CIT PATIALA vs. M/S KOHINOOR IND.MANDI GOBINDGARH

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 16.2.2000, Annexure A.4 passed by Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, “the Tribunal') in ITA No.1375/Chandigarh/92, for the assessment year 1983-84, claiming following substantial question of law:- “Whether on the facts and in the circumstances of the case, the ITAT was right in law in deleting the penalty levied by A.O. under section 271(1)(c) amounting to ` 85,470/- particularly when Explanation 4 to that section authorizes imposition of penalty under such circumstances? GURBAX SINGH 2014.10.13 11:11 integrity of this document High Court Chandigarh

A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The respondent assessee filed income tax return for the assessment year 1983-84 declaring loss of ` 5,40,190/- on 26.12.1983. The original assessment was completed under section 143(3) of the Act vide order dated 21.3.1986 at a total loss of ` 3,00,514/-. The said assessment was set aside by the Commissioner of Income Tax (Appeals) [CIT(A)] vide order dated 17.10.1988. Thereafter, the assessment was completed under section 143(3) of the Act vide order dated 29.12.1989, Annexure A.1 at a loss of ` 3,48,383/-. The addition amounting to ` 60,000/- was made in the trading account on agreed basis and further addition of ` 1,45,000/- plus interest on account of bogus cash credit was made in this case. Aggrieved by the order, the assessee filed appeal before the CIT(A). Vide order dated 9.12.1990, the CIT(A) dismissed the appeal against the quantum addition. Penalty under section 271(1) (c) of the Act amounting to ` 85,470/- on account of addition of cash credit of ` 1,45,000/- was imposed vide order dated 10.6.1991, Annexure A.2 by the Assessing Officer. The assessee filed appeal before the CIT(A). Vide order dated 29.4.1992, Annexure A.3, the penalty of ` 85,470/- was deleted by the CIT(A). Dissatisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 16.2.2000, Annexure A.4, the Tribunal dismissed the appeal. Hence the instant appeal by the revenue.

Learned counsel for the appellant relied upon Explanation 4 to Section 271(1) (c) of the Act which was inserted by Finance Act 2002 effective from 1.4.2003 to contend that the same has been held to be applicable even to assessment year prior to April 1, 2003 by the Apex Court GURBAX SINGH 2014.10.13 11:11 integrity of this document High Court Chandigarh in Commissioner of Income Tax-I, Ahmedabad vs. Gold Coin Health Food Pvt. Limited, (2008) 304 ITR 308. It was, thus, urged that the order of the Tribunal was legally unsustainable as the assessee was liable for penalty even where the loss returned by him was reduced and the net result was still loss.

After hearing learned counsel for the appellant, we are of the opinion that the appeal deserves to succeed. Explanation 4 to Section 271(1) of the Act described the expression “the amount of tax sought to be evaded” for the purposes of clause (iii) of this sub section. The Finance Act, 2002 had amended clause (a) in Explanation 4 to Section 271(1) of the Act with effect from 1.4.2003 in the following terms:- “(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate 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 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.”

It was held by the Apex Court in Gold Coin Health Food Pvt. Limited’s case (supra) that clause (a) in Explanation 4 to Section 271(1)(iii) of the Act relating to imposition of penalty even if returned income was a loss was clarificatory and not substantive. It has its application to assessment years prior to April 1, 2003 as well when it was brought in force. The Finance Act 2002 had made the position explicit which was otherwise implied. It was noticed as under:- “In Reliance Jute and Industries Limited vs. Commissioner of Income Tax West Bengal (1979) (120) ITR 921, it was GURBAX SINGH 2014.10.13 11:11 integrity of this document High Court Chandigarh observed by this Court that the law to be applied in income tax assessments is the law in force in the assessment year unless otherwise provided expressly or by necessary implication. Before proceeding further, it will be necessary to focus on the definition of the expression ‘income’ in the statute. Section 2 (24) defines ‘income’ which is an inclusive definition, and includes losses i.e. negative profit. The position has been elaborately dealt with by this Court in Commissioner of Income Tax (Central) Delhi vs. Harprasad & Co. P.Limited, [1975 (99) ITR 118]. This Court held with reference to the charging provisions of the statute that the expression ‘income’ should be understood to include losses. The expression ‘profits and gains’ refers to positive income whereas losses represent negative profit or in other words minus income. This aspect does not appear to have been noticed by the Bench in Virtual’s case (supra). Reference to the order by this Court dismissing the revenue’s Civil Appeal No.7961 of 1996 in Commissioner 1970-71 when Explanation 4 to Section 271(1) (c) was not in existence. The view of this Court in Harprasad’s case (supra) leads to the irresistible conclusion that income also includes losses. Explanation 4(a) as it stood during the period 1.4.1976 to 1.4.2003 has to be considered in the background.

It appears that what the Finance Act intended was to make the position explicit which otherwise was implied.” It was further observed as under:- “10. A combined reading of the committee’s recommendations and the circular makes the position clear that Explanation 4(a) to Section 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income is also a loss or a minus GURBAX SINGH 2014.10.13 11:11 integrity of this document High Court Chandigarh figure. Therefore, even during the period between 1.4.1976 to 1.4.2003 the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss.”

Therefore, the penalty is leviable even in a case where addition of concealed income reduced the returned loss. In view of the above, while setting aside the order of the Tribunal dated 16.2.2000, Annexure A.4, we remand the matter to the Tribunal to pass a fresh order after affording an opportunity of hearing to the parties in accordance with law.

The appeal stands disposed of accordingly. (Ajay Kumar Mittal) Judge August 04, 2014 (Fateh Deep Singh) Judge ‘gs’ GURBAX SINGH 2014.10.13 11:11 integrity of this document High Court Chandigarh