P.r. Basavappa And Sons v. Commissioner Of Income-tax

V.K. Singhal, J.

1. The Income Tax Appellate Tribunal has referred the following question of law arising out of its order dated February 21, 1994, in respect of the assessment year 1989-90 under Section 256(1) of the Income Tax Act, 1961.

"1. Whether the Tribunal was justified in holding that the assessee cannot in defence against the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, question the very validity of the assessment which gave rise to the penalty, even though the assessee had not actually questioned the validity of such assessment by way of appeal against the assessment

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the levy of penalty under Section 271(1)(c) "

2. The assessee has filed a return of income on October 30, 1989, declaring total loss of Rs. 3,54,970. The assessment was proceeded under Section 143(1)(a) on June 26, 1991. Proceedings for reassessment were taken in pursuance of the notice under Section 148. The return already filed was requested to be treated as in response to the notice under Section 148. Total loss was computed at Rs. 2,29,600 and penalty proceedings were initiated in respect of concealment of income to the extent of Rs. 1,25,319. After considering the objections filed penalty of Rs. 45,000 was imposed under Section 271(1)(c) of the Income Tax Act. On appeal before the Commissioner of Income Tax (Appeals), the explanation given that it was because of the mistake committed by the part time accountant, was not accepted and the other explanations were also not accepted. The order of penalty was upheld. The validity of notice under Section 148 was also raised. It was found that the validity of the assessment proceedings were (not ) challenged and have become final and therefore in penalty proceedings, the validity of assessment proceedings cannot be examined. Reliance is placed on the decision given in the case of Winter Care Put. Ltd. (W. P. No. 33832 of 1992). Even on the merits the levy of penalty was upheld.

3. Before us it is submitted by learned counsel for the assessee that if the amount of loss declared in the return is reduced by making the assessment it will not amount to concealment of income. Though the word "loss" has not specifically been used in Section 271(1)(c) it has been used in other sections. Attention is drawn towards the provisions of Sections 143(1)(a), 143(3), 32(2) and Explanation 4 to Section 271(1)(c). Reliance is placed on the decision given in the case of Sri Ramesh Chandra Barar v. Deputy CIT [1995] 229 ITR 651 where the assessment was completed reducing the net loss shown in the return and the Tribunal set aside the assessment for de novo adjudication. In reassessment proceedings the income was freshly determined which was reduced in appeal by the Commissioner of Income Tax and against that the appeal was pending before the Income Tax Appellate Tribunal. There was no initiation of penalty proceedings for concealment by the Department during the assessment proceedings. The prosecution which was launched was challenged by way of writ. Ultimately, it was held that the proceedings were not maintainable and were accordingly dropped.

4. Section 271(1)(c) provides that if any person has concealed the particulars of his income or furnished 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 the concealment of particulars of his income or the furnishing of inaccurate particulars of such income could be imposed.

Explanation 4 has defined the expression "the amount of tax sought to be evaded" as under :

"(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."

5. Earlier 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]99ITR118(SC) ).

6. In Atul Kumar Deovrat and Co. v. CIT : [1987]168ITR286(Cal) , 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.

7. It is contended that income in Section 271(1)(c) should be of positive figure. In CIT v. Prithipal Singh and Co. , 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]105ITR708(Ker) , assessment year 1968-69 ; CIT v. Niranjan (C. R.) : [1991] 187 ITR 280, assessment year 1969-70 ; CIT v. Jaora Oil Mill : [1981]129ITR423(MP) , assessment year 1968-69, are not applicable.

8. Reliance was placed on the decision given in the case of CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , where the Supreme Court has observed that no doubt the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings ; but penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. So far as this contention is concerned we feel that the evidence which is recorded in the assessment proceedings by itself will not be a conclusive evidence and the assessee is free to dispute the same in the penalty proceedings if it affects the liability for penalty or the quantum thereof. In the present case, the dispute was raised that the notice which was issued under Section 148 has not given 30 clear days. This plea has become only academic now because the provisions have been amended retrospectively. Therefore no relief in that behalf can be granted to the assessee.

9. Accordingly, we are of the opinion that the first question does not require any answer since it is academic and the second question is answered in favour of the Revenue and against the assessee and it is held that the Tribunal was right in upholding the levy of penalty under Section 271(1)(c).