Penalty for concealment can apply even in a loss assessment, as Explanation 4 to Section 271(1)(c) is clarificatory.

Penalty under Section 271(1)(c) of the Income-tax Act can be imposed even where assessment results in a loss, because Explanation 4 is clarificatory and applies to assessment years before 1 April 2003. The Gujarat High Court noted that the issue was covered by a later larger-bench ruling holding that the Finance Act, 2002 amendment to Explanation 4 was retrospective in effect for this purpose. On that basis, concealment penalty was held to remain available despite the assessed figure being a loss, and the deletion of penalty by the Tribunal was found unsustainable.

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Issues: Whether penalty under Section 271(1)(c) of the Income-tax Act, 1961 can be imposed where the assessment results in an actual loss, by applying Explanation 4 to that provision.

Analysis: The assessment year was 1988-89. The question stood covered by the later larger-bench decision holding that the amendment brought by the Finance Act, 2002 to Explanation 4 is clarificatory in nature and applies even to assessment years prior to 1 April 2003. On that basis, penalty under Section 271(1)(c) is attracted even when the assessed figure is a loss.

Conclusion: The Tribunal was not right in deleting the penalty. The question was answered in the negative, in favour of the Revenue.

Ratio Decidendi: Explanation 4 to Section 271(1)(c) of the Income-tax Act, 1961 is clarificatory and applies to earlier assessment years, and penalty for concealment can be levied even where the assessed income results in a loss.

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