High Court Of Madras
CIT vs. A. Hariraman
Section : 271(1)(c)
Asst. Year : 1992-93
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 250 of 2006
27th February, 2006
Counsel Appeared
J. Naresh Kumar, for the Appellant
JUDGMENT
P.D. Dinakaran, J. :
The above tax case appeal is directed against the order of the Tribunal dt. 25th Aug., 2005, made in ITA No. 1678/Mad/1999, raising the following substantial questions of law :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the penalty, even though the assessee has concealed any income or furnished inaccurate particulars of income under the meaning of s. 271(1)(c) of the IT Act ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty under s. 271(1)(c), on the ground that the assessee’s income computed by the AO is a net loss ?”
2. The facts which led to the rise of the above appeal by the Revenue are as under. The assessee publishes and prints five Tamil magazines, apart from doing job works, in the name of M/s Parvathy Publication and M/s Parvathy Art Printers. The assessee filed the return admitting a loss of Rs. 9,45,242 for the asst. yr. 1992-93. On a perusal of the account books, the AO came to the conclusion that an attempt had been made to reconcile paper purchases account by making transfer entries and inflation of paper purchases account, etc. and treating the purchases of Rs. 3,07,172 and Rs. 4,00,723 made from Kothandapani Paper Stores and Karpagam Agencies as bogus purchases, added the same to the total income, thereby computing the loss at Rs. 19,874 and consequently, initiated penalty proceedings under s. 271(1)(c) of the Act. Hence, the assessee preferred an appeal before the CIT(A), who dismissed the appeal confirming the penalty levied. The Tribunal, on appeal, allowed the appeal in favour of the assessee holding that quantum proceedings and penalty proceedings are separate and because of the quantum, penalty cannot be levied automatically. Hence, the present appeal by the Revenue.
3. It would be appropriate to refer s. 271(1)(c) of the Act in this regard, which reads as under : “Failure to furnish returns, comply with notices, concealment of income, etc.—(1) If the AO or the CIT(A) or the CIT 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,— (i) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989; (ii) in the cases referred to in cl. (b), in addition to tax, if any, payable by him, a sum of ten thousand rupees for each such failure; (iii) in the cases referred to in cl. (c), in addition to tax, if any, 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.” (Emphasis, italicised in print, supplied)
The words “in addition to tax, if any, payable by him” employed in cls. (ii) and (iii) above and the words “amount of tax sought to be evaded by reason of such concealment of particulars of his income” employed in cl. (iii) of s.271(1) of the Act are the deciding factors for invoking penalty proceedings under s. 271(1)(c) of the Act. A plain reading of cls. (ii) and (iii) in s. 271(1) of the Act, particularly in the context of the words “in addition to tax, if any, payable by him” employed in cls. (ii) and (iii) would make it clear that the penalty contemplated in all the above clauses is a measure of tax payable by the assessee. In other words, if no tax is payable by the assessee, there would be no penalty which could be levied on the assessee.
As per the language in s. 271(1)(c) of the Act, there could be no case in which penalty could be levied where no tax is payable by the assessee since the quantification of the penalty is totally dependent upon the tax payable by the assessee. Therefore, the conclusion is irresistible that when the assessee is not liable to pay any tax, no penalty can be levied on the assessee, vide Addl. CIT vs. Murugan Timber Depot 1978 CTR (Mad) 58 : (1978) 113 ITR 99 (Mad).
It is trite law that the loss cannot be taken into account in computing penalty. Similarly, the amount representing unexplained credit cannot be treated as concealed income for levying penalty, vide CIT vs. C.R. Niranjan (1990) 84 CTR (Mad) 259 : (1991) 187 ITR 280 (Mad). The word “income” occurring in cls. (c) and (iii) of s. 271(1) of the Act refers to positive income only and not a loss. Penalty could be imposed only 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. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently, penalty does not arise. The penal provisions of s. 271(1)(c), therefore, are attracted only in the case of an assessee having positive income and not loss, as the question of concealment of income to avoid payment of tax would arise only in the former case. Penalty is a deterrent measure to prevent evasion of tax and when there was no tax payable, there could not be any such evasion so as to provide a scope for levying any penalty, vide CIT vs. Prithipal Singh & Co. (1990) 85 CTR (P&H) 26 : (1990) 183 ITR 69 (P&H).
The view taken by the Punjab & Haryana High Court in CIT vs. Prithipal Singh & Co. (supra) was upheld by the Supreme Court in CIT vs. Prithipal Singh & Co. (2001) 166 CTR (SC) 187 : (2001) 249 ITR 670 (SC). This Court, in Ramnath Goenka (Died) vs. CIT (2002) 178 CTR (Mad) 343 : (2003) 259 ITR 229 (Mad), following the decisions cited above, held that penalty is imposable only in cases where tax has been levied and that no penalty can be levied when the result of the computation made by the AO is a loss. In other words, penalty is not leviable when the assessment did not show any taxable income, but net loss.
Applying the ratio laid down in the decisions cited supra, we do not find any error or illegality in the order of the Tribunal in deleting the penalty taking into account the income of the assessee is a net loss. Finding no substantial question of law arising for consideration, the appeal is dismissed.
[Citation : 282 ITR 607]
