanced by the other counsel. He relied upon the decision in the case of CIT vs. Onkar Saran & Sons to support his contention that in respect of penalty for concealment of income, the law applicable is the law prevailing on the date of filing of the return. He also relied upon the decision of apex Court (sic-Delhi High Court) in the case of Chairman, CBDT & Ors. vs. V.S. Malhotra (1981) 128 ITR 543 (Del), wherein it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e "loss" cases in the ambit of penalty even earlier to 1975 Amendment. The learned Departmental Representative made a point that from the charging provisions of the Act, it can be seen that the words "income" or "profits and gains" should be understood as including loss also so that 'profits and gains' represents (+) income, whereas 'loss' represents (-) income. Reliance was placed on Atul Kumar Deovrat & Co. vs. CIT (1987) 60 CTR (Cal) 181 : (1987) 168 ITR 286 (Cal). On this proposition, it was contended that in P.R. Basavappa & Sons vs. CIT (2000) 159 CTR (Kar) 198 : (2000) 243 ITR 776 (Kar), the High Court pointed out that there is no inconsistency in the Explanation, since it has always been understood that income includes loss, as for example in CIT vs. Harprasad & Co. (P) Ltd. 1975 CTR (SC) 65 : (1975) 99 ITR 118 (SC), so that reduction in loss could well be the base for penalty. After all, the loss determined may well have the effect of reduced income in a later year, when it is set off. In this backdrop, it was contended that the word "income" necessarily includes loss which is nothing but negative income. Arguments we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay down law of the land. For this purpose, following contentions were advanced: (i) As SLP was rejected by saying "on the facts of the case...", it implies that the decision of the apex Court is restricted to the facts of this case only. (ii) There has been no legal discussion or any judicial interpretation by the apex Court regarding the legal issues raised by the High Court. For example, whether income includes loss, whether motive to avoid tax is missing in any "loss" case or whether benefit of claiming extra or undue loss would not amount to tax benefit in coming year, etc. Therefore, no substantive legal interpretation can be said to emerge from this sentence of the apex Court. The Supreme Court said in the case of S. Shanmugavel Nadar vs. State of Tamil Nadu & Ors. (2003) 185 CTR (SC) 593 : (2003) 263 ITR 658 (SC) affirming its earlier stand in the case of Supreme Court Employees' Welfare Association AIR 1990 SC 334, that a summary dismissal without laying down any law, is not a declaration of law. (iii) As SLP was dismissed, this means that no effective appeal lay with the apex Court on this case and hence, it remained effectively a judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., the Hon'ble Court has held as under: "The expression "the amount of tax sought to be evaded" has been defined in the newly introduced Expln. 4 to s. 271(1) for the purposes of s. 271(1)(iii) which was introduced w.e.f. 1st April, 1976 by the Taxation Laws (Amendment) Act, 1975. The said expression contemplates that where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income, the base for quantum would be the tax that would have been chargeable on the income concealed, had such income been the total income. Therefore, after 1st April, 1976, the quantum of penalty is linked with the amount of tax sought to be evaded. Therefore, Expln. 4 applies to cases where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished, has the effect of reducing the loss declared in the return or it has the effect of converting that loss into income. Therefore, the Tribunal erred in coming to the conclusion that s. 271(1)(c) was not applicable as the finally assessed income was a reduced loss. Explanation 4 was not in existence d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income returned by any person is less than eighty per cent of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under s. 143 or s. 144 or s. 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of cl. (c) of this sub-section." That the issue whether penalty under s. 271(1)(c) can be levied in a case where the assessed income is loss came up before the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Prithipal Singh & Co. for asst. yr. 1970-71. In that case, the assessee has filed the return declaring loss of Rs. 3,35,830. The loss finally determined was Rs. 34,154. The IAC imposed penalty of Rs. 3,50,000 for concealment of income under s. 271(1)(c). The penalty was cancelled by the Tribunal. At the instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hipal Singh & Co. dismissed the Revenue's appeal by the following order: "We have heard learned counsel and find that, on the facts of this case, no interference is called for." 15. On behalf of the assessee, it has been vehemently contended that now the issue is set at rest by the above decision of Hon'ble apex Court that the penalty under s. 271(1)(c) cannot be levied where the assessed income is loss prior to amendment by Finance Act, 2002. However, it was contended on behalf of the Revenue that the above decision in the case of Prithipal Singh was with regard to law applicable in asst. yr. 1970-71 and would not be applicable after the amendment by the Taxation Laws (Amendment) Act, 1975 which modified the Explanation w.e.f. 1st April, 1976. 16. We find that the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976, has substituted the Explanation to s. 271(1)(c) with four Explanations. The Expln. 4 which is relevant in this regard and which is heavily relied upon by the learned Departmental Representative, reads as under: "Explanation 4: For the purpose of cl. (iii) of this sub-section, the expression the amount of tax sought to be evaded: (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d discussed by the Hon'ble Punjab and Haryana High Court while laying down the propositions extracted hereinbefore by us and the decision has been approved and endorsed by the Hon'ble Supreme Court. It goes without saying that by virtue of the constitutional mandate enshrined in Art. 141 of the constitution, the law declared by the Supreme Court is binding on all Courts and Tribunals within the territorial jurisdiction..." 18. The Revenue has challenged the above decision of the Tribunal, Ahmedabad Bench, before the jurisdictional High Court. The High Court dismissed the Revenue's appeal vide order dt. 28th Dec., 2001 in Tax Appeal No. 358 of 2001. Their Lordships held as under: "We have heard Mr. B.B. Nayak, learned standing counsel appearing for the appellant-Revenue. The Tribunal has applied the law laid down by the apex Court in the case of CIT vs. Prithipal Singh & Co. (2001) 166 CTR (SC) 187 : (2001) 249 ITR 670 (SC). Hence, no substantial question of law arises in the present appeal. Hence, this appeal is dismissed." 19. It was contended by the learned Departmental Representative that the Hon'ble jurisdictional High Court has dismissed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more particularly so, because the provision relates to imposition of penalty." 23. The above observation of the apex Court would be squarely applicable to the case under consideration before us because we are interpreting the provision for levy of penalty under s. 271(1)(c). There are diagonally contrary views of the High Courts and, therefore, it is evident that two reasonable constructions of the provisions of s. 271(1)(c) as it stood after the amendment by Taxation Laws (Amendment) Act, 1975 and before the amendment by Finance Act, 2002, are possible. Therefore, we respectfully following the decision of apex Court in the case of Vegetable Products Ltd., adopt the interpretation which favours the assessee. 24. We may also state here that the view favourable to assessee is also discernible by looking to other provisions which are pari materia to levy of concealment penalty. Sec. 143(1A), before amendment by Finance Act, 1993 reads as under: "143(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to cl. (a) of sub-s. (1), exceeds the total income declared in the return by any amount, the AO shall,-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... converted into income. In fact, in the memorandum explaining the provision in Finance Bill, 1993, the reason for amending the provision is given as under which is reported in (1993) 110 CTR (St) 5 : (1993) 200 ITR (St) 140: "In two recent judicial pronouncements, it has been held that the provisions of s. 143(1A) of the IT Act, as these are worded, are not applicable in loss cases. The Bill, therefore, seeks to amend s. 143(1A) of the IT Act to provide that where as a result of the adjustments made under the first proviso to s. 143(1A), the income declared by any person in the return is increased, the AO shall charge additional income-tax at the rate of twenty per cent on the difference between the tax on the increased total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments. In cases where the loss declared in the return has been reduced as a result of the aforesaid adjustments or the aforesaid adjustments have the effect of converting that loss into income, the bill seeks to provide that the AO shall calculate a sum (referred to as additional income-tax) equal to twenty per cent of the tax that would have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature clearly provides for the levy of penalty where the loss declared in the return of income is reduced or converted into income. Therefore, in our opinion, before the amendment by Finance Act, 2002, it cannot be held that the penalty under s. 271(1)(c) can be levied where the assessed income is loss. 30. It was, however, contended by the learned Departmental Representative that the amendment made by the Finance Act, 2002 in s. 271(1)(c) is clarificatory and, therefore, retrospective in operation. In support of this contention, reliance has been placed upon the decision of the Bombay High Court in the case of Chemiequip Ltd. On the other hand, on behalf of the assessee, it has been contended that the amendment in the penal provisions cannot be retrospective unless it has been specifically provided to be retrospective. On behalf of the assessee, reliance has been placed upon several decisions of Hon'ble apex Court and the High Courts which have been mentioned while discussing the arguments of the assessee's counsel. 31. We have carefully considered the rival contentions in this regard. We find that the Hon'ble apex Court in the case of K.M. Sharma vs. ITO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the returned income. Courts have held that additional tax cannot be levied when the assessed income is loss. For taking such view, the Hon'ble Allahabad High Court in the case of Indo Gulf Fertiliser and Chemical Corporation Ltd. has noticed the provision of s. 271(1)(c) and has stated that the provisions of s. 143(1A) are similar to s. 271(1)(c) and thereafter came to the conclusion that levy of additional tax was not permissible where the assessed income is loss. The legislature has amended s. 143(1A) by Finance Act, 1993, with retrospective effect from 1st April, 1989. However, when s. 271(1)(c) is amended by Finance Act, 2002, it has been made effective from 1st April, 2003, and not retrospectively. Therefore, the only inference can be drawn that the legislature did not intent to effect the amendment in s. 271(1)(c) retrospectively. 34. In view of above, having regard to the amendment made by Taxation Laws (Amendment) Act, 1975 and by Finance Act, 2002, we hold that for the assessment years under appeal before us, penalty cannot be levied under s. 271(1)(c) in the cases where the assessed income is loss. In all the cases under appeal before us, the assessed income is lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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