Commissioner Of Income Tax, Mumbai City V, Mumbai v. Chemiequip Limited

ORAL JUDGMENT

S.H. Kapadia, J.

Being aggrieved by the decision of the Tribunal, the Department has come by way of appeal under section 260A of the Income Tax Act with the following questions of law in respect of Assessment Year 1998-89.

"(1) Whether on the facts and in the circumstances of the case and in law, the Honourable ITAT was right in cancelling the levy of penalty u/s 271(1)(c) on the ground that no penalty can be levied where the assessed income is a loss, ignoring the provisions of Explanation 4 below Section 271(1)(c), though holding that there was concealment of income and furnishing of inaccurate particulars by making wrong claim u/s 80HHC of Rs.8,37,871/- by the assessee

(2) Whether on the facts and circumstances of the case and in law, the Honourable ITAT was right in observing that there was no concealment of income on account of adjustment of Rs.1,07,27,006/- being income for earlier years ignoring that the assessee had offered this amount of tax only after the issuance of notice under section 148"

FACTS:

2.On June 30, 1989, the original assessment was finalised under section 143(1) on a total loss of Rs.1,73,05,721/-. Subsequently, proceedings under section 147 were initiated in order to examine the claim made by the assessee for deduction under section 80HHC. In response to the notice under section 148, the assessee filed a revised return on 24/7/1992 declaring a loss of Rs.58,42,844/-. In other words, the figure of total loss came down from Rs.1,73,05,721/- to Rs.58,42,844/-. At the time of filing the original return of income for the Assessment Year 1988-89, the amount of Rs.1,07,27,006/- was not offered to tax by the assessee on the ground that the amount did not relate to the Assessment Year 1988-89. Further, in the original return of income, the assessee had increased the loss by claiming wrong deduction under section 80HHC at Rs.7,35,871/-. However, in the revised return, in response to notice under section 148 of the Act, the assessee offered Rs.1,07,27,006/- to tax for the Assessment Year 1988-89 and also withdrew its claim for deduction under section 88HHC amounting to Rs.7,35,871/-. In the circumstances, penalty proceedings were initiated under section 271(1)(c) of the. However, the fact remained that even after the revised return, the resultant figure was a total loss and the effect of the revised return was only that the loss stood reduced from Rs.1,73,05,721/- to Rs.58,42,844/- on 24th July, 1992. Therefore, the AO levied penalty under section 271((1)(c) amounting to Rs.61,89,955/-.

Being aggrieved by the Order imposing penalty, the assessee carried the matter in appeal to CIT (A) who took the view that penalty was not justified because the assessee had declared the loss in the return. That, it was a genuine mistake committed by the assessee which could have been rectified by prima facie adjustment under section 143(1)(a) and, therefore, there was no need for the AO to issue notice under section 148. That, what was achieved by the assessee being framed under section 143(3)/147, could have been achieved by making prima facie adjustment under section 143(1)(a) because the mistake committed by the assessee went unnoticed and even the AO had accepted the figure of loss declared by the assessee in the original return, which stood cleared when the AO passed an Order under section 143(1). The CIT(A) also relied upon the Judgment of Punjab and Haryana High Court in the case of Commissioner of Income-tax vs. Prithipal Singh and Co. reported in (1990) 183 ITR page 69. Being aggrieved by the Order of CIT(A), the Department carried the matter in appeal to the Tribunal. On facts, the Tribunal concluded vide para 9 that there was concealment of income and there was also furnishing of inaccurate particulars. That, concealment of income and furnishing of inaccurate particulars was established beyond a shadow of doubt as the claim was patently inadmissible. However, following the Judgment in Prithipal Singhs case, the Tribunal took the view that as a result of concealment of income, only the loss stood reduced and, therefore, there was no suppression of income. In the circumstances, the Tribunal took the view that section 271(1)(c) was not applicable and, therefore, the penalty could not be imposed. The Tribunal took the view that the assessee had no Positive Income during the assessment year in question and, therefore, the penalty cannot be levied. Being aggrieved by the Order of the Tribunal, the matter has come in appeal before this Court.

ARGUMENTS:

3.Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department invited our attention to the provisions of section 271(1)(c) read with Explanation 4. He also relied upon the Judgment of the Karnataka High Court in the case of P.R. Basavappa and Sons vs. Commissioner of Income-tax reported in 243 ITR page 776, which has taken the view that since loss declared was reduced on detection of the concealment of income, penalty under section 271(1)(c) was leviable. The Karnataka High Court further took the view that the decision of the Punjab and Haryana High Court in the case of Prithipal Singh (supra) was not applicable as that Judgment was concerning Assessment Year 1970-71 i.e. before insertion of Explanation 4 and, therefore, the Judgment in Prithipal Singhs case was not applicable to the cases falling after the Explanation 4 came to be introduced in the. Mr. Desai, learned senior counsel for Department therefore contended that, in this case, after coming to the conclusion that there was concealment of income, the Tribunal erred in holding that section 271(1)(c) was not applicable. He contended that Tribunal has omitted to look at Explanation 4.

4.Although the Respondents have been served, they have chosen to remain absent. We have, therefore, decided to proceed in this matter ex parte.

FINDINGS ON QUESTION NO.1 QUOTED ABOVE:

5.As stated above, the Tribunal has come to the conclusion that there was a deliberate and wilful concealment of income. That, in this case, inaccurate particulars were given in order to claim, wrongfully, deduction under section 80HHC. Therefore, we have to decide this matter on the basis of the factual findings made by the Tribunal. On this factual conclusion, there is no challenge from the side of the assessee. Therefore, the only limited question which we have to answer in this case is: whether the Tribunal was right in holding that in the absence of Positive Income, penalty could not be levied under section 271(1)(c)

6.Section 271(1)(c) provides that if any person conceals particulars of income or furnishes inaccurate particulars of such income then, in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment or furnishing of inaccurate particulars of such income, could be imposed. Explanation 4 has defined the expression "the amount of tax sought to be evaded". The said Explanation reads as follows.

"(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income;

(b) in any case to which Explanation 3 applies, means the tax on the total income assessed;

(c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished."

The expression "the amount of tax sought to be evaded" has been defined in the newly introduced Explanation 4 to section 271(1) for the purposes of section 271(1)(iii) which was introduced with effect from 1/4/1976 by Taxation Law 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 1/4/1976, the quantum of penalty is linked with the amount of tax sought to be evaded. Therefore, Explanation 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 section 271(1)(c) was not applicable as the finally assessed income was a reduced loss. Explanation 4 was not in existence during the Assessment Year 1970-71. The Judgment of the Punjab and Haryana High Court in Prithipal Singhs case (supra) was applicable to the Assessment Year 1970-71 whereas, we are concerned with Assessment Year 1988-89 when Explanation 4 was in the Statute.

One more aspect needs to be mentioned. By Finance Bill 2002, section 271 of the Income Tax Act has been amended vide clause 97 (see 254 ITR (Statutes) pages 174, 175 and 176)). By clause 97(f) of the Finance Bill 2002, it is clarified that in cases where the amount of income in respect of which particulars have been concealed has the effect of reducing the loss declared in the return then the amount of tax sought to be evaded shall be the tax that would have been chargeable on the amount of such income as if such income was the total income. This amendment is clarificatory in nature. It is so stated in the Finance Bill 2002: Notes on Clauses (see 254 ITR (Statutes) page 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 the negative i.e. in favour of the Department and against the assessee.

FINDINGS ON QUESTION NO.2 QUOTED ABOVE:

7.The original assessment was finalised under section 143(1) on a total loss of Rs.1,73,05,721/-. Subsequently, proceedings under section 147 were initiated. The assessee filed a revised return pursuant to the notice given by Department under section 148 declaring a reduced loss of Rs.58,42,844/-. This was the reduced loss after surrendering the income of Rs.1,07,27,006/-. In other words, at the time of filing the original return of income for Assessment Year 1988-89, a sum of Rs.1,07,27,006/- was not offered to tax. That, the said amount was offered to tax only in response to notice under section 148 of the. This offer is also to be seen with the false claim for deduction under section 80HHC by the assessee for Rs.7,35,871/-. Therefore, this is the case where the assessee had willfully enhanced the losses on two counts viz. by claiming wrong deduction under section 80HHC and, secondly, by not offering to tax an amount of Rs.1,07,27,006/- which was offered to tax only in response to notice under section 148 of the. Taking an over all view of the matter, we answer question No.2 also in the negative i.e. in favour of the Department and against the assessee.

CONCLUSION

8.Accordingly, we answer the question Nos.1 and 2 quoted above in the negative i.e. in favour of the Department and against the assessee.

9.Accordingly, appeal is allowed with no orders as to costs.