TaxTMI 
TaxTMI 
2004 (12) TMI 284
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....e after the amendment by Taxation Laws (Amendment) Act, 1975, and before the amendment made by Finance Act, 2002. Several counsels appeared on behalf of the assessees. 3. Shri K.H. Kaji, senior advocate appeared in the case of Apsara Processors vide ITA No. 284/Ahd/2004 and Khedkar Brothers Trading Co. (P) Ltd. vide ITA No. 251/Ahd/2002. He argued at length. His arguments can be summarised as under: 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amended by Finance Act, 2002 w.e.f. 1st April, 2003, and by the amendment the words "in addition to tax payable" have been replaced by the words "in addition to tax, if any, payable by the assessee".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 provi....
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....) 85 ITD 167 (Jp)(TM) (iii) Shivram Art Processors vs. Asstt. CIT (2001) 115 Taxman 320 (Ahd)(Mag) (iv) ITO vs. Sudha Pharmaceuticals (1983) 17 TTJ (Chd) 518 (v) Shri Khedut Sahakari Khand Udyog Mandli vs. ITO (1990) 36 TTJ (Ahd) 81 (vi) Zaveri Paper & Board Mills vs. ITO (1993) 47 TTJ (Ahd) 170 (vii) H.T. Power Structures Ltd. vs. Asstt. CIT (1993) 47 TTJ (Ahd) 146 (viii) Panchratna Hotels vs. Dy. CIT (1993) 47 TTJ (Ahd) 282 (ix) Asstt. CIT vs. Premier 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....
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....of Hon'ble apex Court in the case of Prithipal Singh & Co. would be applicable even for asst. yr. 1995-96. That the above decision of the Tribunal has been approved by the jurisdictional High Court and the appeal of the Revenue is dismissed by their Lordships vide Tax Appeal No. 358 of 2001, order dt. 28th Dec., 2001. That the Supreme Court dismissed the SLP by the Revenue against the above decision of the jurisdictional High Court by order dt. 16th Aug., 2002, reported in (2002) 257 ITR (St) 35. He also stated that the issue under consideration is also covered by the decisions 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 posi....
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....sia Enterprises vide ITA No. 867/Ahd/2002, order dt. 5th April, 2004. He has also relied upon the decision of Hon'ble apex Court in the case of K.C. Builders & Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC) and contended that before levying the penalty for concealment, the Revenue has to prove mens rea. 7. Shri Milin Mehta, chartered accountant, appeared for Prayas Woollens (P) Ltd. He stated that wherever the legislature intended to give the retrospective effect to any amendment they specifically provided for the same. He pointed out that for levy of additional tax under s. 143(1A) the law was retrospectively amended so 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) In....
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....ssed I. (-) 100 100 Result No penalty under s. 271(1)(c) Penalty under s. 271(1)(c) on tax of Rs. 10,00,000 11. It was contended that only a change of Rs. 100 in the loss in one case, the penalty imposable stands at Rs. 10 lakhs and in other cases there is no penalty under the same law. The interpretation advanced by the assessee leads to manifest absurdity and discrimination which cannot be intended by the legislature. This penalty was leviable in "loss" cases even before 1975 Amendment especially after 1st April, 1968 when base of penalty was relatable to quantum of income concealed. This indicates the intention of the legislature to include the "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 w....
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....itive income and not in the case of loss. In this behalf it was pointed out that the main basis of deletion of penalty under s. 271(1)(c) in this case is that for penalty positive tax was necessary, which was possible only in case of positive income. 13.1 The learned Departmental Representative contended that this High Court judgment was affirmed by the Hon'ble Supreme Court while disposing of SLP against the above judgment with one line decision "on the facts of the case, no interference is called for". The learned Departmental Representative emphasised that mere rejection of SLP with one line order does not 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 b....
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....s have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, 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." 13.5 The learned Departmental Representative contended that the clarificatory nature of this amendment was clearly discernible from various case laws. Reference was made to notes on clauses appended to Finance Act, 2002. The clarificatory nature has been confirmed by the Hon'ble Bombay High Court in the case of Chemi. Equip Ltd., 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 charg....
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....il, 1976, reads as under: "(1) If the ITO or the AAC in the course of any proceedings under this Act, is satisfied that any person- (a)........ (b)....... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty.- (i)........ (ii)....... (iii) in the cases referred to in cl. (c), in addition to any tax payable by him, a sum which shall not exceed twice the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. Explanation: Where the 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 n....
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....y the loss has been reduced and it cannot be said that the assessee had suppressed any income which would have attracted liability to tax. The question of imposition of penalty, therefore, did not arise. Thus, on the facts and in the circumstances of the case, the Tribunal has acted rightly in law in holding that the provisions of the Explanation to s. 271(1)(c) will not be attracted to the present case. The word "income" occurring in cl. (c) and (iii) of s. 271(1) of the Act refers to positive income only and that no penalty could be levied against the assessee." The Revenue carried the matter before the Hon'ble apex Court. The Hon'ble apex Court in CIT vs. Prithipal 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....
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.... (iii) Explanation 4 annexed to s. 271(1)(c), presupposes taxable income with regard to the assessment year in question. If there is no payment during a particular year, the question of evasion and consequently penalty does not arise. The aforesaid proposition by the Hon'ble Punjab & Haryana High Court in Prithipal Singh & Co.'s case constitutes the ratio decidenci of the judgment which has been endorsed and approved by the Hon'ble Supreme Court. We are unable to appreciate the attempt made by the Revenue to distinguish Prithipal Singh & Co.'s case on the ground that it relates to asst. yr. 1970-71, i.e., prior to insertion of Expln. 4, since Expln. 4 has been specifically considered and 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 abov....
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....na High Court in the case of Varindra & Co. and the Kerala High Court in the case of N. Krishnan. 22. In the case of CIT vs. Vegetable Products Ltd., the apex Court held at p. 195 of the report as under: "On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in s. 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, 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 (....
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....e that we are only considering the question of imposition of additional tax under s. 143(1A) of the Act. It does not cover cases of imposition of penalty or additional tax under any provision for any other act, omission or commission on the part of the assessee." 26. Similar view was taken by the Delhi High Court in the case of Modi Cements Ltd. vs. Union of India and J.K. Synthetics Ltd. vs. Asstt. CIT (1993) 109 CTR (Del) 171 : (1993) 200 ITR 584 (Del). After the above decisions, the legislature by Finance Act, 1993 amended s. 143(1A) with retrospective effect from 1st April, 1989 and specifically provided for levy of additional tax where the loss declared by such persons in the return of income is reduced or is 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 provid....
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....accurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) in any case to which Expln. 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." 29. From the above Expln. 4(a), it is clear that now 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, ....
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....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 under 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. 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 leg....