2008 (6) TMI 271

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....) 733 : [2007] 289 ITR 83 (SC). 2. The facts of the case are reproduced from the penalty order by the learned CIT(A). For the sake of convenience, the same are also referred to here as under : "Return disclosing income of Rs. 1,27,219 was filed on 30th Nov., 1996 against which assessment under s. 147/143(3) was completed on 13th March, 2002 on a total income of Rs. 24,62,160. This income was adjusted against brought forward business losses and taxable income was computed at nil. During the course of assessment proceedings following additions inter alia were made : (1) Bogus purchases/Bogus freight charges  Rs. 13,82,562 (2) Unexplained cash credits            &nbsp....

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....ition on account of unexplained cash credits comes to Rs. 4,24,340 as originally assessed." 3. The AO had treated cash credit of Rs. 4,24,340 as concealed income and imposed penalty of Rs. 3 lakhs. Before the learned CIT(A), it was pleaded by the assessee that its case is squarely covered by the decision of Hon'ble Supreme Court in the case of Virtual Soft Systems Ltd., as assessee has not to pay any tax on account of adjustment of brought forward losses against income returned as well as against income assessed. 4. The learned CIT(A), following the above decision of Hon'ble Supreme Court, cancelled the penalty. 5. Before us, the learned Departmental Representative submitted that the learned CIT(A) is incorrect to hold that income ....

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.... in the case of Virtual Soft Systems was that there is no tax payable in a loss case, the same will also hold good in the present case also as after setting off of brought forward losses there is no tax payable by the assessee. Therefore, the provisions of s. 271(1)(c) of the Act could not be invoked. 7. We have considered the rival submissions and perused the material on record. The AO has levied the penalty under s. 271(1)(c) of the Act without considering as to which Explanation would be applicable in the present case. It is undisputed fact that assessee had brought forward losses which were set off against income returned as well as against finally computed income. Thus, income returned after set off of brought forward losses amounte....

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....Ltd.'s case as under : "Sec. 271(1)(c)-along with cl. (iii) relating thereto-of the IT Act, 1961, relates to the conditions for imposition of penalty, whereas, on the other hand, Expln. 4 to s. 271(1)(c) relates to the computation of the quantum of penalty. Explanation 4 inserted for the purpose of cl. (iii) where the expression 'the amount of tax sought to be evaded' is used, had in fact made no difference insofar as the main criteria, namely, absence of tax continued to exist, prior to or after 1st April, 1976, changing only the measure or the scale as to the working of the penalty which earlier was with reference to the 'income' and after the amendment related to the 'tax sought to be evaded'. The sine qua non which was there prior to....