High Court Of Bombay
CIT vs. Chemiequip Ltd.
Sections 271(1)(c), Expln. 4
Asst. year 1988-89
S.H. Kapadia & J.P. Devadhar, JJ.
IT Appeal No. 168 of 2001
20th February, 2003
Counsel Appeared
R.V. Desai with P.S. Jetly & R. Ashokan i/b K.B. Rao, for the Appellant : None, for the Respondent
JUDGMENT
S.H. Kapadia, J. :
Being aggrieved by the decision of the Tribunal, the Department has come by way of appeal under s. 260A of the IT Act with the following questions of law in respect of asst. yr. 1988-89 :
“(1) Whether, on the facts and in the circumstances of the case and in law, the Honourable Tribunal was right in cancelling the levy of penalty under s. 271(1)(c) on the ground that no penalty can be levied where the assessed income is a loss, ignoring the provisions of Expln. 4 below s. 271(1)(c), though holding that there was concealment of income and furnishing of inaccurate particulars by making wrong claim under s. 80HHC of Rs. 8,37,871 by the assessee?”
(2) Whether, on the facts and circumstances of the case and in law, the Honourable Tribunal was right in observing that there was no concealment of income on account of adjustment of Rs. 1,07,27,006 being income for earlier years ignoring that the assessee had offered this amount of tax only after the issuance of notice under s. 148?”
Facts
2. On 30th June, 1989, the original assessment was finalised under s. 143(1) on a total loss of Rs. 1,73,05,721. Subsequently, proceedings under s. 147 were initiated in order to examine the claim made by the assessee for deduction under s. 80HHC. In response to the notice under s. 148, the assessee filed a revised return on 24th July, 1992, declaring a loss of Rs. 58,42,844. In other words, the figure of total loss came down from Rs. 1,73,05,721 to Rs. 58,42,844. At the time of filing the original return of income for the asst. yr. 1988-89, the amount of Rs. 1,07,27,006 was not offered to tax by the assessee on the ground that the amount did not relate to the asst. yr. 1988-89, Further, in the original return of income, the assessee had increased the loss by claiming wrong deduction under s. 80HHC at Rs. 7,35,871. However, in the revised return, in response to notice under s. 148 of the Act, the assessee offered Rs. 1,07,27,006 to tax for the asst. yr. 198889 and also withdrew its claim for deduction under s. 80HHC amounting to Rs. 7,35,871. In the circumstances, penalty proceedings were initiated under s. 271(1)(c) of the Act. However, the fact remained that even after the revised return, the resultant figure was a total loss and the effect of the revised return was only that the loss stood reduced from Rs. 1,73,05,721 to 58,42,844 on 24th July, 1992. Therefore, the AO levied penalty under s. 271(1)(c) amounting to Rs. 61,89,955. Being aggrieved by the order imposing penalty, the assessee carried the matter in appeal to CIT(A) who took the view that penalty was not justified because the assessee had declared the loss in the return. That, it was a genuine mistake committed by the assessee which could have been rectified by prima facie adjustment under s. 143(1)(a) and, therefore, there was no need for the AO to issue notice under s. 148. That, what was achieved by the assessee (assessment) being framed under s. 143(3)/147, could have been achieved by making prima facie adjustment under s. 143(1) (a) because the mistake committed by the assessee went unnoticed and even the AO had accepted the figure of loss declared by the assessee in the original return, which stood cleared when the AO passed an order under s. 143(1). The CIT(A) also relied upon the judgment of Punjab and Haryana High Court in the case of CIT vs. Prithipal Singh & Co. (1990) 85 CTR (P&H) 26 : (1990) 183 ITR 69 (P&H). Being aggrieved by the order of CIT(A), the Department carried the matter in appeal to the Tribunal. On facts, the Tribunal concluded vide para 9 that there was concealment of income and there was also furnishing of inaccurate particulars. That, concealment of income and furnishing of inaccurate particulars was established beyond a shadow of doubt as the claim was patently inadmissible. However, following the judgment in Prithipal Singh’s case, the Tribunal took the view that as a result of concealment of income, only the loss stood reduced and, therefore, there was no suppression of income. In the circumstances, the Tribunal took the view that s. 271(1)(c) was not applicable and, therefore, the penalty could not be imposed. The Tribunal took the view that the assessee had no positive income during the assessment year in question and, therefore, the penalty cannot be levied. Being aggrieved by the order of the Tribunal, the matter has come in appeal before this Court.
Arguments
3. Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department invited our attention to the provisions of s. 271(1)(c) r/w Expln. 4. He also relied upon the judgment of the Karnataka High Court in the case of P.R. Basavappa & Sons vs. CIT (2000) 159 CTR (Kar) 198 : (2000) 243 ITR 776 (Kar), which has taken the view that since loss declared was reduced on detection of the concealment of income, penalty under s. 271(1)(c) was leviable. The Karnataka High Court further took the view that the decision of the Punjab and Haryana High Court in the case of Prithipal Singh (supra) was not applicable as that judgment was concerning asst. yr. 197071 i.e., before insertion of Expln. 4 and, therefore, the judgment in Prithipal Singh’s case was not applicable to the cases falling after the Expln. 4 came to be introduced in the Act. Mr. Desai, learned senior counsel forDepartment, therefore, contended that, in this case, after coming to the conclusion that there was concealment of income, the Tribunal erred in holding that s. 271(1)(c) was not applicable. He contended that Tribunal has omitted to look at Expln. 4.
4. Although the respondents have been served, they have chosen to remain absent. We have, therefore, decided to proceed in this matter ex parte.
Findings on question No.1 quoted above
5. As stated above, the Tribunal has come to the conclusion that there was a deliberate and wilful concealment of income. That, in this case, inaccurate particulars were given in order to claim, wrongfully, deduction under s. 80HHC. Therefore, we have to decide this matter on the basis of the factual findings made by the Tribunal. On this factual conclusion, there is no challenge from the side of the assessee. Therefore, the only limited question which we have to answer in this case is: whether the Tribunal was right in holding that in the absence of positive income, penalty could not be levied under s. 271(1)(c) ?
6. Sec. 271(1)(c) provides that if any person conceals particulars of income or furnishes inaccurate particulars of such income then, in addition to any tax 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 concealment or furnishing of inaccurate particulars of such income, could be imposed. Expln. 4 has defined the expression “the amount of tax sought to be evaded”. The said Explanation reads as follows: “(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; (b) in any case to which Expln. 3 applies, means the tax on the total income assessed; (c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.” The expression “the amount of tax sought to be evaded” has been defined in the newly introduced Expln. 4 to s. 271(1) for the purposes of s. 271(1)(iii) which was introduced w.e.f. 1st April, 1976, by Taxation Laws (Amendment) Act, 1975. The said expression contemplates that where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income, the base for quantum would be the tax that would have been chargeable on the income concealed, had such income been the total income. Therefore, after 1st April, 1976, the quantum of penalty is linked with the amount of tax sought to be evaded. Therefore, Expln. 4 applies to cases 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 it has the effect of converting that loss into income. Therefore, the Tribunal erred in coming to the conclusion that s. 271(1)(c) was not applicable as the finally assessed income was a reduced loss. Expln. 4 was not in existence during the asst. yr. 1970-71. The judgment of the Punjab and Haryana High Court in Prithipal Singh’s case (supra) was applicable to the asst. yr. 1970-71 whereas, we are concerned with asst. yr. 1988-89 when Expln. 4 was in the statute. One more aspect needs to be mentioned. By Finance Bill, 2002, s. 271 of the IT Act has been amended vide cl. 97 [See (2002) 173 CTR (St) 73 : (2002) 254 ITR (St) 174, pp. 175 and 176]. By cl. 97(f) of the Finance Bill, 2002, it is clarified that in cases where the amount of income in respect of which particulars have been concealed has the effect of reducing the loss declared in the return then the amount of tax sought to be evaded shall be the tax that would have been chargeable on the amount of such income as if such income was the total income. This amendment is clarificatory in nature, It is so stated in the Finance Bill, 2002 : Notes on Clauses [See (2002) 173 CTR (St) 107 : (2002) 254 ITR (St) 175, pp. 176]. Therefore, the view which we have taken is also supported by subsequent amendment. In the circumstances, the Tribunal erred in holding that s. 271(1)(c) was not applicable as the final assessed income was a reduced loss. The Tribunal has failed to take into account cl. (a) of Expln. 4 as it stood at the relevant time. Question No. 1 is, therefore, answered in the negative i.e., in favour of the Department and against the assessee.
Findings on question No. 2 quoted above
7. The original assessment was finalised under s. 143(1) on a total loss of Rs. 1,73,05,721. Subsequently, proceedings under s. 147 were initiated. The assessee filed a revised return pursuant to the notice given by Department under s. 148 declaring a reduced loss of Rs. 58,42,844. This was the reduced loss after surrendering the income of Rs. 1,07,27,006. In other words, at the time of filing the original return of income for asst. yr. 1988-89, a sum of Rs. 1,07,27,006 was not offered to tax. That, the said amount was offered to tax only in response to notice under s. 148 of the Act. This offer is also to be seen with the false claim for deduction under s. 80HHC by the assessee for Rs. 7,35,871. Therefore, this is the case where the assessee had wilfully enhanced the losses on two counts viz. by claiming wrong deduction under s. 80HHC and, secondly, by not offering to tax an amount of Rs. 1,07,27,006 which was offered to tax only in response to notice under s. 148 of the Act. Taking an overall view of the matter, we answer question No. 2 also in the negative i.e., in favour of the Department and against the assessee.
Conclusion
8. Accordingly, we answer the question Nos. 1 and 2 quoted above in the negative i.e., in favour of theDepartment and against the assessee.
9. Accordingly, appeal is allowed with no orders as to costs.
[Citation : 265 ITR 265]
