Commissioner of Income Tax V. Harp Rubber Enterprises Pvt. Ltd.

RC/34/2001

AI Insights

The case involves the Commissioner of Income Tax, Vijayawada, who referred two questions to the court regarding the correctness of the ITAT's decision in canceling a penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The assessee, a company, had declared a loss in its return, which was later adjusted by adding unexplained cash credits, resulting in a taxable income. The primary legal contention was whether a penalty for concealment of income could be levied when the final assessment resulted in a loss. The court examined precedents and statutory interpretations, ultimately deciding that the penalty was applicable even if the final assessment did not result in a taxable income.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 734749 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 26-12-2011
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v Gold Coin Health Food P.Ltd, Virtual Soft Systems Ltd v Commissioner of Income Tax, Commissioner of Income-Tax v M/s.Balarama Krishna Engineering Contractors Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Assessment; Concealment of income; Loss return; Penalty; Retrospective operation; Unexplained cash credits
• Section: 143(3); 271(1)(c); 256(1); 271(1)(c)(iii); 271(1)(iii)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE NO.34 of 2001 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income Tax, Vijayawada, got the following two questions referred for opinion of this Court under Section 256(1) of the Income Tax Act, 1961 (“the Act” for brevity). 1. Whether on the facts and circumstances of the case, the ITAT was correct in law in canceling the penalty of Rs.1,24,729/- levied u/s.271(1)(c) of the I.T.Act? 2. Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that since the assessment ultimately resulted in loss, no penalty was leviable u/s.271(1)(iii) read with Explanation 4(a) of the I.T.Act? The assessee company filed return of income for the assessment year 1983-84 declaring loss of Rs.4,15,400/-. The assessment was completed under Section 143(3) of the Act determining the total income of Rs.7,450/- in which inter alia an addition of Rs.3,13,124/- was made on account of unexplained cash credits. Thereafter, the assessing officer initiated penalty for concealment of income and levied penalty of Rs.1,24,722/-. The same was, however, reversed by the CIT(A) on the ground that the assessing officer failed to establish that the assessee concealed particulars of income relating to cash credits. The Revenue’s appeal before the appellate Tribunal was also dismissed. Being aggrieved, Revenue sought the reference. We have heard the Junior Standing Counsel for Income Tax who relied on the decision of the three Judge Bench of the Supreme Court in Commissioner of Income Tax v Gold Coin Health Food P.Ltd[1]. A plain reading of Section 271(1)(c)(iii) with Explanation 4 would reveal the following. If an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, in addition to tax payable by him, a sum which shall not be less than and which shall not be more than three times “the amount of tax sought to be evaded” by reason of such concealment shall be levied and collected as penalty. Even if a loss return is filed, if the amount of concealment has the effect of reducing the loss in the return or converting such loss into income, Section 271(1)(c) of the Act is attracted. It is well settled that a taxing statute has to be strictly interpreted by giving a plain meaning to the clear and unambiguous language used by the Legislature. The script of law cannot be read in such a manner which has the effect of changing the spirit of law. When Explanation 4(a) clearly speaks of the return of loss and also deals with the effect of concealment on such return of loss either decreasing loss or converting loss into income, it is not possible to give any other meaning. The question, however, remains as to whether Explanation 4(a), which was substituted by the Finance Act, 2002, with effect from 01.04.2003, is retrospective in operation, as we are dealing with a case pertaining to assessment year 1982-1983. In Virtual Soft Systems Ltd v Commissioner of Income Tax[2] a Bench of two Judges of the Supreme Court held that Explanation 4 to Section 271(1) has no retrospective operation and penalty cannot be levied if the return income is loss. In Gold Coin Health Food P.Ltd the Supreme Court considered the decision in Virtual Soft Systems Ltd and held as under. 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 reduces the returned loss and finally the assessed income is also a loss or a minus figure. Therefore, even during the period between April 1, 1976 and April 1, 2003, the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss. (emphasis supplied) This Bench also considered the same issue in an unreported order dated 23.11.2011 in R.C.No.176 of 1996 (Commissioner of Income-Tax v M/s.Balarama Krishna Engineering Contractors Corporation). Following the decision in Gold Coin Health Food P.Ltd, the question was answered in the negative against the assessee and in favour of the Revenue. Accordingly, the two questions referred to this Court are answered in negative in favour of the Revenue and against the assessee, and the Referred Case shall stand disposed of without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 26th December 2011 RRB [1] (2008) 304 ITR 308 (SC) [2] (2007) 9 SCC 665 : (2007) 289 ITR 83 (SC) "