THE COMMISSIONER OF INCOME TAX VIJAYAWADA V. M/S.T.G.L.QUICFK FOODS LTD. ADONI

RC/35/1998

AI Insights

The case revolves around the question of whether a penalty under Section 271(1)(c) of the Income Tax Act can be levied when the assessee, a company engaged in manufacturing and selling quick foods and oils, filed a return declaring a loss. Initially, the assessee declared a loss of Rs.95,30,820, which was later revised to Rs.2,46,12,506. The assessment officer made additions to the declared loss, treating certain unsecured loans and earlier years' expenditures as income, which led to the initiation of penalty proceedings. The Tribunal initially ruled that no penalty could be levied if the return showed a loss, relying on a previous decision. However, the Revenue challenged this decision, leading to the current reference to the court.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 740970 (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; Income Tax; Loss return; Penalty
• Section: 143(3); 271(1)(c); 68; 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.35 of 1998 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) In this reference under Section 256(1) of the Income Tax Act, 1961 (“the Act” for brevity), at the instance of the Commissioner of Income Tax (CIT), Vijayawada, the following question is referred for the opinion of this Court reads as under. “Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that where income declared in the return and assessed is a loss no penalty u/s.271(1)(c) can be levied.” The assessee is a company. They are engaged in the manufacture and sale of quick foods and oils. For the assessment year 1989-90, they filed return of income declaring loss of Rs.95,30,820/-. They filed a revised return showing net loss of Rs.2,46,12,506/-. The assessment was completed under Section 143(3) of the Act and the assessment officer made additions, to the tune of Rs.22,65,010/- representing unsecured loans from others held as income under Section 68 of the Act and an amount of Rs.8,76,898/- towards expenditure of the earlier years debited to the profit & loss account. After completing the assessment, separate proceedings for levy of penalty under Section 271(1)(c) were initiated and by order dated 09.09.1992, the penalty amount of Rs.11,86,750/- was levied for the assessment year 1989-90. The same was confirmed by the CIT (A). However, the Tribunal took the view that when the assessee filed return of income showing loss, no penalty under Section 271(1)(c) can be levied. While coming to the conclusion, the appellate Tribunal relied on its earlier decision in Balaramakrishna Engg. Contrs. Corpn. V. Dy.CIT [1] accepting the plea of the assessee that Explanation IV to Section 271(1) does not permit levy of penalty. Being aggrieved, the Revenue sought reference quoting the question 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 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[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 question referred to this Court is 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] 56 ITD 411 [2] (2008) 304 ITR 308 (SC) [3] (2007) 9 SCC 665 : (2007) 289 ITR 83 (SC) "