2003 (2) TMI 17 - HC - Income Tax

Whether Tribunal 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 by the assessee? Whether Tribunal 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 u/s 148? - We answer the questions in the negative i.e. in favour of the Department and against the assessee.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) for assessment year 1988-89.
2. Concealment of income and furnishing inaccurate particulars under section 271(1)(c).

Analysis:

Issue 1: Levy of penalty under section 271(1)(c) for assessment year 1988-89

The Department appealed against the Tribunal's decision canceling the penalty under section 271(1)(c) for the assessment year 1988-89. The Department contended that despite a loss, penalty could still be levied as there was concealment of income and furnishing of inaccurate particulars by the assessee. The Tribunal concluded that there was concealment of income and inaccurate particulars but held that penalty could not be imposed as there was no positive income. The High Court analyzed the provisions of section 271(1)(c) and Explanation 4, which defines the tax sought to be evaded. The Court noted that the Tribunal erred in not applying Explanation 4, which links the penalty to the tax sought to be evaded, even if the final assessed income was a reduced loss. The Court referred to a clarificatory amendment in the Finance Bill, 2002, supporting the application of Explanation 4. Consequently, the Court answered question No.1 in favor of the Department, allowing the appeal.

Issue 2: Concealment of income and furnishing inaccurate particulars under section 271(1)(c)

The original assessment for the assessment year 1988-89 was finalized on a total loss, which was later reduced after proceedings under section 147 and the filing of a revised return by the assessee. The revised return declared a reduced loss after offering previously unreported income and withdrawing a false deduction claim. The Department argued that the assessee willfully enhanced losses by making false claims and not reporting income until after a notice under section 148. The High Court found that the assessee had indeed concealed income and furnished inaccurate particulars, warranting the imposition of the penalty under section 271(1)(c). Therefore, the Court answered question No. 2 in favor of the Department, upholding the penalty imposition.

Conclusion:

The High Court ruled in favor of the Department on both issues, allowing the appeal and upholding the imposition of the penalty under section 271(1)(c) for the assessment year 1988-89.