COMMR. OF INCOME TAX, JDR. vs. M/S SACHKHAND PAEKWALL PVT. LTD.

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ITA/85/2005HC Punjab & HaryanaPHHC01078335200525 August 2008Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY TEWARI2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial questions of law survived for consideration. The Court noted that the ITAT had followed the Supreme Court's judgment in CIT v. Prithi Pal Singh and Co., which held that penalty under Section 271(1)(c) is not exigible in the absence of positive taxable income. The Court further referred to a Full Bench decision in I.T.A. No.68 of 1999, decided on 17.10.2007, which followed the Supreme Court's ruling in Virtual Soft Systems Ltd. v. Commissioner of Income Tax. This Full Bench decision confirmed that the amendment to Section 271(1)(c) with effect from 1.4.2003 did not affect earlier assessment years and that no penalty could be imposed in the absence of positive income. Consequently, the revenue's appeal was dismissed.

What were the facts?

The assessee, M/s Sachkahnd Packwell Pvt. Ltd., filed its return for assessment year 1990-91 declaring a loss of Rs. 2,02,160. Despite additions made during assessment, the case still resulted in a loss due to unabsorbed depreciation, leading to no tax demand. However, the Assessing Officer imposed a penalty of Rs. 2,51,319 under Section 271(1)(c). This was reduced to Rs. 21,001 on appeal. The Income Tax Appellate Tribunal (ITAT) deleted the penalty, relying on the Supreme Court judgment in CIT v. Prithi Pal Singh and Co. The revenue appealed this order to the High Court, challenging the ITAT's decision.

What were the issues?

1. Whether on the facts and circumstances of the case, the Ld. ITAT was right in law in holding that imposition of penalty u/s 271(1)(c) of the Act is not exigible in the absence of any positive taxable income. 2. Whether on the facts and circumstances of the case, the order of the ITAT is perverse in law in view of explanation 4 to section 271(1)(c) of the Act. Assessee's contentions: Not explicitly recorded, but the ITAT's decision in favor of the assessee implies reliance on the principle that penalty under Section 271(1)(c) is not leviable in the absence of positive taxable income, as per CIT v. Prithi Pal Singh and Co. Revenue's contentions: The revenue argued that Explanation 4 to Section 271(1)(c) of the Act, effective from 1.4.2003, allows for penalty imposition even in the absence of positive taxable income. The revenue sought to rely on this amendment to justify the penalty.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.85 of 2005 Date of decision: 25.8.2008 The Commissioner of Income-tax, Jalandhar-I, Jalandhar. -----Appellant Vs. M/s Sachkahnd Packwell Pvt. Ltd, Jalandhar. -----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MR JUSTICE AJAY TEWARI Present: Mr. Vineet Sehgal, Advocate for the revenue. -----

ORDER: This appeal has been preferred by the revenue against the order of Income Tax Appellate Tribunal, Amritsar Bench, Amritsar in I.T.A.No.92 (ASR)/1997 dated 30.4.2004 for the assessment year 1990-91 proposing following substantial questions of law:- “(1) Whether on the facts and circumstances of the case, the Ld. ITAT was right in law in holding that imposition of penalty u/s 271(1)(c) of the Act is not exigible in the absence of any positive taxable income. (1a) Whether on the facts and circumstances of the case, the order of the ITAT is perverse in law in view of explanation 4 to section 271(1)(c) of the Act.”

I.T.A. No.85 of 2005

The assessee filed its return for the assessment year 1990-91, declaring loss of Rs.2,02,160/-. During assessment, even after making additions, the case resulted into loss, there being unabsorbed depreciation and no demand for tax was made. The Assessing Officer, however, imposed penalty of Rs.2,51,319/-. On appeal, the said amount was reduced to Rs.21,001/-. The Tribunal following the judgment of the Hon’ble Supreme Court in CIT v. Prithi Pal Singh and Co. (2001) 249 ITR 670 held that no penalty could be imposed in absence of any positive taxable income.

In support of the present appeal, reliance has been placed on explanation 4 to Section 271(1)(c) of the Income Tax Act, 1961 (for short, “the Act”) w.e.f. 1.4.2003, to submit that even in absence of positive taxable income, penalty could be imposed.

Hearing of the appeal was deferred till the decision of the Full Bench in I.T.A. No.68 of 1999. I.T.A. No.68 of 1999 has since been decided by the Full Bench on 17.10.2007 against the revenue following the judgment of the Hon’ble Supreme Court in Virtual Soft Systems Ltd. v. Commissioner of Income Tax (2007) 289 ITR 83 wherein it was held that amendment to Section 271(1)(c) of the Act with effect from 1.4.2003, did not affect the case of earlier assessment years and in absence of positive income, no penalty could be imposed.

In view of above, no substantial questions of law survives for consideration.

The appeal is dismissed. ( ADARSH KUMAR GOEL ) JUDGE August 25, 2008 ( AJAY TEWARI ) ashwani JUDGE 2

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