TMI Blog1993 (2) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect claim of expenditure amounting to Rs. 96,674 made by the assessee. 3. The CIT(A) held that claiming deduction in respect of expenses of a revenue nature pertaining to earlier year clearly amounts to furnishing of inaccurate particulars with the idea of concealing the income of the subsequent years. He also came to the conclusion that in view of Expln. 4 to s. 271, the penalty is validly imposable in a case where the returned and the assessed figure is a loss. 4. The learned counsel for the assessee submitted that total expenses aggregating to Rs. 2,87,016 were incurred under different heads. Out of this sum, a sum of Rs. 2,07,906 was capitalised and was transferred to respective assets account leaving a balance of Rs. 79,110, which was debited separately in the P L A/c under the head 'miscellaneous expenses'. These expenses were of revenue nature and were debited to P L A/c in this year on account of the fact that the manufacturing work started in the year under consideration. The ITO was of the view that since the expenses in question pertained to earlier year, they cannot be allowed as deduction in the year under consideration. The assessee orally agreed to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the said commentary at page 4739 to support his submission that penalty under s. 271(1)(c) is leviable in a case where the ultimate assessed figure is a loss. He supported the orders of the CIT(A) as well as ITO. 6. We have carefully considered the submissions made by the learned representatives and have also carefully gone through all the decisions which were cited by them. The penalty in the present case has been levied for alleged furnishing of inaccurate particulars of income by claiming expenditure of Rs. 96,674 which have been disallowed in the assessment. In order to examine the correctness or otherwise of the levy of the said penalty we will have to consider the state of mind of the concerned persons at the time when the return of income was furnished. It is an undisputed fact that the assessee incurred substantial expenditure aggregating to Rs. 2,87,016 under various heads prior to commencement of production including the expenses incurred in the prior years in relation to setting up of the said production unit. Out of that amount a sum of Rs. 2,07,906 was capitalised and allocated to various assets accounts on which the assessee has been held to be entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in the case of Shriram Refrigeration Industries Ltd. vs. CIT (1981) 127 ITR 746 (Del). In that case the assessee paid certain amount to Westinghouse, foreign collaborator, in three instalments in May, 1962, June, 1963 and May 1964. The commercial production started in October, 1964 and the business was set up in the accounting period ending 30th Sept., 1965, relevant to asst. yr. 1966-67. The High Court confirmed the view taken by the Tribunal that assuming that the expenditure in question could be of the nature of revenue, the said sum would be allowable as a deduction in asst. yr. 1966-67. This has been referred only with a view to indicate that such a claim for deduction may be a debatable point. Such a claim made in the first year of production, in the facts and circumstances of the present case, cannot be regarded as an act of furnishing inaccurate particulars of income so as to justify the levy of penalty under s. 271(1)(c). In our view there was no guilty intention or no blameworthy mental action on the part of the assessee at the time when such expenses were debited in the P L A/c of the first year of its production or at the time when it filed the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined is a figure of loss as a result of carry forward of earlier years' losses. In such a situation the law presumes that the concealed income be treated as the total income and the tax would work out on that and it would be that tax which would be sought to be evaded for the purpose of quantification of penalty under s. 271(1)(c). The only High Court which supports the view canvassed by the Senior Departmental Representative is the Hon'ble Kerala High Court on the strength of which the Delhi Tribunal had taken the said view. 8. Let us how examine the various decisions relied upon by the learned counsel for the assessee. The Hon'ble Punjab Haryana High Court in the case of CIT vs. Prithipal Singh and Co. held that where the income was finally assessed at a loss figure it cannot be said that the assessee had suppressed any income which would have attracted liability to tax. The Hon'ble Court held that Explns. 3 and 4 annexed to the said provision presupposes taxable income with regard to the assessment year in question. The language of s. 271(1)(c) r/w sub-cl. (iii) clearly shows that a penalty of a further sum would be payable by a person in addition to any tax payable by him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income: xx xx xx xx Explanation 4.For the purposes of cl. (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." "143(1A)(a). Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to cl. (a) of sub-s. (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-s. (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-tax in the intimation to be sent under sub-cl. (i) of cl. (a) of sub-s. (1); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the view taken by the Hon'ble Punjab Haryana, Delhi and Allahabad High Courts supporting the contention of the assessee should be preferred over the view taken by the Hon'ble Kerala High Court. Such a view will also be consistent with the view earlier taken by the Ahmedabad Bench in the case of Shri Khedut Sahakari Khand Udyog Mandli Ltd. in which one of us (the A.M.) was a party. Even if it is assumed that the aforesaid provisions are capable of two reasonable constructions, the construction which favours the assessee must be adopted. The Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) has clearly held that where the language of a provision is 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. We are, therefore, of the considered opinion that no penalty under s. 271(1)(c) can be levied in a case where the total income is assessed at a figure of loss. 10. In the result the penalty levied by the ITO and confirmed by the CIT(A) is cancelled and the appeal is allowed. - - TaxTM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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