Punjab & Haryana H.C : The provisions of the Explanation to s. 271(1)(c) will not be attracted to the present case

High Court Of Punjab & Haryana

CIT vs. Sharma & Bros. Poly Fabrics (P)Ltd.

Section 256(2)

Asst. Year 1987-88

Jawahar Lal Gupta & N.K. Agrawal, JJ.

ITC No. 19 of 1998

8th March, 1999

Counsel Appeared

R.P. Sawhney with Rajesh Bindal, for the Petitioner : None, for the Respondent

JUDGMENT

N.K. Agrawal, J. :

This is a petition under s. 256(2) of the IT Act, 1961 (for short, the ‘Act’) filed by the IT Act, 1961 (for short, the ‘Act’), filed by the CIT Ludhiana, seeking a direction to the Tribunal, Chandigarh, to refer the following questions of law relating to the asst. yr. 1987-88 to this Court for opinion :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding (a) that the provisions of the Explanation to s. 271(1)(c) will not be attracted to the present case ?

(b) that the word ‘income’ occurring in cl. (c) and (iii) of s. 271(1) refers to a positive income only and not to loss ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the order of CIT(A) cancelling the penalty order passed by Asstt. CIT by holding that no penalty could be levied against the assessee ?”

2. The assessee, a private limited company, filed return of income for the asst. yr. 1987-88 declaring net profit as per P&L a/c as nil. Claim for depreciation at Rs. 1,89,094 was also made. Since the profit shown by the assessee was nil, the amount of depreciation was to be carried forward to the next assessment year as a loss. Investment allowance was also claimed at Rs. 1,98,304, but that again could not be allowed in the absence of any positive income. The AO, relying upon the comments recorded in the audit report that the company had not yet commenced commercial production, disallowed depreciation as well as the investment allowance. The assessee had actually run the machinery for trial purposes only. Penalty amounting to Rs. 2,13,070 was thereafter levied on the assessee under s. 271(1)(c) of the Act on the ground that the assessee had furnished inaccurate particulars of income. The CIT(A), on assessee’s appeal, cancelled the penalty agreeing with the assessee’s plea that non- acceptance of the claim for depreciation put forward by the assessee would not mean that the assessee had furnished inaccurate particulars of income. The CIT(A) took the view that the assessee had never claimed to have started commercial production and the AO had, on the basis of the audit report only, disallowed depreciation. Thus, the assessee had not furnished inaccurate particulars of income. The Department went in appeal against the order of the CIT(A) but the Tribunal rejected the appeal agreeing with the CIT(A) and also relying upon a decision of this Court in CIT vs. Prithipal Singh & Co. (1990) 85 CTR (P&H) 26 : (1990) 183 ITR 69 (P&H) : TC 50R.236.

3. Shri R.P. Sawhney, learned senior counsel for the Department, has argued that the view taken by the Tribunal that in a case of loss shown by the assessee, penalty cannot be levied is not correct. The Tribunal wrongly relied upon the decision in the case of CIT vs. Prithipal Singh & Co. (supra). This Court in Kedar Nath Sanwal Dass vs. CIT (1978) 111 ITR 440 (P&H) : TC 50R.159, had earlier taken a view that where “losses were falsely claimed by the assessee to set off the profits made by the assessee, the finding that the losses put forward were false is sufficient to hold that there was a scheme on the part of the assessee to defeat the Revenue”. None has appeared for the assessee despite service of notice.

4. After considering the facts of the case, we are of the view that the following question of law does arise from the order of the Tribunal :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that penalty was not leviable as the assessee had not furnished inaccurate particulars of income and that there was no taxable income but it was a case where loss was shown by the assessee ?”

The Tribunal shall draw a statement of the case and refer to this Court the above question of law. The petitioner stands disposed of in the above terms.

[Citation : 247 ITR 811]

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