TMI Blog2005 (7) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ct (hereinafter referred to as "Act") relating to the assessment year 1985-86 for opinion to this court: "Whether the Tribunal was justified in confirming the view taken by the Commissioner of Income-tax (Appeals) holding that sub-clause (a) of Explanation 4 appended to section 271(1)(c) of the Income-tax Act, 1961, was applicable only if there was a positive income of an assessee and not applicable where even as a result of the detection of concealment or furnishing of inaccurate particulars of income, loss shown by such assessee got reduced or waived off?" The brief facts of the case are as follows: The assessee-opposite party (hereinafter referred to as the "assessee") is a registered firm deriving income from business of tanning raw hides. The assessee had filed a return of income showing a profit of Rs. 3,57,454 but subsequently the same had been revised to Rs. 5,01,579. After allowing deductions under section 80HHC, even the revised return filed was at nil income. The assessing authority has also assessed the assessee at a nil income. Despite that the Assessing Officer initiated penalty proceedings, on the difference of income shown in the original return and in the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter certain additions the overall picture is either nil income or of loss, it cannot be said that there was any mens rea on the part of the assessee to conceal any income and thereby no penalty provisions could be attracted. We, therefore, hold that the order passed by the learned Commissioner of Income-tax (Appeals) was perfectly correct and justified and does not call for any interference." Heard Shri R.K. Upadhyaya, learned standing counsel for the Revenue, and Sri S.D. Singh, learned counsel for the respondent-assessee. Learned standing counsel submitted that in view of the Explanation 4 to section 271(1)(c), it is the concealed income which is relevant for the purpose of levy of penalty and merely because, returned income was loss or nil and the assessee was subjected to assessment at nil income, the asses see is not absolved from penalty. In support of his contention, he relied upon the decision of the Karnataka High Court in the case of P.R. Basavappa and Sons v. CIT reported in [2000] 243 ITR 776. Learned counsel for the assessee submitted that the word "income" in Explanation 4 to section 271(1)(c) refers to positive income and unless actual tax is found to be evaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (Appeals) in the course of any proceedings under this Act, is satisfied that any person- ... (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,- ... (iii) in the cases referred to in clause (c) 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. Explanation 4: For the purposes of clause (iii) of this sub-section, the expression 'the amount of tax sought to be evaded',- (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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid; (iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative-assessee (such person being hereafter in this sub-clause referred to as the 'beneficiary') and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary. (v) any sum chargeable to income tax under clauses (ii) and (iii) of section 28 or section 41 or section 59; (va) the value of any benefit or perquisite taxable under clause (iv) of section 28; (vi) any capital gains chargeable under section 45; (vii) the profits and gains of any business of insurance carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed on the ground that it relates to the assessment year 1970-71, when Explanation 4 was not there and the amendment made by the Finance Act, 2002, in clause (iii) and Explanation 4 has been held clarificatory in nature. The Bombay High Court has not, however, considered the decision of the apex court in the case of CIT v. Prithipal Singh and Co. [2001] 249 ITR 670 (SC). In the case of CIT v. Prithipal Singh and Co. [1990] 183 ITR 69, the Division Bench of the Punjab and Haryana High Court on a consideration of the entire provisions of section 271(1)(c) of the Act as it stood in the year 1970-71, held as follows: "Penalty is always imposed and paid in addition to the tax payable. When there is no tax payable, the question of any penalty does not arise. In fact, evasion of tax is the sine qua non for imposition of penalty. Clause (iii) deals with cases referred to in clause (c) under sub-section (1) of section 271 of the Act and it clearly provides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee." Special leave petition against the aforesaid decision of the Punjab and Haryana High Court has been dismissed by the apex court on July 20, 2000. The decision of the apex court in CIT v. Prithipal Singh and Co. [2001] 249 ITR 670 is as follows: "We have heard learned counsel and find that, on the facts of this case, no interference is called for. The civil appeal is dismissed. No order as to costs." In the case of CIT v. N. Krishnan [1999] 240 ITR 47 the Division Bench of the Kerala High Court held as follows: "It is amply clear from a perusal of section 271(1)(c) that penalty could be determined with reference to the amount of tax and unless tax is determined penalty could not be quantified. In the case of the assessee, the assessment having been made at loss, the question of determining the amount of tax did not arise and, therefore, no penalty could be determined. When the penalty cannot be quantified, in absence of determination of tax, it goes without saying that no penalty could be imposed. Even if there were concealment, assessments having been made at loss, no penalty could be imposed." The Punjab and Haryana High Court in the case of CIT v. Varindra and Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot loss, as the question of concealment of income to avoid payment of tax arises only in positive income. This view of the Punjab and Haryana High Court has been upheld by the apex court in the case of Prithipal Singh and Co. [2001] 249 ITR 670 and, therefore, the decision of the Punjab and Haryana High Court and the decision of the apex court is also applicable to assessment years after April 1, 1976, to which the amended section 271(1)(c) by the Taxation Laws (Amendment) Act, 1975, is applicable. The decision of the apex court is binding under article 141 of the Constitution of India. It may also be useful to consider the provisions of section 143(1A) before the amendment by the Finance Act, 1993, which read as follows: "(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,- (i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty for concealment of income under section 271(1)(c) of the Act and the levy of additional tax under section 143(1A) of the Act would be applicable where the assessed income is loss. After the aforesaid decision, the Legislature amended the provisions of section 143(1A) of the Act with retrospective effect but no retrospective amendment has been made under section 271(1)(c) of the Act. The Legislature, vide the Finance Act, 2002, amended section 271(1)(c) of the Act with effect from April 1, 2003 and it has not been made with retrospective effect. In the case of CIT v. Onkar Saran and Sons [1992] 195 ITR 1, the apex court held that the penalty for concealment would be governed by the law as it stood at the time when the original return was filed. A similar view has also been expressed by the apex court in the case of Brij Mohan v. CIT [1979] 120 ITR 1. It is settled principle of law that the amendment should be made applicable prospectively unless it is specifically made with retrospective effect. The apex court in the case of K.M. Sharma v. ITO [2002] 254 ITR 772 held as follows: "The taxing provision imposing a liability is governed by the normal presumption that it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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