THE COMMISSIONER OF INCOME TAX VIJAWADA V. ROSHAN TOBACCO CO.GUNTUR.

RC/92/1999

AI Insights

The case involves the Commissioner of Income Tax, Vijayawada, who referred two questions to the court regarding the legality of penalties levied under Section 271(1)(c) of the Income Tax Act, 1961, in a situation where the assessee declared a loss in their return but had concealed income that affected the loss amount. The assessee, a firm engaged in the tobacco business, had declared a net loss in their return for the assessment year 1981-82, which was later adjusted by the assessing officer due to various discrepancies, leading to a computed income. The penalty for concealment of income was contested through various appellate stages, ultimately reaching the High Court for interpretation of the relevant sections of the Income Tax Act.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 719201 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 26-12-2011
• Assessment Year: misc
• Other Referred Cases: Balaramakrishna Engg. Contrs. Corpn. V. Dy.CIT, Commissioner of Income Tax v Gold Coin Health Food P.Ltd, Virtual Soft Systems Ltd v Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Respondent
• Court: HIGH COURT
• Keywords: Appeal; Assessment; Concealment; Income; Loss; Penalty; Tribunal
• Section: 143(3); 271(1)(c); 40A(3); 144B; 256(1)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE NO.92 of 1999 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 Tribunal was right in law deleting the penalty levied u/s.271(1)(c) of the I.T.Act as the income declared in the return and assessed is a loss? 2. Whether on the facts and circumstances of the case the Tribunal is right in law in canceling the penalty levied u/s.271(1)(c) of the I.T.Act in disregard for the provisions of clause (a) of Explanation 4 under clause (iii) of sub- clause 1 of Sec.271 of the I.T.Act? The assessee is a firm engaged in tobacco business. In their return of income for the assessment year 1981-82, they declared a net loss of Rs.2,29,200/-. The assessment was completed under Section 143(3) read with Section 144B of the Act. The assessing officer made additions towards under- statement in opening stock, claim of purchase of tobacco from Malnad Leaf Tobacco (P) Ltd. including profit on sale, towards cash payments in violation of Section 40A(3) of the Act and disallowance of expenditure claimed, aggregating to Rs.3,26,643/- . While making such additions, a total income of Rs.97,440/- was computed. The assessing officer also initiated proceedings of penalty for concealment and levied penalty of Rs.1,13,080/-. The penalty order was confirmed by the CIT(A) against which the assessee went in appeal before the appellate Tribunal. By an order dated 04.07.1996, the appeal was allowed noticing that the assessee filed an appeal against the assessment order, the same was allowed, as a result of which, the liability can be reduced to Rs.23,200/-. For this reason, the appellate Tribunal deleted the penalty following the decision in Balaramakrishna Engg. Contrs. Corpn. V. Dy.CIT [1] accepting the plea of the assessee that Explanation 4 to Section 271(1) does not permit levy of penalty. Being aggrieved, the Revenue sought reference quoting the two questions abovementioned referred to this Court. 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[2]. 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. A taxing statute has to be strictly interpreted by giving a plain meaning to the clear and unambiguous language of law. The script of law cannot be read in such a manner which has the effect of deviating from 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[3] 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 R.C. 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] 56 ITD 411 [2] (2008) 304 ITR 308 (SC) [3] (2007) 9 SCC 665 : (2007) 289 ITR 83 (SC) "